EX-10.1



 





EXHIBIT 10.1





 






SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT




 






BANK OF AMERICA, N.A.

As Lender




And




AEROPOSTALE, INC.

The Borrower




 






November 13, 2007









v









 










TABLE OF CONTENTS




	 	 	 	 	 
	Article 1 - Definitions:	 	 - 1 - 
	Article 2 - The Revolving Credit:	 	- 6 -
	2-1.
	 	Establishment of  Revolving Credit	 	- 6 -
	 
	 	 	 	 
	2-2.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	2-3.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	2-4.
	 	Risks of Value of Collateral	 	- 6 -
	 
	 	 	 	 
	2-5.
	 	Loan Requests	 	- 6 -
	 
	 	 	 	 
	2-6.
	 	Making of Loans Under Revolving Credit	 	- 6 -
	 
	 	 	 	 
	2-7.
	 	The Loan Account	 	- 6 -
	 
	 	 	 	 
	2-8.
	 	The Revolving Credit Notes	 	- 6 -
	 
	 	 	 	 
	2-9.
	 	Payment of The Loan Account	 	- 6 -
	 
	 	 	 	 
	2-10.
	 	Interest Rates	 	- 6 -
	 
	 	 	 	 
	2-11.
	 	Additional Fees	 	- 6 -
	 
	 	 	 	 
	2-12.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	2-13.
	 	Line (Unused Fee)	 	- 6 -
	 
	 	 	 	 
	2-14.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	2-15.
	 	Concerning Fees	 	- 6 -
	 
	 	 	 	 
	2-16.
	 	Lender’s Discretion	 	- 6 -
	 
	 	 	 	 
	2-17.
	 	Procedures For Issuance of L/C’s	 	- 6 -
	 
	 	 	 	 
	2-18.
	 	Fees For L/C’s	 	- 6 -
	 
	 	 	 	 
	2-19.
	 	Cash Collateralization of L/Cs	 	- 6 -
	 
	 	 	 	 
	2-20.
	 	Concerning L/C’s	 	- 6 -
	 
	 	 	 	 
	2-21.
	 	Changed Circumstances.	 	- 6 -
	 
	 	 	 	 
	2-22.
	 	Increased Costs	 	- 6 -
	 
	 	 	 	 
	2-23.
	 	Lender’s Commitments	 	- 6 -
	 
	 	 	 	 
	Article 3 - Conditions Precedent:	 	- 6 -
	3-2.
	 	Corporate Due Diligence	 	- 6 -
	 
	 	 	 	 
	3-3.
	 	Opinion	 	- 6 -






vi









 






	 	 	 	 	 
	 
	 	 	 	 
	3-4.
	 	Additional Documents	 	- 6 -
	 
	 	 	 	 
	3-5.
	 	Officers’ Certificates	 	- 6 -
	 
	 	 	 	 
	3-6.
	 	Representations and Warranties	 	- 6 -
	 
	 	 	 	 
	3-7.
	 	Borrowing Base Certificate	 	- 6 -
	 
	 	 	 	 
	3-8.
	 	All Fees and Expenses Paid	 	- 6 -
	 
	 	 	 	 
	3-9.
	 	Financial Projections	 	- 6 -
	 
	 	 	 	 
	3-10.
	 	Borrower’s Assets	 	- 6 -
	 
	 	 	 	 
	3-11.
	 	Lien Search	 	- 6 -
	 
	 	 	 	 
	3-12.
	 	Perfection of Collateral	 	- 6 -
	 
	 	 	 	 
	3-13.
	 	Insurance	 	- 6 -
	 
	 	 	 	 
	3-14.
	 	No Suspension Event	 	- 6 -
	 
	 	 	 	 
	3-15.
	 	No Adverse Change	 	- 6 -
	 
	 	 	 	 
	3-16.
	 	Execution and Delivery of Agreement	 	- 6 -
	 
	 	 	 	 
	Article 4 - General Representations, Covenants and Warranties:	 	- 6 -
	 
	 	 	 	 
	4-1.
	 	Payment and Performance of Liabilities	 	- 6 -
	 
	 	 	 	 
	4-2.
	 	Due Organization - Corporate Authorization - No Conflicts	 	- 6 -
	 
	 	 	 	 
	4-3.
	 	Trade Names	 	- 6 -
	 
	 	 	 	 
	4-4.
	 	Intellectual Property	 	- 6 -
	 
	 	 	 	 
	4-5.
	 	Locations	 	- 6 -
	 
	 	 	 	 
	4-6.
	 	Title to Assets	 	- 6 -
	 
	 	 	 	 
	4-7.
	 	Indebtedness	 	- 6 -
	 
	 	 	 	 
	4-8.
	 	Insurance Policies	 	- 6 -
	 
	 	 	 	 
	4-9.
	 	Licenses	 	- 6 -
	 
	 	 	 	 
	4-10.
	 	Leases	 	- 6 -
	 
	 	 	 	 
	4-11.
	 	Requirements of Law	 	- 6 -
	 
	 	 	 	 
	4-12.
	 	Maintain Properties	 	- 6 -
	 
	 	 	 	 
	4-13.
	 	Pay Taxes/Tax Shelter Regulations	 	- 6 -
	 
	 	 	 	 
	4-14.
	 	No Margin Stock	 	- 6 -






vii









 






	 	 	 	 	 
	4-15.
	 	ERISA	 	- 6 -
	 
	 	 	 	 
	4-16.
	 	Hazardous Materials	 	- 6 -
	 
	 	 	 	 
	4-17.
	 	Litigation	 	- 6 -
	 
	 	 	 	 
	4-18.
	 	Dividends or Investments	 	- 6 -
	 
	 	 	 	 
	4-19.
	 	Loans	 	- 6 -
	 
	 	 	 	 
	4-20.
	 	Protection of Assets	 	- 6 -
	 
	 	 	 	 
	4-21.
	 	Line of Business	 	- 6 -
	 
	 	 	 	 
	4-22.
	 	Affiliate Transactions	 	- 6 -
	 
	 	 	 	 
	4-23.
	 	Additional Assurances	 	- 6 -
	 
	 	 	 	 
	4-24.
	 	Adequacy of Disclosure	 	- 6 -
	 
	 	 	 	 
	4-25.
	 	Investments	 	- 6 -
	 
	 	 	 	 
	4-26.
	 	Prepayments of Indebtedness	 	- 6 -
	 
	 	 	 	 
	4-27.
	 	Other Covenants	 	- 6 -
	 
	 	 	 	 
	Article 5 - Financial Reporting and Performance Covenants:	 	- 6 -
	5-1.
	 	Maintain Records	 	- 6 -
	 
	 	 	 	 
	5-2.
	 	Access to Records	 	- 6 -
	 
	 	 	 	 
	5-3.
	 	Prompt Notice to Lender	 	- 6 -
	 
	 	 	 	 
	5-4.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	5-5.
	 	Borrowing Base Certificates	 	- 6 -
	 
	 	 	 	 
	5-6.
	 	Monthly Reports	 	- 6 -
	 
	 	 	 	 
	5-7.
	 	Quarterly Reports	 	- 6 -
	 
	 	 	 	 
	5-8.
	 	Annual Reports	 	- 6 -
	 
	 	 	 	 
	5-9.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	5-10.
	 	Inventories, Appraisals, and Audits	 	- 6 -
	 
	 	 	 	 
	5-11.
	 	Additional Financial Information	 	- 6 -
	 
	 	 	 	 
	5-12.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	Article 6 - Use and Collection of Collateral:	 	- 6 -
	6-1.
	 	Use of Inventory Collateral	 	- 6 -
	 
	 	 	 	 
	6-2.
	 	Adjustments and Allowances	 	- 6 -






viii









 






	 	 	 	 	 
	6-3.
	 	Validity of Accounts	 	- 6 -
	 
	 	 	 	 
	6-4.
	 	Notification to Account Debtors	 	- 6 -
	 
	 	 	 	 
	Article 7 - Cash Management. Payment of Liabilities:	 	- 6 -
	7-1.
	 	Depository Accounts	 	- 6 -
	 
	 	 	 	 
	7-2.
	 	Credit Card Receipts	 	- 6 -
	 
	 	 	 	 
	7-3.
	 	The Concentration, Blocked, and Operating Accounts	 	- 6 -
	 
	 	 	 	 
	7-4.
	 	Proceeds and Collection of Accounts	 	- 6 -
	 
	 	 	 	 
	7-5.
	 	Payment of Liabilities	 	- 6 -
	 
	 	 	 	 
	7-6.
	 	The Operating Account	 	- 6 -
	 
	 	 	 	 
	Article 8 - Grant of Security Interest:	 	- 6 -
	8-1.
	 	Grant of Security Interest	 	- 6 -
	 
	 	 	 	 
	8-2.
	 	Extent and Duration of Security Interest	 	- 6 -
	 
	Article 9 - Lender As Borrower’s Attorney-In-Fact:	 	- 6 -
	9-1.
	 	Appointment as Attorney-In-Fact	 	- 6 -
	 
	 	 	 	 
	9-2.
	 	No Obligation to Act	 	- 6 -
	 
	 	 	 	 
	Article 10 - Events of Default:	 	- 6 -
	10-1.
	 	Failure to Pay Revolving Credit	 	- 6 -
	 
	 	 	 	 
	10-2.
	 	Failure To Make Other Payments	 	- 6 -
	 
	 	 	 	 
	10-3.
	 	Failure to Perform Covenant or
Liability (No Grace Period) 	 	- 6 -
	 
	 	 	 	 
	10-4.
	 	Failure to Perform Covenant or Liability (Limited Grace Period)	 	- 6 -
	 
	 	 	 	 
	10-5.
	 	Failure to Perform Covenant or Liability (Grace Period)	 	- 6 -
	 
	 	 	 	 
	10-6.
	 	Misrepresentation	 	- 6 -
	 
	 	 	 	 
	10-7.
	 	Default of Other Debt	 	- 6 -
	 
	 	 	 	 
	10-8.
	 	Default of Leases	 	- 6 -
	 
	 	 	 	 
	10-9.
	 	Uninsured Casualty Loss	 	- 6 -
	 
	 	 	 	 
	10-10.
	 	Judgment.  Restraint of Business	 	- 6 -
	 
	 	 	 	 
	10-11.
	 	Business Failure	 	- 6 -
	 
	 	 	 	 
	10-12.
	 	Bankruptcy	 	- 6 -
	 
	 	 	 	 
	10-13.
	 	Indictment - Forfeiture	 	- 6 -
	 
	 	 	 	 
	10-14.
	 	Default by Guarantor or Subsidiary	 	- 6 -






ix









 






	 	 	 	 	 
	10-15.
	 	Termination of Guaranty	 	- 6 -
	 
	 	 	 	 
	10-16.
	 	Challenge to Loan Documents	 	- 6 -
	 
	 	 	 	 
	10-17.
	 	Intentionally Omitted	 	- 6 -
	 
	 	 	 	 
	10-18.
	 	Change in Control	 	- 6 -
	 
	 	 	 	 
	Article 11 - Rights and Remedies Upon Default:	 	- 6 -
	11-1.
	 	Rights of Enforcement	 	- 6 -
	 
	 	 	 	 
	11-2.
	 	Sale of Collateral	 	- 6 -
	 
	 	 	 	 
	11-3.
	 	Occupation of Business Location	 	- 6 -
	 
	 	 	 	 
	11-4.
	 	Grant of Nonexclusive License	 	- 6 -
	 
	 	 	 	 
	11-5.
	 	Assembly of Collateral	 	- 6 -
	 
	 	 	 	 
	11-6.
	 	Rights and Remedies	 	- 6 -
	 
	 	 	 	 
	Article 12 - Notices:	 	- 6 -
	12-1.
	 	Notice Addresses	 	- 6 -
	 
	 	 	 	 
	12-2.
	 	Notice Given	 	- 6 -
	 
	 	 	 	 
	Article 13 - Term:	 	- 6 -
	 
	 	 	 	 
	13-1.
	 	Termination of Revolving Credit	 	- 6 -
	 
	 	 	 	 
	13-2.
	 	Effect of Termination	 	- 6 -
	 
	 	 	 	 
	Article 14 - General:	 	- 6 -
	14-1.
	 	Protection of Collateral	 	- 6 -
	 
	 	 	 	 
	14-2.
	 	Successors and Assigns	 	- 6 -
	 
	 	 	 	 
	14-3.
	 	Severability	 	- 6 -
	 
	 	 	 	 
	14-4.
	 	Amendments.  Course of Dealing	 	- 6 -
	 
	 	 	 	 
	14-5.
	 	Power of Attorney	 	- 6 -
	 
	 	 	 	 
	14-6.
	 	Application of Proceeds	 	- 6 -
	 
	 	 	 	 
	14-7.
	 	Costs and Expenses of Lender	 	- 6 -
	 
	 	 	 	 
	14-8.
	 	Copies and Facsimiles	 	- 6 -
	 
	 	 	 	 
	14-9.
	 	Massachusetts Law	 	- 6 -
	 
	 	 	 	 
	14-10.
	 	Consent to Jurisdiction	 	- 6 -
	 
	 	 	 	 
	14-11.
	 	Indemnification	 	- 6 -
	 
	 	 	 	 
	14-12.
	 	Rules of Construction	 	- 6 -






x









 






	 	 	 	 	 
	14-13.
	 	Intent	 	- 6 -
	 
	 	 	 	 
	14-14.
	 	Right of Set-Off	 	- 6 -
	 
	 	 	 	 
	14-15.
	 	Maximum Interest Rate	 	- 6 -
	 
	 	 	 	 
	14-16.
	 	Waivers	 	- 6 -
	 
	 	 	 	 
	14-17.
	 	Confidentiality	 	- 6 -
	 
	 	 	 	 
	14-18.
	 	Press Releases	 	- 6 -
	 
	 	 	 	 
	14-19.
	 	No Advisory or Fiduciary Responsibility	 	- 6 -
	 
	 	 	 	 
	14-20.
	 	USA PATRIOT Act Notice	 	- 6 -
	 
	 	 	 	 
	14-21.
	 	Existing Loan Agreement Amended and Restated	 	- 6 -
	 
	 	 	 	 






xi









 







EXHIBITS




	 	 	 	 	 	 	 
	2-8

	 	 	 	:
	 	Revolving Credit Note
	4-2

	 	 	 	:
	 	Related Entities
	4-3

	 	 	 	:
	 	Trade Names
	4-5

	 	 	 	:
	 	Locations, Leases, and Landlords
	4-6

	 	 	 	:
	 	Encumbrances
	4-7

	 	 	 	:
	 	Indebtedness
	4-8

	 	 	 	:
	 	Insurance Policies
	4-10

	 	 	 	:
	 	Capital Leases
	 

	 	 	 	:
	 	Taxes
	4-17

	 	 	 	:
	 	Litigation
	4-22

	 	:
	 	:
	 	Permitted Management Fees and Other Affiliated Transactions
	4-23

	 	:
	 	:
	 	Excluded Assets
	5-5

	 	:
	 	:
	 	Form of Borrowing Base Certificate
	6-3

	 	:
	 	:
	 	Bonds and Deposits
	7-1

	 	 	 	:
	 	DDAs
	 

	 	 	 	:
	 	Credit Card Arrangements






xii









 






SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT




November 13, 2007




     THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”) is made
between




     Bank of America, N.A. (the “Lender”), a national banking association
with offices at 100 Federal Street, Boston, Massachusetts 02110



          and





     Aeropostale, Inc., (hereinafter, the “Borrower”), a Delaware
corporation with its principal executive offices at 1372 Broadway, New
York, New York 10020


in consideration of the mutual covenants contained herein and benefits to be derived herefrom,




WITNESSETH:




     WHEREAS, Aeropostale, Inc., f/k/a MSS-Delaware, Inc. entered into an Amended and Restated Loan
and Security Agreement dated as of October 7, 2003 with Fleet Retail Finance Inc, as agent for the
lenders party thereto and such lenders (as amended and in effect, the “Existing Loan Agreement”);
and



     WHEREAS, Fleet Retail Finance, Inc. has assigned all of its right, title and interest under
the Existing Loan Agreement to Bank of America, N.A.;



     WHEREAS, Aeropostale, Inc., is the successor in interest by merger to MSS-Delaware, Inc. and



     WHEREAS, the Borrower desires to amend and restate the Existing Loan Agreement in order (a) to
increase the amount of the Loan Ceiling (as hereinafter defined) to $150,000,000, and (b) to make
certain other amendments to the terms and conditions of the Existing Loan Agreement; and



     NOW, THEREFORE, the parties hereto agree that the Existing Loan Agreement shall be amended and
restated in its entirety to read as follows:



1. — Definitions:




     As herein used, the following terms have the following meanings or are defined in the section
of this Agreement so indicated:



“Acceptable Blank Stock Inventory”: Inventory of the Loan Parties which consists of blank
t-shirts and other items of apparel which are in the possession of third Persons for
processing, which Inventory otherwise would be deemed Acceptable


 









 






Inventory and as to which the Lender has received an agreement from such processor
in form and substance reasonably acceptable to the Lender.



“Acceptable L/C Inventory”: Inventory which is the subject of a Documentary L/C in favor of
a foreign manufacturer or vendor of such Inventory, which Inventory is to be
manufactured for, or delivered to, the Loan Parties and will become Acceptable
In-Transit Inventory within seventy-five (75) days after the date of issuance of the
Documentary L/C.



“Acceptable In-Transit Inventory”: Inventory-in-transit to a Loan Party, title to which has
passed to the Loan Party which Inventory has been placed with a carrier (f.o.b.) for
shipment to the Loan Parties , and which Inventory is scheduled to be received within
fifty (50) days at a Loan Party’s distribution center, as to which Inventory the Lender
has a perfected security interest which is prior and superior to all security
interests, claims, and all Encumbrances other than Permitted Encumbrances (it being
understood, however, that the Lender will not require possession of the Documents of
Title or any foreign filings to be deemed “perfected”); provided that such
Inventory shall be deemed to be Acceptable In-Transit Inventory only if the Lender has
received an agreement (to the extent relevant to such Inventory) with (i) each sourcing
agent under any of the Loan Party’s sourcing agreements, and (ii) each Loan Party’s
custom brokers, each satisfactory in form and substance to the Lender. Notwithstanding
the foregoing, the Lender, periodically (but in no event in months other than July
through October of any year), may, in its reasonable discretion, include Inventory
which otherwise satisfies the requirements of this definition but for the fact that
title has not yet passed to a Loan Party as Acceptable In-Transit Inventory, but only
if the Lender has received written confirmation from the applicable sourcing agent that
title to such Inventory will pass to a Loan Party upon receipt of payment of a sum
certain and the Borrower has requested the Lender to make, and has Availability for, a
Revolving Credit Loan to pay such sourcing agent in such amount.



“Acceptable Inventory”: Such of the Loan Parties Inventory, at such locations, and of such
types, character, qualities and quantities, as the Lender in its sole discretion from
time to time determines to be acceptable for borrowing, including, without limitation,
Acceptable In-Transit Inventory and Acceptable L/C Inventory (but excluding Acceptable
Blank Stock Inventory), as to which Inventory, the Lender has a perfected security
interest which is prior and superior to all security interests, claims, and all
Encumbrances other than Permitted Encumbrances. Without limiting the generality of the
foregoing, Acceptable Inventory shall in no event include Inventory that is not
salable, non-merchandise categories (such as labels, bags and packaging), Inventory not
located in the United States (other than Acceptable In-Transit Inventory and Acceptable
L/C Inventory), samples, damaged goods, return-to-vendor merchandise, and packaway
Inventory.



“Accounts” and “Accounts Receivable” include, without limitation, “accounts” as defined in
the UCC, and also all: accounts, accounts receivable, credit card receivables, notes,
drafts, acceptances, and other forms of obligations and


2









 






receivables and rights to payment for credit extended and for goods sold or leased,
or services rendered, whether or not yet earned by performance; all “contract
rights” as formerly defined in the UCC; all Inventory which gave rise thereto, and
all rights associated with such Inventory, including the right of stoppage in
transit; and all reclaimed, returned, rejected or repossessed Inventory (if any) the
sale of which gave rise to any Account.



“ACH”: Automated clearing house.



“Account Debtor”: Has the meaning given that term in the UCC and includes all credit card
processors of the Borrower.



“Adjusted Eurodollar Rate”: With respect to any Eurodollar Loan for any Interest Period, an
interest rate per annum (rounded upwards, if necessary, to the next 1/16 of one
percent) equal to (a) the Eurodollar Rate for such Interest Period multiplied
by (b) the Statutory Reserve Rate.



“AGC”: Aero GC Management LLC, a Virginia Limited Liability Company with an address of 112
West 34th Street., New York, New York 10120, a single member managed LLC, where
Borrower is the sole member.



“Aeropostale Canada”: Aeropostale Canada, Inc., an Ontario Canada corporation with a United
States address of 112 West 34th Street., New York, New York 10120, a wholly owned
Subsidiary of the Borrower.



“Affiliate”: With respect to any two Persons, a relationship in which (a) one holds,
directly or indirectly, not less than twenty-five percent (25%) of the capital stock,
beneficial interests, partnership interests, or other equity interests of the other; or
(b) one has, directly or indirectly, the right, under ordinary circumstances, to vote
for the election of a majority of the directors (or other body or Person who has those
powers customarily vested in a board of directors of a corporation); or (c) not less
than twenty- five percent (25%) of their respective ownership is directly or indirectly
held by the same third Person.



“Aggregate Outstandings”: At any time of determination, the sum of (a) the Revolving Credit
Loans outstanding, plus (b) the Stated Amount of L/Cs outstanding.



“Applicable Margin”: Shall mean the following percentages based upon the following
performance criteria:




3









 








	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Average	 	Eurodollar Loans	 	Prime Rate	 	Line (Unused)
	Level	 	Outstandings	 	Margin	 	Margin	 	Fee
	I
	 	Less than	 	 	0.75	%	 	 	0	%	 	 	0.125	%
	 
	 	$50,000,000	 	 	 	 	 	 	 	 	 	 	 	 
	II
	 	Greater than or	 	 	1.00	%	 	 	0	%	 	 	0.125	%
	 
	 	equal to	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	$50,000,000 and	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	less than	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	$100,000,000	 	 	 	 	 	 	 	 	 	 	 	 
	III
	 	Greater than or	 	 	1.25	%	 	 	0	%	 	 	0.15	%
	 
	 	equal to	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	$100,000,000	 	 	 	 	 	 	 	 	 	 	 	 







The Applicable Margin shall be adjusted quarterly as of the first day of each
February, May, August, and November, commencing February 1, 2008, based upon the
Borrower’s Average Outstandings calculated for the most recent quarter then ended.
Upon the occurrence of an Event of Default, at the option of the Lender, interest
shall be determined in the manner set forth in Section 2-10(f).



“Appraised Value”: The net appraised liquidation value of the Loan Parties’ Inventory as set
forth in the Loan Parties’ stock ledger (expressed as a percentage of the Cost of such
Inventory), each as reasonably determined from time to time by the Lender in accordance
with its customary procedures and based upon the most recent appraisal conducted
hereunder by an independent appraiser reasonably satisfactory to the Lender.



“Availability”: The lesser of the Loan Ceiling or the Borrowing Base;



Minus



(a) The then unpaid principal balance of the Loan Account.



Minus



(b) The then Stated Amount of all L/C’s.



Minus



(c) Unreimbursed L/C Obligations.



“Average Outstandings”: For any three month period, the sum of (a) the average Revolving
Credit Loans outstanding during such period, plus (b) the average Stated Amount of L/Cs
outstanding during such period.



“AWI”: Aeropostale West, Inc., a Delaware corporation with an address of 201 Willowbrook
Blvd., Wayne, New Jersey 07470, a wholly owned Subsidiary of the Borrower.



“Bank Products”: Any services or facilities provided to a Loan Party by the Lender
or any of its Affiliates (but excluding Cash Management Services), including without
limitation, on account of leasing, swap and other hedging contracts.



4









 








“Bank Product Reserves”: Such reserves as the Lender from time to time determine in
its discretion as being appropriate to reflect the liabilities and obligations of the
Loan Parties with respect to Bank Products then provided or outstanding.



“Bankruptcy Code”: Title 11, U.S.C., as amended from time to time.



“Base Rate Loan”: Each Revolving Credit Loan while bearing interest at the Prime
Rate.



“Blocked Account”: Is defined in Section 7-3.



“Borrower”:

Is defined in the Preamble.



“Borrowing Base”: The amounts calculated to the following formulae, as applicable:




	 	(a)	 	If the outstanding amount of Revolving Credit Loans and the Stated Amount of
L/Cs is less than or equal to $75,000,000 in the aggregate, the result of the
following:






     (i) 95% of the book value (as determined in accordance with GAAP) of Acceptable
Inventory,




     plus




     (ii) 85% of the face amount of Eligible Credit Card Receivable;




     minus




     (iii) Reserves.




	 	(b)	 	If the outstanding amount of Revolving Credit Loans and the Stated Amount of
L/Cs is greater than $75,000,000 in the aggregate, the result of the following:






     (i) 85% of the most recent Appraised Value of Acceptable Inventory multiplied
by the Cost of Acceptable Inventory,




     plus




     (ii)85% of the face amount of Eligible Credit Card Receivable;




     minus




     (iii)Reserves.



“Borrowing Base Certificate”: Is defined in Section 5-5.



“Business Day”: Any day other than (a) a Saturday or Sunday; (b) any day on which banks in
Boston, Massachusetts or New York, New York, generally are not open to the general
public for the purpose of conducting commercial banking


5









 






business; or (c) a day on which the Lender is not open to the general public to
conduct business, and, if such day relates to any Eurodollar Loan, means any such
day on which dealings in dollar deposits are conducted by and between banks in the
London interbank market.



“Business Plan”: The Borrower’s then current business plan and any revision, amendment, or
update of such business plan to which the Lender has provided its written sign-off.



“Capital Expenditures”: The expenditure of funds or the incurrence of liabilities which are
capitalized in accordance with GAAP, provided that for purposes of this
Agreement, capital expenditures funded by the proceeds from the incurrence of
Indebtedness permitted hereunder, by the proceeds received from the sale of assets
permitted pursuant to §4-12(d) hereof, by casualty insurance proceeds or condemnation
proceeds shall, to the extent of such proceeds, not be deemed Capital Expenditures.



“Capital Lease”: Any lease which is capitalized in accordance with GAAP.



“Cash Dominion Event”: Either (i) the occurrence and continuance of any Event of
Default, or (ii) the failure of the Borrowers to maintain Availability in an amount
greater than 15% of the then Borrowing Base. For purposes of this Agreement, the
occurrence of a Cash Dominion Event shall be deemed continuing (i) so long as such
Event of Default has not been waived, and/or (ii) if the Cash Dominion Event arises as
a result of the Borrowers’ failure to achieve Availability as required hereunder, until
Availability has exceeded 15% of the then Borrowing Base for 30 consecutive Business
Days, in which case a Cash Dominion Event shall no longer be deemed to be continuing
for purposes of this Agreement; provided that a Cash Dominion Event shall be deemed
continuing (even if an Event of Default is no longer continuing and/or Availability
exceeds the required amount for 30 consecutive Business Days) at all times after a Cash
Dominion Event has occurred and been discontinued on two (2) occasion(s) during any
calendar year.



“Cash Equivalents” shall mean, as to any Person, (i) securities issued or directly
and fully guaranteed or insured by the United States or any agency or instrumentality
thereof (provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than twelve (12) months from the date of
acquisition by such Person, (ii) time deposits and certificates of deposit of any
commercial bank incorporated in the United States of recognized standing having capital
and surplus in excess of $100,000,000 with maturities of not more than twelve (12)
months from the date of acquisition by such Person, (iii) repurchase obligations with a
term of not more than seven (7) days for underlying securities of the types described
in clause (i) above, provided that there shall be no restriction on the
maturities of such underlying securities pursuant to this clause (iii) entered into
with a bank meeting the qualifications specified in clause (ii) above, (iv) commercial
paper issued by the parent corporation of any


6









 






commercial bank (provided that the parent corporation and the bank are both
incorporated in the United States) of recognized standing having capital and surplus
in excess of $500,000,000 and commercial paper issued by any Person incorporated in
the United States rated at least A-1 or the equivalent thereof by Standard & Poor’s
Ratings Group or at least P-1 or the equivalent thereof by Moody’s Investors
Service, Inc. and in each case maturing not more than twelve (12) months after the
date of acquisition by such Person, and (v) investments in money market funds
substantially all of whose assets are comprised of securities of the types described
in clauses (i) through (v) above.



“Cash Management Reserves ”: Such reserves as the Lender, from time to time,
determines in its discretion as being appropriate to reflect the reasonably anticipated
liabilities and obligations of the Loan Parties with respect to Cash Management
Services then provided or outstanding.



“Cash Management Services”: Any one or more of the following types or services or
facilities provided to a Loan Party by the Lender or any of its Affiliates: (a)
automated clearinghouse transactions, (b) cash management services, including, without
limitation, controlled disbursement services, treasury, depository, overdraft, and
electronic funds transfer services, (c) foreign exchange facilities, (d) credit or
debit cards, and (e) merchant card services.



“Change in Control”: The occurrence of any of the following:




     (a) The acquisition, by any group of persons (within the meaning of the
Securities Exchange Act of 1934, as amended) or by any Person, of beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and Exchange
Commission) of 30% or more of the issued and outstanding capital stock of
the Borrower (on a fully diluted basis) having the right, under ordinary
circumstances, to vote for the election of directors of the Borrower.




     (b) Persons (“Continuing Directors”) who (i) were directors of the
Borrower on the first day of any period consisting of twelve (12)
consecutive calendar months (the first of which twelve (12) month periods
commencing with the first day of the month during which this Agreement was
executed), or (ii) subsequently became directors of the Borrower and whose
initial election or initial nomination for election subsequent to that date
was approved by a majority of the Continuing Directors then on the board of
directors of the Borrower cease, for any reason other than death or
disability or replacement (in the ordinary course of business and not as a
result of any change in the equity ownership of the Borrower), to constitute
a majority of the directors of the Borrower.




  “Chattel
Paper”: Has the meaning given that term in the UCC.




  “Collateral”: Is defined in Section 8-1.



7









 






  “Commercial Tort Claim”: Has the meaning given that term in the UCC.




  “Commitment”: Subject to the provisions of Section 2-23, as of the Second Amendment
Effective Date, as follows:



	 	 	 	 	 	 	 	 	 
	 	 	DOLLAR	 	COMMITMENT
	LENDER	 	COMMITMENT	 	PERCENTAGE
	Bank of America, N.A.
	 	$	150,000,000.00	 	 	 	100	%






“Commitment Percentage”: As provided in the Definition of “Commitment”, above.



“Concentration Account”: Is defined in Section 7-3.



“Consolidated": With reference to any term defined herein, shall mean that term as applied
to the accounts of the Borrower and its Subsidiaries, consolidated in accordance with
GAAP.



“Cost”: The lower of




     (a) the calculated cost of purchases, as determined from invoices
received by the Borrower, the Borrower’s purchase journal or stock ledger,
based upon the Borrower’s accounting practices, known to the Lender, which
practices are in effect on the date on which this Agreement was executed; or




     (b) the cost equivalent of the lowest ticketed or promoted price at
which the subject inventory is offered to the public, after all mark-downs
(whether or not such price is then reflected on the Borrower’s accounting
system), which cost equivalent is determined in accordance with the retail
method of accounting, reflecting the Borrower’s historic business practices.



“Cost” does not include inventory capitalization costs or other non-purchase price
charges (such as freight) used in the Borrower’s calculation of cost of goods sold.



“Cost Factor”: The result of 1 minus the Borrower’s then cumulative markup percent
derived from the Borrower’s purchase journal on a rolling 12-month basis.



“Costs of Collection”: Includes, without limitation, all reasonable attorneys’ fees and
reasonable out-of-pocket expenses incurred by the Lender’s attorneys, and all
reasonable costs incurred by the Lender in the administration of the Liabilities and/or
the Loan Documents, including, without limitation, reasonable costs and expenses
associated with travel on behalf of the Lender, which costs and expenses are directly
or indirectly related to or in respect of the Lender’s: administration and management
of the Liabilities (other than customary overhead expenses); negotiation,
documentation, and amendment of any Loan Document; or efforts to


8









 






preserve, protect, collect, or enforce the Collateral, the Liabilities, and/or the
Lender’s Rights and Remedies and/or any of the Lender’s rights and remedies against
or in respect of any guarantor or other person liable in respect of the Liabilities
(whether or not suit is instituted in connection with such efforts). The Costs of
Collection are Liabilities, and at the Lender’s option may bear interest at the
highest post-default rate which the Lender may charge the Borrower hereunder as if
such had been lent, advanced, and credited by the Lender to, or for the benefit of,
the Borrower. Notwithstanding the foregoing, the entitlement of any Lender to “Costs
of Collection” is limited to the extent provided in §14-7 hereof.



“DDA”: Any checking or other demand daily depository account maintained by a Loan Party.



“Default Interest Event”: The occurrence of any of the following:




     (a) The acceleration of the time for payment of the Liabilities upon
the occurrence of an Event of Default.




     (b) The occurrence of any Event of Default under Sections 10-1, 10-2,
10-11, or 10-12 hereof.




     (c) The failure of the Borrower to comply with the provisions of
Section 5-5(which failure continues for five Business Days), or Sections 5-6
or 5-7(which failures continue for fifteen (15) Business Days), or Article
7.



“Deposit
Account”: Has the meaning given that term in the UCC.



“Documents”:
Has the meaning given that term in the UCC.



“Documents of Title”: Has the meaning given that term in the UCC.



“Dollar Commitment”: As provided in the Definition of “Commitment”, above.



     “Eligible Credit Card Receivables”: As of any date of determination, Accounts due to a Loan
Party from VISA, MasterCard, American Express, Diners Club, Discovercard, and other major credit
card processors reasonably acceptable to the Lender, in its reasonable discretion, as arise in the
ordinary course of business, and which have been earned by performance and are deemed by the Lender
in its discretion to be eligible for inclusion in the calculation of the Borrowing Base. None of
the following shall be deemed to be Eligible Credit Card Receivables:




     (a) Accounts that have been outstanding for more than five (5) Business Days from the
date of sale;




     (b) Accounts with respect to which a Loan Party does not have good, valid and
marketable title thereto, free and clear of any Lien (other than Liens granted to the
Lender);




     (c) Accounts that are not subject to a first priority security interest in favor of the
Lender;



9









 






     (d) Accounts which are disputed, are with recourse, or with respect to which a claim,
counterclaim, offset or chargeback has been asserted by the related credit card processor
(but only to the extent of such dispute, counterclaim, offset or chargeback);




     (e) Accounts as to which the credit card processor has the right under certain
circumstances to require a Loan Party to repurchase the Accounts from such credit card
processor;




     (f) Accounts arising from the use of a private label credit card of a Loan Party; or




     (g) Accounts (other than VISA, Master Card, American Express, Diners Club and
Discovercard) which the Lender determines in its reasonable commercial discretion acting in
good faith to be unlikely to be collected.



“Employee
Benefit Plan”: As defined in Section 3(2) of ERISA.



“Encumbrance”: Each of the following:




     (a) Any security interest, mortgage, pledge, hypothecation, lien,
attachment, or charge of any kind (including any agreement to give any of
the foregoing); the interest of a lessor under a Capital Lease; conditional
sale or other title retention agreement; sale (to the extent of recourse) of
accounts receivable or chattel paper; or other arrangement pursuant to which
any Person is entitled to any preference or priority with respect to the
property or assets of another Person or the income or profits of such other
Person or which constitutes an interest in property to secure an obligation;
each of the foregoing whether consensual or non-consensual and whether
arising by way of agreement, operation of law, legal process or otherwise.




     (b) The filing of any financing statement under the UCC or comparable
law of any jurisdiction.



“End Date”: The date upon which both (a) all Liabilities (other than indemnities,
not then due and payable, which survive repayment of the Revolving Credit Loans and
L/Cs and termination of the Commitments) have been paid in full and (b) all obligations
of any Lender to make loans and advances and to provide other financial accommodations
to the Borrower hereunder shall have been irrevocably terminated.



“Environmental Laws”: All of the following:




     (a) Any and all federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees or requirements which
regulate or relate to, or impose any standard of conduct or liability on
account of or in respect to environmental protection matters, including,
without limitation, Hazardous Materials, as are now or hereafter in effect.




     (b) The common law relating to damage to Persons or property from
Hazardous Materials.



10









 






“Equipment”: Includes, without limitation, “equipment” as defined in the UCC, and also all
motor vehicles, rolling stock, machinery, office equipment, plant equipment, tools,
dies, molds, store fixtures, furniture, and other goods, property, and assets which are
used and/or were purchased for use in the operation or furtherance of the Borrower’s
business, and any and all accessions or additions thereto, and substitutions therefor.




“ERISA”: The Employee Retirement Income Security Act of 1974, as amended.




“ERISA Affiliate”: Any Person which is under common control with the Borrower within the
meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and
which would be treated as a single employer under Section 414 of the Internal Revenue
Code of 1986, as amended.




“Eurodollar Business Day”: Any day which is both a Business Day and a day on which the
principal Eurodollar market in which Bank of America, N.A. participates is open for
dealings in United States Dollar deposits.




“Eurodollar Loan”: Any Revolving Credit Loan which bears interest at the Adjusted Eurodollar
Rate.




Eurodollar Rate”: For any Interest Period with respect to a Eurodollar Loan, (a) the rate
per annum equal to the rate determined by the Lender to be the offered rate that
appears on the page of the Telerate screen (or any successor thereto) that displays an
average British Bankers Association Interest Settlement Rate for deposits in dollars
(for delivery on the first day of such Interest Period) with a term equivalent to such
Interest Period, determined as of approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, or (b) if the rate referenced in
the preceding clause (a) does not appear on such page or service or such page or
service shall not be available, the rate per annum equal to the rate determined by the
Lender to be the offered rate on such other page or other service that displays an
average British Bankers Association Interest Settlement Rate for deposits in dollars
(for delivery on the first day of such Interest Period) with a term equivalent to such
Interest Period, determined as of approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period, or (c) if the rates referenced in
the preceding clauses (a) and (b) are not available, the rate per annum determined by
the Lender as the rate of interest at which deposits in dollars for delivery on the
first day of such Interest Period in same day funds in the approximate amount of the
Eurodollar Loan being made, continued or converted by Bank of America, N.A. and with a
term equivalent to such Interest Period would be offered by Bank of America’s London
Branch to major banks in the London interbank eurodollar market at their request at
approximately 4:00 p.m. (London time) two Business Days prior to the first day of such
Interest Period.




“Events of Default”: Is defined in Article 10.



11









 






“Existing Loan Agreement”: Has the meaning set forth in the Recitals hereto.




“Federal
Funds Effective Rate”: For any day, the rate per annum equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as published by
the Federal Reserve Bank of New York on the Business Day next succeeding such day;
provided that (a) if such day is not a Business Day, the Federal Funds Rate for
such day shall be such rate on such transactions on the next preceding Business Day as
so published on the next succeeding Business Day, and (b) if no such rate is so
published on such next succeeding Business Day, the Federal Funds Rate for such day
shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100
of 1%) charged to Bank of America on such day on such transactions.




“Fee Letter”: The letter agreement, dated November 13, 2007, between the Borrower
and the Lender with respect to certain fees payable to the Lender in connection with
this Agreement..




“Fixtures”: Has the meaning given that term in the UCC.




“GAAP”: Principles which are consistent with those promulgated or adopted by the Financial
Accounting Standards Board and its predecessors (or successors) in effect and
applicable to that accounting period in respect of which reference to GAAP is being
made, provided, however, in the event of a Material Accounting Change, then unless
otherwise specifically agreed to by the Lender, the Borrower shall include, with its
monthly, quarterly, and annual financial statements a schedule, certified by the
Borrower’s chief financial officer, on which the effect of such Material Accounting
Change to the statement with which provided shall be described.




“General Intangibles”: Includes, without limitation, “general intangibles” as defined in the
UCC; and also all: rights to payment for credit extended; deposits; amounts due to a
Loan Party; credit memoranda in favor of a Loan Party; warranty claims; tax refunds and
abatements; insurance refunds and premium rebates; all means and vehicles of investment
or hedging, including, without limitation, options, warrants, and futures contracts;
records; customer lists; telephone numbers; goodwill; causes of action; judgments;
payments under any settlement or other agreement; literary rights; rights to
performance; royalties; license and/or franchise fees; rights of admission; licenses;
franchises; license agreements, including all rights of a Loan Party to enforce same;
permits, certificates of convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents pending, and other
intellectual property; internet addresses and domain names; developmental ideas and
concepts; proprietary processes; blueprints, drawings, designs, diagrams, plans,
reports, and charts; catalogs; manuals; technical data; computer software programs
(including the source and object codes therefor), computer records, computer software,
rights of access to computer record service bureaus, service



12









 







bureau computer contracts, and computer data; tapes, disks, semi-conductors chips
and printouts; trade secrets rights, copyrights, mask work rights and interests, and
derivative works and interests; user, technical reference, and other manuals and
materials; trade names, trademarks, service marks, and all goodwill relating
thereto; applications for registration of the foregoing; and all other general
intangible property of the Loan Parties in the nature of intellectual property;
proposals; cost estimates, and reproductions on paper, or otherwise, of any and all
concepts or ideas, and any matter related to, or connected with, the design,
development, manufacture, sale, marketing, leasing, or use of any or all property
produced, sold or leased, by a Loan Party or credit extended or services performed,
by a Loan Party, whether intended for an individual customer or the general business
of a Loan Party, or used or useful in connection with research by a Loan Party.




“Goods”: Has the meaning given that term in the UCC.




“Guarantor” and “Guarantors”: means individually and collectively AWI, Jimmy’Z, AGC and any
other subsidiary of the Borrower which executes and delivers a Guarantor Agreement.




“Guarantor Agreement”: Each instrument and document executed by a Guarantor of the
Liabilities to evidence or secure the Guarantor’s guaranty thereof.




“Hazardous Materials”: Any (a) hazardous materials, hazardous waste, hazardous or toxic
substances, petroleum products, which (as to any of the foregoing) are defined or
regulated as a hazardous material in or under any Environmental Law and (b) oil in any
physical state.




“Indebtedness”: All indebtedness and obligations of or assumed by any Person on account of
or in respect to any of the following:




     (a) In respect of money borrowed (including any indebtedness which is
non-recourse to the credit of such Person but which is secured by an
Encumbrance on any asset of such Person) whether or not evidenced by a
promissory note, bond, debenture or other written obligation to pay money.




     (b) In connection with any letter of credit or acceptance transaction
(including, without limitation, the face amount of all letters of credit and
acceptances issued for the account of such Person or reimbursement on
account of which such Person would be obligated).




     (c) In connection with the sale or discount of accounts receivable or
chattel paper of such Person other than the sale of retail Accounts to
credit card processors.




     (d) On account of deposits or advances.




     (e) As lessee under Capital Leases.



13









 






     (f) On account of net obligations under any swap or hedging contract.




     (g) With respect to obligations to purchase, redeem, retire, defease or
otherwise make any payment in respect of any equity interest in such Person
or any other Person, or any warrant, right or option to acquire such equity
interest, valued, in the case of a redeemable preferred interest, at the
greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends.




     “Indebtedness” also includes:




     (x) Indebtedness of others secured by an Encumbrance on any asset of
such Person, whether or not such Indebtedness is assumed by such Person.




     (y) Any guaranty, endorsement, suretyship or other undertaking pursuant
to which that Person may be liable on account of any Indebtedness of any
third party, other than endorsements of negotiable instruments for
collection in the ordinary course of business.




     (z) The Indebtedness of a partnership or joint venture in which such
Person is a general partner or joint venturer to the extent that the holder
of such Indebtedness has recourse to such Person.



“Indemnified Claim”: Is defined in Section 14-11.



“Indemnified Person”: Is defined in Section 14-11.



“Instruments”:
Has the meaning given that term in the UCC.



“Interest Payment Date”: With reference to:




     Each Eurodollar Loan: The last day of the Interest Period relating
thereto and, in addition, if such Eurodollar Loan has an Interest Period of
greater than three months, the last day of the third month of such Interest
Period; the Termination Date; and the End Date.




     Each Base Rate Loan: the first day of each month; the Termination Date;
and the End Date.



“Interest Period”: (a) With respect to each Eurodollar Loan: Subject to Subsection (c),
below, the period commencing on the date of the making or continuation of, or
conversion to, the subject Eurodollar Loan and ending one, two, three or six months
thereafter, as the Borrower may elect by notice (pursuant to Section 2-5(a)) to the
Lender.



14









 









     (b) With respect to each Base Rate Loan: Subject to Subsection (c), below, the
period commencing on the date of the making or continuation of or conversion to such
Base Rate Loan and ending on that date (i) as of which the subject Base Rate Loan is
converted to a Eurodollar Loan, as the Borrower may elect by notice (pursuant to
Section 2-5(a)) to the Lender, or (ii) on which the subject Base Rate Loan is paid
by the Borrower.




     (c) The setting of Interest Periods is in all instances subject to the
following:




     (i) Any Interest Period for a Base Rate Loan which would otherwise end
on a day which is not a Business Day shall be extended to the next
succeeding Business Day.




     (ii) Any Interest Period for a Eurodollar Loan which would otherwise
end on a day that is not a Business Day shall be extended to the next
succeeding Business Day, unless that succeeding Business Day is in the next
calendar month, in which event such Interest Period shall end on the last
Business Day of the month during which the Interest Period ends.




     (iii) Subject to Subsection (iv), below, any Interest Period applicable
to a Eurodollar Loan, which Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month during which such
Interest Period ends, shall end on the last Business Day of the month during
which that Interest Period ends.




     (iv) Any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.




     (v) The number of Interest Periods in effect at any one time is subject
to Section 2-10(d) hereof.



“Inventory”: Includes, without limitation, “inventory” as defined in the UCC and also all:
packaging, advertising, and shipping materials related to any of the foregoing, and all
names or marks affixed or to be affixed thereto for identifying or selling the same;
Goods held for sale or lease or furnished or to be furnished under a contract or
contracts of sale or service by the Borrower, or used or consumed or to be used or
consumed in the Borrower’s business; Goods of said description in transit: returned,
repossessed and rejected Goods of said description; and all documents (whether or not
negotiable) which represent any of the foregoing.



“Investment Property”: Has the meaning given that term in the UCC.



“ISP”: With respect to any L/C, the “International Standby Practices 1998” published by the
Institute of International Banking Law & Practice (or such later version thereof as may
be in effect at the time of issuance).



15









 








“Issuer”: Bank of America, N.A.



“Jimmy’Z”: Jimmy’Z Surf Co., Inc., a Delaware corporation with an address of 112 West 34th
Street, New York, New York 10120, a wholly owned Subsidiary of the Borrower.



“L/C”: Any letter of credit, the issuance of which is procured by the Lender for the account
of the Borrower and any banker’s acceptance made on account of such letter of credit.



“Lease”: Any lease or other agreement, no matter how styled or structured, pursuant to which
the Borrower is entitled to the use or occupancy of any space.



“Lender”:
Defined in the Preamble to this Agreement.
“Lender’s Rights and Remedies”: Is defined in Section 11-6.



“Letter
of Credit Rights”: Has the meaning given that term in the UCC and also shall refer
to any right to payment or performance under a letter of credit, whether or not the
beneficiary has demanded or at the time is entitled to demand payment or performance.



“Liabilities” (in the singular, “Liability”): Includes, without limitation, all and each of
the following, whether now existing or hereafter arising:




     (a) Any and all direct and indirect liabilities, debts, and obligations
of the Borrower to the Lender, each of every kind, nature, and description
under the Loan Documents.




     (b) Each obligation to repay any loan, advance, indebtedness, note,
obligation, overdraft, or amount now or hereafter owing by the Borrower to
the Lender under the Loan Documents (including all future advances whether
or not made pursuant to a commitment by the Lender), whether or not any of
such are liquidated, unliquidated, primary, secondary, secured, unsecured,
direct, indirect, absolute, contingent, or of any other type, nature, or
description, or by reason of any cause of action which the Lender may hold
against the Borrower under the Loan Documents.




     (c) All notes and other obligations of the Borrower now or hereafter
assigned to or held by the Lender with respect to the Loan Documents, each
of every kind, nature, and description.




     (d) All interest, fees, and charges and other amounts which may be
charged by the Lender to the Borrower under the Loan Documents and/or which
may be due from the Borrower to the Lender under the Loan Documents from
time to time.



16









 






     (e) All costs and expenses incurred or paid by the Lender in respect of
any of the Loan Documents (including, without limitation, Costs of
Collection, reasonable attorneys’ fees, and all court and litigation costs
and expenses).




     (f) Any and all covenants of the Borrower to or with the Lender and
any and all obligations of the Borrower to act or to refrain from acting in
accordance with under Loan Documents.




     (f) All obligations on account of Bank Products and Cash Management
Services.




     (g) Each of the foregoing as if each reference to the “Lender “ therein
were to each Affiliate of the Lender.



“Line (Unused) Fee”: Is defined in Section 2-13.



“Liquidity Requirement”: With respect to any acquisition or payment, (i) no Suspension Event
or Event of Default then exists or would arise from the consummation of the specified
transaction and the making of any payments with respect thereto, (ii) the Borrower has
furnished the Lender with a pro forma balance sheet, income statement and cash flow
statement (including, without limitation, a projection of Availability) for the
subsequent 12 month period, after giving effect to the consummation of the specified
transaction and the making of any payments with respect thereto; and (iii) the Lender
is reasonably satisfied that Availability, after giving effect to such specified
transaction and the making of any payments with respect thereto, will be at least equal
to 20% of the Borrowing Base for the 12 months following such specified transaction and
the making of such payments; and (iv) the Lender is reasonably satisfied that, after
giving effect to such specified transaction and the making of any payments with respect
thereto, the Borrower will be solvent.



“Loan Account”: Is defined in Section 2-7.



“Loan Ceiling”: $150,000,000.00.



“Loan Documents”: This Agreement, each instrument and document executed and/or
delivered as contemplated by Article 3, below, and each other instrument or document
from time to time executed and/or delivered in connection with the arrangements
contemplated hereby or in connection with any transaction which arises out of any
depository, letter of credit, interest rate protection, foreign exchange or other
hedging agreement, or equipment leasing services provided by the Lender or any
Affiliate of the Lender, as each may be amended from time to time.



“Loan Party” or “Loan Parties”: individually and collectively the Borrower and each
Guarantor.



17









 








“Material Accounting Change”: Any change in GAAP applicable to accounting periods subsequent
to the Borrower’s fiscal year most recently completed prior to the execution of this
Agreement, which change has a material effect on the Borrower’s financial condition or
operating results, as reflected on financial statements and reports prepared by or for
the Borrower, when compared with such condition or results as if such change had not
taken place.



“Material Adverse Effect”: A material adverse effect upon (i) the Loan Parties business,
properties, operations or financial affairs, taken as a whole, or (ii) the Collateral,
taken as a whole, or (iii) the ability of the Loan Parties to perform their respective
obligations under this Agreement and the other Loan Documents, taken as a whole, or
(iv) the validity, enforceability, perfection or priority of this Agreement or the
other Loan Documents or of the rights and remedies of the Lender under any Loan
Document, taken as a whole.



“Maturity Date”: November 13, 2012.



“Operating Account”: Is defined in Section 7-3.



“Participant”: Is defined in Section 14-14, hereof.



“Payment Intangibles”: Has the meaning given that term in the UCC and shall also refer to
any General Intangible under which the Account Debtor’s primary obligation is a
monetary obligation.



“Permitted Acquisition”: The investment in, the purchase of stock of, or the purchase of all
or a substantial part of the assets or properties of any Person, or the entering into
of any transaction, merger (with the Borrower as the surviving entity), consolidation
or exchange of securities with any Person, in which each of the following conditions
are satisfied:




     (a) The type of business of such Person is generally the same type of
business (or is included in the types of business) in which the Borrower is
engaged or a business reasonably related thereto.




     (b) Immediately after giving effect to the transaction, the Liquidity
Requirement is satisfied.




     (c) Prior to and immediately after giving effect to the transaction, no
Suspension Event exists or will arise.




     (d) The aggregate consideration (exclusive of the value of any common
equity of the Borrower issued or delivered in connection with such
transaction) however classified, whether cash, property or assumption of
Indebtedness, in connection with all such transactions shall not exceed
$100,000,000.00 in any fiscal year.



18









 






     (e) All action required to be undertaken pursuant to Section 4-18(f) by
any Subsidiary created in connection with such transaction has been
completed to the reasonable satisfaction of the Lender.



“Permitted Encumbrances”: Those Encumbrances permitted as provided in Section 4-6(a) hereof.



“Person”: Any natural person, and any corporation, limited liability company, trust,
partnership, joint venture, or other enterprise or entity.



“Prime Rate”: For any day, the higher of: (a) the variable annual rate of interest then most
recently announced by Bank of America, N.A. at its head office in Charlotte, North
Carolina as its “Prime Rate”; and (b) the Federal Funds Effective Rate in effect on
such day plus 1/2 of 1% (0.50%) per annum. The Prime Rate is a reference rate and does
not necessarily represent the lowest or best rate being charged to any customer. If
for any reason the Lender shall have determined (which determination shall be
conclusive absent manifest error) that it is unable to ascertain the Federal Funds
Effective Rate for any reason, including the inability or failure of the Lender to
obtain sufficient quotations thereof in accordance with the terms hereof, the Prime
Rate shall be determined without regard to clause (b) of the first sentence of this
definition, until the circumstances giving rise to such inability no longer exist. Any
change in the Prime Rate due to a change in Bank of America’s Prime Rate or the Federal
Funds Effective Rate shall be effective on the effective date of such change in Bank of
America’s Prime Rate or the Federal Funds Effective Rate, respectively.



“Proceeds”: Includes, without limitation, “Proceeds” as defined in the UCC (defined below),
and each type of property described in Section 8-1 hereof.



“Receipts”: All cash, cash equivalents, checks, and credit card slips and receipts as arise
out of the sale of the Collateral.



“Receivables Collateral”: That portion of the Collateral which consists of the Loan Parties’
Accounts, Accounts Receivable, General Intangibles for the payment of money, Chattel
Paper, Instruments, Investment Property, letters of credit for the benefit of a Loan
Party, and bankers’ acceptances held by a Loan Party, and any rights to payment.



“Related Entity”: (a) Any corporation, limited liability company, trust, partnership, joint
venture, or other enterprise which: is a parent, brother-sister, Subsidiary, or
Affiliate, of the Borrower; could have such enterprise’s tax returns or financial
statements consolidated with the Borrower’s; could be a member of the same controlled
group of corporations (within the meaning of Section 1563(a)(1), (2) and (3) of the
Internal Revenue Code of 1986, as amended from time to time) of which the Borrower is a
member; controls or is controlled by the Borrower or by any Affiliate of the Borrower.




     (b) Any Affiliate.




19











 





“Requirement of Law”: As to any Person:




     (a) (i) All statutes, rules, regulations, orders, or other requirements having
the force of law and (ii) all court orders and injunctions, arbitrator’s decisions,
and/or similar rulings, in each instance ((i) and (ii)) of or by any federal, state,
municipal, and other governmental authority, or court, tribunal, governmental panel,
or other governmental body which has jurisdiction over such Person, or any property
of such Person.




     (b) That Person’s charter, certificate of incorporation, articles of
organization, and/or other organizational documents, as applicable; and




     (c) that Person’s by-laws and/or other instruments which deal with corporate or
similar governance, as applicable.



“Reserves”: Without duplication of any other reserves or items that are otherwise addressed
or excluded either through eligibility criteria or in the most recent appraisal
conducted hereunder by an independent appraiser reasonably satisfactory to the Lender,
such reserves as the Lender from time to time determines in its reasonable discretion
exercised in good faith as being necessary or appropriate (a) to reflect the
impediments to the Lender’s ability to realize upon the Collateral, (b) to reflect
costs, expenses and other amounts that the Lender may incur or be required to pay to
realize upon the Collateral, including, without limitation, on account of rent, customs
and duties and Permitted Encumbrances, (c) to reflect changes in the determination of
the saleability, at retail, of Acceptable Inventory, (d) to reflect such other factors
as negatively affect the market value of the Acceptable Inventory, (e) on account of
gift cards, gift certificates, merchandise credits and customer deposits, (f) Cash
Management Reserves, and (g) Bank Product Reserves.



“Responsible Officer”: means the chief executive officer, chief operating officer,
president, chief financial officer, general counsel, chief accounting officer,
treasurer, controller, vice president of finance of a Loan Party or any of the other
individuals designated in writing to the Lender by an existing Responsible Officer of a
Loan Party as an authorized signatory of any certificate or other document to be
delivered hereunder. Any document delivered hereunder that is signed by a Responsible
Officer of a Loan Party shall be conclusively presumed to have been authorized by all
necessary corporate, partnership and/or other action on the part of such Loan Party and
such Responsible Officer shall be conclusively presumed to have acted on behalf of such
Loan Party.



“Revolving
Credit”: Is defined in Section 2-1.



“Revolving Credit Note”: Is defined in Section 2-8.



“Revolving Credit Loan”: A term of convenience which refers to so much of the unpaid
principal balance of the Loan Account as bears the same rate of interest for the same
Interest Period.



20









 








“Second Amendment Effective Date”: The date upon which the conditions precedent set forth
in Article 3 hereof have been satisfied or waived and this Agreement has become
effective.



“Secured L/Cs”: L/Cs which have been secured in the manner provided pursuant to Section 2-19
hereof.



“Seller”: Federated Specialty Stores, Inc., an Ohio corporation.



“Statutory Reserve Rate”: A fraction (expressed as a decimal), the numerator of which is the
number one and the denominator of which is the number one minus the aggregate of the
maximum reserve percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Federal Reserve Board to which the
Lender is subject with respect to the Adjusted Eurodollar Rate, for Eurocurrency
funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the
Federal Reserve Board). Such reserve percentages shall include those imposed pursuant
to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency
funding and to be subject to such reserve requirements without benefit of or credit for
proration, exemptions or offsets that may be available from time to time to the Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall
be adjusted automatically on and as of the effective date of any change in any reserve
percentage.



“Stated Amount”: The maximum amount for which an L/C may be honored.



“Subordinated Indebtedness”: Indebtedness the payment of principal and interest of which is
expressly subordinated in right of payment to the Liabilities, in such form and on such
terms (which may include the payment of current interest until the occurrence, and
during the continuance, of a Suspension Event) as are reasonably acceptable to the
Lender.



“Subsidiary”: As to any Person, any corporation, association, partnership, limited liability
company, joint venture or other business entity of which at least fifty percent (50%)
or more of the ordinary voting power (or equivalent interests) for the election of a
majority of the board of directors (or other equivalent governing body) of such entity
is held or controlled by such Person, or by one or more Subsidiaries of such Person, or
by such Person and one or more Subsidiaries of such Person; or which is otherwise
controlled by such Person, or by one or more Subsidiaries of such Person, or by such
Person and one or more Subsidiaries of such Person through the exercise of voting power
or otherwise.



“Supporting Obligation”: Has the meaning given that term in the UCC and shall also refer to
a Letter of Credit Right or secondary obligation that supports the payment or
performance of an Account, Chattel Paper, a Document, a General Intangible, an
Instrument or Investment Property.



21









 








“Suspension Event”: Any occurrence, circumstance, or state of facts which (a) is an Event of
Default, which is continuing; or (b) would become an Event of Default if any requisite
notice were given and/or any requisite period of time were to run and such occurrence,
circumstance, or state of facts were not absolutely cured within any applicable grace
period.



“Termination Date”: The earliest of (a) the Maturity Date; or (b) the occurrence of any
event described in Section hereof; or (c) date set by notice by the Lender to the
Borrower, which notice sets the Termination Date on account of the occurrence of any
Event of Default other than as described in Section hereof.



“Trust Deposit Accounts”: Depository accounts established by the Loan Parties the proceeds
of which are to be utilized solely for the payment of sales taxes, ad valorem taxes,
withholding taxes and other similar taxes, and other depository accounts established by
the Loan Parties for which such Loan Party is a trustee or other fiduciary for any
other Persons.



“UCC”: The Uniform Commercial Code as presently in effect in Massachusetts,
provided, however, that if a term is defined in Article 9 of the
Uniform Commercial Code differently than in another Article thereof, the term shall
have the meaning set forth in Article 9; provided further that, if by
reason of mandatory provisions of law, perfection, or the effect of perfection or
non-perfection, of a security interest in any Collateral or the availability of any
remedy hereunder is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than Massachusetts, “Uniform Commercial Code” means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or effect of perfection or non-perfection or
availability of such remedy, as the case may be.



“Unreimbursed L/C Obligations”: The then unpaid reimbursement obligations in respect of L/Cs
which have been drawn, but which have not been repaid either by an advance under the
Revolving Credit in accordance with the provisions of Section 2-17(e) hereof or
otherwise.



2. — The Revolving Credit:




     (a) Establishment of Revolving Credit.



          (i) The Lender hereby establishes a revolving line of credit (the “Revolving Credit”) in the
Borrower’s favor pursuant to which the Lender, subject to, and in accordance with, this Agreement,
shall make loans and advances and otherwise provide financial accommodations to and for the account
of the Borrower as provided herein, up to the maximum amount of the Lender’s Dollar Commitment;
provided that the outstanding amount of Revolving Credit Loans and the Stated Amount of L/Cs shall
not at any time in the aggregate exceed the lesser of (A) the Loan Ceiling, or (B) the Borrowing
Base.




          (ii) The proceeds of borrowings under the Revolving Credit shall be used solely for working
capital and general corporate purposes of the Borrower, including, without limitation, the
repurchase of the Borrower’s capital stock, and for its Capital Expenditures, all solely to the
extent permitted by this Agreement.




     (b) Intentionally Omitted.



22









 





     (c) Intentionally Omitted.



     (d) Risks of Value of Collateral. The Lender’s reference to a given asset in connection with
the making of loans, credits, and advances and the providing of financial accommodations under the
Revolving Credit and/or the monitoring of compliance with the provisions hereof shall not be deemed
a determination by the Lender relative to the actual value of the asset in question. All risks
concerning the collectability of the Borrower’s Accounts and the saleability of the Borrower’s
Inventory are and remain upon the Borrower. All Collateral secures the prompt, punctual, and
faithful performance of the Liabilities whether or not relied upon by the Lender in connection with
the making of loans, credits, and advances and the providing of financial accommodations under the
Revolving Credit.



     (e) Loan Requests.



          (i) Subject to the provisions of this Agreement, a loan or advance under the Revolving Credit
duly and timely requested by the Borrower shall be made pursuant hereto, provided that:





          (A) Availability will not be exceeded;




          (B) If Aggregate Outstandings exceed $75,000,000, no loans, advances or other financial
accommodations shall be made if as a result thereof the Aggregate Outstandings would exceed
$100,000,000 until such time as the Lender has completed, and received the results of a
commercial finance audit and inventory appraisal in accordance with the provisions of
Section 5-10 hereof.




          (C) The Revolving Credit has not been suspended as provided in Section 2-5(h).



          (ii) Requests for loans and advances under the Revolving Credit may be requested by the
Borrower in such manner as may from time to time be reasonably acceptable to the Lender.




          (iii) Subject to the provisions of this Agreement, the Borrower may request a Revolving Credit
Loan and elect an interest rate and Interest Period to be applicable to that Revolving Credit Loan
by giving the Lender notice no later than the following:





          (A) If such Revolving Credit Loan is or is to be converted to a Base Rate Loan: By 1:00
PM on the Business Day on which the subject Revolving Credit Loan is to be made or is to be
so converted. Base Rate Loans requested by the Borrower, other than those resulting from
the conversion of a Eurodollar Loan, shall not be less than $10,000.00 (or the then
Availability if less than $10,000.00).




          (B) If such Revolving Credit Loan is, or is to be continued as, or converted to, a
Eurodollar Loan: By 1:00 PM two (2) Eurodollar Business Days before the end of the then
applicable Interest Period. Eurodollar Loans and conversions to Eurodollar Loans shall each
be not less than $1,000,000.00 and in increments of $1,000,000.00 in excess of such minimum.




          (C) Any Eurodollar Loan which matures while a Suspension Event is extant shall be
converted, at the option of the Lender to a Base Rate Loan notwithstanding any notice from
the Borrower that such Loan is to be continued as a Eurodollar Loan.



          (iv) Any request for a Revolving Credit Loan or for the conversion of a Revolving Credit Loan
which is made after the applicable deadline therefor, as set forth above, shall be deemed to have
been made at the opening of business on the then next Business Day or Eurodollar Business Day, as
applicable. Each request for
a Revolving Credit Loan or for the conversion of a Revolving Credit Loan shall be made in such
manner as may from time to time be reasonably acceptable to the Lender




23









 








          (v) The Borrower may request that the Lender cause the issuance of L/C’s for the account of
the Borrower as provided in Section 2-17.




          (vi) The Lender may rely on any request for a loan or advance, or other financial
accommodation under the Revolving Credit which the Lender, in good faith, reasonably believes to
have been made by a Person duly authorized to act on behalf of the Borrower and may decline to make
any such requested loan or advance, or issuance, or to provide any such financial accommodation
pending the Lender’s being furnished with such documentation concerning that Person’s authority to
act as may be reasonably satisfactory to the Lender.




          (vii) A request by the Borrower for loan or advance, or other financial accommodation under
the Revolving Credit shall be irrevocable and shall constitute certification by the Borrower that
as of the date of such request, each of the following is true and correct:





          (A) There has been no material adverse change in the Borrower’s financial condition
from the most recent financial information furnished to the Lender pursuant to this
Agreement.




          (B) All or a portion of any loan or advance so requested will be set aside by the
Borrower to cover all of the Borrower’s obligations for sales tax on account of sales since
the then most recent borrowing pursuant to the Revolving Credit.




          (C) Each representation which is made herein or in any of the Loan Documents (defined
below) is then true and complete in all material respects as of and as if made on the date
of such request (other than those which are as of a specific date, in which case such
representation was true and complete in all material respects as of such date).




          (D) No Suspension Event is then extant.



          (viii) Upon the occurrence, and during the continuance, from time to time of any Suspension
Event:





          (A) The Lender may suspend the Revolving Credit immediately.




          (B) The Lender shall not be obligated, during such suspension, to make any loans or
advance, or to provide any financial accommodation hereunder or to seek the issuance of any
L/C.




          (C) The Lender may suspend the right of the Borrower to request any Eurodollar Loan or
to convert any Base Rate Loan to a Eurodollar Loan.



     (f) Making of Loans Under Revolving Credit.



          (i) A loan or advance under the Revolving Credit shall be made by the transfer of the
proceeds of such loan or advance to the Operating Account or as otherwise instructed by the
Borrower.




          (ii) A loan or advance shall be deemed to have been made under the Revolving Credit (and the
Borrower shall be indebted to the Lender for the amount thereof immediately) at the following:





          (A) The Lender’s initiation of the transfer of the proceeds of such loan or advance in
accordance with the Borrower’s instructions (if such loan or advance is of funds requested
by the Borrower).




          (B) The charging of the amount of such loan to the Loan Account (in all other
circumstances).



          (iii) There shall not be any recourse to or liability of the Lender, on account of:




24









 









          (A) Any delay in the making of any loan or advance requested under the Revolving Credit
unless due to the Lender’s gross negligence or willful misconduct.




          (B) Any delay in the proceeds of any such loan or advance constituting collected funds.




          (C) Any delay in the receipt, and/or any loss, of funds which constitute a loan or
advance under the Revolving Credit, the wire transfer of which was properly initiated by the
Lender in accordance with wire instructions provided to the Lender by the Borrower.



     (g) The Loan Account.



          (i) An account (“Loan Account”) shall be opened on the books of the Lender. A record may be
kept in the Loan Account of all loans made under or pursuant to this Agreement and of all payments
thereon.




          (ii) The Lender may also keep a record (either in the Loan Account or elsewhere, as the Lender
may from time to time elect) of all interest, fees, service charges, costs, expenses, and other
debits owed the Lender on account of the Liabilities and of all credits against such amounts so
owed.




          (iii) All credits against the Liabilities shall be conditional upon final payment to the
Lender of the items giving rise to such credits. The amount of any item credited against the
Liabilities which is charged back against the Lender for any reason or is not so paid shall be a
Liability and shall be added to the Loan Account, whether or not the item so charged back or not so
paid is returned.




          (iv) Except as otherwise provided herein, all fees, service charges, costs, and expenses for
which the Borrower is obligated hereunder are payable on demand.




          (v) The Lender, without the request of the Borrower, may advance under the Revolving Credit
any interest, fee, service charge, or other payment to which the Lender is entitled from the
Borrower pursuant hereto and may charge the same to the Loan Account notwithstanding that such
amount so advanced may result in Availability’s being exceeded. Such action on the part of the
Lender shall not constitute a waiver of the Lender’s rights and Borrower’s obligations under
Section 2-9(b). Any amount which is added to the principal balance of the Loan Account as provided
in this Section shall bear interest, subject to Section 2-10(f), at the Prime Rate.




          (vi) Absent manifest error, any statement rendered by the Lender to the Borrower concerning
the Liabilities shall be considered correct and accepted by the Borrower and shall be conclusively
binding upon the Borrower unless the Borrower provides the Lender with written objection thereto
within sixty (60) days from the receipt of such statement, which written objection shall indicate,
with particularity, the reason for such objection. The Loan Account and the Lender’s books and
records concerning the loan arrangement contemplated herein and the Liabilities shall be prima
facie evidence and proof of the items described therein.




     (h) The Revolving Credit Notes. The obligation to repay loans and advances under the
Revolving Credit, with interest as provided herein, shall be evidenced by a promissory note (a
“Revolving Credit Note”) in the form of EXHIBIT 2-8, annexed hereto, executed by the Borrower.
Neither the original nor a copy of the Revolving Credit Note shall be required, however, to
establish or prove any Liability. In the event that the Revolving Credit Note is ever lost,
mutilated, or destroyed, upon receipt of an indemnification with respect to the lost Revolving
Credit Note from the Lender in form and substance reasonably satisfactory to the Borrower and the
Lender, the Borrower shall execute a replacement thereof and deliver such replacement to the
Lender.



25









 





     (i) Payment of The Loan Account.



          (i) The Borrower may repay all or any portion of the principal balance of the Loan Account
from time to time until the Termination Date. Such payments shall be applied first to Base Rate
Loans and only then to Eurodollar Loans.




          (ii) The Borrower, without notice or demand from the Lender, shall pay the Lender that amount,
from time to time, which is necessary so that the unpaid balance of the Loan Account does not
exceed Availability. Such payments shall be applied first to Base Rate Loans and only then to
Eurodollar Loans.




          (iii) Subject to the provisions of Section 7-5(c) hereof, the Lender shall endeavor to cause
those applications of payments (if any), pursuant to Sections 2-9(a) and 2-9(b) against Eurodollar
Loans then outstanding in such manner as results in the least cost to the Borrower, but shall not
have any affirmative obligation to do so nor liability on account of the Lender’s failure to have
done so. In no event shall action or inaction taken by the Lender excuse the Borrower from any
indemnification obligation under Section 2-9(e).




          (iv) The Borrower shall repay the then entire unpaid balance of the Loan Account and all other
Liabilities on the Termination Date.




          (v) The Borrower shall indemnify the Lender and hold the Lender harmless from and against any
loss, cost or expense (excluding loss of anticipated profits) which the Lender may sustain or incur
(including, without limitation, by virtue of acceleration after the occurrence of any Event of
Default) as a consequence of the following:





          (A) Default by the Borrower in payment of the principal amount of or any interest on
any Eurodollar Loan as and when due and payable, including any such loss or expense arising
from interest or fees payable by the Lender to lenders of funds obtained by it in order to
maintain its Eurodollar Loans.




          (B) Default by the Borrower in making a borrowing or conversion after the Borrower has
given (or is deemed to have given) a request for a Revolving Credit Loan or a request to
convert a Revolving Credit Loan from one applicable interest rate to another.




          (C) The making of any payment on a Eurodollar Loan or the making of any conversion of
any such Loan to a Base Rate Loan on a day that is not the last day of the applicable
Interest Period with respect thereto, including interest or fees payable by the Lender to
lenders of funds obtained by it in order to maintain any such Loans as “breakage fees”
(so-called).



     (j) Interest Rates.



          (i) Each Revolving Credit Loan shall bear interest at the Prime Rate plus the Applicable
Margin for Base Rate Loans unless timely notice is given (as provided in Section 2-5(a)) that the
subject Revolving Credit Loan (or a portion thereof) is, or is to be converted to, a Eurodollar
Loan.




          (ii) Each Revolving Credit Loan which consists of a Eurodollar Loan shall bear interest at the
Adjusted Eurodollar Rate plus the Applicable Margin for Eurodollar Loans.




          (iii) Subject to the provisions hereof, the Borrower, by notice to the Lender, may cause all
or a part of the unpaid principal balance of the Loan Account to bear interest at the Prime Rate or
the Adjusted Eurodollar Rate as specified from time to time by the Borrower.




          (iv) The Borrower shall not select, renew, or convert any interest rate for a Revolving Credit
Loan such that, in addition to interest at the Prime Rate, there are more than six (6) Interest
Periods for Eurodollar Loans applicable to the Revolving Credit Loans at any one time.




26









 








          (v) The Borrower shall pay accrued and unpaid interest on each Revolving Credit Loan in
arrears as follows:





          (A) On the applicable Interest Payment Date for that Revolving Credit Loan.




          (B) On the Termination Date and on the End Date.




          (C) Following the occurrence, and during the continuance, of any Event of Default, with
such frequency as may be determined by the Lender.



          (vi) Following the occurrence, and during the continuance, of any Default Interest Event (and
whether or not the Lender exercises the Lender’s rights on account thereof), all Revolving Credit
Loans shall bear interest, at the option of the Lender, at a rate which is the aggregate of the
interest rate then in effect plus two percent (2%) per annum.




          (vii) All computations of interest for Base Rate Loans shall be made on the basis of a year of
365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and
interest shall be made on the basis of a 360-day year and actual days elapsed (which results in
more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year).




     (k) Additional Fees.



     In addition to any other fee paid by Borrower on account of the Revolving Credit, the Borrower
shall pay the Lender a Line (Unused) Fee (so referred to herein) in arrears, on the first day of
each month, commencing with the first month immediately following the Second Amendment Effective
Date (and on the Termination Date). The Line (Unused) Fee shall be equal to Applicable Margin for
Line (Unused) Fee per annum multiplied by the difference during the month just ended (or relevant
period with respect to the payment being made on the Termination Date) between Loan Ceiling and the
Average Outstandings.



     (l) Intentionally Omitted.



     (m) Line (Unused Fee).



     In addition to any other fee paid by Borrower on account of the Revolving Credit, the Borrower
shall pay the Lender a Line (Unused) Fee (so referred to herein) in arrears, on the first day of
each month, commencing with the first month immediately following the Second Amendment Effective
Date (and on the Termination Date). The Line (Unused) Fee shall be equal to Applicable Margin for
Line (Unused) Fee per annum multiplied by the difference during the month just ended (or relevant
period with respect to the payment being made on the Termination Date) between Loan Ceiling and the
Average Outstandings.



     (n) Intentionally Omitted



     (o) Concerning Fees.



     The Borrower shall not be entitled to any credit, rebate or repayment of the Commitment Fee,
Line (Unused) Fee or other fee previously earned by the Lender pursuant to this Agreement
notwithstanding any termination of this Agreement or suspension or termination of the Lender’s
obligation to make loans and advances hereunder.



     (p) Lender’s Discretion.



27









 





     Each reference in the Loan Documents to the exercise of discretion or the like by the Lender
shall be to its exercise of its reasonable judgement, in good faith, based upon the Lender’s
consideration of any such factor as the Lender reasonably deems appropriate.



     (q) Procedures For Issuance of L/C’s.



          (i) The Borrower may request that the Lender cause the issuance of L/C’s for the account of
the Borrower. Each such request shall be in such manner as may from time to time be acceptable to
the Lender.




          (ii) Subject to the provisions of Section 2.5(a)(ii), the Lender will endeavor to cause the
issuance of any L/C so requested by the Borrower, provided that, at the time that the request is
made, the Revolving Credit has not been suspended as provided in Section 2-5(h) and if so issued:





          (A) The aggregate Stated Amount of all L/C’s then outstanding, does not exceed Forty
Million Dollars and No Cents ($40,000,000.00).




          (B) The expiry of the L/C is not later than the Maturity Date.




          (C) Availability would not be exceeded.




          (D) Intentionally Omitted.



          (iii) The Borrower shall execute such documentation to apply for and support the issuance of
an L/C as may be reasonably required by the Issuer.




          (iv) There shall not be any recourse to, nor liability of, the Lender on account of





          (A) Any delay by an Issuer to issue an L/C;




          (B) Any action or inaction of an Issuer on account of or in respect to, any L/C.



          (v) The Borrower shall reimburse the Issuer for the amount of any drawing under an L/C on the
same Business Day of such drawing. The Lender, without the request of the Borrower, may advance
under the Revolving Credit (and charge to the Loan Account) the amount of any honoring of any L/C
and other amount for which the Borrower, the Issuer, or the Lenders become obligated on account of,
or in respect to, any L/C. Such advance shall be made whether or not a Suspension Event is then
extant or such advance would result in Availability’s being exceeded. Such action shall not
constitute a waiver of the Lender’s rights under Section 2-9(b) hereof.




     (r) Fees For L/C’s.



          (i) The Borrower shall pay to the Lender a fee, on account of L/C’s, the issuance of which had
been procured by the Lender, monthly in arrears, and on the Termination Date and on the End Date,
equal to the following per annum percentages of the average face amount of the following categories
of Letters of Credit outstanding during the three month period then ended:





          (A) Standby Letters of Credit: At a per annum rate equal to the then Applicable Margin
for Eurodollar Loans;




          (B) Commercial Letters of Credit: At a per annum rate equal to fifty percent (50%) of
the then Applicable Margin for Eurodollar Loans.



28









 






          (C) After the occurrence and during the continuance of an Event of Default, effective
upon written notice from the Lender, the L/C fees shall be increased by an amount equal to
two percent (2%) per annum.



          (ii) In addition to the fee to be paid as provided in Subsection 2-18(a), above, the Borrower
shall pay to the Lender (or to the Issuer, if so requested by Lender), on demand, all issuance,
processing, negotiation, amendment, and administrative fees and other amounts charged by the Issuer
on account of, or in respect to, any L/C.




     (s) Cash Collateralization of L/Cs.



          (i) With respect to L/Cs with a scheduled expiry after the Maturity Date, thirty (30) days
prior to the Maturity Date, and




          (b) with respect to all L/Cs, upon the Lender’s request after the occurrence, and during the
continuance, of any Event of Default hereunder,



the Borrower shall deposit in an account with the Lender, an amount in cash equal to 103% of the
then Stated Amount of all outstanding L/Cs. Such deposit shall be held by the Lender as collateral
for the payment and performance of the Liabilities. The Lender shall have the exclusive dominion
and control over such account. Such deposits shall not bear interest. Monies in such account
shall be automatically applied by the Lender to reimburse the Issuer for any honoring of any L/Cs,
together with any other amounts owed to the Issuer, and after all L/Cs have been so reimbursed or
otherwise expired, any remaining balance shall be applied in reduction of the Liabilities. In lieu
of depositing such cash with the Lender the Borrower may furnish the Lender, with a so-called
“back-to-back” letter of credit in form and substance and issued by a bank reasonably satisfactory
to the Lender in its sole and absolute discretion, in an amount equal to 103% of the then Stated
Amount of all outstanding L/Cs. Drawings under such “back-to-back” letters of credit shall be
applied by the Lender to the Liabilities in the manner set forth above with respect to the cash
collateral account. If no Event of Default then exists, the cash collateral deposited with the
Lender and/or the amount of the “back-to-back” letters of credit may be reduced by an amount equal
to any reduction from time to time in the Stated Amount of all outstanding L/Cs (other than on
account of drawings thereunder).




     (t) Concerning L/C’s.




          (i) None of the Issuer, the Issuer’s correspondents, or any advising, negotiating, or paying
bank with respect to any L/C shall be responsible in any way for:





          (A) The performance by any beneficiary under any L/C of that beneficiary’s obligations
to the Borrower.




          (B) The form, sufficiency, correctness, genuineness, authority of any person signing;
falsification; or the legal effect of; any documents called for under any L/C if (with
respect to the foregoing) such documents on their face appear to be in order, except to the
extent that such Issuer, Issuer’s correspondents, or advising, negotiating, or paying bank
has actual knowledge of any of the foregoing.



          (ii) The Issuer may honor, as complying with the terms of any L/C and of any drawing
thereunder, any drafts or other documents otherwise in order, but signed or issued by an
administrator, executor, conservator, trustee in bankruptcy, debtor in possession, assignee for the
benefit of creditors, liquidator, receiver, or other legal representative of the party authorized
under such L/C to draw or issue such drafts or other documents.




29









 








          (iii) Unless otherwise agreed to, in the particular instance, the Borrower hereby authorizes
any Issuer to:





          (A) Select an advising bank, if any.




          (B) Select a paying bank, if any.




          (C) Select a negotiating bank.



          (iv) All directions, correspondence, and funds transfers relating to any L/C are at the risk
of the Borrower. The Issuer shall have discharged the Issuer’s obligations under any L/C which, or
the drawing under which, includes payment instructions, by the initiation of the method of payment
called for in, and in accordance with, such instructions (or by any other commercially reasonable
and comparable method). Neither the Lender nor the Issuer shall have any responsibility for any
inaccuracy, interruption, error, or delay in transmission or delivery by post, telegraph or cable,
or for any inaccuracy of translation, except for their gross negligence or willful misconduct.




          (v) The Lender’s, and the Issuer’s rights, powers, privileges and immunities specified in or
arising under this Agreement are in addition to any heretofore or at any time hereafter otherwise
created or arising, whether by statute or rule of law or contract.




          (vi) Except to the extent otherwise expressly provided hereunder or agreed to in writing by
the Issuer and the Borrower, (i) the rules of the ISP shall apply to each standby L/C, and (ii) the
rules of the Uniform Customs and Practice for Documentary Credits, as most recently published by
the International Chamber of Commerce at the time of issuance shall apply to each commercial L/C.




          (vii) If any change in any law, executive order or regulation, or any directive of any
administrative or governmental authority (whether or not having the force of law), or in the
interpretation thereof by any court or administrative or governmental authority charged with the
administration thereof, shall either:





          (A) impose, modify or deem applicable any reserve, special deposit or similar
requirements against letters of credit heretofore or hereafter issued by any Issuer or with
respect to which the Lender, any or any Issuer has an obligation to lend to fund drawings
under any L/C; or




          (B) impose on any Issuer any other condition or requirements relating to any such
letters of credit;


and the result of any event referred to in Section 2-20(g)(i) or 2-20(g)(ii), above, shall be to
increase the cost to any Issuer of issuing or maintaining any L/C (which increase in cost shall be
the result of such Issuer’s reasonable allocation among that Issuer’s letter of credit customers of
the aggregate of such cost increases resulting from such events), then, upon demand by the Lender
and delivery by the Lender to the Borrower of a certificate of an officer of the subject Issuer
describing such change in law, executive order, regulation, directive, or interpretation thereof,
its effect on such Issuer, and the basis for determining such increased costs and their allocation,
the Borrower shall immediately pay to the Lender, from time to time as specified by the Lender,
such amounts as shall be sufficient to compensate such Issuer for such increased cost;
provided that the Borrower shall not be obligated to make payment of such amounts which
arise from transactions which occurred more than ninety (90) Business Days prior to the Lender’s
furnishing notice hereunder. Any Issuer’s determination of costs incurred under Section
2-20(g)(i) or 2-20(g)(ii), above, and the allocation, if any, of such costs among the Borrower and
other letter of credit customers of such Issuer, if done in good faith and made on



30









 






an equitable basis and in accordance with such officer’s certificate, shall be conclusive and
binding on the Borrower, absent manifest error.




          (viii) The obligations of the Borrower under this Agreement with respect to L/C’s are
absolute, unconditional, and irrevocable and shall be performed strictly in accordance with the
terms hereof under all circumstances, whatsoever including, without limitation, the following:





          (A) Any lack of validity or enforceability or restriction, restraint, or stay in the
enforcement of this Agreement, any L/C, or any other agreement or instrument relating
thereto.




          (B) Any amendment or waiver of, or consent to the departure from, any L/C.




          (C) The existence of any claim, set-off, defense, or other right which the Borrower may
have at any time against the beneficiary of any L/C.



     (u) Changed Circumstances.




     (i) The Lender may give the Borrower notice of the occurrence of the following:




          (A) The Lender shall have determined in good faith (which determination shall be final
and conclusive) on any day on which the rate for a Eurodollar Loan would otherwise be set,
that adequate and fair means do not exist for ascertaining such rate.




          (B) The Lender shall have determined in good faith (which determination shall be final
and conclusive) that:




          (1) The continuation of or conversion of any Revolving Credit Loan to a
Eurodollar Loan has been made impracticable or unlawful by the occurrence of a
contingency that materially and adversely affects the applicable market or
compliance by the Lender in good faith with any applicable law or governmental
regulation, guideline or order or interpretation or change thereof by any
governmental authority charged with the interpretation or administration thereof or
with any request or directive of any such governmental authority (whether or not
having the force of law).




          (2) The indices on which the interest rates for Eurodollar Loans are based
shall no longer represent the effective cost to the Lender for U.S. dollar deposits
in the interbank market for deposits in which it regularly participates.



          (ii) In the event that the Lender gives the Borrower notice of an occurrence described in
Section 2-21(a), then, until the Lender notifies the Borrower that the circumstances giving rise to
such notice no longer apply:





          (A) The obligation of the Lender to make Eurodollar Loans of the type affected by such
changed circumstances or to permit the Borrower to select the affected interest rate as
otherwise applicable to any Revolving Credit Loans shall be suspended.




          (B) Any notice which the Borrower had given the Lender with respect to any Eurodollar
Loan, the time for action with respect to which has not occurred prior to the Lender’s
having given notice pursuant to Section 2-21(a), shall be deemed to be a request for a Base
Rate Loan.



          (iii) Notwithstanding the foregoing, the Lender agrees to use its reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions and so long as such
efforts would not be disadvantageous to it, in its reasonable discretion, in any legal, economic or
regulatory manner) to designate a different lending office if the making of such designation would
allow the Lender or its lending office to continue to make Eurodollar Loans.




31









 








          (v) Increased Costs. If there is adopted after the date hereof any requirement of law, or if
there is any new interpretation or application of any law after the date hereof by any court or by
any governmental or other authority or entity charged with the administration thereof, whether or
not having the force of law, which:





     I. subjects the Lender to any taxes or changes the basis of taxation, or increases any
existing taxes, on payments of principal, interest or other amounts payable by the Borrower
to the Lender under this Agreement (except for taxes on the Lender’s overall net income or
capital imposed by the jurisdiction in which the Lender’s principal or lending offices are
located or in which the Lender is organized);




     II. imposes, modifies or deems applicable any reserve, cash margin, special deposit or
similar requirements against assets held by, or deposits in or for the account of or loans
by or any other acquisition of funds by the relevant funding office of the Lender;




     III. imposes on the Lender any other condition with respect to any Loan Document; or




     IV. imposes on the Lender a requirement to maintain or allocate capital in relation to
the Liabilities;


and the result of any of the foregoing, in the Lender’s reasonable opinion, is to increase the cost
to the Lender of making or maintaining any loan, advance or financial accommodation or to reduce
the income receivable by the Lender in respect of any loan, advance or financial accommodation by
an amount which the Lender deems to be material, then upon the Lender’s giving written notice
thereof to the Borrower (such notice to set out in reasonable detail the facts giving rise to and a
summary calculation of such increased cost or reduced income), the Borrower shall forthwith pay to
the Lender, upon receipt of such notice, that amount which shall compensate the Lender for such
additional cost or reduction in income, provided that the Borrower shall not be obligated
to make payment of such amounts which arise from transactions which occurred more than ninety (90)
Business Days prior to the Lender’s furnishing notice hereunder.




     Notwithstanding the foregoing, the Lender agrees to use its reasonable efforts (consistent
with its internal policy and legal and regulatory restrictions and so long as such efforts would
not be disadvantageous to it, in its reasonable discretion, in any legal, economic or regulatory
manner) to designate a different lending office if the making of such designation would allow the
Lender or its lending office to avoid the imposition of such increased costs.



     (w) Lender’s Commitments.



          (i) The Dollar Commitments, Commitment Percentages, and identities of the Lenders (but not the
overall Commitment) may be changed, from time to time by the assignment of Dollar Commitments and
Commitment Percentages with other Persons who determine to become “Lenders”, provided, however,
that





          (A) Unless an Event of Default has occurred and is continuing (in which event, no
consent of the Borrower is required) any assignment (other than an assignment to a then
Lender) shall be subject to the prior consent of the Borrower (not to be unreasonably
withheld), which consent will be deemed given unless the Borrower provides the Lender with
written objection, not more than five (5) Business Days after the Lender shall have given
the Borrower written notice of a proposed assignment).



32









 






          (B) Any such assignment or reallocation shall be on a pro-rata basis such that each
reallocated or assigned Dollar Commitment to any Person remains the same percentage of the
overall Commitment (in terms of dollars) as the reallocated Commitment Percentage is to such
Person.




          (C) No such assignment shall be in an amount less than Ten Million Dollars
($10,000,000.00), or, if less, the total Dollar Commitment of such assigning Lender.



          (ii) Upon written notice given the Borrower from time to time by the Lender, of any assignment
or allocation referenced in Section 2-23(a):





          (A) The Borrower shall execute replacement one or more Revolving Credit Notes to
reflect such changed Dollar Commitments, Commitment Percentages, and identities and shall
deliver such replacement Revolving Credit Notes to the Lender (which promptly thereafter
shall deliver to the Borrower the Revolving Credit Notes so replaced) provided however, in
the event that a Revolving Credit Note is to be exchanged following its acceleration or the
entry of an order for relief under the Bankruptcy Code with respect to the Borrower, the
Lender, in lieu of causing the Borrower to execute one or more new Revolving Credit Notes,
may issue the Lender’s Certificate confirming the resulting Commitments and Commitment
Percentages.




          (B) Such change shall be effective from the effective date specified in such written
notice and any Person added as a Lender shall have all rights and privileges of a Lender
hereunder thereafter as if such Person had been a signatory to this Agreement and any other
Loan Document to which a Lender is a signatory and any person removed as a Lender shall be
relieved of any obligations or responsibilities of a Lender hereunder thereafter.




          (C) The Borrower shall maintain a register identifying the Lenders from time to time.



          (iii) Intentionally Omitted.




3. — Conditions Precedent:




     (a) As a condition to the effectiveness of this Agreement, the establishment of the Revolving
Credit, and the making of the first loan under the Revolving Credit, each of the documents
respectively described in Sections 3-2 through and including 3-5, (each in form and substance
reasonably satisfactory to the Lender) shall have been delivered to the Lender, and the conditions
respectively described in Sections 3-6 through and including 3-15, shall have been satisfied:



     (b) Corporate Due Diligence.



          (i) A Certificate of corporate good standing issued by the Secretary of State of each State in
which a Loan Party is organized.




          (ii) Certificates of due qualification, in good standing, issued by the Secretary(ies) of
State of each State in which the nature of a Loan Party’s business conducted or assets owned would
reasonably be expected to require such qualification.




          (iii) A Certificate of each Loan Party’s Secretary of the due adoption, continued
effectiveness, and setting forth the texts of, each corporate resolution adopted in connection with
the establishment of the loan arrangement contemplated by the Loan Documents and attesting to the
true signatures of each Person authorized as a signatory to any of the Loan Documents.




     (c) Opinion. An opinion of counsel to the Loan Parties in form and substance reasonably satisfactory to the
Lender.



33









 





     (d) Additional
Documents. Such additional instruments and documents as the Lender or its counsel
reasonably may require or request.



     (e) Officers’ Certificates. Certificates executed by the President and the Chief Financial
Officer of the Borrower and stating that the representations and warranties made by the Loan
Parties to the Lender in the Loan Documents are true and complete in all material respects as of
the date of such Certificate, and that no event has occurred which is or which, solely with the
giving of notice or passage of time (or both) would be an Event of Default.



     (f) Representations and Warranties. Each of the representations made by or on behalf of the
Loan Parties in this Agreement or in any of the other Loan Documents or in any other report,
statement, document, or paper provided by or on behalf of a Loan Party shall be true and complete
in all material respects as of the date as of which such representation or warranty was made.



     (g) Borrowing Base Certificate. The Lender shall have received a Borrowing Base Certificate
dated the Closing Date, relating to the month ended on October 31, 2007, and executed by a
Responsible Officer of the Borrower.



     (h) All Fees and Expenses Paid. All fees due at or immediately after the first funding under
the Revolving Credit and all costs and expenses reasonably incurred by the Lender in connection
with the establishment of the credit facility contemplated hereby (including the reasonable fees
and expenses of counsel to the Lender) shall have been paid (to the extent then invoiced).



     (i) Financial Projections. The Lender shall have received and be satisfied with a detailed
forecast for the period commencing on the Closing Date through the fiscal year ending on or about
January 31, 2009, which shall include an Availability model, Consolidated income statement, balance
sheet, and statement of cash flow, by quarter, each prepared in conformity with GAAP and consistent
with the Borrower’s current practices.



     (j) Borrower’s Assets. The Lender shall have received a copy of the results of the Loan
Parties’ most recent physical inventory and such results shall be reasonably satisfactory to the
Lender. In addition, the Lender shall be reasonably satisfied that the inventory of each Loan
Party is located at such places or is in transit to such Loan Party and is in the amounts and of the quality and value
previously represented by the Borrower to the Lender and the Lender shall have received such
reports, material and other information concerning the inventory and the Loan Parties’ suppliers as
shall reasonably satisfy the Lender in its sole discretion.



     (k) Lien Search. The Lender shall have received results of searches or other evidence
satisfactory to the Lender (in each case dated as of a date reasonably satisfactory to the Lender)
indicating the absence of liens on the assets of the Loan Parties, except for Permitted
Encumbrances and liens for which termination statements and releases reasonably satisfactory to the
Lender are being tendered concurrently with the establishment of the Revolving Credit.



     (l) Perfection of Collateral. The Lender shall have filed all such financing statements and
given all such notices as may be necessary for the Lender to perfect its security interest in



34









 






such
of the Collateral as to which the Lender determines to perfect its security interests and to assure
its first priority status (subject only to Permitted Encumbrances).



     (m) Insurance. The Lender shall be reasonably satisfied with the Loan Parties’ insurance
arrangements and shall have received all documentation requested in connection with such insurance
including, documentation naming the Lender as “loss payee” under each policy.



     (n) No Suspension Event. No Suspension Event shall then exist.



     (o) No Adverse Change. No event shall have occurred or failed to occur, which occurrence or
failure reasonably would be expected to have a Material Adverse Effect.



     (p) Execution and Delivery of Agreement. This Agreement shall have been duly executed and
delivered by the parties hereto, and shall be in full force and effect and shall be in form and
substance satisfactory to the Lender.


No document shall be deemed delivered to the Lender until received and accepted by the Lender at
its head offices in Boston, Massachusetts. Under no circumstances will this Agreement take effect
until executed and accepted by the Lender at said head office.




4. — General Representations, Covenants and Warranties:




     To induce the Lender to establish the loan arrangement contemplated herein and to make loans
and advances and to provide financial accommodations under the Revolving Credit (each of which
loans shall be deemed to have been made in reliance thereupon), the Borrower, in addition to all
other representations, warranties, and covenants made by the Borrower in any
other Loan Document, makes those representations, warranties, and covenants included in this
Agreement.



     (a) Payment and Performance of Liabilities. The Borrower shall pay each Liability when due
(or when demanded if payable on demand) and shall promptly, punctually, and faithfully perform each
other Liability.



     (b) Due Organization — Corporate Authorization — No Conflicts.



          (i) Each Loan Party presently is and shall hereafter remain in good standing in its State of
organization and each is and shall hereafter remain duly qualified and in good standing in every
other State in which, by reason of the nature or location of the Loan Parties’ assets or operation
of the Loan Parties’ business, such qualification is necessary, except where the failure to so
qualify would not have a Material Adverse Effect.




          (ii) Each Related Entity as of the date hereof is listed on EXHIBIT 4-2, annexed hereto. Each
Subsidiary is and shall hereafter remain in good standing in the State in which incorporated and is
and shall hereafter remain duly qualified in which other State in which, by reason of that entity’s
assets or the operation of such entity’s business, such qualification may be necessary, except
where the failure to so qualify would not reasonably be expected to have a Material Adverse Effect.
The Borrower shall provide the Lender with prior written notice of any entity’s becoming or
ceasing to be a Related Entity.




          (iii) No Loan Party shall change its State of incorporation or its taxpayer identification
number.





35









 








          (iv) Each Loan Party has all requisite corporate power and authority to execute and deliver
all Loan Documents to which such Loan Party is a party and has and will hereafter retain all
requisite corporate power to perform all Liabilities.




          (v) The execution and delivery by the Loan Parties of each Loan Document to which it is a
party; the Loan Parties’ consummation of the transactions contemplated by such Loan Documents
(including, without limitation, the creation of security interests by the Loan Parties as
contemplated hereby); each Loan Party’s performance under those of the Loan Documents to which it
is a party; the borrowings hereunder; and the use of the proceeds thereof:





          (A) Have been duly authorized by all necessary corporate action.




          (B) Do not, and will not, contravene in any material respect any provision of any
Requirement of Law or obligation of such Loan Party.




          (C) Will not result in the creation or imposition of, or the obligation to create or
impose, any Encumbrance upon any assets of a Loan Party pursuant to any Requirement of Law
or obligation, except pursuant to the Loan Documents.



          (vi) The Loan Documents have been duly executed and delivered by each Loan Party and are the
legal, valid and binding obligations of the Loan Parties enforceable against the Loan Parties in
accordance with their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws of general application relating
to or affecting the rights and remedies of creditors generally and except as the remedy of specific
performance or injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.




     (c) Trade Names.



          (i) EXHIBIT 4-3, annexed hereto, is a listing of:





          (A) All names under which the Loan Parties conducted their business within the past
five (5) years.




          (B) All entities and/or persons with whom the Loan Parties consolidated or merged
within the past five (5) years, or from whom the Loan Parties, within the past five (5)
years, acquired in a single transaction or in a series of related transactions substantially
all of such entity’s or person’s assets.



          (ii) No Loan Party will change its name or conduct its business under any name not listed on
EXHIBIT 4-3 except (i) upon not less than twenty-one (21) days prior written notice (with
reasonable particularity) to the Lender and (ii) in compliance with all other provisions of this
Agreement.




     (d) Intellectual Property.



          (i) The Loan Parties each owns and possesses, or has the right to use (and will hereafter own,
possess, or have such right to use) all patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how, confidential
information, and other intellectual or proprietary property of any third Person necessary for the
Loan Parties’ conduct of their respective business.




          (ii) The conduct by the Loan Parties of their respective business does not presently infringe
in any manner which could reasonably be expected to have a Material Adverse Effect (nor will the
Loan Parties conduct their businesses in the future so as to infringe in any manner which could
reasonably be expected to have a Material Adverse Effect) the patents, industrial designs,
trademarks, trade names, trade styles, brand names, service marks, logos, copyrights, trade
secrets, know-how, confidential information, or other intellectual or proprietary property of any
third Person.





36









 








     (e) Locations.



          (i) The Collateral, and the books, records, and papers of Loan Parties pertaining thereto, are
kept and maintained solely at, or in transit to and from, the Loan Parties’ chief executive offices
at





          (A) 112 West 34th Street, New York, New York 10120




          (B) 201 Willowbrook Blvd., Wayne, New Jersey 07470




          (C) those locations which are listed on EXHIBIT 4-5 annexed hereto, as such EXHIBIT may
be amended from time to time, which EXHIBIT includes, with respect to each such location,
the name and address of the landlord on the Lease which covers such location (or an
indication that a Loan Party owns the subject location) and of all service bureaus with
which any such records are maintained.



          (ii) No Loan Party shall remove any of the Collateral from said chief executive office or
those locations listed on EXHIBIT 4-5 except:





          (A) to accomplish sales of Inventory in the ordinary course of business; or




          (B) to move Inventory, Equipment and other assets from one such location to another
such location; or




          (C) to utilize such of the Collateral as is removed from such locations in the ordinary
course of business (such as motor vehicles).




          (D) to accomplish other dispositions permitted pursuant to Section 4-12(d) hereof.




          (E) otherwise upon thirty (30) days prior written notice to the Lender.



          (iii) Except (i) with respect to Inventory delivered to a processor for finishing, (ii) with
respect to Inventory in transit, and (iii) as otherwise disclosed pursuant to, or permitted by,
this Section 4-5, no tangible personal property of a Loan Party is in the care or custody of any
third party or stored or entrusted with a bailee or other third party and none shall hereafter be
placed under such care, custody, storage, or entrustment.




     (f) Title to Assets.



          (i) Each of the Loan Parties is, and shall hereafter remain, the owner of, or holder of
subsisting license or leasehold rights in and to, the Collateral free and clear of all Encumbrances
with the exceptions of the following (the “Permitted Encumbrances”):





          (A) Encumbrances in favor of the Lender.




          (B) Those Encumbrances (if any) listed on EXHIBIT 4-6, annexed hereto.




          (C) Purchase money security interests in Equipment to secure Indebtedness otherwise
permitted hereby.




          (D) Encumbrances for taxes, governmental assessments or charges in the nature of taxes
not yet due or which are being contested in good faith by appropriate proceedings as to
which adequate reserves are maintained on the books of the Loan Parties in accordance with
GAAP.




          (E) Encumbrances in respect of property or assets of the Loan Parties imposed by law,
which were incurred in the ordinary course of business, such as carriers’, warehousemen’s,
customs broker’s, materialmen’s, repairmen’s, and mechanics’ liens and other similar
Encumbrances, in each case



37









 







in respect of obligations not overdue for a period of more than
thirty (30) days or which are being contested in good faith by appropriate proceedings.




          (F) Utility deposits and pledges or deposits in connection with worker’s compensation,
unemployment insurance and other social security legislation.




          (G) Encumbrances arising under Capital Leases.




          (H) Encumbrances resulting from the sale, transfer and assignment of retail Accounts to
credit card processors.




          (I) Deposits to secure the performance of bids, tenders, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of business,
all to the extent such obligations are otherwise permitted hereunder.




          (J) Encumbrances on Equipment of a Person which becomes a Subsidiary after the date
hereof pursuant to, and Equipment acquired in connection with, a Permitted Acquisition,
provided that (A) such Encumbrances existed at the time such Person became a
Subsidiary or such Equipment was acquired and were not created in anticipation of the
acquisition, and (B) any such Encumbrance does not cover any other assets of such Person
after it became a Subsidiary or any other assets of the Loan Parties after such Equipment
was acquired, and (C) such Encumbrance does not secure any Indebtedness other than
Indebtedness existing immediately prior to the time such Person became a Subsidiary or the
time of such acquisition.




          (K) Encumbrances consisting of the right of setoff of a customary nature or bankers’
liens on amounts on deposit incurred in the ordinary course of business.




          (L) Encumbrances on goods in favor of customs and revenue authorities which secure the
payment of customs duties in connection with the importation of such goods, which
obligations are not overdue.




          (M) Encumbrances constituting precautionary filings by lessors and bailees with respect
to assets which are leased or entrusted to a Loan Party but in which assets such Loan Party
has mere possessory rights.




          (N) Encumbrances arising from judgments which do not result in an Event of Default
under Section 10-10 hereof.



          (ii) No Loan Party has or shall have possession of any property on consignment.




          (iii) No Loan Party shall acquire or obtain the right to use any Equipment, the acquisition or
right to use of which Equipment is otherwise permitted by this Agreement, in which Equipment any
third party has an interest, except for:





          (A) Equipment which is merely incidental to the conduct of a Loan Party’s business.




          (B) Equipment, the acquisition or right to use of which has been consented to by the
Lender, which consent may be conditioned upon the Lender’s receipt of such agreement with
the third party which has an interest in such Equipment as is satisfactory to the Lender.




          (C) Equipment, the acquisition of which is permitted pursuant to Section 4-7(c) hereof
or which is the subject of an operating lease (but not Capital Leases).



38









 






(g) Indebtedness. No Loan Party has or shall hereafter have any Indebtedness with the
exceptions of:




     I. Any Indebtedness to the Lenders.




     II. The Indebtedness (if any) listed on EXHIBIT 4-7, annexed hereto.




     III. Capital Lease obligations and purchase money Indebtedness not to exceed the
aggregate principal amount outstanding in excess of $25,000,000.00, and extensions, renewals
and refinancings thereof on terms no less favorable in any material respect to the Loan
Parties than the Indebtedness or Capital Lease being refinanced.




     IV. Subordinated Indebtedness.




     V. Other Indebtedness not to exceed $50,000,000.00 outstanding at any time.



     (h) Insurance Policies.



          (i) EXHIBIT 4-8, annexed hereto, is a schedule of all material insurance policies owned by the
Loan Parties or under which the Loan Parties are the named insured as of the date hereof . Each of
such policies is in full force and effect. None of the issuers (to the Borrower’s knowledge) of
any such policy, have provided notice that the Loan Parties are in default or violation of any such
policy.




          (ii) The Loan Parties shall have and maintain at all times insurance covering such risks, in
such amounts, containing such terms, in such form, for such periods, and written by such companies
as may be reasonably satisfactory to the Lender . The coverage reflected on EXHIBIT 4-8 presently
satisfies the foregoing requirements, it being recognized by the Loan Parties, however, that such
requirements may change hereafter to reflect changing circumstances. All insurance carried by the
Loan Parties shall provide for a minimum of fourteen (14) days’ written notice of cancellation to the Lender and all such insurance which covers
the Collateral shall include an endorsement in favor of the Lender, as loss payee and additional
insured, which endorsement shall provide that the insurance, to the extent of the Lender’s interest
therein, shall not be impaired or invalidated, in whole or in part, by reason of any act or neglect
of the Loan Parties or by the failure of the Loan Parties to comply with any warranty or condition
of the policy. In the event of the failure by the Loan Parties to maintain insurance as required
herein, the Lender , at its option, may obtain such insurance, provided, however, the Lender’s
obtaining of such insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Loan Parties’ failure to have maintained such insurance. The Loan Parties shall
furnish to the Lender certificates or other evidence satisfactory to the Lender regarding
compliance by the Loan Parties with the foregoing insurance provisions.




          (iii) After the occurrence, and during the continuance, of an Event of Default, the Loan
Parties shall each advise the Lender of each claim made by a Loan Party under any policy of
insurance which covers the Collateral and will permit the Lender, at the Lender’s option in each
instance, to the exclusion of the Loan Parties, to conduct the adjustment of each such claim. The
Loan Parties each hereby appoint the Lender as such Loan Party’s attorney in fact, exercisable
after the occurrence, and during the continuance, of an Event of Default, to obtain, adjust,
settle, and cancel any insurance described in this section and to endorse in favor of the Lender
any and all drafts and other instruments with respect to such insurance. This appointment, being
coupled with an interest, is irrevocable until this Agreement is terminated by a written instrument
executed by a duly authorized officer of the Lender. The Lender shall not be liable on account of
any exercise pursuant to said power except for any exercise in actual willful misconduct and bad
faith. The Lender may apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Lender may determine.




     (i) Licenses. Each material license, distributorship, franchise, and similar agreement issued
to, or to which a Loan Party is a party is in full force and effect. To the Borrower’s knowledge,
no party to any such license or agreement is in default or violation thereof. No Loan Party has
received any notice or threat of cancellation of any such license or agreement.



39









 





     (j) Leases. EXHIBIT 4-10, annexed hereto, is a schedule of all presently effective Capital
Leases (other than Capital Leases the total obligations under which do not aggregate more than
$100,000). EXHIBIT 4-5 includes a list of all other presently effective Leases. Each of such
Leases and Capital Leases presently is in full force and effect. As of the date hereof, no party
to any such Lease or Capital Lease is in default or violation in any material respect of any such
Lease or Capital Lease (for which the Loan Party has not received an indemnification from the
Seller) and no Loan Party has received any notice or threat of cancellation of any such Lease or
Capital Lease. Each Loan Party hereby authorizes the Lender at any time and from time to time
after the occurrence, and during the continuance, of an Event of Default to contact any of the Loan
Party’s landlords in order to confirm the Loan Party’s continued compliance with the terms and
conditions of the Lease(s) between such Loan Party and that landlord and to discuss such issues,
concerning the Loan Party’s occupancy under such Lease(s), as the Lender may determine.



     (k) Requirements of Law. Each Loan Party is in compliance with, and shall hereafter comply
with and use its respective assets in compliance with, all Requirements of Law, except to the
extent that such non-compliance would not reasonably be expected to have a Material Adverse Effect.
No Loan Party has received any notice of any material violation of any Requirement of Law, which
violation has not been cured or otherwise remedied.



     (l) Maintain Properties. The Loan Parties each shall:




     I. Keep the Collateral in good order and repair (ordinary reasonable wear and tear and
insured casualty excepted).




     II. Not suffer or cause the waste or destruction of any material part of the Collateral.




     III. Not use any of the Collateral in violation of any policy of insurance thereon.




     IV. Not sell, lease, or otherwise dispose of any of the Collateral, other than the following:




     A. The sale of Inventory in compliance with this Agreement.




     B. as long as no Event of Default exists or would arise as a result thereof,
the disposal of Equipment which is obsolete, worn out, or damaged beyond repair,
which Equipment is replaced to the extent necessary to preserve or improve the
operating efficiency of the Loan Parties .




     C. The surrender, disposition, or expiration of Collateral (such as trademarks
and copyrights) no longer used or useful for the conduct of the Loan Parties’
businesses in the ordinary course.




     D. The turning over to the Lender of all Receipts as provided herein.




     E. The transfer , sale and assignment of retail Accounts to credit card
processors.



     (m) Pay Taxes/Tax Shelter Regulations.



          (i) Except as disclosed on EXHIBIT , (i) all tax returns (federal, state, local or foreign)
that relate to or include any Loan Party and that are due on or before the date hereof, taking into
account any extensions for the filing thereof, have been or will be prepared and timely filed in
accordance in all material respects with




40









 







applicable Requirements of Law, (ii) all such tax returns
are or will be correct and complete insofar as they relate to the Loan Parties, and (iii) all taxes
(federal, state, local or foreign) for which a Loan Party may be liable that are due (whether or
not shown on any tax return) have been or will be paid in full.




          (ii) Each Loan Party has, and hereafter shall: pay, as they become due and payable, all taxes
and unemployment contributions and other charges of any kind or nature levied, assessed or claimed
against such Loan Party, or the Collateral by any person or entity whose claim could result in an
Encumbrance upon any asset of any Loan Party or by any governmental authority, except to the extent
such taxes are being contested by a Loan Party in good faith, and adequate reserves are being
maintained therefor on Loan Parties books in accordance with GAAP; properly exercise any trust
responsibilities imposed upon a Loan Party by reason of withholding from employees’ pay or by
reason of a Loan Party’s receipt of sales tax or other funds for the account of any third party;
timely make all contributions and other payments as may be required pursuant to any Employee
Benefit Plan now or hereafter established by the Loan Parties; and timely file all tax and other
returns and other reports with each governmental authority to whom a Loan Party is obligated to so
file, in each case, taking into account any applicable extension periods.




          (iii) At its option, after the occurrence, and during the continuance, of a Suspension Event,
the Lender may, but shall not be obligated to, pay any taxes, unemployment contributions, and any
and all other charges levied or assessed upon a Loan Party, or the Collateral by any person or
entity or governmental authority, and make any contributions or other payments on account of a Loan Party’s Employee Benefit Plan as the
Lender, in the Lender’s discretion, may deem necessary or desirable, to protect, maintain,
preserve, collect, or realize upon any or all of the Collateral or the value thereof or any right
or remedy pertaining thereto, provided, however, the Lender’s making of any such payment shall not
constitute a cure or waiver of any Event of Default occasioned by a Loan Party’s failure to have
made such payment.




          (iv) The Borrower does not intend to treat the Revolving Credit and the L/Cs and the
transactions related thereto as being “reportable transactions” (within the meaning of Treasury
Regulation Section 1.6011-4). In the event the Borrower determines to take any action inconsistent
with such intention, it will promptly notify the Lender thereof. If the Borrower so notifies the
Lender, the Borrower acknowledges that the Lender may treat the Revolving Credit and/or its
interest in the L/Cs as part of a transaction that is subject to Treasury Regulation Section
301.6112-1, and the Lender, will maintain the lists and other records required by such Treasury
Regulation.




     (n) No Margin Stock. No Loan Party is engaged in the business of extending credit for the
purpose of purchasing or carrying any margin stock (within the meaning of Regulations U,T, and X of
the Board of Governors of the Federal Reserve System of the United States). No part of the
proceeds of any borrowing hereunder will be used at any time to purchase or carry any such margin
stock or to extend credit to others for the purpose of purchasing or carrying any such margin
stock.



     (o) ERISA. From and after the date hereof, none of the Loan Parties nor any ERISA Affiliate
shall, in any manner which could reasonably be expected to have a Material Adverse Effect:




     I. Fail to comply in all material respects with any Employee Benefit Plan.




     II. Fail timely to file all reports and filings required by ERISA to be filed by a Loan
Party.




     III. Engage in any non-exempt “prohibited transactions” (as described in ERISA).




     IV. Engage in, or commit, any act such that a tax or penalty could be imposed upon the
Loan Parties on account thereof pursuant to ERISA.



41









 






     V. Accumulate any material funding deficiency within the meaning of Section 302 of
ERISA.




     VI. Terminate any Employee Benefit Plan such that a lien could be asserted against any
assets of the Loan Parties on account thereof pursuant to ERISA.




     VII. Be a member of, contribute to, or have any obligation under any Employee Benefit
Plan which is a multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.



     (p) Hazardous Materials.



          (i) Other than matters that could not reasonably be expected to have a Material Adverse
Effect, no Loan Party has ever:





          (A) Been legally responsible for any release or threat of release of any Hazardous
Material.




          (B) Received notification of any release or threat of release of any Hazardous Material
from any site or vessel occupied or operated by a Loan Party and/or of the incurrence of any
expense or loss in connection with the assessment, containment, or removal of any release or
threat of release of any Hazardous Material from any such site or vessel.




     (ii) The Loan Parties each shall:




          (A) Dispose of any Hazardous Material only in compliance with all Environmental Laws,
except for dispositions which could not reasonably be expected to have a Material Adverse
Effect.




          (B) Not store on any site or vessel occupied or operated by a Loan Party and not
transport or arrange for the transport of any Hazardous Material, except if such storage or
transport is in the ordinary course of the Loan Parties’ business and is in compliance with
all Environmental Laws or could not reasonably be expected to have a Material Adverse
Effect.



          (iii) The Loan Parties shall provide the Lender with written notice upon such Loan Party
obtaining knowledge of any incurrence of any expense or loss by any governmental authority or other
Person in connection with the assessment, containment, or removal of any Hazardous Material, for
which expense or loss a Loan Party may be liable, other than expense or loss that could not
reasonably be expected to have a Material Adverse Effect.




     (q) Litigation. Except as described in EXHIBIT 4-17, annexed hereto, there is not presently
pending or threatened by or against the Loan Parties any suit, action, proceeding, or investigation
which, if determined adversely to the Loan Parties, would have a material adverse effect upon the
Loan Parties ‘s financial condition or ability to conduct its business as such business is
presently conducted or is contemplated to be conducted in the foreseeable future.



     (r) Dividends or Investments. No Loan Party shall:




     I. Pay any dividend or make any other distribution (whether in cash, securities or
other property) with respect to any class of its capital stock, or make any payment (whether
in cash, securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or termination of
any or its capital stock or any option, warrant or other right to acquire such capital stock
except by a Guarantor to the Borrower or unless the Liquidity Requirements are satisfied.




     II. Intentionally Omitted.



42









 






     III. Except as provided in Section 4-25 or with respect to Permitted Acquisitions,
invest in or purchase any stock or securities or rights to purchase any such stock or
securities, of any corporation or other entity.




     IV. Merge or consolidate or be merged or consolidated with or into any other
corporation or other entity, other than (i) the merger of any of the Borrower’s Subsidiaries
with and into the Borrower, and (ii) in connection with any Permitted Acquisitions.




     V. Consolidate any of a Loan Party’s operations with those of any other corporation or
other entity, except in connection with any Permitted Acquisition.




     VI. Organize or create any Subsidiary, other than in connection with a Permitted
Acquisition and only if (i) such Subsidiary guarantees the repayment of the Liabilities and
(ii) such Subsidiary grants the Lender a first priority Encumbrance (subject to Permitted
Encumbrances) on all of its assets, all of the foregoing satisfactory in form and substance
to the Lender.




     VII. Subordinate any debts or obligations owed to a Loan Party by any third party to
any other debts owed by such third party to any other Person.




     VIII. Acquire any assets other than Permitted Acquisitions, by the making of Capital
Expenditures to the extent permitted hereunder, and other than in the ordinary course and
conduct of the Loan Parties business permitted under Section 4-21 hereof.



     (s) Loans. No Loan Party shall make any loans or advances to, nor acquire the Indebtedness
of, any Person, provided, however, the foregoing does not prohibit any of the following:




     I. Advance payments made to the Loan Parties’ suppliers in the ordinary course.




     II. Advances to a Loan Party’s officers, employees, and salespersons with respect to
reasonable expenses to be incurred by such officers, employees, and salespersons for the
benefit of such Loan Party in the ordinary course of business, which expenses are properly
substantiated by the person seeking such advance and properly reimbursable by such Loan
Party.




     III. Advances on account of sales of Inventory in the ordinary course of business made
on credit and all Accounts arising therefrom.




     IV. Provided that the Liquidity Requirements have been satisfied, loans and/or
Investment in or to Aeropostale Canada.




     V. Loans and/or Investments by one Loan Party to another in the ordinary course of
business.



     (t) Protection of Assets. The Lender, in the Lender’s reasonable discretion, and from time to
time, may discharge any tax or Encumbrance on any of the Collateral, or take any other action that
the Lender may deem necessary to repair, insure, maintain, preserve, collect, or realize upon any
of the Collateral. The Lender shall not have any obligation to undertake any of the foregoing and
shall have no liability on account of any action so undertaken except where there is a specific
finding in a judicial proceeding (in which the Lender has had an opportunity to be heard), from
which finding no further appeal is available, that the Lender had acted in actual bad faith or in a
grossly negligent manner. The Borrower shall pay to the Lender, on demand, or the Lender, in its
reasonable discretion, may add to the Loan Account, all amounts paid or



43









 






incurred by the Lender
pursuant to this section. The obligation of the Borrower to pay such amounts is a Liability.



     (u) Line
of Business. No Loan Party shall engage in any business other than the business in
which it is currently engaged (which is agreed to be the design, sourcing, marketing, distribution
and sale of apparel products and accessories and the licensing of trade names, trademarks and intellectual
property to third Persons in connection with the foregoing), any business reasonably related
thereto or any business or activity that is reasonably similar or complementary thereto or a
reasonable extension, development or expansion thereof or ancillary thereto.



     (v) Affiliate Transactions. No Loan Party shall make any payment, nor give any value to any
Related Entity except for goods and services actually purchased by such Loan Party from, or sold by
such Loan Party to, such Related Entity for a price and on terms which shall not be less favorable
to the Loan Party from those which would have been charged in an arms length transaction, except:



          (i) until the occurrence, and during the continuance, of an Event of Default, the Loan Parties
may (a) pay management fees at the times and in the amounts, and (b) may maintain and make payments
with respect to those transactions, in each case as set forth in EXHIBIT 4-22 hereof;




          (ii) transactions in the ordinary course of business among the Loan Parties;




          (iii) provided that the Liquidity Requirements have been satisfied, loans to, payments to, or
Investments in Aeropostale Canada.




     (w) Additional Assurances.



          (i) Except as set forth on EXHIBIT 4-23, no Loan Party is the owner of, nor has it any
interest in, any property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the credit facility contemplated hereby (Article 3) will not be
subject to a perfected security or other collateral interest in favor of the Lender (subject only
to Permitted Encumbrances) to secure the Liabilities.




          (ii) Except as set forth on EXHIBIT 4-23, no Loan Parties will hereafter acquire any asset or
any interest in property which is not, immediately upon such acquisition, subject to such a
perfected security or other collateral interest in favor of the Lender to secure the Liabilities
(subject only to Permitted Encumbrances).




          (iii) The Loan Parties shall each execute and deliver to the Lender such instruments,
documents, and papers, and shall do all such things from time to time hereafter as the Lender may
reasonably request to carry into effect the provisions and intent of this Agreement; to protect and
perfect the Lender’s security interests in the Collateral; and to comply in all material respects
with all applicable statutes and laws, and facilitate the collection of the Receivables Collateral.
The Loan Parties shall each execute all such instruments as may be reasonably required by the
Lender with respect to the recordation and/or perfection of the security interests created herein.




          (iv) Each Loan Party hereby designates the Lender as and for such Loan Party’s true and lawful
attorney, with full power of substitution, to sign and file any financing statements in order to
perfect or protect the Lender’s security and other collateral interests in the Collateral.




          (v) To the full extent permitted by applicable law, a carbon, photographic, or other
reproduction of this Agreement or of any financing statement or other instrument executed pursuant
to this Section 4-23 shall be sufficient for filing to perfect the security interests granted
herein.





44









 








          (vi) On or before January 30, 2008 the Borrower shall cause Aeropostale Canada to execute such
documents and take such steps as the Lender reasonably request in order for Aeropostale Canada to
become a Guarantor hereunder and to have its assets included in the Borrowing Base.




     (x) Adequacy of Disclosure.



          (i) All financial statements for periods after the date hereof which are furnished to the
Lender by the Loan Parties shall be prepared in accordance with GAAP consistently applied and
present fairly, in all material respects, the condition of the Loan Parties at the date(s) thereof
and the results of operations and cash flows for the period(s) covered.




          (ii) Intentionally Omitted




          (iii) As of the Second Amendment Effective Date, no Loan Party has any contingent obligations
or obligation under any Lease or Capital Lease which is not noted in the Loan Party’s financial
statements furnished to the Lender prior to the execution of this Agreement.




          (iv) No document, instrument, agreement, or paper now or hereafter given the Lender by or on
behalf of a Loan Party in connection with the execution of this Agreement by the Lender contains or
will contain any untrue statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements therein not misleading. There is no fact known to a Loan
Party which has, or which, in the foreseeable future would reasonably be expected to have, a
material adverse effect on the financial condition of the Loan Parties which has not been disclosed
in writing to the Lender.




     (y) Investments. As long as no Cash Dominion Event exists, the Loan Parties may make
investments consisting of Cash Equivalents maintained at such bank(s) as the Borrower may select.



     (z) Prepayments of Indebtedness.



          No Loan Party will make or agree to pay or make, directly or indirectly, any payment or other
distribution (whether in cash securities or other property) of or in respect of principal of or
interest on any Indebtedness, including any sinking fund or similar deposit, on account of the
purchase, redemption, retirement, acquisition, cancellation or termination of any Indebtedness,
except:




          (i) as long as no Event of Default has occurred and is continuing or would result therefrom,
mandatory payments and prepayments of interest and principal as and when due in respect of any
Indebtedness permitted hereunder, excluding any Subordinated Indebtedness;




          (ii) payments on account of Subordinated Indebtedness to the extent permitted under any
subordination agreement or provisions governing such Indebtedness;




          (iii) voluntary prepayments of Indebtedness permitted hereunder (other than Subordinated
Indebtedness) as long as the Liquidity Requirement is satisfied; and




          (iv) refinancings of Indebtedness to the extent permitted under this Agreement.




     (aa) Other
Covenants. No Loan Party shall indirectly do or cause to be done any act which, if
done directly by a Loan Party, would breach any covenant contained in this Agreement.



5. — Financial Reporting and Performance Covenants:




     (a) Maintain Records. The Borrower shall, and shall cause each Guarantor to:



45









 






     I. At all times, keep proper books of account, in which full, true, and accurate
entries shall be made of all of the Loan Parties’ transactions, all in accordance with GAAP,
applied consistently with all prior periods, to fairly reflect, in all material respects,
the financial condition of the Loan Parties at the close of, and its results of operations
for, the periods in question.




     II. Timely provide the Lender with those financial reports, statements, and schedules
required by this Article 5 or otherwise, each of which reports, statements and schedules
shall be prepared, to the extent applicable, in accordance with GAAP (but for the absence of
footnotes and year end adjustments), applied consistently with all prior periods, to fairly
reflect, in all material respects, the financial condition of the Loan Parties at the close
of, and their results of operations for, the period(s) covered therein.




     III. At all times, keep accurate (in all material respects) and current records of the
Collateral including, without limitation, accurate current stock, cost, and sales records of
its respective Inventory, accurately and sufficiently itemizing and describing the kinds,
types, and quantities of Inventory and the cost and selling prices thereof.




     IV. At all times, retain independent certified public accountants who are reasonably
satisfactory to the Lender and instruct such accountants to fully cooperate with, and be
available to, the Lender to discuss a Loan Party’s financial performance, financial
condition, operating results, controls, and such other matters, within the scope of the
retention of such accountants, as may be raised by the Lender.




     V. Not change a Loan Party’s fiscal year for book accounting purposes, except in
connection with an initial public offering of the Borrower’s capital stock.



     (b) Access to Records.



          (i) The Borrower shall, and shall cause each Guarantor to, afford the Lender and the Lender’s
representatives with access from time to time, during normal business hours and, unless an Event of
Default exists, upon reasonable notice, as the Lender and such representatives may require to all
properties owned by or over which a Loan Party has control. The Lender and the Lender’s
representatives shall have the right, and the Borrower will, and will cause each Guarantor to,
permit the Lender and such representatives from time to time as the Lender and such representatives
may request, during normal business hours and, unless an Event of Default exists, upon reasonable
notice, to examine, inspect, copy, and make extracts from any and all of the Loan Parties’ books,
records, electronically stored data, papers, and files pertaining to its business operations,
financial information or the Collateral. The Borrower shall, and shall cause the Guarantor to,
make copying facilities reasonably available to the Lender.




          (ii) The Borrower for itself, and as the sole shareholder or member, as applicable, of each
Guarantor , hereby authorizes the Lender and the Lender’s representatives to:





          (A) Inspect, copy, duplicate, review, cause to be reduced to hard copy, run off, draw
off, and otherwise use any and all computer or electronically stored information or data
which relates to the Loan Parties, whether in the possession of a Loan Party or in the
possession of any service bureau, contractor, accountant, or other person, (and the Loan
Parties each directs any such service bureau, contractor, accountant, or other person fully
to cooperate with the Lender and the Lender’s representatives with respect thereto),
provided that, except as set forth in Section 5-10 hereof, such inspections and
reviews shall not be undertaken by the Lender as long as no Event of Default then exists and
is continuing.




          (B) Verify at any time the Collateral or any portion thereof, including verification
with Account Debtors, and/or with each Loan Party’s computer billing companies, collection
agencies, and accountants and to sign the name of the Loan Party on any notice to such Loan
Party’s Account Debtors or verification of the Collateral, provided that, as long as
no Event of Default exists and is continuing, the form and content of any such verification
letters shall be subject to the prior approval of the Borrower (whose consent shall not be
unreasonably withheld or delayed).



46









 






(c) Prompt Notice to Lender.



          (i) The Borrower shall, and shall cause each Guarantor to, provide the Lender with written
notice promptly upon the occurrence of any of the following events, which written notice shall be
with reasonable particularity as to the facts and circumstances in respect of which such notice is
being given:





          (A) Any change in a Loan Party’s executive officers.




          (B) The completion of any physical count of a Loan Party’s Inventory (together with a
copy of the certified results thereof).




          (C) Any ceasing of any Loan Party making of payment, in the ordinary course, to a
material portion (in amount or number) of its creditors.




          (D) Any failure by a Loan Party to pay rent at any of the locations, which failure
continues for more than twenty (20) Business Days following the day on which such rent first
came due, except for Leases for such locations which have been terminated or abandoned by a
Loan Party.




          (E) Any material change in the business, operations, or financial affairs of a Loan
Party.




          (F) The occurrence of any Suspension Event, that has not been cured by the Loan Parties
or waived by the Lender.




          (G) Any decision on the part of a Loan Party to discharge a Loan Party’s present
independent accountants or any withdrawal or resignation by such independent accountants
from their acting in such capacity (as to which, see Subsection 5-1(d)).




          (H) Any litigation which, if determined adversely to a Loan Party, would reasonably be
expected to have a material adverse effect on the financial condition of such Loan Party.




          (I) The acquisition by a Loan Party of any Commercial Tort Claim.




          (J) The intention by Borrower to treat the Revolving Credit and/or the L/Cs and related
transactions as being a “reportable transaction” (within the meaning of Treasury Regulation
Section 1.6011-4), by delivering a duly completed copy of IRS Form 8886 or any successor
form.



          (ii) The Borrower shall, and shall cause each Guarantor to, provide the Lender, when received
by the Borrower or Guarantor, with a copy of any management letter or similar communications from
any accountant of the Borrower or Guarantor.




     (d) Intentionally Omitted.



     (e) Borrowing Base Certificates. Monthly, within seven (7) days after the end of the
Borrower’s prior fiscal month, the Borrower shall provide the Lender with a certificate in the form
of Exhibit 5-5 (a “Borrowing Base Certificate”) showing the Borrowing Base as of the close of
business on the last day of the Borrower’s immediately preceding fiscal month, each such
Certificate to be certified as complete and correct on behalf of the Borrower by a Responsible
Officer of the Borrower.



     (f) Monthly Reports. Only if a Cash Dominion Event exists, within twenty (20) days following the end of each of
the Borrower’s fiscal months, the Borrower shall provide the Lender with original counterparts of
an internally prepared financial statement of the Loan Parties’



47









 






financial condition and the results
of their respective operations for, the period ending with the end of the subject month, which
financial statement shall include, at a minimum, a balance sheet, income statement (on a
“consolidated” basis), cash flow and comparison of same store sales for the corresponding quarter
of the then immediately previous year, as well as to the Business Plan, and management’s analysis
and discussion of the operating results reflected therein.



     (g) Quarterly Reports. Within forty-five (45) days following the end of each of the
Borrower’s fiscal quarters, the Borrower shall provide the Lender with original counterparts of an
internally prepared financial statement of the Loan Parties’ financial condition and the results of
their respective operations for, the period ending with the end of the subject quarter, which
financial statement shall include, at a minimum, a balance sheet, income statement (on a
“consolidated” basis), cash flow and comparison of same store sales for the corresponding quarter
of the then immediately previous year, as well as to the Business Plan, and management’s analysis
and discussion of the operating results reflected therein. The delivery either electronically or
in paper to the Lender of the Borrower’s Form 10Q or Form 10K, as the case may be, which is filed
with the Securities and Exchange Commission shall satisfy the Borrower’s obligations under this
Section 5-7.



     (h) Annual Reports.



          (i) Annually, within ninety (90) days following the end of the Borrower’s fiscal year, the
Borrower shall furnish the Lender with an original signed counterpart of the Borrower’s
consolidated annual financial statement, which statement shall have been prepared by, and bear the
unqualified opinion of, the Borrower’s independent certified public accountants (i.e. said
statement shall be “certified” by such accountants). Such annual statement shall include, at a
minimum (with comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders’ equity, and cash flows. The delivery either
electronically or in paper to the Lender of the Borrower’s Form 10K which is filed with the
Securities and Exchange Commission shall satisfy the Borrower’s obligations under this Section
5-8(a).




          (ii) No later than the earlier of fifteen (15) days prior to the end of each of the Borrower’s
fiscal years or the date on which such accountants commence their work on the preparation of the
Borrower’s annual financial statement, the Borrower shall give written notice to such accountants
(with a copy of such notice, when sent, to the Lender) that:





          (A) Such annual financial statement will be delivered by the Borrower to the Lender.




          (B) It is an intention of the Loan Parties, in their engagement of such accountants, to
satisfy the financial reporting requirements set forth in this Article 5.




          (C) The Loan Parties have been advised that the Lender will rely thereon with respect
to the administration of, and transactions under, the credit facility contemplated by this
Agreement.



          (iii) Each annual statement shall be accompanied by such accountant’s Certificate indicating
that, in the preparation of such annual statement, such accountants did not conclude that any
Suspension Event had occurred during the subject fiscal year (or if one or more had occurred, the
facts and circumstances thereof).




     (i) Intentionally Omitted.



48









 





     (j) Inventories, Appraisals, and Audits.



          (i) The Lender, at the expense of the Borrower, may observe each physical count and/or
inventory of so much of the Collateral as consists of Inventory which is undertaken on behalf of,
and at the request of, a Loan Party.




          (ii) The Loan Parties, at their own expense, shall cause not less than one (1) physical
inventory to be undertaken in each twelve (12) month period during which this Agreement is in
effect to be conducted by a national third party inventory taker.





          (A) The Loan Parties shall provide the Lender with a copy of the final results of each
such inventory (as well as of any other physical inventory undertaken by a Loan Party)
within fourteen (14) days following the completion of such inventory.




          (B) The Borrower shall provide the Lender with a reconciliation of the results of each
such inventory (as well as of any other physical inventory undertaken by a Loan Party) to
the Loan Party’s books and records within forty-five (45) days following completion of such
inventory.




          (C) The Lender, in its discretion, following the occurrence, and during the
continuance, of a Suspension Event, may cause such additional inventories to be taken as the
Lender determines (each, at the expense of the Borrower).



          (iii) Upon the Lender’s request from time to time, the Borrower shall, and shall cause each
Guarantor to, permit the Lender to obtain appraisals conducted by such appraisers as are
satisfactory to the Lender and using a methodology similar in scope and nature as was undertaken on
behalf of the Lender prior to the effectiveness of this Agreement. Without limiting the foregoing,
the Lender may obtain periodic Inventory liquidation analyses performed by Hilco/Great American
Group or another liquidation analysis firm selected by the Lender; provided that the
expense for any such appraisals shall be borne by the Lender (except as provided in the final two
sentences of this clause), unless and until the Aggregate Outstandings exceed, or are anticipated
to exceed, $75,000,000. At any time after the Aggregate Outstandings exceed, or are anticipated to
exceed, $75,000,000, the Lender shall have the right to undertake two appraisals, at the Loan
Parties’ expense, in each twelve month period. After the occurrence and during the continuance of
an Event of Default, all such appraisals shall be undertaken at the Loan Parties’ expense.




          (iv) Upon the Lender’s request from time to time, the Borrower shall, and shall cause each
Guarantor to, permit the Lender to conduct commercial finance audits of the Borrower’s and
Guarantor’s books and records using a methodology similar in scope and nature as was undertaken on
behalf of the Lender prior to the effectiveness of this Agreement, provided that the
expense for any such audits shall be borne by the Lender (except as provided in the final two
sentences of this clause), unless and until the Aggregate Outstandings exceed, or are anticipated
to exceed, $75,000,000. At any time after the Aggregate Outstandings exceed, or are anticipated to
exceed, $75,000,000, the Lender shall have the right to undertake two audits, at the Loan Parties’
expense, in each twelve month period. After the occurrence and during the continuance of an Event
of Default, all such audits shall be undertaken at the Loan Parties’ expense.




          (v) Intentionally Omitted.




     (k) Additional Financial Information.



          (i) In addition to all other information required to be provided pursuant to this Article 5,
the Borrower promptly shall provide the Lender (and shall cause each Guarantor and any other
guarantor of the Liabilities to also provide the Lender), with such other and additional
information concerning the Borrower or Guarantor, the Collateral, the operation of the Borrower’s
or Guarantor’s business, and the Borrower’s or Guarantor’s) financial condition, including original
counterparts of financial reports and statements, as the Lender may from time to time reasonably
request from the Borrower.




49









 








          (ii) The Borrower may provide the Lender, at the Lender’s discretion, from time to time
hereafter, with updated projections of the Loan Parties’ anticipated performance and operating
results.




          (iii) In all events, the Borrower, no sooner than ninety (90) nor later than thirty (30) days
prior to the end of each of the Borrower’s fiscal years, shall furnish the Lender with an updated
and extended balance sheet, income statement, cash flow statement (including an Availability
model), prepared on a monthly basis and which shall go out at least through the end of the then
next fiscal year. Together with such updated and extended projections, the Borrower shall deliver
to the Lender a description of the methodology and assumptions upon which the projections were
prepared.




          (iv) The Loan Parties each recognizes that all appraisals, inventories, analysis, financial
information, and other materials which the Lender may obtain, develop, or receive with respect to
the Loan Parties is confidential to the Lender and that, except as otherwise provided herein, no
Loan Party is entitled to receipt of any of such appraisals, inventories, analysis, financial
information, and other materials, nor copies or extracts thereof or therefrom.




     (l) Intentionally Omitted.



6. — Use and Collection of Collateral:




     (a) Use of Inventory Collateral.



          (i) The Borrower shall not, and shall cause each Guarantor not to engage in any sale of the
Inventory other than for fair consideration in the conduct of the Borrower’s or Guarantor’s
business in the ordinary course (other than promotions, markdowns, and discounts in the ordinary
course of business) nor shall either engage in sales or other dispositions to creditors in
reduction or satisfaction of such creditors’ claims; sales or other dispositions in bulk; or any
use of any of the Inventory in breach of any provision of this Agreement. Notwithstanding the
foregoing, the Loan Parties may “job-out” end of season and slow-moving Inventory, provided that
the Inventory so disposed of does not exceed five percent (5%) of the Loan Parties’ aggregate
retail receipts in any fiscal year.




          (ii) No sale of Inventory shall be on consignment, approval, or under any other circumstances
such that, with the exception of the Loan Parties’ customary return policy applicable to the return
of inventory purchased by the Loan Parties’ retail customers in the ordinary course, such Inventory
may be returned to the Loan Parties without the consent of the Lender.




     (b) Adjustments and Allowances. A Loan Party may grant such allowances or other adjustments
to the such Loan Party’s Account Debtors as the Loan Party, respectively, may reasonably deem to
accord with sound business practice, provided, however, the authority granted the Loan Parties
pursuant to this Section 6-2 may be limited or terminated by the Lender at any time after the
occurrence, and during the continuance, of an Event of Default in the Lender’s discretion.



     (c) Validity of Accounts.



          (i) The amount of each Account shown on the books, records, and invoices of the Loan Parties
represented as owing by each Account Debtor is and will be the correct amount actually owing by
such Account Debtor (subject to adjustments for returned Inventory in the ordinary course of
business) and shall have been fully earned by performance by such Loan Party.




          (ii) The Lender, from time to time (at the expense of the Borrower in each instance), may
verify the validity, amount, and all other matters with respect to the Receivables Collateral
directly with Account Debtors (including without limitation, by forwarding balance verification
requests to each Loan Party’s Account Debtors), and with each Loan Party’s accountants, collection agents, and computer service
bureaus (each of which is




50









 







hereby authorized and directed to cooperate in full with the Lender and
to provide the Lender with such information and materials as the Lender may request), provided
that, as long as no Event of Default exists and is continuing, the form and content of any such
verification letters shall be subject to the prior approval of the Borrower (whose consent shall
not be unreasonably withheld or delayed).




          (iii) No Loan Party has knowledge of any impairment of the validity or collectibility of any
of the Accounts (other than customary adjustments and chargebacks in the ordinary course of
business) and shall notify the Lender of any such fact immediately after a Loan Party becomes aware
of any such impairment.




          (iv) Except as set forth in EXHIBIT 6-3, no Loan Party shall post any bond to secure a Loan
Party’s performance under any agreement to which a Loan Party is a party nor cause any surety,
guarantor, or other third party obligee to become liable to perform any obligation of a Loan Party
(other than to the Lender) in the event of Loan Party’s failure so to perform.




     (d) Notification to Account Debtors. The Lender shall have the right at any time after the
occurrence, and during the continuance, of an Event of Default, to notify any of a Loan Party’s
Account Debtors to make payment directly to the Lender and to collect all amounts due on account of
the Collateral.



7. — Cash Management. Payment of Liabilities:




     (a) Depository Accounts.



          (i) Annexed hereto as EXHIBIT 7-1 is a Schedule of all present DDAs, which Schedule includes,
with respect to each depository (i) the name and address of that depository; (ii) the account
number(s) of the account(s) maintained with such depository; and (iii) a contact person at such
depository.




          (ii) To the extent not previously delivered to the Lender, the Borrower shall, and shall cause
each Guarantor to, deliver to the Lender, as a condition to the effectiveness of this Agreement:





          (A) Notification, executed on behalf of the Borrower or Guarantor, as applicable, to
each depository institution with which any DDA is maintained (other than the Operating
Account), in form reasonably satisfactory to the Lender, of the Lender’s interest in such
DDA.




          (B) An agreement (generally referred to as a “Blocked Account Agreement”), in form
reasonably satisfactory to the Lender, with any depository institution at which a Blocked
Account is maintained.




          (C) An agreement, in form reasonably satisfactory to the Lender, with any depository
institution at which the Operating Account is maintained.



          (iii) No Loan Party will establish any DDA hereafter unless, contemporaneous with such
establishment, such Loan Party, delivers to the Lender an agreement (in form satisfactory to the
Lender) executed on behalf of the depository with which such DDA is being established.




     (b) Credit Card Receipts.



          (i) Annexed hereto as EXHIBIT is a Schedule which describes all arrangements to which each
Loan Party is a party with respect to the payment to such Loan Party, of the proceeds of all credit
card charges for sales by the Loan Party.




          (ii) To the extent not previously delivered to the Lender, the Borrower shall, and shall cause
each Guarantor to, deliver to the Lender, as a condition to the effectiveness of this Agreement,
notifications, executed on behalf of the Borrower or such Guarantor, as applicable, to each of the Borrower’s
and Guarantor’s




51









 







credit card clearinghouses and processors of notice (in form satisfactory to the
Lender), which notice provides that payment of all credit card charges submitted by the Borrower or
Guarantor to that clearinghouse or other processor and any other amount payable to the Borrower or
Guarantor by such clearinghouse or other processor shall be directed to the Concentration Account
or as otherwise designated from time to time by the Lender. Neither the Borrower nor any Guarantor
shall change such direction or designation except upon and with the prior written consent of the
Lender.




     (c) The Concentration, Blocked, and Operating Accounts.



          (i) The following checking accounts have been or will be established (and are so referred to
herein):





          (A) The Concentration Account: Established by the Lender with Bank of America, N.A.




          (B) The Blocked Account: Established by the Borrower with Bank of America, N.A.




          (C) The Operating Account: Established by the Borrower with Bank of America, N.A.



          (ii) The contents of each DDA, of the Operating Account, and of the Blocked Account
constitutes Collateral and Proceeds of Collateral. The contents of the Concentration Account
constitutes the Lender’s property.




          (iii) The Loan Parties:





          (A) To the extent not previously delivered to the Lender, contemporaneously with the
execution of this Agreement, shall provide the Lender with such agreement (generally
referred to as a “Blocked Account Agreement”) of the depository with which the Blocked
Account is maintained as may be reasonably satisfactory to the Lender;




          (B) To the extent not previously delivered to the Lender, contemporaneously with the
execution of this Agreement, shall provide the Lender with such agreement of the depository
with which the Operating Account is maintained as may be reasonably satisfactory to the
Lender; and




          (C) Shall not establish any Blocked Account or Operating Account hereafter except upon
not less than thirty (30) days prior written notice to the Lender and the delivery to the
Lender of a similar such agreement.



          (iv) The Loan Parties shall pay all fees and charges of, and maintain such impressed balances
as may be required by the Lender or by any bank in which any account is opened as required hereby
(even if such account is opened by and/or is the property of the Lender).




     (d) Proceeds and Collection of Accounts.



          (i) All Receipts constitute Collateral and proceeds of Collateral and, after the occurrence
and during the continuance of a Cash Dominion Event, shall be held in trust by the Loan Parties for
the Lender; shall not be commingled with any of a Loan Party’s other funds; and shall be deposited
and/or transferred only to the Blocked Account.




          (ii) After the occurrence and during the continuance of a Cash Dominion Event, the Borrower
shall cause the, and shall cause each Guarantor to, ACH or wire transfer to the Blocked Account, no
less frequently than daily (and whether or not there is then an outstanding balance in the Loan
Account) of




52









 









          (A) the then current contents of each DDA (other than the Operating Account), each such
transfer to be net of any minimum balance, not to exceed $5,000.00, as may be required to be
maintained in the subject DDA by the bank at which such DDA is maintained); and




          (B) the proceeds of all credit card charges not otherwise provided for pursuant hereto.


Telephone advice (confirmed by written notice) shall be provided to the Lender on each Business Day
on which any such transfer is made.




          (iii) After the occurrence and during the continuance of a Cash Dominion Event, whether or not
any Liabilities are then outstanding, the Loan Parties shall cause the ACH or wire transfer to the
Concentration Account, no less frequently than daily, of then entire ledger balance of the Blocked
Account, net of such minimum balance, not to exceed $5,000.00, as may be required to be maintained
in the Blocked Account by the bank at which the Blocked Account is maintained.




          (iv) After the occurrence and during the continuance of a Cash Dominion Event, in the event
that, notwithstanding the provisions of this Section 7-4, a Loan Party receives or otherwise has
dominion and control of any Receipts, or any proceeds or collections of any Collateral, such
Receipts, proceeds, and collections shall be held in trust by such Loan Party for the Lender and
shall not be commingled with any of the Loan Party’s other funds or deposited in any account of the
Loan Party other than as instructed by the Lender.




     (e) Payment of Liabilities.



          (i) On each Business Day, the Lender shall apply, towards the Liabilities, the then collected
balance of the Concentration Account (net of fees charged, and of such impressed balances as may be
required by the bank at which the Concentration Account is maintained).




          (ii) The following rules shall apply to deposits and payments under and pursuant to this
Agreement:





          (A) Funds shall be deemed to have been deposited to the Concentration Account on the
Business Day on which deposited, provided that notice of such deposit is available to the
Lender by 2:00 PM on that Business Day.




          (B) Funds paid to the Lender, other than by deposit to the Concentration Account, shall
be deemed to have been received on the Business Day when they are good and collected funds,
provided that notice of such payment is available to the Lender by 2:00PM on that Business
Day.




          (C) If notice of a deposit to the Concentration Account (Section 7-5(b)(i)) or payment
(Section 7-5(b)(ii)) is not available to the Lender until after 2:00PM on a Business Day,
such deposit or payment shall be deemed to have been made at 9:00 AM on the then next
Business Day.




          (D) All deposits to the Concentration Account and other payments to the Lender are
subject to clearance and collection.



          (iii) All payments shall be applied First to pay Liabilities other than the principal
balance of the Loan Account; Second in reduction of Base Rate Loans until paid in full, and
Third in reduction of Eurodollar Loans until paid in full, together with any amounts which
become due as a result of such payment pursuant to Section 2-7(e) hereof; provided
that at the Borrower’s option, as long as no Event of Default then exists, the Borrower
shall have the right, in lieu of making a prepayment on account of the Eurodollar Loans, to cause
any amounts in excess of the sums required to pay the Liabilities described in clauses
First and Second, above, to be deposited with the Lender and held as collateral for
the Liabilities and applied to the payment of the applicable Eurodollar Loans at the end of the
current Interest Periods applicable thereto, in order of maturity of such Interest



53









 






Periods (or upon the occurrence, and during the continuance, of an Event of Default, to the
Liabilities in such order and manner as the Lender, in its discretion, shall determine).




          (iv) The Lender shall transfer to the Operating Account any surplus in the Concentration
Account remaining after the application towards the Liabilities referred to in Section 7-5(a),
above (less those amount which are to be netted out, as provided therein) provided, however, in the
event that both (i) a Suspension Event has occurred and is continuing, and (ii) one or more L/C’s
are then outstanding, the Lender may establish a funded reserve of up to 103% of the aggregate
Stated Amounts of such L/C’s.




     (f) The Operating Account. Except as otherwise specifically provided in, or permitted by, this
Agreement, all checks shall be drawn by the Loan Parties upon, and other disbursements shall be
made by the Loan Parties solely from, the Operating Account. Until the occurrence, and during the
continuance, of an Event of Default, as provided in the agreement with the depository with which
the Operating Account has been established, the Lender shall not be entitled to exercise any
dominion or control over the funds in the Operating Account.



8. — Grant of Security Interest:




     (a) Grant of Security Interest. To secure the Borrower’s prompt, punctual, and faithful
performance of all and each of the Liabilities, the Borrower hereby grants to the Lender a
continuing security interest in and to, and assigns to the Lender, (and ratifies and confirms the
Borrower’s prior grant of a security interest to the Lender pursuant to the Existing Loan
Agreement, in and to) the following, and each item thereof, whether now owned or now due, or in
which the Borrower has an interest, or hereafter acquired, arising, or to become due, or in which
the Borrower obtains an interest, and all products, Proceeds, substitutions, and accessions of or
to any of the following (all of which, together with any other property in which the Lender may in
the future be granted a security interest, is referred to herein as the “Collateral”):




     I. All Accounts and Accounts Receivable.




     II. All Inventory.




     III. All General Intangibles, including, without limitation, all Payment Intangibles.




     IV. All Equipment.




     V. All Goods.




     VI. All Fixtures.




     VII. All Chattel Paper.




     VIII. All books, records, and information relating to the Collateral and/or to the
operation of the Borrower’s business, and all rights of access to such books, records, and
information, and all property in which such books, records, and information are stored,
recorded, and maintained.




     IX. All Investment Property, Instruments, Documents, Deposit Accounts, policies and
certificates of insurance, deposits, impressed accounts, compensating balances, money, cash,
or other property.




     X. All Letter of Credit Rights and Supporting Obligations.



54









 






     XI. All Commercial Tort Claims.




     XII. All insurance proceeds, refunds, and premium rebates, including, without
limitation, proceeds of fire and credit insurance, whether any of such proceeds, refunds,
and premium rebates arise out of any of the foregoing( through 8-1(k)) or otherwise.




     XIII. All liens, guaranties, rights, remedies, and privileges pertaining to any of the
foregoing ( through 8-1(l)), including the right of stoppage in transit.


provided that, the Collateral shall not include leases or licenses and rights thereunder to
the extent of enforceable anti-assignment provisions therein contained which have not been waived,
provided, however, that in no event shall the foregoing be construed to exclude from the security
interest created by this Agreement, proceeds or products of any such leases or licenses or any
accounts receivable or the right to payments due or to become due the Borrower under any such lease
or license.




     (b) Extent and Duration of Security Interest. This grant of a security interest is in
addition to, and supplemental of, any security interest previously granted by the Borrower to the
Lender and shall continue in full force and effect applicable to all Liabilities, until all
Liabilities have been paid and/or satisfied in full (other than indemnities not then due and
payable, which survive repayment of the Revolving Credit Loans and the L/Cs and termination of the
Commitments) and the security interest granted herein is specifically terminated in writing by a
duly authorized officer of the Lender (which the Lender agrees to do upon payment and satisfaction
of all such Liabilities).



9. — Lender As Borrower’s Attorney-In-Fact:




     (a) Appointment as Attorney-In-Fact. The Borrower hereby irrevocably constitutes and appoints
the Lender as the Borrower’s true and lawful attorney, with full power of substitution, exercisable
only after the occurrence, and during the continuance, of an Event of Default, to convert the
Collateral into cash at the sole risk, cost, and expense of the Borrower, but for the sole benefit
of the Lender. The rights and powers granted the Lender by this appointment include but are not
limited to the right and power to:




     I. Prosecute, defend, compromise, or release any action relating to the Collateral.




     II. Sign change of address forms to change the address to which the Borrower’s mail is
to be sent to such address as the Lender shall designate; receive and open the Borrower’s
mail; remove any Receivables Collateral and Proceeds of Collateral therefrom and turn over
the balance of such mail either to the Borrower or to any trustee in bankruptcy, receiver,
assignee for the benefit of creditors of the Borrower, or other legal representative of the
Borrower whom the Lender determines to be the appropriate person to whom to so turn over
such mail.




     III. Endorse the name of the Borrower in favor of the Lender upon any and all checks,
drafts, notes, acceptances, or other items or instruments; sign and endorse the name of the
Borrower on, and receive as secured party, any of the Collateral, any invoices, schedules of
Collateral, freight or express receipts, or bills of lading, storage receipts, warehouse
receipts, or other documents of title respectively relating to the Collateral.




     IV. Sign the name of the Borrower on any notice to the Borrower’s Account Debtors or
verification of the Receivables Collateral; sign the Borrower’s name on any Proof of Claim
in Bankruptcy



55









 






against Account Debtors, and on notices of lien, claims of mechanic’s liens,
or assignments or releases of mechanic’s liens securing the Accounts.




     V. Take all such action as may be necessary to obtain the payment of any letter of
credit and/or banker’s acceptance of which the Borrower is a beneficiary.




     VI. Repair, manufacture, assemble, complete, package, deliver, alter or supply goods,
if any, necessary to fulfill in whole or in part the purchase order of any customer of the
Borrower.




     VII. Use, license or transfer any or all General Intangibles of the Borrower.



     (b) No Obligation to Act. The Lender shall not be obligated to do any of the acts or to
exercise any of the powers authorized by Section 9-1 herein, but if the Lender elects to do any
such act or to exercise any of such powers, it shall not be accountable for more than it actually
receives as a result of such exercise of power, provided that, if the Lender elects to use or
license any General Intangibles of the Borrower consisting of trademarks, copyrights or similar
property, the Lender shall use reasonable efforts to preserve and maintain any such trademark,
copyright or similar property (but nothing contained herein shall obligate the Lender to undertake
(or refrain from undertaking) any specific action with respect thereto). The Lender shall not be
responsible to the Borrower for any act or omission to act pursuant to Section 9-1, except to the
extent that the subject act or omission to act had been grossly negligent or in actual bad faith.



10. — Events of Default:




     The occurrence of any event described in this Article 10 shall constitute an “Event of
Default” herein. Upon the occurrence of any Event of Default described in Section 10-12, any and
all Liabilities shall become due and payable without any further act on the part of the Lender.
Upon the occurrence, and during the continuance, of any other Event of Default, any and all
Liabilities shall become immediately due and payable, at the option of the Lender and without
notice or demand. The occurrence and continuance of any Event of Default shall also constitute,
without notice or demand, a default under all other Loan Documents, whether such Loan Documents now
exist or hereafter arise.



     (a) Failure to Pay Revolving Credit. The failure by the Borrower to pay any principal amount
when due under the Revolving Credit.



     (b) Failure To Make Other Payments. The failure by the Borrower to pay when due (or upon demand, if payable on demand) any payment
Liability within three (3) days of the date when due other than the principal amount under the
Revolving Credit.



     (c) Failure to Perform Covenant or Liability (No Grace Period). The failure by the Borrower
to promptly, punctually, faithfully and timely perform, discharge, or comply with any covenant or
Liability not otherwise described in Section 10-1 or Section 10-2 hereof, and included in any of
the following provisions hereof:




	 	 	 
	Section 
	                   	Relates
to             :	
	4-5	 	Location of Collateral
	
	4-6	 	Title to Assets
	
	4-7	 	Indebtedness
	
	4-8(b)	 	Insurance Policies

	6	 	Use of Collateral

	Article 7	 	Cash Management









56









 






     (d) Failure to Perform Covenant or Liability (Limited Grace Period). The failure by the
Borrower, upon three (3) days written notice by the Lender, to cure the Borrower’s failure to
promptly, punctually and faithfully perform, discharge, or comply with any covenant under Sections
4-13, 4-22, 4-23, and Article 5 hereof.



     (e) Failure to Perform Covenant or Liability (Grace Period). The failure by the Borrower,
upon fifteen (15) days written notice by the Lender, to cure the Borrower’s failure to promptly,
punctually and faithfully perform, discharge, or comply with any covenant hereunder or under any
other Loan Document or with any Liability not described in any of Sections 10-1, 10-2, 10-3 or 10-4
hereof.



     (f) Misrepresentation. Any representation or warranty at any time made by the Borrower to the
Lender is not true or complete in all material respects when given.



     (g) Default of Other Debt. The occurrence of any event such that any Indebtedness of the
Borrower to any creditor in excess of $10,000,000.00, other than the Lender, could then be
accelerated (whether or not the subject creditor takes any action on account of such occurrence),
provided that if such event is waived in writing by the holder of the Indebtedness prior to the
exercise of remedies by the Lender hereunder, the occurrence of such event shall not constitute an
Event of Default hereunder.



     (h) Default of Leases. The occurrence of any event such that any Lease or Leases of the
Borrower could then be terminated (whether or not any or all of the subject lessors take any action
on account of such occurrence) and such termination (individually or together with all other such terminations)
could reasonably likely have a Material Adverse Effect, provided that if such event is
waived in writing by the subject lessors prior to the exercise of remedies by the Lender hereunder,
the occurrence of such event shall not constitute an Event of Default hereunder.



     (i) Uninsured Casualty Loss. The occurrence of any uninsured loss, theft, damage, or
destruction of or to any material portion of the Collateral, having an aggregate value in excess of
$1,500,000.00.



     (j) Judgment. Restraint of Business.



          (i) The entry of any uninsured judgment against the Borrower, in excess of $5,000,000.00,
individually or in the aggregate, which judgment is not satisfied (if a money judgment) or appealed
from (with execution or similar process stayed) within thirty (30) days of its entry.




          (ii) The entry of any order or the imposition of any other process having the force of law, in
either case applicable specifically to the Borrower, the effect of which is to restrain in any
material adverse way the conduct by the Borrower of its business in the ordinary course, which
order is not dissolved within ten (10) days of its imposition.





57












 





     (k) Business Failure. Any act by, against, or relating to the Borrower, or its property or
assets, which act constitutes the application for, consent to, or sufferance of the appointment of
a receiver, trustee, or other person, pursuant to court action or otherwise, over all, or any
material part of the Borrower’s property; the granting of any trust mortgage or execution of an
assignment for the benefit of the creditors of the Borrower generally; the offering by or entering
into by the Borrower of any composition, extension, or any other arrangement seeking relief
generally from or extension of the debts of the Borrower; or the initiation of any judicial or
non-judicial proceeding or agreement by, against, or including the Borrower which seeks or intends
to accomplish a reorganization or arrangement with creditors, provided that, if such
proceeding is initiated against the Borrower, an Event of Default shall not arise hereunder unless
such proceeding is not timely contested in good faith by the Borrower by appropriate proceedings
or, if so contested, is not dismissed within sixty (60) days of when initiated; and/or the
initiation by or on behalf of the Borrower of the liquidation or winding up of all or any material
part of the Borrower’s business or operations.



     (l) Bankruptcy. The failure by the Borrower to generally pay the debts of the Borrower as they
mature; adjudication of bankruptcy or insolvency relative to the Borrower; the entry of an order
for relief or similar order with respect to the Borrower in any proceeding pursuant to the
Bankruptcy Code or any other federal bankruptcy law; the filing of any complaint, application, or
petition by the Borrower initiating any matter in which the Borrower is or may be granted any
relief from its debts generally pursuant to the Bankruptcy Code or any other insolvency statute or
procedure of general application; the filing of any complaint, application, or petition against the
Borrower initiating any matter in which the Borrower is or may be granted any relief from its debts
generally pursuant to the Bankruptcy Code or any other insolvency statute or procedure of
general application, which complaint, application, or petition is not timely contested in good
faith by the Borrower by appropriate proceedings or, if so contested, is not dismissed within sixty
(60) days of when filed.



     (m) Indictment
- Forfeiture. The indictment of, or institution of any legal process or proceeding
against, the Borrower, under any federal, state, municipal, and other civil or criminal statute,
rule, regulation, order, or other requirement having the force of law where the relief, penalties,
or remedies sought or available include the forfeiture of any property of the Borrower and/or the
imposition of any stay or other order, the effect of which would reasonably be expected to restrain
in any material way the conduct by the Borrower of its business in the ordinary course.



     (n) Default by Guarantor or Subsidiary. The occurrence of any of the foregoing Events of Default
with respect to any Guarantor of the Liabilities, or the occurrence of any of the foregoing Events
of Default with respect to any Subsidiary of the Borrower, as if such guarantor or Subsidiary were
the “Borrower” described therein.



     (o) Termination of Guaranty. The termination or attempted termination of any Guaranty Agreement
by any Guarantor of the Liabilities (other than in accordance with its terms or as permitted by the
Lenders).



58









 





     (p) Challenge to Loan Documents.



          (i) Any challenge by or on behalf of the Borrower or any guarantor of the Liabilities to the
validity of any Loan Document or the applicability or enforceability of any Loan Document strictly
in accordance with the subject Loan Document’s terms or which seeks to void, avoid, limit, or
otherwise adversely affect any security interest created by or in any Loan Document or any payment
made pursuant thereto.




          (ii) Any determination by any court or any other judicial or government authority that the
Loan Documents, taken as a whole, are not enforceable strictly in accordance with their terms or
which voids, avoids, limits, or otherwise adversely affects any security interest created by any
Loan Document or any payment made pursuant thereto.




     (q) Intentionally Omitted.



     (r) Change in Control. Any Change in Control.



11. - Rights and Remedies Upon Default:




     In addition to all of the rights, remedies, powers, privileges, and discretions which the
Lender is provided prior to the occurrence of an Event of Default, the Lender shall have the
following rights and remedies upon the occurrence, and during the continuance, of any Event of
Default.



     (a) Rights of Enforcement. The Lender shall have all of the rights and remedies of a secured party upon default under
the UCC, in addition to which the Lender shall have all and each of the following rights and
remedies:




     I. To collect the Receivables Collateral with or without the taking of possession of
any of the Collateral.




     II. To take possession of all or any portion of the Collateral.




     III. To sell, lease, or otherwise dispose of any or all of the Collateral, in its then
condition or following such preparation or processing as the Lender deems advisable and with
or without the taking of possession of any of the Collateral.




     IV. To conduct one or more going out of business sales which include the sale or other
disposition of the Collateral.




     V. To apply the Receivables Collateral or the Proceeds of the Collateral towards (but
not necessarily in complete satisfaction of) the Liabilities.




     VI. To exercise all or any of the rights, remedies, powers, privileges, and discretions
under all or any of the Loan Documents.



     (b) Sale of Collateral.



          (i) Any sale or other disposition of the Collateral may be at public or private sale upon such
terms and in such manner as the Lender deems advisable, having due regard to compliance with any
statute or regulation which might affect, limit, or apply to the Lender’s disposition of the
Collateral.




          (ii) The Lender, in the exercise of the Lender’s rights and remedies upon default, may conduct
one or more going out of business sales, in the Lender’s own right or by one or more agents and
contractors. Such sale(s) may be conducted upon any premises owned, leased, or occupied by the
Borrower. The Lender and



59









 






any such agent or contractor, in conjunction with any such sale, may
augment the Inventory with other goods (all of which other goods shall remain the sole property of
the Lender or such agent or contractor). Any amounts realized from the sale of such goods which
constitute augmentations to the Inventory (net of an allocable share of the costs and expenses
incurred in their disposition) shall be the sole property of the Lender or such agent or contractor
and neither the Borrower nor any Person claiming under or in right of the Borrower shall have any
interest therein.




          (iii) Unless the Collateral is perishable or threatens to decline speedily in value, or is of
a type customarily sold on a recognized market (in which event the Lender shall provide the
Borrower with such notice as may be practicable under the circumstances), the Lender shall give the
Borrower at least ten (10) days prior written notice of the date, time, and place of any proposed
public sale, and of the date after which any private sale or other disposition of the Collateral
may be made. The Borrower agrees that such written notice shall satisfy all requirements for
notice to the Borrower which are imposed under the UCC or other applicable law with respect to the
exercise of the Lender’s rights and remedies upon default.




          (iv) The Lender may purchase the Collateral, or any portion of it at any sale held under this
Article (to the extent permitted by applicable law).




          (v) The Lender shall apply the proceeds of any exercise of the Lender’s Rights and Remedies
under this Article 11 towards the Liabilities in the following order:




	 	 	 	 	 
	 

	 	First:
	 	To all costs and expenses incurred by the Lender under this Agreement, or any other
Loan Document, including all Costs of Collection.
	 
	 	 	 	 
	 

	 	Second:
	 	To accrued and unpaid interest on the Revolving Credit Loans until all accrued and
unpaid interest on the Revolving Credit Loans has been paid in full.
	 
	 	 	 	 
	 

	 	Third:
	 	To the principal balance of the Revolving Credit Loans, until the unpaid principal
balance of the Revolving Credit Loans has been paid in full.
	 
	 	 	 	 
	 

	 	Fourth:
	 	To all fees due under this Agreement or any other Loan Document, until the remaining
balance of all fees (including L/C Fees, Line (Unused Fees)) have been paid in full.
	 
	 	 	 	 
	 

	 	Fifth:
	 	To all other Liabilities, including without limitation, on account of Bank Products
and Cash Management Services, until such Liabilities have been paid in full.
	 
	 	 	 	 
	 

	 	Sixth:
	 	As provided under applicable law, to each Person then entitled thereto.






     (c) Occupation of Business Location. In connection with the Lender’s exercise of the Lender’s
rights under this Article 11, the Lender may enter upon, occupy, and use any premises owned or
occupied by the Borrower, and may exclude the Borrower from such premises or portion thereof as may
have been so entered upon, occupied, or used by the Lender. The Lender shall not be required to
remove any of the Collateral from any such premises upon the Lender’s taking possession thereof,
and may render any Collateral unusable to the Borrower. In no event shall the Lender be liable to
the Borrower for use or occupancy by the Lender of any premises pursuant to this Article 11, nor
for any charge (such as wages for the Borrower’s employees and utilities) incurred in connection
with the Lender’s exercise of the Lender’s Rights and Remedies,



60









 







except for such charges which are
incurred as a result of the Lender’s gross negligence or willful misconduct.



     (d) Grant of Nonexclusive License. The Borrower hereby grants to the Lender a royalty free
nonexclusive irrevocable license, exercisable upon the occurrence, and during the continuance, of
an Event of Default, to use, apply, and affix any trademark, trade name, logo, or the like in which
the Borrower now or hereafter has rights, such license being with respect to the Lender’s exercise
of the rights hereunder including, without limitation, in connection with any completion of the
manufacture of Inventory or sale or other disposition of Inventory. In exercising its rights under
such license, the Lender shall use reasonable efforts to preserve and maintain any such trademark,
trade name, or logo, but nothing contained herein shall obligate the Lender to undertake (or
refrain from undertaking) any specific action and the Lender shall, under no circumstances, have
any liability to the Borrower, except for such which are a result of the Lender’s gross negligence
or willful misconduct.



     (e) Assembly of Collateral. The Lender may require the Borrower to assemble the Collateral and make it available to the
Lender at the Borrower’s sole risk and expense at a place or places which are reasonably convenient
to both the Lender and Borrower.



     (f) Rights and Remedies. The rights, remedies, powers, privileges, and discretions of the Lender
hereunder (herein, the “ Lender’s Rights and Remedies”) shall be cumulative and not exclusive of
any rights or remedies which it would otherwise have. No delay or omission by the Lender in
exercising or enforcing any of the Lender’s Rights and Remedies shall operate as, or constitute, a
waiver thereof. No waiver by the Lender of any Event of Default or of any default under any other
agreement shall operate as a waiver of any other default hereunder or under any other agreement.
No single or partial exercise of any of the Lender’s Rights or Remedies, and no express or implied
agreement or transaction of whatever nature entered into between the Lender and any person, at any
time, shall preclude the other or further exercise of the Lender’s Rights and Remedies. No waiver
by the Lender of any of the Lender’s Rights and Remedies on any one occasion shall be deemed a
waiver on any subsequent occasion, nor shall it be deemed a continuing waiver. All of the Lender’s
Rights and Remedies and all of the Lender’s rights, remedies, powers, privileges, and discretions
under any other agreement or transaction are cumulative, and not alternative or exclusive, and may
be exercised by the Lender at such time or times and in such order of preference as the Lender in
its sole discretion may determine. The Lender’s Rights and Remedies may be exercised without
resort or regard to any other source of satisfaction of the Liabilities.



12. - Notices:




     (a) Notice Addresses. All notices, demands, and other communications made in respect of this
Agreement (other than a request for a loan or advance or other financial accommodation under the
Revolving Credit) shall be made to the following addresses, each of which may be changed upon seven
(7) days written notice to all others given by certified mail, return receipt requested:



61









 





	 	 	 
	If to the Lender:    
	 	 
	 
	 	 
	 

	 	Bank of America, N.A.
	 

	 	100 Federal Street, 9th Floor
	 

	 	Boston, Massachusetts 02110
	 

	 	Attention: Christine Hutchinson

                 Vice President
	 

	 	Fax: (617) 790-1234
	 

	 	Email: christine.hutchinson@bankofamerica.com
	 
	 	 
	With a copy to:
	 	 
	 
	 	 
	 

	 	Riemer & Braunstein LLP
	 

	 	Three Center Plaza
	 

	 	Boston, Massachusetts 02108
	 

	 	Attention: David S. Berman, Esquire
	 

	 	Fax : (617) 880-3456
	 

	 	Email: dberman@riemerlaw.com
	 
	 	 
	If to the Borrower:
	 	 
	 
	 	 
	 

	 	Aeropostale, Inc.
	 

	 	201 Willowbrook Blvd.
	 

	 	Wayne, New Jersey 07470
	 

	 	Attention: Joseph Pachella, VP and Treasurer
	 

	 	Fax: (201) 581-0399
	 

	 	Email: jpachella@aeropostale.com
	 
	 	 
	With a Copy to:
	 	 
	 
	 	 
	 

	 	Edward M. Slezak, Esquire
	 

	 	General Counsel
	 

	 	Aeropostale, Inc.
	 

	 	112 West 34th Street, 22nd Floor
	 

	 	New York, New York 10120
	 

	 	Fax: (646) 619-4873
	 

	 	Email: eslezak@aeropostale.com






     (b) Notice Given.



          (i) Except as otherwise specifically provided herein, notices shall be deemed made and
correspondence received, as follows (all times being local to the place of delivery or receipt):





          (A) By mail: the sooner of when actually received or three (3) days following deposit
in the United States mail, postage prepaid.




          (B) By recognized overnight express delivery: the Business Day following the day when
sent.



62









 






          (C) By Hand: If delivered on a Business Day after 9:00 AM and no later than three (3)
hours prior to the close of customary business hours of the recipient, when delivered.
Otherwise, at the opening of the then next Business Day.




          (D) By Facsimile or electronic transmission (which must include a header on which the
party sending such transmission is indicated): If sent on a Business Day after 9:00 AM and
no later than three (3) hours prior to the close of customary business hours of the
recipient, one (1) hour after being sent. Otherwise, at the opening of the then next
Business Day.



          (ii) Rejection or refusal to accept delivery and inability to deliver because of a changed
address or Facsimile Number for which no due notice was given shall each be deemed receipt of the
notice sent.




13. - Term:




     (a) Termination of Revolving Credit. The Revolving Credit shall remain in effect (subject to
suspension as provided in Section 2-5(h) hereof) until the Termination Date.



     (b) Effect of Termination. On the Termination Date, the Borrower shall pay the Lender (whether or
not then due), in immediately available funds, all then Liabilities (other than indemnities, not
then due and payable, which survive repayment of the Revolving Credit Loans and L/Cs and
termination of the Commitments), including, without limitation: the entire balance of the Loan
Account; any accrued and unpaid Line (Unused) Fee; any payments due on account of the
indemnification obligations included in Section 2-9(e); and all unreimbursed costs and expenses of
the Lender for which the Borrower is responsible; and shall make such arrangements concerning any
L/C’s then outstanding are reasonably satisfactory to the Lender. Until such payment, all
provisions of this Agreement, other than those contained in Article 2 which place an obligation on
the Lender to make any loans or advances or to provide financial accommodations under the Revolving
Credit or otherwise, shall remain in full force and effect until all Liabilities (other than
indemnities, not then due and payable, which survive repayment of the Revolving Credit Loans and
L/Cs and termination of the Commitments) shall have been paid in full. The release by the Lender
of the security and other collateral interests granted the Lender by the Borrower hereunder may be
upon such conditions and indemnifications as the Lender may reasonably require to protect the
Lender against and chargebacks, credits, returned items and any other reversal of payments which
had been received by the Lender and applied toward such Liabilities.



14. - General:




     (a) Protection of Collateral. The Lender has no duty as to the collection or protection of the
Collateral beyond the safe custody of such of the Collateral as may come into the possession of the
Lender and shall have no duty as to the preservation of rights against prior parties or any other
rights pertaining thereto. With the Borrower’s prior approval (which shall not be unreasonably
delayed or withheld), the Lender may include reference to the Borrower (and may utilize any logo or
other distinctive symbol associated with the Borrower) in connection with any advertising,
promotion, or marketing undertaken by the Lender.



     (b) Successors and Assigns. This Agreement shall be binding upon the Borrower and the Borrower’s
representatives, successors, and assigns and shall inure to the benefit of the Lender and its
successors and assigns, provided, however, no trustee or other fiduciary appointed with



63









 







respect to the Borrower shall have any rights hereunder. In the event that the Lender, in accordance with the
provisions of Section 2-23 hereof, assigns or transfers its rights under this Agreement, the
assignee shall thereupon succeed to and become vested with all rights, powers, privileges, and
duties of such assignor hereunder and such assignor shall thereupon be discharged and relieved from
its duties and obligations hereunder.



     (c) Severability. Any determination that any provision of this Agreement or any application
thereof is invalid, illegal, or unenforceable in any respect in any instance shall not affect the
validity, legality, or enforceability of such provision in any other instance, or the validity,
legality, or enforceability of any other provision of this Agreement.



     (d) Amendments. Course of Dealing.



          (i) This Agreement and the other Loan Documents incorporate all discussions and negotiations
between the Borrower and the Lender, either express or implied, concerning the matters included
herein and in such other instruments, any custom, usage, or course of dealings to the contrary
notwithstanding. No such discussions, negotiations, custom, usage, or course of dealings shall
limit, modify, or otherwise affect the provisions thereof. No failure by the Lender to give notice
to the Borrower of the Borrower’s having failed to observe and comply with any warranty or covenant
included in any Loan Document shall constitute a waiver of such warranty or covenant or the
amendment of the subject Loan Document.




          (ii) The Borrower may undertake any action otherwise prohibited hereby, and may omit to take
any action otherwise required hereby, upon and with the express prior written consent of the
Lender. No consent, modification, amendment, or waiver of any provision of any Loan Document shall
be effective unless executed in writing by or on behalf of the party to be charged with such
modification, amendment, or waiver (and if such party is the Lender, then by a duly authorized
officer thereof). Any modification, amendment, or waiver provided by the Lender shall be in
reliance upon all representations and warranties theretofore made to the Lender by or on behalf of
the Borrower (and any guarantor, endorser, or surety of the Liabilities) and consequently may be
rescinded in the event that any of such representations or warranties was not true and complete in
all material respects when given.




     (e) Power of Attorney. In connection with all powers of attorney included in this Agreement, the
Borrower hereby grants unto the Lender full power to do any and all things necessary or appropriate
in connection with the exercise of such powers as fully and effectually as the Borrower might or
could do, hereby ratifying all that said attorney shall do or cause to be done by virtue of this
Agreement. No power of attorney set forth in this Agreement shall be affected by any disability or
incapacity suffered by the Borrower and each shall survive the same. All powers conferred upon the
Lender by this Agreement, being coupled with an interest, shall be irrevocable until this Agreement
is terminated by a written instrument executed by a duly authorized officer of the Lender.



     (f) Application of Proceeds. Except as otherwise provided in Section 11-2(e) hereof, the proceeds
of any collection, sale, or disposition of the Collateral, or of any other payments received
hereunder, shall be applied towards the Liabilities in such order and manner as the Lender
determines in its sole discretion. The Borrower shall remain liable for any deficiency remaining
following such application.



     (g) Costs and Expenses of Lender.



          (i) The Borrower shall pay on demand all Costs of Collection and all reasonable expenses of
the Lender in connection with the preparation, execution, and delivery of this Agreement and of any
other Loan



64









 






Documents, whether now existing or hereafter arising, and all other reasonable expenses
which may be incurred by the Lender in preparing or amending this Agreement and all other agreements, instruments, and
documents related thereto, or otherwise incurred with respect to the Liabilities, and all other
costs and expenses of the Lender which relate to the credit facility contemplated hereby.




          (ii) The Borrower shall pay on demand all costs and expenses (including reasonable attorneys’
fees) incurred, following the occurrence, and during the continuance, of any Event of Default, by
the Lender in connection with the enforcement, attempted enforcement, or preservation of any rights
and remedies under this, or any other Loan Document, as well as any such costs and expenses in
connection with any “workout”, forbearance, or restructuring of the credit facility contemplated
hereby.




          (iii) The Borrower authorizes the Lender to pay all such fees and expenses and in the Lender’s
discretion, to add such fees and expenses to the Loan Account.




          (iv) The undertaking on the part of the Borrower in this Section 14-7 shall survive payment of
the Liabilities and/or any termination, release, or discharge executed by the Lender in favor of
the Borrower, other than a termination, release, or discharge which makes specific reference to
this Section 14-7.




     (h) Copies and Facsimiles. This Agreement and all documents which relate thereto, which have been
or may be hereinafter furnished the Lender may be reproduced by the Lender by any photographic,
microfilm, xerographic, digital imaging, or other process, and the Lender may destroy any document
so reproduced. Any such reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in existence and whether or
not such reproduction was made in the regular course of business). Any facsimile which bears proof
of transmission shall be binding on the party which or on whose behalf such transmission was
initiated and likewise shall be so admissible in evidence as if the original of such facsimile had
been delivered to the party which or on whose behalf such transmission was received.



     (i) Massachusetts Law. This Agreement and all rights and obligations hereunder, including matters
of construction, validity, and performance, shall be governed by the laws of The Commonwealth of
Massachusetts.



     (j) Consent to Jurisdiction.



          (i) The Borrower agrees that any legal action, proceeding, case, or controversy against the
Borrower with respect to any Loan Document may be brought in the Superior Court of Suffolk County
Massachusetts or in the United States District Court, District of Massachusetts, sitting in Boston,
Massachusetts, as the Lender may elect in the Lender’s sole discretion. By execution and delivery
of this Agreement, the Borrower, for itself and in respect of its property, accepts, submits, and
consents generally and unconditionally, to the non-exclusive jurisdiction of the aforesaid courts.




          (ii) The Borrower WAIVES personal service of any and all process upon it, and irrevocably
consents to the service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by certified mail, postage prepaid, to the Borrower at
the Borrower’s address for notices as specified herein, such service to become effective ten (10)
Business Days after such mailing.




          (iii) The Borrower WAIVES any objection based on forum non conveniens and any objection to
venue of any action or proceeding instituted in the aforesaid courts under any of the Loan
Documents.




          (iv) Nothing herein shall affect the right of the Lender to bring legal actions or proceedings
in any other competent jurisdiction.




65









 








          (v) The Borrower agrees that any action commenced by the Borrower asserting any claim or
counterclaim arising under or in connection with this Agreement or any other Loan Document shall be
brought solely in the Superior Court of Suffolk County Massachusetts or in the United States
District Court, District of Massachusetts, sitting in Boston, Massachusetts, and that such Courts
shall have exclusive jurisdiction with respect to any such action.




     (k) Indemnification. The Borrower shall indemnify, defend, and hold the Lender and any employee,
officer, or agent of the Lender (each, an “Indemnified Person”) harmless of and from any claim
brought or threatened against any Indemnified Person by the Borrower, any guarantor or endorser of
the Liabilities, or any other Person (as well as from reasonable attorneys’ fees and expenses in
connection therewith) on account of the relationship of the Borrower or of any other guarantor or
endorser of the Liabilities with the Lender (each, an “Indemnified Claim”) other than any claim
resulting from the gross negligence or willful misconduct of such Indemnified Person. Each
Indemnified Claim may be defended, compromised, settled, or pursued by the Indemnified Person with
counsel of the Lender’s selection (and if such Indemnified Claim is brought by a Person other than
the Borrower, any guarantor or endorser of the Liabilities or any Affiliate of the Borrower, after
consultation with (but not approval of) the Borrower regarding the selection of such counsel), but
at the expense of the Borrower, provided that any Indemnified Claim may not be settled without the
consent of the Borrower (which shall not be unreasonably withheld or delayed) if as the result of
any such settlement the Borrower will be obligated to make any payment (other than reimbursement of
the reasonable costs and expenses of the Indemnified Person). This indemnification shall survive
payment of the Liabilities and/or any termination, release, or discharge executed by the Lender in
favor of the Borrower, other than a termination, release, or discharge which makes specific
reference to this Section 14-11.



     (l) Rules of Construction. The following rules of construction shall be applied in the
interpretation, construction, and enforcement of this Agreement and of the other Loan Documents:




     I. Words in the singular include the plural and words in the plural include the
singular.




     II. Titles, headings (indicated by being underlined or shown in SMALL
CAPITALS) and any Table of Contents are solely for convenience of reference; do not
constitute a part of the instrument in which included; and do not affect such instrument’s
meaning, construction, or effect.




     III. The words “includes” and “including” are not limiting.




     IV. Text which follows the words “including, without limitation” (or similar words) is
illustrative and not limitational.




     V. Except where the context otherwise requires or where the relevant subsections are
joined by “or”, compliance with any Section or provision of any Loan Document which
constitutes a warranty or covenant requires compliance with all subsections (if any) of that
Section or provision. Except where the context otherwise requires, compliance with any
warranty or covenant of any Loan Document which includes subsections which are joined by “or” may be accomplished by compliance with
any of such subsections.




     VI. Text which is shown in italics, shown in bold, shown IN ALL CAPITAL LETTERS, or in
any combination of the foregoing, shall be deemed to be conspicuous.



66









 






     VII. The words “may not” are prohibitive and not permissive.




     VIII. The word “or” is not exclusive.




     IX. Terms which are defined in one section of any Loan Document are used with such
definition throughout the instrument in which so defined.




     X. The symbol “$” refers to United States Dollars.




     XI. Unless limited by reference to a particular Section or provision, any reference to
“herein”, “hereof”, or “within” is to the entire Loan Document in which such reference is
made.




     XII. References to “this Agreement” or to any other Loan Document is to the subject
instrument as amended to the date on which application of such reference is being made.




     XIII. Except as otherwise specifically provided, all references to time are to Boston
time.




     XIV. In the determination of any notice, grace, or other period of time prescribed or
allowed hereunder:




     A. Unless otherwise provided (A) the day of the act, event, or default from
which the designated period of time begins to run shall not be included and the last
day of the period so computed shall be included unless such last day is not a
Business Day, in which event the last day of the relevant period shall be the then
next Business Day and (B) the period so computed shall end at 5:00 PM on the
relevant Business Day.




     B. The word “from” means “from and including”.




     C. The words “to” and “until” each mean “to, but excluding”.




     D. The word “through” means “to and including”.




     XV. References to “presently”, “currently”, “Second Amendment Effective Date of this
Agreement”, and other similar expressions mean the date of this Agreement.




     XVI. The term “upon the occurrence, and during the continuance, of an Event of
Default”, “upon the occurrence, and during the continuance, of Default Interest Event” and
any other similar term means the occurrence of an Event of Default or a Default Interest
Event which has not been (i) waived by the Lender, or (ii) resolved to the reasonable
satisfaction of the Lender. For purposes hereof, an Event of Default shall be deemed
“resolved to the reasonable satisfaction of the Lender” if (A) the Lender has not
theretofore exercised any of its rights and remedies on account of the existence of such
Event of Default, and (B) the matter giving rise to such Event of Default has been fully
remediated by the Borrower, provided, however, that (1) nothing contained herein shall
furnish the Borrower with any additional cure periods beyond those set forth in Article 10,
if any, prior to an event constituting an “Event of Default”, (2) notwithstanding the
foregoing, any Event of Default under Article 7, or Sections 10-1, 10-2, 10-11, or 10-12
hereof may only be waived by the Lender and shall not ever be deemed “resolved to the
reasonable satisfaction of the Lender”, and (3) the Borrower may not resolve any occurrences
which constitute Events of Default to the reasonable satisfaction of the Lender on more than
four (4) occasions in any fiscal year.




     XVII. The Loan Documents shall be construed and interpreted in a harmonious manner and
in keeping with the intentions set forth in Section 14-13 hereof, provided, however, in the
event of any inconsistency between the provisions of this Agreement and any other Loan
Document, the provisions of this Agreement shall govern and control.



     (m) Intent. It is intended that:



67









 






     I. This Agreement take effect as a sealed instrument.




     II. The scope of the security interests created by this Agreement be broadly construed
in favor of the Lender.




     III. The security interests created by this Agreement secure all Liabilities, whether
now existing or hereafter arising.




     IV. All reasonable costs and expenses (other than overhead costs) incurred by the
Lender in connection with its relationship with the Borrower shall be borne by the Borrower.




     V. Unless otherwise explicitly provided herein, the Lender’s consent to any action of
the Borrower which is prohibited unless such consent is given may be given or refused by the
Lender in its reasonable discretion and without reference to Section 2-16 hereof.



     (n) Right of Set-Off. Any and all deposits (other than Trust Deposit Accounts) or other sums at
any time credited by or due to the Borrower from the Lender, or any participant (a “Participant”)
in the credit facility contemplated hereby or any from any Affiliate of the Lender, or any
Participant and any cash, securities, instruments or other property of the Borrower in the
possession of the Lender, any Participant or any such Affiliate, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same) shall at all times
constitute security for all Liabilities and for any and all obligations of the Borrower to the
Lender or any Participant or any such Affiliate and may be applied or set off against the
Liabilities and against such obligations at any time, whether or not such are then due and whether
or not other collateral is then available to the Lender or any Participant or any such Affiliate.



     (o) Maximum Interest Rate. Notwithstanding anything to the contrary contained in any Loan
Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the
maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If
the Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest
shall be applied to the principal of the Revolving Loans or, if it exceeds such unpaid principal,
refunded to the Borrower. In determining whether the interest contracted for, charged, or received
by the Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable law,
(a) characterize any payment that is not principal as an expense, fee, or premium rather than
interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate,
allocate, and spread in equal or unequal parts the total amount of interest throughout the
contemplated term of the Liabilities hereunder.



     (p) Waivers.



          (i) The Borrower (and all guarantors, endorsers, and sureties of the Liabilities) make each of
the waivers included in Section 14-16(b), below, knowingly, voluntarily, and intentionally, and
understands that the Lender, in entering into the financial arrangements contemplated hereby and in
providing loans and other financial accommodations to or for the account of the Borrower as
provided herein, whether not or in the future, is relying on such waivers.




          (ii) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY WAIVES THE
FOLLOWING:




68









 









          (A) Except as otherwise specifically required hereby, and to the extent permissible
under applicable law, notice of non-payment, demand, presentment, protest and all forms of
demand and notice, both with respect to the Liabilities and the Collateral.




          (B) Except as otherwise specifically required hereby, and to the extent permissible
under applicable law, the right to notice and/or hearing prior to the Lender’s exercising
of the Lender’s rights upon default.




          (C) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE LENDER IS
OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS INITIATED BY OR AGAINST THE LENDER
OR IN WHICH THE LENDER IS JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT
OF OR IS IN RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE LENDER (AND THE LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY SUCH
CASE OR CONTROVERSY).




          (D) Except to the extent that such may not be waived under applicable law, the benefits
or availability of any stay, limitation, hindrance, delay, or restriction with respect to
any action which the Lender may or may become entitled to take hereunder.




          (E) Any defense, counterclaim, set-off, recoupment, or other basis on which the amount
of any Liability, as stated on the books and records of the Lender, could be reduced or
claimed to be paid otherwise than in accordance with the tenor of and written terms of such
Liability.




          (F) Any claim against the Lender to consequential, special, or punitive damages.



     (q) Confidentiality. The Lender shall keep, and shall cause its officers, directors, employees,
affiliates and attorneys to keep, all financial statements, reports and other proprietary
information furnished to it by the Borrower, the Guarantor or their respective Affiliates
(hereinafter collectively, the “Information”) confidential and shall not disclose such Information,
or cause such Information to be disclosed, to any Person, provided, however, that (i) the
Information may be disclosed to the Lender’s officers, directors, employees, affiliates, attorneys
and other advisors as need to know the Information in connection with the Lender’s administration
of the Liabilities; (ii) the Information may be disclosed to any regulatory or other governmental
authorities having jurisdiction over the Lender as required in connection with the exercise of
their regulatory activity; (iii) the Information may be disclosed to any prospective assignee or
participant, who has agreed to be bound by the provisions of this Section 14-17; (iv) the
Information may be disclosed in connection with the enforcement of the Liabilities by the Lender to
the extent required in connection therewith; and (v) the Information may otherwise be disclosed to
the extent required by law. Notwithstanding anything herein to the contrary, “Information” shall
not include, and Lender (and each employee, representative, or other agent of the Lender) may
disclose to any and all Persons without limitation of any kind, any information with respect to the
“tax treatment” and “tax structure” (in each case, within the meaning of Treasury Regulation
Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including
options or other tax analyses) that are provided to the Lender (and each employee, representative,
or other agent of the Lender) relating to such tax treatment and tax structure; provided, that with
respect to any document or similar item that in either case contains information concerning the tax
treatment or tax structure of the transaction as well as other information, this sentence shall
only apply to such portions of the document or similar item that relate to the tax treatment or tax
structure of the Revolving Credit, the L/Cs and other transactions contemplated hereby.



69









 








     (r) Press Releases. Once the Borrower has filed this Agreement with the Securities and Exchange
Commission and disseminated a corresponding Press Release regarding this Agreement, then Borrower
consents to the publication by the Lender of advertising material relating to the financing
transactions contemplated by this Agreement using the Borrower’s name, product photographs, logo or
trademark. The Lender shall provide a draft reasonably in advance of any advertising material to
the Borrower for review and comment prior to the publication thereof. Subject to the conditions
contained in this Section 14-18, the Lender reserves the right to provide to industry trade
organizations information necessary and customary for inclusion in league table measurements.



     (s) No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction
contemplated hereby, the Loan Parties acknowledge and agree that: (i) the credit facility provided
for hereunder and any related arranging or other services in connection therewith (including in
connection with any amendment, waiver or other modification hereof or of any other Loan Document)
are an arm’s-length commercial transaction between the Loan Party, on the one hand, and the Lender,
on the other hand, and each of the Loan Parties is capable of evaluating and understanding and
understands and accepts the terms, risks and conditions of the transactions contemplated hereby and
by the other Loan Documents (including any amendment, waiver or other modification hereof or
thereof); (ii) in connection with the process leading to such transaction, the Lender is and has
been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the
Loan Parties or any of their respective Affiliates, stockholders, creditors or employees or any
other Person; (iii) the Lender has not assumed and will not assume an advisory, agency or fiduciary
responsibility in favor of the Loan Parties with respect to any of the transactions contemplated
hereby or the process leading thereto, including with respect to any amendment, waiver or other
modification hereof or of any other Loan Document (irrespective of whether the Lender has advised
or is currently advising the Loan Parties or any of their respective Affiliates on other matters)
and the Lender has no any obligation to the Loan Parties or any of their respective Affiliates with
respect to the transactions contemplated hereby except those obligations expressly set forth herein
and in the other Loan Documents; (iv) the Lender and its Affiliates may be engaged in a broad range
of transactions that involve interests that differ from those of the Loan Parties and their
respective Affiliates, and the Lender has no obligation to
disclose any of such interests by virtue of any advisory, agency or fiduciary relationship;
and (v) the Lender has not provided and will not provide any legal, accounting, regulatory or tax
advice with respect to any of the transactions contemplated hereby (including any amendment, waiver
or other modification hereof or of any other Loan Document) and each of the Loan Parties has
consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed
appropriate. Each of the Loan Parties hereby waives and releases, to the fullest extent permitted
by law, any claims that it may have against the Lender with respect to any breach or alleged breach
of agency or fiduciary duty.



     (t) USA PATRIOT Act Notice. The Lender hereby notifies the Loan Parties that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26,
2001)) (the “Act”), it is required to obtain, verify and record information that identifies the
Loan Parties, which information includes the name and address of each such Person and other
information that will allow the Lender to identify the Loan Parties in accordance with the Act.
Each of the Loan Parties is in compliance, in all material respects, with the Patriot Act. No part
of the proceeds of the Revolving Loans will be used by the Loan Parties, directly or indirectly,



70









 







for any payments to any governmental official or employee, political party, official of a political
party, candidate for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation of the United
States Foreign Corrupt Practices Act of 1977, as amended.



     (u) Existing Loan Agreement Amended and Restated. This Agreement shall amend and restate the
Existing Loan Agreement in its entirety. On the Second Amendment Effective Date, the rights and
obligations of the parties under the Existing Loan Agreement shall be subsumed within and be
governed by this Agreement; provided, however, that each of the “Revolving Credit Loans” (as such
term is defined in the Existing Loan Agreement) outstanding under the Existing Loan Agreement on
the Second Amendment Effective Date shall, for purposes of this Agreement, be included as
Revolving Credit Loans hereunder and each of the “L/Cs” (as defined in the Existing Loan Agreement)
outstanding under the Existing Loan Agreement on the Second Amendment Effective Date shall be L/Cs
hereunder.



[signature pages follow]




71









 





EXECUTION COPY




     IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date above
first written. This Agreement shall take effect as a sealed instrument.



	 	 	 	 	 	 	 
	 	 	AEROPOSTALE, INC.	 	 
	 

	 	 	 	(“Borrower”)	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	BANK OF AMERICA, N.A.	 	 
	 

	 	 	 	(“Lender”)	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title: