The
indebtedness covered by this Agreement is subordinated to the prior payment in
full of the Senior Indebtedness (as defined in the Revolving Intercreditor
Agreement hereinafter referred to) pursuant to, and to the extent provided in,
the Intercreditor and Subordination Agreement, dated as of January 7, 2003 (as
amended or otherwise modified from time to time, the “Revolving Intercreditor
Agreement”), among FOH Holdings, Inc., Frederick’s of Hollywood, Inc.,
and the subsidiaries of Frederick’s of Hollywood, Inc. listed therein, Wells
Fargo Retail Finance, LLC, as agent, Mellon HBV SPV LLC, as agent, and the
Subordinated Creditors listed therein.





The
indebtedness covered by this Agreement is subject to the Intercreditor and
Subordination Agreement, dated as of January 7, 2003 (as amended or otherwise
modified from time to time, the “Intercreditor Agreement”),
among the Tranche A/B Lenders (as defined therein), the Tranche C Lenders (as
defined therein) and Mellon HBV SPV LLC, as Agent and Collateral
Agent.  By its acceptance of this Agreement, the holder hereof agrees
to be bound by the provisions of such Intercreditor Agreement to the same extent
that the Parties (as defined therein) are bound.


Amended
and Restated Tranche A/B and Tranche C




Term
Loan Agreement




among




FOH
Holdings, Inc.,




Frederick’s
of Hollywood, Inc.,




the
Subsidiaries Listed Herein




and




Mellon
HBV SPV LLC,




as
Agent




and




the
Lending Institutions Listed Herein







Amended
and Restated as of June 30, 2005





This
Amended and restated Tranche A/B and Tranche C Term Loan Agreement (the
“Agreement”),
amended and restated as of June 30, 2005, among Frederick’s of Hollywood, Inc.,
a California corporation (the “Borrower”),
FOH Holdings, Inc., a Delaware corporation (“Holdings”),
the Subsidiaries of the Borrower listed in Annex
I (each a “Frederick’s
Subsidiary” and collectively, the “Frederick’s
Subsidiaries”), the lending institutions listed in Annex
II as Tranche A/B lenders (each a “Tranche
A/B Lender” and collectively, the “Tranche
A/B Lenders”), the lending institutions listed on Annex
III as Tranche C lenders (each a “Tranche
C Lender” and collectively, the “Tranche
C Lenders”; the Tranche A/B Lenders and Tranche C Lenders each being a
“Lender”
and collectively, the “Lenders”),
and Mellon HBV SPV LLC (“SPV”),
as agent for the Lenders (in such capacity, the “Agent”)
and as collateral agent for the Lenders (in such capacity, the “Collateral
Agent”) amends and restates that certain Tranche A, Tranche B and Tranche
C Term Loan Agreement, dated as of January 7, 2003, as amended by Amendment No.
1, dated November 25, 2003, Amendment No. 2, dated June 30, 2004, Amendment No.
3, dated March 2, 2005 and Amendment No. 4, dated March 24, 2005 (as amended,
the "Term Loan Agreement").
 
  WHEREAS,
the Borrower had entered into the Term Loan Agreement with the Lenders
thereunder (the "Original Lenders").




WHEREAS,
the Original Lenders sold to SPV and SPV purchased from the Original Lenders,
the entire balance of the Loans, totaling $17,384,620.28 on March 3, 2005,
pursuant to several Assignment and Assumption Agreements with the original
Lenders.




WHEREAS,
the Credit Parties and the Lenders agree that it would be mutually beneficial to
combine the Tranche A Term Loan and the Tranche B Term Loan into a new 8% fixed
interest rate term loan that will be hereafter referred to as the "Tranche A/B
Term Loan."




WHEREAS,
the Lenders have combined the Tranche A Note and the Tranche B Note into a new
note, attached as Exhibit A hereto, to
be issued to the Borrower upon the date hereof, such note will be hereafter
referred to as the "Tranche A/B Note."




NOW
THEREFORE, each of the Credit Parties, the Agent and the Lenders agree to amend
and restate this Term Loan Agreement in its entirety as follows:




ARTICLE
I


Definitions




1.1.           Definitions.  As
used herein, the following terms shall have the meanings herein specified unless
the context otherwise requires:





“Account Receivable” means any
and all rights of the Credit Parties to payment for goods sold and services
rendered, including accounts, general intangibles and any and all such rights
evidenced by chattel paper, instruments or documents, whether due or to become
due and whether or not earned by performance, and whether now or hereafter
acquired or arising in the future and any proceeds arising therefrom or relating
thereto.




“Adjusted Consolidated EBITDA”
means, with respect to any Person for any period Consolidated EBITDA of such
Person and its Subsidiaries for such period.




“Affiliate” means with respect
to any Person, any other Person directly or indirectly controlling (including
but not limited to all directors, managers and executive officers of such first
Person), controlled by, or under direct or indirect common control with, such
first Person.  A Person shall be deemed to control a corporation or a
limited liability company for the purposes of this definition if such Person
possesses, directly or indirectly, the power (i) to vote 10% or more of the
Capital Stock having ordinary voting power for the election of directors or
managers of such corporation or limited liability company or (ii) to direct or
cause the direction of the management and policies of such corporation or
limited liability company, whether through the ownership of voting securities,
by contract or otherwise.  The term 'Affiliate' does not include any
Tokarz Affiliate.




“Agent” has the meaning
ascribed thereto in the preamble and shall include any successor thereto
appointed in accordance herewith.




“Agent’s Office” means the
office of the Agent located at 200 Park Avenue, 54th Floor New York,
New York 10166-3399, or such other office in New York as the Agent may
hereafter designate in writing as such to the other parties hereto.




“Agreement” has the meaning
ascribed thereto in the preamble.




“Asset Restoration Amount” has
the meaning ascribed thereto in Section 3.3(a)(iv).




“Asset Sale” means any
transaction, or series of related transactions, pursuant to which any Credit
Party or any of its Subsidiaries sells, assigns, transfers or otherwise disposes
of any property or assets (whether now owned or hereafter acquired) to any other
Person, in each case whether or not the consideration therefor consists of cash,
securities or other assets owned by the acquiring Person, excluding any sales of
Inventory in the ordinary course of business on ordinary business terms or
sales.




“Authorized Officer” means, as
to any Person, any senior officer of such Person designated as such in writing
to the Agent by such Person, to the extent acceptable to the Agent.




“Borrower” has the meaning
ascribed thereto in the first paragraph of this Agreement.




“Borrowing” means the
incurrence pursuant to the Tranche A/B Term Loan Facility of a Loan by the
Borrower from each of the Lenders having Tranche A/B Term Loan Commitments on a
pro rata basis on a
given date.


2


“Business Day” means (i) for
all purposes other than as covered by clause (ii) below, any day excluding
Saturday, Sunday and any day which shall be in the City of New York a legal
holiday or a day on which lending institutions are authorized by law or other
governmental actions to close.




"Capital Infusion" means the
contribution of capital to Holdings with respect to its Capital Stock, including
but not limited to, the contribution of $5 million on or before March 31, 2005,
to Borrower by Tokarz, Mellon HBV Master Rediscovered Opportunities Fund L.P, or
their respective Affiliates, in consideration of shares of Capital Stock having
voting power of Holdings.”




“Capital Lease” means, with
respect to any Person, any lease of real or personal property by such Person as
lessee which is required under GAAP to be capitalized on the balance sheet of
such Person.




“Capitalized Lease
Obligations” of any Person means all obligations under Capital Leases of
such Person or any of its Subsidiaries in each case taken at the amount thereof
accounted for as liabilities in accordance with GAAP.




“Capital Stock” means (i) with
respect to any Person that is a corporation, any and all shares, interests,
participations or other equivalents (however designated and whether or not
voting) of corporate stock, and (ii) with respect to any Person that is not a
corporation, any and all partnership, membership or other equity interests of
such Person.




“Cash” means money, currency
or a credit balance in a Deposit Account.




“Cash Equivalents” means (i)
securities issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided, that the full faith
and credit of the United States of America is pledged in support thereof) having
maturities of not more than one year from the date of acquisition, (ii)
marketable direct obligations issued by any State of the United States of
America or any local government or other political subdivision thereof rated (at
the time of acquisition of such security) at least AA by Standard & Poor’s
Corporation (“S&P”)
or the equivalent thereof by Moody’s Investors Service, Inc. (“Moody’s”) having maturities
of not more than one year from the date of acquisition, (iii) U.S. dollar
denominated time deposits, certificates of deposit and bankers’ acceptances of
(x) any Lender, (y) any domestic commercial bank of recognized standing having
capital and surplus in excess of $250,000,000 or (z) any bank whose short-term
commercial paper rating (at the time of acquisition of such security) by S&P
is at least A-1 or the equivalent thereof or by Moody’s is at least P-1 or the
equivalent thereof (any such bank, an “Approved Bank”), in each case
with maturities of not more than six months from the date of acquisition, (iv)
commercial paper and variable or fixed rate notes issued by any Lender or
Approved Bank or by the parent company of any Lender or Approved Bank and
commercial paper and variable rate notes issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating (at
the time of acquisition of such security) of at least A-1 or the equivalent
thereof by S&P or at least P-1 or the equivalent thereof by Moody’s, or
guaranteed by any industrial company with a long-term unsecured debt rating (at
the time of acquisition of such security) of at least AA or the equivalent
thereof by S&P or the equivalent thereof by Moody’s and in each case
maturing within one year after the date of acquisition, and (v) repurchase
agreements with any Lender or any primary dealer maturing within one year from
the date of acquisition that are fully collateralized by investment instruments
that would otherwise be Cash Equivalents; provided, that the terms of
such repurchase agreements comply with the guidelines set forth in the Federal
Financial Institutions Examination Council Supervisory Policy – Repurchase
Agreements of Depository Institutions With Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985.


3


“Cash Interest Rate” has the
meaning ascribed thereto in Section 2.10(a).




“Closing Date” means the first
date following the Effective Time that the conditions set forth in Article V
shall have been satisfied or waived by the Agent or Lenders in accordance
therewith, but in no case shall such date be later than June 30,
2005.




“Collateral” means all of the
Pledged Collateral and Pledged Securities.




“Collateral Agent” has the
meaning ascribed thereto in the preamble and shall include any successor thereto
appointed in accordance herewith.




“Commercial Letter of Credit”
means any letter of credit or similar instrument issued for the account of the
Borrower for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services by the Borrower
or any of its Subsidiaries in the ordinary course of business of the Borrower or
any of its Subsidiaries.




“Common Stock” means the
common stock, par value $0.01 per share, of Holdings.




“Compliance Certificate” means
a certificate signed by a chief financial officer, controller, chief accounting
officer or other Authorized Officer of the Borrower substantially in the form of
Exhibit
E.




“Consolidated Capital
Expenditures” means, with respect to any Person for any period, the sum
of (i) the aggregate of all expenditures by such Person and its
Subsidiaries during such period that in accordance with GAAP are or should be
included in “property, plant and equipment” or similar fixed asset account on
its balance sheet, whether such expenditures are paid in cash or financed and
including all Capitalized Lease Obligations paid or payable during such period,
and (ii) to the extent not covered by clause (i) above, the aggregate of all
expenditures by such Person and its Subsidiaries to acquire by purchase or
otherwise the business or fixed assets of, or the Capital Stock of, any other
Person, minus, with
regard to the equipment that is purchased by such Person and its Subsidiaries
simultaneously with the trade-in of existing equipment, fixed assets or
improvements, the credit granted by the seller of such equipment for the
trade-in of such equipment, fixed assets or improvements.


4


“Consolidated EBITDA” means,
with respect to any Person for any period, (i) the Consolidated Net Income of
such Person and its Subsidiaries for such period, plus (ii) without duplication,
the sum of the following amounts of such Person and its Subsidiaries for such
period and to the extent deducted in determining Consolidated Net Income of such
Person for such period: (A) Consolidated Net Interest Expense, (B) income tax
expense, (C) depreciation expense, (D) amortization expense, and (E) (x)
extraordinary or unusual losses and other losses from sales of assets other than
Inventory sold in the ordinary course of business less (y) extraordinary or
unusual gains and other gains from sales of assets other than Inventory sold in
the ordinary course of business.




“Consolidated Net Interest
Expense” means, with respect to any Person for any period, gross interest
expense of such Person and its Subsidiaries for such period determined in
conformity with GAAP (including, without limitation, interest expense paid or
payable to Affiliates of such Person), less the interest income for such period,
as determined on a consolidated basis and in accordance with GAAP for such
Person and its Subsidiaries.




“Consolidated Net Income”
means, with respect to any Person for any period, the net income (loss) of such
Person and its Subsidiaries for such period, determined on a consolidated basis
and in accordance with GAAP, but excluding from the determination of
Consolidated Net Income (without duplication) (a) any extraordinary or non
recurring gains or losses or gains or losses from Dispositions, (b) effects
of discontinued operations and (c) interest income.




“Consolidated Subsidiary”
means, as to any Person, each Subsidiary of such Person (whether now existing or
hereafter acquired) the financial statements of which shall be (or should have
been) consolidated with the financial statements of such Person in conformity
with GAAP.




“Contingent Obligations”
means, with respect to any Person, any obligation of such Person guaranteeing
any Indebtedness, leases, dividends or other obligations (“primary obligations”)
of any other Person (the “primary obligor”) in any manner, whether directly
or indirectly, including, without limitation, (i) the direct or indirect
guaranty, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of a primary obligor, (ii) the obligation
to make take-or-pay or similar payments, if required, regardless of
nonperformance by any other party or parties to an agreement, (iii) any
obligation of such Person, whether or not contingent, (A) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (B) to advance or supply funds (1) for the purchase or payment of
any such primary obligation or (2) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (C) to purchase property, assets,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (D) otherwise to assure or hold harmless the
holder of such primary obligation against loss in respect thereof; provided, however, that the term
“Contingent Obligation” shall not include any products warranties extended in
the ordinary course of business.  The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation with respect to which such Contingent
Obligation is made (or, if less, the maximum amount of such primary obligation
for which such Person may be liable pursuant to the terms of the instrument
evidencing such Contingent Obligation) or, if not stated or determinable, the
maximum reasonably anticipated liability with respect thereto (assuming such
Person is required to perform thereunder), as determined by such Person in good
faith.


5


“Credit Documents” means (i)
this Agreement, (ii) each Interest Rate Agreement, (iii) each Note, and (iv)
each Security Document.




“Credit Party” means at all
times Holdings, the Borrower and each Frederick’s Subsidiary.




“Creditor Trust” means the
Frederick’s of Hollywood, Inc. Creditor Trust established pursuant to the Plan
of Reorganization.




“Default” means any event, act
or condition which with notice or lapse of time, or both, would constitute an
Event of Default.




“Deposit Account” means a
demand, time, savings, passbook or like account with a bank, savings and loan
association, credit union or like organization, other than an account evidenced
by a negotiable certificate of deposit.




“Derivatives” means any
interest rate, foreign currency, commodity or equity swap, collar, cap, floor or
forward rate agreement, or other agreement or arrangement designed to protect
against fluctuations in interest rates or currency, commodity or equity values
(including, without limitation, any option with respect to any of the foregoing
and any combination of the foregoing agreements or arrangements), and any
confirmation executed in connection with any such agreement or
arrangement.




“Dollars” or “$” means United States
Dollars.




“Effective Date” has the
meaning ascribed thereto in Section 11.10.




“Effective Time” has the
meaning ascribed thereto in Section 11.10.




“Eligible Assignee” means,
with respect to any assignment of rights, interests and obligations of a Lender
hereunder, a Person that is at the time of such assignment (a) a commercial bank
organized under the laws of the United States or any state thereof, having
combined capital and surplus in excess of $500,000,000, (b) a commercial bank
organized under the laws of any other country that is a member of the
Organization of Economic Cooperation and Development, or a political subdivision
of any such country, having combined capital and surplus in excess of
$500,000,000, (c) a finance company, insurance company or other financial
institution which in the ordinary course of business extends credit of the type
extended hereunder and that has total assets in excess of $1,000,000,000, (d)
already a Lender hereunder (whether as an original party to this Agreement or as
the assignee of another Lender), (e) the successor (whether by transfer of
assets, merger or otherwise) to all or substantially all of the commercial
lending business of the assigning Lender, or (f) any other Person that has been
approved in writing as an Eligible Assignee by the Borrower and the
Agent.




“Employee Plan” means an
employee benefit plan (other than a Multiemployer Plan) covered by Title IV of
ERISA and maintained (or was maintained at any time during the six (6) calendar
years preceding the date of any borrowing hereunder) for employees of any Credit
Party or any of its ERISA Affiliates.


6


“Environmental Actions” means
any complaint, summons, citation, notice, directive, order, claim, litigation,
investigation, judicial or administrative proceeding, judgment, letter or other
communication from any Governmental Authority involving violations of
Environmental Laws or Releases of Hazardous Materials (i) from any assets,
properties owned or operated by, or businesses of any Credit Party or any of its
Subsidiaries or any predecessor in interest; or (ii) onto any facilities which
received Hazardous Materials generated by any Credit Party or any of its
Subsidiaries or any predecessor in interest.




“Environmental Laws” means the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
§ 9601, et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. § 1801, et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. § 6901, et seq.), the Federal Clean
Water Act (33 U.S.C. § 1251 et seq.), the Clean Air Act
(42 U.S.C. § 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. § 2601 et seq.) and the Occupational
Safety and Health Act (29 U.S.C. § 651 et seq.), as such laws may be
amended or otherwise modified from time to time, and any other present or future
federal, state, local or foreign statute, ordinance, rule, regulation, order,
judgment, decree, permit, license or other binding determination of any
Governmental Authority imposing liability or establishing standards of conduct
for protection of the environment.




“Environmental Liabilities and
Costs” means all liabilities, monetary obligations, Remedial Actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all reasonable fees, disbursements and expenses of
counsel, experts and consultants and costs of investigations and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
claim or demand by any Governmental Authority or any third party, and which
relate to any environmental condition or a Release of Hazardous Materials from
or onto (i) any property presently or formerly owned or operated by any
Credit Party or any of its Subsidiaries or (ii) any facility which received
Hazardous Materials generated by any Credit Party or any of its
Subsidiaries.




“Environmental Lien” means any
Lien in favor of any Governmental Authority for Environmental Liabilities and
Costs.




“Equity Incentive Plan” means
the 2002 FOH Holdings, Inc. Stock Incentive Plan as such may adopted by the
shareholders of Holdings.




“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended, and any successor statute of
similar import, and regulations thereunder, in each case as in effect from time
to time.  References to sections of ERISA shall be construed also to
refer to any successor sections.




“ERISA Affiliate” means, with
respect to any Person, any trade or business (whether or not incorporated) which
is a member of a group of which such Person is a member and which would be
deemed to be a “controlled group” within the meaning of Sections 414(b), (c),
(m) and (o) of the Internal Revenue Code.




“Event of Default” has the
meaning ascribed thereto in Article IX.


7


“Excess Cash Flow” means,
without duplication, for any Person for any period for which such amount is
being determined, (i) Consolidated Net Income, plus (minus) (ii) the amount
of depreciation, depletion, amortization of intangibles, deferred taxes and
other non-cash expenses (revenues) which, pursuant to GAAP, were deducted
(added) in determining such Consolidated Net Income of such Person, minus (iii) any amount of
gain included in both (x) Consolidated Net Income and (y) either Net Cash
Proceeds or Net Financing Proceeds required to be applied to the prepayment of
the Loans pursuant to Section 3.3(a)(ii) or (iii), minus (plus) (iv) additions
(reductions) to working capital for such period (i.e., the increase or decrease
in consolidated current assets (excluding cash) of such Person minus
consolidated current liabilities (excluding (A) changes in current liabilities
for borrowed money and (B) Cash or Cash Equivalents which are either Net Cash
Proceeds or Net Financing Proceeds required to be applied to the prepayment of
the Loans pursuant to Section 3.3(a)(ii) or (iii) of such Person from the
beginning to the end of such period), minus (v) the amount of
Consolidated Capital Expenditures made to the extent permitted under
Section 8.8, minus
(vi) Scheduled Tranche A/B Term Loans Principal Payments made during such
period.  For purposes of the foregoing and without duplication,
Consolidated Net Income will exclude (x) all losses on the sale of capital
assets or out of the ordinary course of business and (y) all write-downs of
capital assets.




“Exchange Act” means the
Securities Exchange Act of 1934.




“Executive Officer” means the
chairman, president, chief executive officer or chief financial officer of
Holdings, or any other officer of Holdings performing such
functions.




“Final Tranche A/B Term Loan Maturity
Date” means September 30, 2009.




“Final Tranche C Term Loan Maturity
Date” means January 7, 2010.




“Financial Projections” means
Holding’s forecasted (i) balance sheets, (ii) profit and loss statements, and
(iii) cash flow statements attached hereto as Exhibit
F.




“Financing Fees” means all
reasonable out of pocket costs and expenses of the Agent in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to herein and therein (including fees and
expenses of Heller Ehrman LLP and local counsel to the Lenders) set forth in a
statement provided to the Borrower prior to the Effective Time and payable to
the Agent on its own behalf and on behalf of the Lenders by the Borrower
pursuant to Section 11.2.




“Financing Proceeds” means the
cash (other than Net Cash Proceeds) received by Holdings or the Borrower, as the
case may be, or any of its Subsidiaries, directly or indirectly, from any
financing transaction of whatever kind or nature, including from any incurrence
of Indebtedness, any mortgage or pledge of an asset or interest therein
(including a transaction which is the substantial equivalent of a mortgage or
pledge), from the sale of tax benefits, from a lease to a third party and a
pledge of the lease payments due thereunder to secure Indebtedness, from a joint
venture arrangement, from an exchange of assets and a sale of the assets
received in such exchange, or any other similar arrangement or technique whereby
Holdings or the Borrower or any of its Subsidiaries obtains Cash in respect of
an asset.


8


“Fiscal Year” means the fiscal
year of Holdings and its Consolidated Subsidiaries ending on July 31 of each
year.




“Fixed Charge Coverage Ratio”
means, with respect to any Person for any period, the ratio of (i) (A)
Consolidated EBITDA of such Person and its Subsidiaries for such period plus (B)
all Lease Payments paid or payable by such Person and its Subsidiaries during
such period, minus (C) Capital Expenditures made by such Person and its
Subsidiaries during such period (excluding the principal amount of Indebtedness
incurred in connection with such expenditures), to (ii) the sum of (A) all
principal of Indebtedness of such Person and its Subsidiaries scheduled to be
paid or prepaid (including, without limitation, all scheduled payments of
principal, or amounts allocable to principal, of Obligations and Capitalized
Lease Obligations of such Person) during such period (except for any revolving
credit Indebtedness to the extent there is not an equivalent permanent reduction
in the commitments thereunder), plus (B) all Operating Lease Obligations and
other Lease Payments paid or payable by such Person and its Subsidiaries during
such period, plus (C) Consolidated Net Interest Expense of such Person and its
Subsidiaries for such period, including, without limitation, interest paid or
payable on Obligations of the Borrowers, plus (D) income taxes paid or
payable by such Person and its Subsidiaries during such period.




“Frederick’s Subsidiary” and
“Frederick’s
Subsidiaries” each has the meaning ascribed thereto in the
preamble.




“GAAP” means generally
accepted accounting principles in the United States of America as in effect from
time to time, it being understood and agreed that determinations in accordance
with GAAP for purposes of Article VIII, including defined terms as used therein,
are subject (to the extent provided therein) to
Section 11.7(a).




“General Security Agreement”
means the security agreement executed and delivered by Holdings, the Borrower
and each Frederick’s Subsidiary to the Collateral Agent pursuant to Section
5.1(n) or Section 7.2.




“Governmental Authority” means
any nation or government, any Federal, state, city, town, municipality, county,
local or other political subdivision thereof or thereto and any department,
commission, board, bureau, instrumentality, agency or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or
functions of or pertaining to government.




“Guaranteed Obligations” has
the meaning ascribed thereto in Section 4.1(a).




“Guarantees” means the
guarantee of Holdings and each Frederick’s Subsidiary pursuant to Article
IV.




“Guarantors” for purposes of
this Agreement means Holdings and each Frederick’s Subsidiary.




“Hazardous Materials” means
(a) any element, compound or chemical that is defined, listed or otherwise
classified as a contaminant, pollutant, toxic pollutant, toxic or hazardous
substances, extremely hazardous substance or chemical, hazardous waste, special
waste, or solid waste under Environmental Laws; (b) petroleum and its
refined products; (c) polychlorinated biphenyls; and (d) any asbestos
and asbestos-containing materials.


9


“Holdings” has the meaning
ascribed thereto in the preamble.




“Indebtedness” means, without
duplication, with respect to any Person, (i) all indebtedness of such Person for
borrowed money; (ii) all obligations of such Person for the deferred
purchase price of property or services (other than trade payables, payables to
vendors or other account payables incurred in the ordinary course of such
Person’s business and not past due for more than 90 days after the date such
payable was created); (iii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments or upon which interest
payments are customarily made; (iv) all obligations and liabilities of such
Person created or arising under any conditional sales or other title retention
agreement with respect to property used and/or acquired by such Person, even
though the rights and remedies of the lessor, seller and/or lender thereunder
are limited to repossession or sale of such property; (v) all Capitalized Lease
Obligations of such Person; (vi) all obligations and liabilities,
contingent or otherwise, of such Person, in respect of letters of credit,
acceptances and similar facilities; (vii) all obligations and liabilities,
calculated on a basis reasonably satisfactory to the Agent and in accordance
with accepted practice, of such Person under Derivatives; (viii) all Contingent
Obligations; (ix) liabilities incurred under Title IV of ERISA with
respect to any plan (other than a Multiemployer Plan) covered by Title IV
of ERISA and maintained for employees of such Person or any of its ERISA
Affiliates; (x) withdrawal liability incurred under ERISA by such Person or
any of its ERISA Affiliates to any Multiemployer Plan; (xi) all other items
which, in accordance with GAAP, would be included as liabilities on the
liability side of the balance sheet of such Person; and (xii) all
obligations referred to in clauses (i) through (x) of this definition of
another Person secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) a Lien upon property
owned by such Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness.  The Indebtedness of any Person
shall include the Indebtedness of any partnership of or joint venture in which
such Person is a general partner or a joint venturer.




“Indebtedness Basket” means
Indebtedness not to exceed the aggregate amount of $150,000 at any
time.




“Intellectual Property Security
Agreement” means the intellectual property security agreement executed
and delivered by Holdings, the Borrower and each Frederick’s Subsidiary to the
Collateral Agent pursuant to Section 5.1(n) or
Section 7.2.




“Interest Payment Date” has
the meaning ascribed thereto in Section 2.10(b).




“Interest Rate Agreement”
means any interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate futures contract, interest rate option
contract or other similar agreement or arrangement among the Borrower and any
Tranche A/B Lender or Tranche C Lender, designed to protect the Borrower or any
of its Subsidiaries against fluctuations in interest rates.


10


“Internal Revenue Code” means
the Internal Revenue Code of 1986, as amended (or any successor statute thereto)
and the regulations thereunder.




“Inventory” means, as to any
Person, all “inventory” (as that term is defined in Section 9-102 of the
UCC) of such Person including: (i) all raw materials, work in process,
parts, components, assemblies, supplies and materials used or consumed in the
business of such Person; (ii) all goods, wares and merchandise, finished or
unfinished, held for sale or lease or leased or furnished or to be furnished
under contracts of service; and (iii) all goods returned or repossessed by such
Person.




“Investment” means, with
respect to any Person, any investment by such Person in any other Person
(including Affiliates) in the form of loans, guarantees, advances, or capital
contributions (excluding (a) commission, travel, and similar advances to
officers and employees of such Person made in the ordinary course of business,
and (b) bona fide Accounts Receivable arising in the ordinary course of business
consistent with past practices), purchases or other acquisitions for
consideration of Indebtedness or Capital Stock, and any other items that are or
would be classified as investments on a balance sheet prepared in accordance
with GAAP.




“Lease” means any lease,
sublease, franchise agreement, license, occupancy or concession
agreement.




“Lease Payment” means all
obligations of a lessee under a Lease of any retail store or other property
where any Inventory of any Credit Party is or will be sold, including with
respect to any period under any such Lease, the aggregate amounts payable by
such lessee to or on behalf of the lessor for such period, including, without
limitation, rent, common area maintenance fees, property taxes, insurance,
interest, amortized charges and any other amounts such lessee is required to pay
to or on behalf of the lessor pursuant to such Lease.   Whenever
it is necessary to determine the amount of Lease Payments for any period with
respect to which any of the rentals under the relevant Lease are not definitely
determinable by the terms of such lease, all such rentals will be estimated in a
reasonable amount for such period.




“Leased Real Property” means
any Real Property that is subject to a Lease.




“Lender” has the meaning
ascribed thereto in the first paragraph of this Agreement.




“Leverage Ratio” means, as of
the date of determination, the ratio of aggregate Indebtedness of all Credit
Parties and their respective Subsidiaries as of such date to Adjusted
Consolidated EBITDA for Holdings for the Test Period ending on such
date.




“Lien” means any mortgage,
deed of trust, pledge, lien (statutory or otherwise), security interest,
hypothecation, assignment, deposit arrangement, charge or other encumbrance or
security or preferential arrangement of any nature, including, without
limitation, any conditional sale or title retention arrangement, any Capital
Lease and any assignment, deposit arrangement or financing lease intended as, or
having the effect of, security, and the filing of any financing statement under
the UCC or comparable law of any jurisdiction to evidence any of the
foregoing.


11


“Loan” means each and every
Tranche A/B Term Loan or Tranche C Term Loan.




“Loan Amount” means, with
respect to each Lender, the sum of such Lender’s Tranche A/B Term Loan
Commitment and Tranche C Term Loan Amount.




“Loan Facility” means the
credit facility evidenced by the aggregate unpaid principal amount of Tranche
A/B Term Loans and Tranche C Term Loans.




“Loss Proceeds” means, with
respect to a Person, the proceeds received by such Person and its Subsidiaries
due to damage to, or loss, destruction or condemnation of, any Property or
assets of such Person or any of its Subsidiaries.




“Material Adverse Effect”
means a material adverse effect on any of (i) the operations, business, any
material assets or properties, or condition (financial or otherwise), of the
Credit Parties, taken as a whole, including, without limitation, any material
adverse deviation at any time from the Financial Projections (as updated by the
business plans delivered to the Agent pursuant to Section 7.1(b)(iii)),
(ii) the ability of any Credit Party to perform any of its material
obligations under any Credit Document to which it is a party, (iii) the
legality, validity or enforceability of this Agreement or any other Credit
Document, (iv) the rights and remedies of the Agent and the Lenders under
any Credit Document, or (v) the validity, perfection or priority of a Lien
in favor of the Agent for the benefit of the Lenders on any of the
Collateral.




“Minimum Borrowing Amount”
means $100,000.




“Mortgage” means each
mortgage, deed of trust, deed to secure debt, or other similar instrument, in
form and substance satisfactory to the Agent, made by any Credit Party in favor
of the Agent for the benefit of the Lenders, securing the Obligations and
delivered to the Agent pursuant to Section 7.2.




“Multiemployer Plan” means a
“multiemployer plan” as defined in Section 4001(a)(3) of ERISA for which
any Credit Party or any ERISA Affiliate has contributed to, or has been
obligated to contribute to, at any time during the preceding six
years.




“Net Cash Proceeds” means,
(i) with respect to any Asset Sale by any Person, the amount of cash
received (directly or indirectly) from time to time (whether as initial
consideration or through the payment of deferred consideration) by or on behalf
of such Person or any of its Subsidiaries or Affiliates, in connection therewith
after deducting therefrom only (A) any Indebtedness secured by any Lien
permitted by Section 8.2 on any asset (other than Indebtedness assumed by
the purchaser of such asset) which is required to be, and is, repaid in
connection with such Asset Sale (other than Indebtedness under this Agreement),
(B) reasonable expenses related thereto reasonably incurred by such Person
or such Affiliate in connection therewith, (C) transfer taxes paid by such
Person or such Affiliate in connection therewith, and (D) net income taxes
to be paid in connection with such Asset Sale (after taking into account any tax
credits or deductions and any tax sharing arrangements) and (ii) with
respect to the sale or issuance by any Person of any of its Capital Stock, the
aggregate amount of cash received (directly or indirectly) from time to time
(whether as initial consideration or through the payment of deferred
consideration) by or on behalf of such Person or any of its Subsidiaries or
Affiliates in connection therewith after deducting therefrom only reasonable
brokerage commissions, underwriting fees and discounts, legal fees and similar
fees and commissions.


12


“Net Financing Proceeds” means
Financing Proceeds, net of the reasonably incurred direct expenses of the
transaction and net of taxes (including income taxes) currently paid or payable
in cash as a result thereof in the current year, or in the next succeeding year
with respect to the current year, as a result of the transaction generating Net
Financing Proceeds.




“Notes” means any Tranche A/B
Term Note or Tranche C Term Note.




“Obligations” means all
amounts, direct or indirect, contingent or absolute, of every type or
description, and at any time existing, owing to the Agent, the Collateral Agent
or any Lender pursuant to the terms of this Agreement or any other Credit
Document or secured by any of the Security Documents.




“Officers’ Certificate” means,
as applied to any corporation, a certificate executed on behalf of such
corporation by its Chairman of the Board (if an officer) or its President or one
of its Vice Presidents and by its Chief Financial Officer or its Treasurer or
any Assistant Treasurer; provided, that every
Officers’ Certificate with respect to compliance with a condition precedent to
the making of any Loan hereunder shall include, on behalf of the Borrower, (i) a
statement that the officers making or giving such Officers’ Certificate have
read such condition and any definitions or other provisions contained in this
Agreement relating thereto, (ii) a statement that, in the opinion of the
signers, they have made or have caused to be made such examination or
investigation as is necessary to enable them to express an informed opinion as
to whether or not such condition has been complied with, and (iii) a statement
as to whether, in the opinion of the signers, such condition has been complied
with.




“Operating Lease” of any
Person, means any lease (including leases which may be terminated by the lessee
at any time) of any property (whether real, personal or mixed) by such Person as
Lessee which is not a Capital Lease.




“Operating Lease Obligations”
means all obligations for the payment of rent for any real or personal property
under leases or agreements to lease, other than Capitalized Lease
Obligations.




“Paid In Kind Interest Rate”
has the meaning ascribed thereto in Section 2.10(a).




“PBGC” means the Pension
Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA,
or any successor thereto.




“Pension Plan” means any
employee pension benefit plan as defined in Section 3(2) of ERISA (other
than a Multiemployer Plan) which is or has been maintained by or to which
contributions are or have been made by any Credit Party or its respective ERISA
Affiliates or as to which any Credit Party or its respective ERISA Affiliates
may have liability, or in the case of a single employer plan with at least two
contributing sponsors not under common control, to which any Credit Party or its
respective ERISA Affiliates has made contributions at any time during the
preceding six years.


13


“Permitted Discretion” means a
determination made in good faith and in the exercise of reasonable (from the
perspective of a secured lender) business judgment.




“Permitted Holders” means the
Tranche C Lenders, as shareholders of Holdings, but not their permitted
transferees.




“Permitted Indebtedness”
means:




(a)           any
Indebtedness owing to the Agent and the Lenders under this Agreement and the
other Credit Documents;




(b)           the
Indebtedness owing to the Revolving Credit Lenders under the Revolving Credit
Debt Documents;




(c)           any
Indebtedness permitted under Section 8.6;




(d)           Derivatives,
in each case to the extent allowed by the Agent in its Permitted Discretion;
and




(e)           any
other Indebtedness covered by the Indebtedness Basket.




“Permitted Investment” means
(i) marketable direct obligations issued or unconditionally guaranteed by
the United States Government or issued by any agency thereof and backed by the
full faith and credit of the United States, in each case maturing within six
months from the date of acquisition thereof; (ii) commercial paper,
maturing not more than 270 days after the date of issue rated P-1 by
Moody’s or A-1 by Standard & Poor’s; (iii) certificates of deposit
maturing not more than 270 days after the date of issue, issued by
commercial banking institutions and money market or demand deposit accounts
maintained at commercial banking institutions, each of which is a member of the
Federal Reserve System and has a combined capital and surplus and undivided
profits of not less than $500,000,000; (iv) repurchase agreements having
maturities of not more than 90 days from the date of acquisition which are
entered into with major money center banks included in the commercial banking
institutions described in clause (iii) above and which are secured by
readily marketable direct obligations of the Government of the United States of
America or any agency thereof, (v) money market accounts maintained with
mutual funds having assets in excess of $2,500,000,000, and (vi) tax exempt
securities rated A or better by Moody’s or A+ or better by Standard &
Poor’s.




“Permitted Liens”
means:




(a)           Liens
securing the Obligations;




(b)           Liens
for taxes, assessments and governmental charges the payment of which is not
required under Section 7.3;




(c)           Liens
imposed by law, such as carriers’, warehousemen’s, mechanics’, materialmen’s and
other similar Liens arising (provided they are subordinate to the Agent’s Liens
on Inventory and the trademarks of the Credit Parties) in the ordinary course of
business and securing obligations (other than Indebtedness for borrowed
money);


14


(d)           Liens
existing on the Closing Date, as set forth on Schedule 8.2, but not
the extension of coverage thereof to other property or the extension of
maturity, refinancing or other modification of the terms thereof or the increase
of the Indebtedness secured thereby;




(e)           deposits
and pledges securing (i) obligations incurred in respect of workers’
compensation, unemployment insurance or other forms of governmental insurance or
benefits, (ii) the performance of bids, tenders, leases, contracts,
including those for utilities (other than for the payment of money) and
statutory obligations or (iii) obligations on surety or appeal bonds, but only
to the extent such deposits or pledges are incurred or otherwise arise in the
ordinary course of business and secure obligations not past due;




(f)           easements,
zoning restrictions and similar encumbrances on real property and minor
irregularities in the title thereto that do not (i) secure obligations for the
payment of money or (ii) materially impair the value of such property or
its use by any Credit Party or any of its Subsidiaries in the normal conduct of
such Person’s business;




(g)           Liens
existing in connection with the Revolving Credit Debt Documents;
and




(h)           Liens
securing the Indebtedness Basket.




“Person” means any individual,
or any partnership, limited liability company, joint venture, firm, corporation,
association, trust or other enterprise or any government or political
subdivision or any agency, department or instrumentality thereof.




“Plan Effective Date” means
the “Effective Date”, as such term is defined in the Plan of
Reorganization.




“Plan of Reorganization” means
the First Amended Joint Plan of Reorganization of Borrower, Holdings,
Frederick’s of Hollywood Stores, Inc. and Hollywood Mail Order LLC, dated as of
August 28, 2002, as amended and effective as of the Plan Effective
Date.




“Pledged Collateral” means all
the Pledged Collateral as defined in the General Security
Agreement.




“Pledged Securities” means all
the Pledged Collateral as defined in the Securities Pledge
Agreement.




“Property” means any right or
interest in or to property of any kind whatsoever, whether real, personal or
mixed and whether tangible or intangible.




“Real Property” means all
right, title and interest of any Credit Party or any of its Subsidiaries
(including any leasehold estate) in and to a parcel of real property acquired by
such Credit Party or any of its Subsidiaries together with, in each case, all
improvements and appurtenant fixtures, equipment, personal property, easements
and other property and rights incidental to the ownership, lease or operation
thereof.


15


“Reference Bank” means SPV,
its affiliates, or its successor.




“Register” has the meaning
ascribed thereto in Section 11.5(b)(i).




“Regulation D” means
Regulation D of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof
establishing reserve requirements.




“Regulation T” means
Regulation T of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof
establishing margin requirements.




“Regulation U” means
Regulation U of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof
establishing margin requirements.




“Regulation X” means
Regulation X of the Board of Governors of the Federal Reserve System as from
time to time in effect and any successor to all or a portion thereof
establishing margin requirements.




“Release” means any spilling,
leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping,
leaching, seeping, migrating, dumping or disposing of any Hazardous Material
(including the abandonment or discarding of barrels, containers and other closed
receptacles containing any Hazardous Material) into the indoor or outdoor
environment, including ambient air, soil, surface or ground water.




“Remedial Action” means all
actions taken to (i) clean up, remove, remediate, contain, treat, monitor,
assess, evaluate or in any other way address Hazardous Materials in the indoor
or outdoor environment; (ii) prevent or minimize a Release or threatened Release
of Hazardous Materials so they do not migrate or endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment; (iii)
perform pre-remedial studies and investigations and post-remedial operation and
maintenance activities; or (iv) any other actions authorized by 42 U.S.C.
§ 9601.




“Reportable Event”means an event
described in Section 4043 of ERISA (other than an event for which notice is
automatically waived under the PBGC regulations or is otherwise not subject to
the provision for 30-day notice to the PBGC under the regulations promulgated
under such Section).




“Required Lenders” means at
any time one or more Lenders holding at least 51% of the sum of (i) the
aggregate unpaid principal amount of the Tranche A/B Term Loans, and (ii) the
aggregate unpaid principal amount of the Tranche C Term Loans.


16


“Required Tranche A/B Lenders”
means at any time one or more Tranche A/B Lenders holding at least 51% of the
aggregate unpaid principal amount of all Tranche A/B Term Loans.




“Required Tranche C Lenders”
means at any time one or more Tranche C Lenders holding at least 51% of the
aggregate unpaid principal amount of all Tranche C Term Loans.




“Revolving Credit Agent” means
the “Agent” as such term is defined in the Revolving Credit
Agreement.




“Revolving Credit Agreement”
means the Financing Agreement, dated as of January 7, 2003, among Holdings, the
Borrower, and certain of the Frederick’s Subsidiaries, the Revolving Credit
Agent and the Revolving Credit Lenders.




“Revolving Credit Collateral
Agent” means the “Collateral Agent” as such term is defined in the
Revolving Credit Security Agreement.




“Revolving Credit Debt
Documents” means the “Loan Documents” as such term is defined in the
Revolving Credit Agreement.




“Revolving Credit Lenders”
means the “Lenders” as such term is defined in the Revolving Credit
Agreement.




“Revolving Credit Security
Agreement” means the security agreement executed and delivered by
Holdings, the Borrower and each Frederick’s Subsidiary to the Revolving Credit
Collateral Agent pursuant to the Revolving Credit Agreement.




“Revolving Credit Termination”
means that (1) there are no “Obligations” under the Revolving Credit Agreement
outstanding and (2) the Revolving Credit Commitments have been
terminated.




“Revolving Intercreditor
Agreement” means the Intercreditor and Subordination Agreement, dated as
of January 7, 2003, among the Credit Parties, the Lenders, the Collateral Agent,
the Revolving Credit Lenders and the Revolving Credit Collateral
Agent.




“Revolving Loan Commitment”
means “Revolving Credit Commitment” as such term is defined in the Revolving
Credit Agreement.




“Scheduled Tranche A/B Payment
Date” has the meaning ascribed thereto in Section 3.1(a).




“Scheduled Tranche A/B Term Loans
Principal Payments” has the meaning ascribed thereto in Section
3.1(a).




“SEC” means the Securities and
Exchange Commission or any successor thereto.




17


“Securities Pledge Agreement”
means the Securities Pledge Agreement executed and delivered by Holdings, the
Borrower and any Frederick’s Subsidiary pursuant to Section 5.1(n) or
Section 7.2.




“Security Documents” means the
Securities Pledge Agreement, the General Security Agreement, the Intellectual
Property Security Agreement and any other documents creating a security interest
in or lien upon any property or assets of whatever kind or nature to secure any
of the Obligations.




“Senior Debt” means, as of the
date of determination, the sum of (a) the total of all amounts owing by the
Credit Parties and their respective Subsidiaries under the Revolving Credit
Agreement plus (b) the
aggregate unpaid principal amount of the Tranche A/B Term Notes
hereunder.




“Senior Leverage Ratio” means,
as of the date of determination, the ratio of Senior Debt as of such date to
Adjusted Consolidated EBITDA for Holdings for the Test Period ending on such
date.




“Shareholders Agreement” means
the Shareholders Agreement dated as of the Plan Effective Date among Holdings,
Lender and each other person from time to time signatory thereto.




“Standby Letter of Credit”
means a Letter of Credit other than a Commercial Letter of Credit.




“State and Local Real Property
Disclosure Requirements” means any state or local laws requiring
notification of the buyer of real property, or notification, registration or
filing to or with any state or local agency, prior to the sale of any real
property or transfer of control of an establishment, of the actual or threatened
presence or release into the environment, or the use, disposal, or handling of
Hazardous Materials on, at, under, or near the real property to be sold or the
establishment for which control is to be transferred.




"Stock Purchase Agreements"
means the Stock Purchase Agreements entered into by Tokarz, as "Buyer", and each of Calyon,
Smoky River CDO, L.P., Indosuez Capital Funding IIA, Limited, and ML CLO XV
Pilgrim America (Cayman), Ltd., as "Sellers,"  dated
on or about March 3, 2005, pursuant to which Tokarz acquired 100% of the Capital
Stock of Holdings owned beneficially by each of the Sellers.




“Subsidiary” means, with
respect to any Person at any date, any corporation, limited or general
partnership, limited liability company, trust, association or other entity
(i) the accounts of which would be consolidated with those of such Person
in such Person’s consolidated financial statements if such financial statements
were prepared in accordance with GAAP or (ii) of which more than 50% of
(A) the outstanding Capital Stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors of such
corporation, (B) the interest in the capital or profits of such partnership
or limited liability company or (C) the beneficial interest in such trust
or estate is, at the time of determination, owned or controlled directly or
indirectly through one or more intermediaries, by such Person.


18


“Taxes” has the meaning
ascribed thereto in Section 3.7.




“Termination Event” means (i)
a Reportable Event with respect to any Employee Plan, (ii) any event that causes
any Borrower or any of its ERISA Affiliates to incur liability under Section
409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 4971 or 4975 of the Internal Revenue Code, (iii) the filing of a
notice of intent to terminate an Employee Plan or the treatment of an Employee
Plan amendment as a termination under Section 4041 of ERISA, (iv) the
institution of proceedings by the PBGC to terminate an Employee Plan, or
(v) any other event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Employee Plan.




“Test Period” means the four
consecutive complete fiscal quarters of Holdings then last ended (including its
predecessor).




“Title Insurance Policy” means
the mortgagee’s loan policy, together with all endorsements made from time to
time thereto, issued by or on behalf of a title insurance company satisfactory
in form and substance to the Agent, insuring the Lien created by a Mortgage in
an amount and on terms satisfactory to the Agent, delivered to the Agent
pursuant to Section 7.2.




"Tokarz" means Tokarz
Investments, LLC.




"Tokarz Affiliate" means any
Person (other than an individual) directly or indirectly controlling, controlled
by, or under direct or indirect common control with, Michael T. Tokarz. Michael
T. Tokarz will be deemed to control a corporation or limited liability company
for purposes of this definition if he possesses, directly or indirectly, the
power (i) to vote 10% or more of the Capital Stock having ordinary voting power
for the election of directors or managers of such corporation or limited
liability company or (ii) to direct or cause the direction of the management and
policies of such corporation or limited liability company, whether through the
ownership of voting securities, by contract or otherwise.




“Total Loan Amounts” means the
sum of Total Tranche A/B Term Loan Commitments and Total Tranche C Term Loan
Commitments.




“Total Scheduled Tranche A/B Term
Loans Principal Payment” has the meaning ascribed thereto in Section
3.1(a).




“Total Tranche A/B Term Loan
Commitments” means the sum of the Tranche A/B Term Loan Commitments of
all of the Tranche A/B Lenders.




“Total Tranche C Term Loan
Amounts” means the sum of the Tranche C Term Loan Amounts of all of the
Tranche C Lenders.




“Tranche A/B Interest Rate”
has the meaning ascribed thereto in Section 2.9(a).




“Tranche A/B Lenders” has the
meaning ascribed thereto in preamble.


19


“Tranche A/B Term Loan” has
the meaning ascribed thereto in Section 2.1.




“Tranche A/B Term Loan
Commitment” means, with respect to each Tranche A/B Lender, the amount
set forth below such Tranche A/B Lender’s name on the signature pages hereto
directly across from the entry entitled “Tranche A/B Term Loan
Commitment.”




“Tranche A/B Term Loan
Facility” means the Loan Facility evidenced by the aggregate unpaid
principal amount of Tranche A/B Term Loans.




“Tranche A/B Term Note” has
the meaning ascribed thereto in Section 2.6(a).




“Tranche A/B Termination”
means that (1) there are no Tranche A/B Secured Obligations outstanding and (2)
the Tranche A/B Term Loan Commitments have been terminated.




“Tranche C Lenders” has the
meaning ascribed thereto in the preamble.




“Tranche C Term Loan” has the
meaning ascribed thereto in Section 2.2.




“Tranche C Term Loan Amount”
means, with respect to each Tranche C Lender, the amount set forth below such
Tranche C Lender’s name on the signatures pages hereto directly across from the
entry entitled “Tranche C Term Loan Amount.”




“Tranche C Term Loan Facility”
means the Loan Facility evidence by the aggregate unpaid principal amount of
Tranche C Term Loans.




“Tranche C Term Note” has the
meaning ascribed thereto in Section 2.6(a).




“UCC” means the Uniform
Commercial Code as in effect in the State of New York.




“Vested Options” means
exercisable options to purchase Common Stock granted to any member of management
of Holdings pursuant to any employee equity incentive plan of Holdings approved
by the shareholders of Holdings.




“Wholly-Owned Subsidiary” of
any Person means any Subsidiary of such Person to the extent all of the Capital
Stock of such Subsidiary, other than directors’ or nominees’ qualifying shares,
is owned directly or indirectly by such Person.




"Working Capital
Expenditures" means, with respect to any Person for any period, (i)
operating expenses incurred by such Person and its Subsidiaries during the
period that in accordance with GAAP are or should be included in "store
operating," "catalogue and Internet operating," "distribution and warehouse,"
"general and administrative" or similar cost and expense account in its
statement of operations, and (ii) repayments of principal or
interest  on the Revolving Credit Agreement, whether or not currently
due and payable under the terms of the Revolving Credit
Agreement.


20


“Written” or “in writing” means any form of
written communication or a communication by means of telex, telecopier device,
telegraph or cable.




1.2.           Terms
Generally.  The word “will” shall be construed to have the same
meaning and effect as the word “shall”.  Unless the context requires
otherwise (a) the singular includes the plural and the plural includes the
singular, (b) “or” and “any” are not exclusive and “include” and “including” are
not limiting, (c) any definition of or reference to any agreement, instrument or
other document herein shall be construed as referring to such agreement,
instrument or other document as from time to time amended, supplemented or
otherwise modified (subject to any restrictions on such amendments, supplements
or modifications set forth herein), (d) a reference to a law includes any
amendment or modification to such law and any rules or regulations issued
thereunder, (e) any reference herein to any Person shall be construed to include
such Person’s successors and assigns, (f) any pronoun shall include the
corresponding masculine, feminine and neuter forms, (g) the words “herein”,
“hereof”, and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (h) all references herein to Articles, Sections, Exhibits, Annexes and
Schedules shall be construed to refer to Articles and Sections of, and
Exhibits, Annexes and Schedules to, this Agreement and (i) the words “asset” and
“property” shall be construed to have the same meaning and effect and to refer
to any and all tangible and intangible assets and properties, including cash,
securities, accounts and contract rights.




1.3.           Accounting
Terms.  Except as otherwise provided herein, financial and
accounting terms used in the foregoing definitions or elsewhere in this
Agreement shall be defined in accordance with GAAP.  In the event that
any future change in GAAP, in and of itself, materially affects the Borrower’s
compliance with any financial covenant contained herein, the Borrower and the
Agent shall use commercially reasonable efforts to modify such covenant in order
to account for such change and to secure for Lenders the intended benefits of
such covenant.




ARTICLE
II


Amount and Terms of
Credit




2.1.           Tranche A/B
Loans.  Subject to and upon the terms and conditions herein set
forth, on the Closing Date, each Tranche A/B Lender shall be deemed for all
purposes hereunder to have made a loan to the Borrower in an initial aggregate
principal amount equal to the amount in Dollars of such Tranche A/B Lender’s
Tranche A/B Term Loan Commitment (each a “Tranche A/B Term Loan” and,
collectively, the “Tranche A/B
Term Loans”).  Once repaid, Tranche A/B Loans may not be
reborrowed.




2.2.           Tranche C Loans.
Subject to and upon the terms and conditions herein set forth, on the Closing
Date, each Tranche C Lender shall be deemed for all purposes hereunder to have
made a loan to the Borrower in an initial aggregate principal amount equal to
such Tranche C Lender’s Tranche C Term Loan Amount (each a “Tranche C Term Loan” and,
collectively, the “Tranche C
Term Loans”).  Once repaid, Tranche C Loans may not be
reborrowed.




2.3.           Intentionally
Omitted.


21


2.4.         Intentionally
Omitted.




2.5.         Intentionally
Omitted.




2.6.         Evidence of
Obligations.




(a)           The
Borrower’s obligation to pay the principal of and interest on all the Loans made
to it by each Lender shall be evidenced: (i) if Tranche A/B Term Loans, by a
promissory note (each, a “Tranche A/B Term Note” and,
collectively, the “Tranche A/B
Term Notes”) duly executed and delivered by the Borrower, substantially
in the form of Exhibit
A hereto, each with blanks appropriately completed in conformity
herewith; and (ii) if Tranche C Term Loans, by a promissory note (each, a “Tranche C Term Note” and,
collectively, the “Tranche C
Term Notes”) duly executed and delivered by the Borrower substantially in
the form of Exhibit
B hereto, with blanks appropriately completed in conformity
herewith.




(b)          The
Tranche A/B Term Note of the Borrower issued to each Tranche A/B Lender shall
(i) be executed by the Borrower, (ii) be payable to the order of such
Tranche A/B Lender and be dated the Closing Date, (iii) be in a stated principal
amount equal to the amount in Dollars of the Tranche A/B Term Loan of such
Tranche A/B Lender and be payable in the aggregate principal amount of the
Tranche A/B Term Loans evidenced thereby, (iv) mature, with respect to each
Tranche A/B Term Loan evidenced thereby, on the Final Tranche A/B Term Loan
Maturity Date, (v) be subject to mandatory prepayment as provided in
Section 3.3, (vi) bear interest as provided in Section 2.9 and (vii)
be entitled to the benefits of this Agreement and the other applicable Credit
Documents.




(c)           The
Tranche C Term Note of the Borrower issued to each Tranche C Lender shall
(i) be executed by the Borrower, (ii) be payable to the order of such
Tranche C Lender and be dated the Closing Date, (iii) as of the Closing Date, be
in a stated principal amount equal to the Tranche C Term Loan Amount of such
Tranche C Lender and be payable in the aggregate principal amount of the Tranche
C Term Loans evidenced thereby, (iv) mature, with respect to each Tranche C Loan
evidenced thereby, on the Final Tranche C Term Loan Maturity Date, (v) be
subject to mandatory prepayment as provided in Section 3.3, (vi) bear
interest as provided in Section 2.9 and (vii) be entitled to the benefits
of this Agreement and the other applicable Credit Documents.




(d)          Each
Lender will note on its internal records the amount of each Loan deemed made by
it and each payment in respect thereof and will, prior to any transfer of any of
its Notes, endorse on the reverse side thereof the outstanding principal amount
of Loans evidenced thereby.  Failure to make any such notation shall
not affect the Borrower’s or any Credit Party’s obligations hereunder or under
the other applicable Credit Documents in respect of such Loans.




2.7.         Intentionally
Omitted.




2.8.         Pro Rata
Loans.  All Loans under this Agreement shall be loaned by the
Lenders pro rata on the
basis of their Tranche A/B Term Loan Commitments or Tranche C Term Loan Amounts,
as the case may be.  No Lender shall be responsible for any default by
any other Lender in its obligation to make Loans hereunder, and each Lender
shall be obligated to make the Loans provided to be made by it hereunder,
regardless of the failure of any other Lender to fulfill its Loan Amount
hereunder.


22




2.9.         Interest on Tranche A/B Term
Loans.




(a)          The
unpaid principal amount of each Loan under the Tranche A/B Term Loan Facility
shall bear interest from the date of the Borrowing thereof until maturity
(whether by acceleration or otherwise) at a rate per annum that shall at all
times, unless adjusted due to an Event of Default under subsection (c) below, be
equal to eight percent (8%) (the "Tranche A/B Interest Rate").




(b)          The
unpaid principal amount of each Tranche A/B Term Loan, upon the occurrence and
during the continuance of a Default, overdue principal and, to the extent
permitted by law, overdue interest in respect of each Loan shall bear interest
at a rate per annum
equal to 2% plus the Tranche A/B Interest Rate.




(c)           Interest
shall accrue from and including the date of any Borrowing to but excluding the
date of any repayment thereof and shall be payable (i) semi-annually in arrears
on each March 31 and September 30 (or the first business day thereafter,
commencing on September 30, 2005, and (ii) on any prepayment (on the amount
prepaid), at the date of such prepayment.




(d)          All
computations of interest hereunder shall be made in accordance with
Section 11.7(b).




2.10.       Interest on Tranche C Term
Loans.




(a) The
Tranche C Term Loans shall bear interest from the Closing Date until maturity
(whether by acceleration or otherwise) at an aggregate rate of 7.00% per annum
as follows: (i) a rate of 1.00% per annum (the “Cash Interest Rate”) to be
paid in cash as provided in subsection (b) below and (ii) a rate of 6.00% per
annum (the “Paid In Kind
Interest Rate”) to be added to the unpaid principal of the Tranche C Term
Loan as provided in subsection (c) below.




(b) Interest
in respect of each Tranche C Term Loan shall be payable (i) as set forth in
subsections (c) and (d) below, monthly in arrears on the first day of each
month, commencing on the first day of the month following the month in which the
Loans are made (each, an “Interest Payment Date”), and
(ii) in cash, on any prepayment (on the amount prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.




(c) On
each Interest Payment Date, the Borrower shall pay to the Lenders in cash
interest that shall have accrued as of such Interest Payment Date at the Cash
Interest Rate on the unpaid principal of the Tranche C Term Loan.




(d) On
each Interest Payment Date, interest that shall have accrued as of such Interest
Payment Date at the Paid In Kind Interest Rate on the unpaid principal of the
Tranche C Term Loan shall be added to the unpaid principal of the Tranche C Term
Loan.


23




(e) The
Borrower shall (i) maintain a register in which it records the names and
addresses of the Lenders and the Obligations owing to each Lender and (ii)
update the register to reflect any increase in the Obligations owing to each
Lender due to an increase in the aggregate unpaid principal amount of Tranche C
Term Loans pursuant to clause (b) of this Section 2.10.




2.11.       Intentionally
Omitted.




2.12.       Intentionally
Omitted.




2.13.       Capital
Requirements.  If any Lender shall have determined that the
adoption or effectiveness after the Effective Date of any applicable law,
governmental rule, regulation, guideline or order regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by such Lender
or such Lender’s parent with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency (including in each case any such change proposed or published
prior to the date hereof but taking effect thereafter), has or would have the
effect of reducing the rate of return on such Lender’s or such Lender’s parent’s
capital or assets as a consequence of such Lender’s obligations hereunder to a
level below that which such Lender or such Lender’s parent could have achieved
but for such adoption, effectiveness or change or as a consequence of an
increase in the amount of capital required to be maintained by such Lender
(including, in each case with respect to any Tranche A/B Lender’s Commitment or
any Loan), then from time to time, within 15 days after demand by such Lender
(with a copy to the Agent), the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or such Lender’s
parent, as the case may be, for such reduction.  Each Lender, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 2.13, will give written notice thereof to the Borrower,
which notice shall set forth in reasonable detail the basis of the calculation
of such additional amounts.  Such calculation shall, absent manifest
error, be final, conclusive and binding upon all parties hereto.




2.14.       Total Loan
Amounts.  The original amount of the (i) Total Loan Amounts is
$17,886,834.98, (ii) Total Tranche A/B Term Loan Commitments is $7,599,999.99,and (iii) Total Tranche
C Term Loan Amounts is $10,286,834.99, each as of March 30,
2005.


24


2.15.       Delivery of Tax
Forms.  Each Lender that is organized under the laws of a
jurisdiction other than the United States or any state thereof shall deliver to
the Borrower, with a copy to the Agent, on the Effective Date or concurrently
with the delivery of the relevant Assignment and Assumption Agreement, as
applicable, two United States Internal Revenue Service Forms W-8ECI or Forms
W-8BEN, as applicable (or successor forms) properly completed and certifying in
each case that such Lender is entitled to a complete exemption from withholding
or deduction for or on account of any United States federal income taxes,
including backup withholding taxes.  Each Lender that is organized
under the laws of the United States or any political subdivision thereof shall
deliver to the Borrower, with a copy to the Agent, on the Effective Date or
concurrently with the delivery of the relevant Assignment and Assumption
Agreement, as applicable, two United States Internal Revenue Service Form W-9
(or successor form), as needed to establish a complete exemption from United
States backup withholding taxes.  Each Lender further agrees to
deliver to the Borrower, with a copy to the Agent, a Form W-8ECI or W-8BEN or in
the case of a Lender organized under the laws of the United States or any
political subdivision thereof a Form W-9, or successor applicable forms or
manner of certification, as the case may be, on or before the date that any such
form expires or becomes obsolete or after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the Borrower,
certifying in the case of a Form W-8ECI or W-8BEN that such Lender is entitled
to receive payments under this Agreement without deduction or withholding of any
United States federal income taxes (unless in any such case an event (including
any change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders such forms
inapplicable or the exemption to which such forms relate unavailable and such
Lender notifies the Borrower and the Agent that it is not entitled to receive
payments without deduction or withholding of United States federal income taxes)
and, in the case of a Form W-9, establishing an exemption from United States
backup withholding tax.




2.16.       Closing
Fee.  The Borrower shall pay to the Agent for the account of
the Tranche A/B Lenders (to be ratably distributed to the Tranche A/B Lenders) a
non-refundable closing fee (the “Closing Fee”) which shall be
fully earned and payable on the Effective Date.




ARTICLE
III


Payments




3.1.         Repayments.




(a)           Scheduled Payments of
Tranche A/B Term Loans.  The Borrower shall make equal
principal payments semi-annually on each March 31 and September 30 (or the first
Business Day thereafter, commencing on September 30, 2006 (each, a “Scheduled Tranche A/B Payment
Date”), on the Tranche A/B Term Loans (the “Scheduled Tranche A/B Term Loans
Principal Payments”) such that all Scheduled Tranche A/B Term Loans
Principal Payments in each Fiscal Year of the Borrower set forth below shall
total the U.S. dollar amount set forth opposite thereto (the “Total Scheduled Tranche A/B Term
Loans Principal Payment”):




Period Ending
                    
                    Total Scheduled Tranche A/B
                      Term Loans Principal PaymentSeptember
      30, 2006
                    
                    $
                    1,085,714.29March
      31, 2007
                    
                    
                    1,085,714.29September
      30, 2007
                    
                    
                    1,085,714.29March
      31, 2008
                    
                    
                    1,085,714.28September
      30, 2008
                    
                    
                    1,085,714.28March
      31, 2009
                    
                    
                    1,085,714.28September
      30, 2009
                    
                    
                    1,085,714.28




25


provided
that the Scheduled Tranche A/B Term Loans Principal Payments set forth above
shall be reduced in connection with any voluntary or mandatory prepayments of
the Tranche A/B Term Loans in accordance with Sections 3.2 and 3.3; provided, further that the
Tranche A/B Term Loans and all other amounts owed hereunder with respect to the
Tranche A/B Term Loans shall be paid in full no later than the Final Tranche A/B
Term Loan Maturity Date, and the final installment payable by the Borrower in
respect of the Tranche A/B Term Loans on such date shall be in an amount, if
such amount is different from that specified above, sufficient to repay all
amounts owing by the Borrower under this Agreement in respect of the Tranche A/B
Term Loans; and provided, further that in the event that on any Scheduled
Tranche A/B Payment Date, any one or more previous Scheduled Tranche A/B Term
Loans Principal Payments shall not have been made in accordance with this
Section 3.1(a), then the amount of the Scheduled Tranche A/B Term Loans
Principal Payment to be made on such Scheduled Tranche A/B Payment Date shall be
increased by an amount equal to the aggregate amount of all such unpaid
Scheduled Tranche A/B Term Loans Principal Payments.  The foregoing
notwithstanding, so long as there are any outstanding Revolving Loan
Commitments, Borrower shall only be required to make each Scheduled Tranche A/B
Term Loans Principal Payment so long as on the Scheduled Tranche A/B Payment
Date of such Scheduled Tranche A/B Term Loans Principal Payment (i) no Default
or Event of Default (as each such term is defined in the Revolving Credit
Agreement) shall have occurred or shall be continuing under the Revolving Credit
Agreement (either before or immediately after the making of each such payment)
and (ii) there shall be Availability (as such term is defined in the Revolving
Credit Agreement) of no less than $1,500,000 (both before and immediately after
the making of each such payment).




(b)          Intentionally
Omitted.




(c)          Scheduled Payments of
Tranche C Term Loans.  The Borrower shall, on the date which is
90 days after the last day of the Fiscal Year ending July 31, 2008, apply an
amount equal to 75% of the Borrower’s Excess Cash Flow for the Fiscal Year
ending July 31, 2008 to Tranche C Term Loans; provided, that the Borrower
shall not apply such amount pursuant to this Section 3.1(c) so long as
there shall be any unpaid principal amount of Tranche A/B Term Loans hereunder;
provided, further, that the Tranche C
Term Loans and all other amounts owed hereunder with respect to the Tranche C
Term Loans shall be paid in full no later than the Final Tranche C Term Loan
Maturity Date, and the final installment payable by the Borrower in respect of
the Tranche C Term Loans on such date shall be in an amount sufficient to repay
all amounts owing by the Borrower under this Agreement with respect to the
Tranche C Term Loans.




3.2.         Voluntary
Prepayments.  Subject to the payment application provisions of
Section 3.3(b), the Borrower shall have the right to prepay the Loans incurred
by it in whole or in part from time to time, with a prepayment penalty of equal
to four percent (4%) of the portion of the principal balance of the Loan being
prepaid, on the following terms and conditions: (i) the Borrower shall give
the Agent at the Agent’s Office written notice (or telephonic notice promptly
confirmed in writing) of its intent to prepay the Loans, the amount of such
prepayment, which notice shall be given by the Borrower at least three Business
Days prior to the date of such prepayment, and which notice shall promptly be
transmitted by the Agent to each of the Lenders; and (ii) each partial
prepayment of any Loan shall be in an aggregate principal amount of at least
$100,000 and integral multiples of $100,000 in excess of that
amount.  Voluntary prepayments of Loans under the Tranche A/B Term
Loan Facility shall be applied, respectively, to the prepayment of the
outstanding principal amount of Tranche A/B Term Loans pro rata to the remaining
Scheduled Tranche A/B Term Loans Principal Payments for the Loan, such that each
remaining Scheduled Tranche A/B Term Loans Principal Payment shall be reduced by
an amount equal to the product of (A) such payment and (B) a fraction, the
numerator of which is equal to the amount of each such remaining Scheduled
Tranche A/B Term Loans Principal Payments with respect to such Loan and the
denominator is equal to the total amount of all Scheduled Tranche A/B Term Loans
Principal Payments remaining with respect to such Loan.


26




3.3.      
       Mandatory
Prepayments.




(a)        
      Requirements:




(i)           The
Borrower shall make Scheduled Tranche A/B Term Loans Principal Payments on the
Tranche A/B Term Loans until the Tranche A/B Term Loans are paid in full in the
amounts and at the times specified in Section 3.1(a) taking into account any
prepayments that have previously been applied to such Scheduled Tranche A/B Term
Loans Principal Payments (and the reductions in Scheduled Tranche A/B Term Loans
Principal Payments resulting therefrom) pursuant to the terms of Section
3.2.




(ii)          Intentionally
omitted.




(iii)         Intentionally
omitted.




(iv)        Subject
to the provisions of the Revolving Credit Agreement and Revolving Intercreditor
Agreement, on the date which is 90 days after the last day of Borrower's Fiscal
Year, the Borrower shall apply the following percentages of Borrower's Excess
Cash Flow for each Fiscal Year as provided in Section 3.3(b):




Fiscal Year Ending July 31,
                    
                    Percentage of Excess Cash
    Flow2005
                    
                    
                    0
                    %2006
                    
                    
                    25
                    %2007
                    
                    
                    25
                    %2008
                    
                    
                    75
                    %2009
                    
                    75
                    %"




(v)          Subject
to the provisions of the Revolving Credit Agreement and the Revolving
Intercreditor Agreement, on the date of the receipt thereof by any Credit Party
or any of its Subsidiaries, the Borrower shall apply, at its option and in its
sole and absolute discretion,  an amount equal to 100% of the Net Cash
Proceeds received by such Person in connection with (1) the Capital Infusion, or
(2) the sale or issuance of Capital Stock by such Person after the Closing Date
(other than upon the exercise of vested options) (A) as provided in Section
3.3(b) or (B) to make either Consolidated Capital Expenditures or Working
Capital Expenditures.


27




(vi)          (A)           Subject
to the provisions of the Revolving Credit Agreement and the Revolving
Intercreditor Agreement, on the date of receipt by any Credit Party or any of
its Subsidiaries of any Loss Proceeds, the Borrower shall remit to the Agent an
amount equal to 100% of such Loss Proceeds, specifying any portion of such
proceeds (such portion, the “Asset Restoration Amount”)
intended by any Credit Party or any of its Subsidiaries to be used within 180
days of receipt of such Loss Proceeds (or such longer period as may be consented
to by the Agent) for rebuilding, repairing or replacing productive assets of a
kind then used or usable in the business of any Credit Party or any of its
Subsidiaries to the extent permitted by the Security Documents; provided, however, that if the damaged
property constituted Collateral, any such replacement property shall be made
subject to (i) a valid, perfected and enforceable second priority Lien and
continuing second priority security interest (and if the Revolving Credit
Termination shall have occurred, a valid, perfected and enforceable first
priority Lien upon and continuing first priority security interest in and to) in
favor of the Agent on behalf of the Tranche A Lenders and (ii) a valid,
perfected and enforceable third priority Lien and continuing third priority
security interest (and (A) if the Revolving Credit Termination shall have
occurred, a valid, perfected and enforceable second priority Lien and continuing
second priority security interest, (B) if (x) if the Tranche A Termination shall
have occurred and (y) the Revolving Credit Termination shall not have occurred,
a valid, perfected and enforceable second priority Lien and continuing second
priority security interest, and (C) if each of the Tranche A Termination and the
Revolving Credit Termination shall have occurred, a valid, perfected and
enforceable first priority Lien and continuing first priority security interest)
in favor of the Agent on behalf of the Tranche B Lenders and the Tranche C
Lenders, each pursuant to the Security Documents.




(B)           Subject
to the provisions of the Revolving Credit Agreement and the Revolving
Intercreditor Agreement, the Borrower shall apply the excess of the Loss
Proceeds over the Asset Restoration Amount, if any, as provided in
Section 3.3(b).




(C)         
  Subject to the provisions of the Revolving Credit Agreement and the
Revolving Intercreditor Agreement, the Borrower shall deposit the Asset
Restoration Amount, if any, of any such Loss Proceeds in an account (the “Reserve Account”) which shall
be maintained by the Borrower with the Agent, which shall constitute Collateral,
and which shall be under the sole dominion and control of the
Agent.  During a period of 180 days (or such longer period as has been
consented to by the Agent) from the date of receipt of the applicable Loss
Proceeds, the Agent shall release to the Borrower amounts in such Reserve
Account from time to time as the Borrower provides evidence satisfactory to the
Agent of the repair or restoration of damaged assets or the purchase of
replacement assets, which evidence may consist of a purchase order or other
irrevocable commitment to purchase replacement assets, and on the Business Day
following the 180th day of such 180-day period, or upon the earlier occurrence
of an Event of Default, the Agent shall apply all amounts remaining in the
Reserve Account in the manner provided in Section 3.3(b).


28




(b)          Prepayments
to be applied pursuant to this Section 3.3 shall be applied as follows:
first, to Tranche A/B Term Loans in inverse order of maturity; and second, to
Tranche C.




(c)          Capital Infusion
Proceeds.  Section 3.3(a) does not apply to the Capital
Infusion.  Instead, Borrowers may use the Capital Infusion proceeds
for general business purposes in a manner that is not inconsistent with this
Agreement.




3.4.         Method and Place of
Payment.




(a)          Except
as otherwise specifically provided herein, all payments under this Agreement
shall be made to the Agent, for the ratable account of the Lenders entitled
thereto, not later than 1:00 p.m. (New York time) on the date when due and
shall be made in immediately available funds in lawful money of the United
States of America to the account specified therefor by the Agent or, if no
account has been so specified at the Agent’s Office, it being understood that
written notice by the Borrower to the Agent to make a payment from the funds in
the Borrower’s account at the Agent’s Office shall constitute the making of such
payment to the extent of such funds held in such account.  The Agent
will thereafter cause to be distributed on the same day (if payment is actually
received by the Agent in New York prior to 1:00 p.m. (New York time)
on such day) funds relating to the payment of principal or interest or fees
ratably to the Lenders entitled to receive any such payment in accordance with
the terms of this Agreement.  If, and to the extent that, any such
distribution shall not be so made by the Agent in full on the same day (if
payment is actually received by the Agent prior to 1:00 p.m. (New York
time) on such day), the Agent shall pay to each Lender its ratable amount
thereof, and each such Lender shall be entitled to receive from the Agent, upon
demand, interest on such amount at the Tranche A/B Interest Rate for each day
from the date such amount is paid to the Agent until the date the Agent pays
such amount to such Lender.




(b)          Any
payments under this Agreement which are made by the Borrower later than 1:00
p.m. (New York time) shall be deemed to have been made on the next
succeeding Business Day.  Whenever any payment to be made hereunder
shall be stated to be due on a day which is not a Business Day, the due date
thereof shall be extended to the next succeeding Business Day and, with respect
to payments of principal, interest shall be payable during such extension at the
applicable rate in effect immediately prior to such extension.




3.5.         Intentionally
Omitted.




3.6.         Pro Rata Treatment; Sharing
of Set-Offs.  Each of the Lenders agrees that, if it should
receive any amount hereunder (whether by voluntary payment, by realization upon
security, by the exercise of the right of setoff or Lender’s lien, by
counterclaim or cross action, by the enforcement of any right under the Credit
Documents, or otherwise) which is applicable to the payment of the principal of,
or interest on, the Loans or other Obligations, of a sum which with respect to
any related sum or sums that are received by other Lenders is proportionately
greater as measured (immediately prior to receipt of all related amounts)
relative to the total of such Obligations then owed and due to such Lender to
the total of such Obligations then owed and due to all of the Lenders, then such
Lender receiving such excess amount shall promptly purchase for cash, without
recourse or warranty, from the other Lenders an interest in the Obligations of
the respective Credit Party to such Lenders in such amount as shall result in a
proportional participation by all of the Lenders in such excess amount pro rata in accordance with
their respective shares of the Obligations with respect to which such amount was
received; provided,
that (a) if all or any portion of such excess amount is thereafter recovered
from such Lender, such purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest and (b) the
provision of this paragraph shall not be construed to apply to any payment made
by the Borrower pursuant to and in accordance with the express terms of this
Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation of any of its shares of the Obligations
to any assignee or participant pursuant to Section 11.5.


29




3.7.         Net
Payments.  All payments by the Borrower under this Agreement or
under any Credit Document shall be made without setoff or counterclaim and in
such amounts as may be necessary in order that all such payments (after
deduction or withholding for, or on account of any present or future income,
stamp or other taxes, levies, imposts, duties, fees or other charges of
whatsoever nature, levied, collected, withheld, assessed or imposed by any
Governmental Authority, other than any tax on, or measured by, the net income of
a Lender pursuant to the income tax laws of the jurisdictions where such
Lender’s principal or lending office is located (collectively, “Taxes”)) shall not be less
than the amounts otherwise specified to be paid under this Agreement or under
any Credit Document.  If the Borrower is required by law to make any
deduction or withholding, on account of Taxes, from any payment due hereunder,
or under the Notes, then (a) the Borrower shall timely remit such Taxes to the
Governmental Authority imposing the same and (b) the amount payable hereunder or
under the Notes will be increased to such amount which, after deduction from
such increased amount of all amounts required to be deducted or withheld
therefrom, will not be less than the amount otherwise due and
payable.  Without prejudice to the foregoing, if any Lender, or the
Agent, is required to make any payment on account of Taxes, the Borrower will,
upon notification by the Lender or the Agent (which notice shall show the amount
of such Taxes) promptly indemnify such person against such Taxes, together with
any interest, penalties and expenses payable or incurred in connection
therewith.  The Borrower shall also reimburse each Lender, upon the
written request of such Lender, for federal income taxes and any other taxes
imposed on, or measured by, the net income of such Lender pursuant to the laws
of the jurisdiction in which the principal office or lending office of such
Lender is located or under the laws of any political subdivision or taxing
authority of any such jurisdiction as such Lender shall determine are payable by
such Lender in respect of Taxes paid to or on behalf of such Lender pursuant to
this Section 3.7.  For purposes of this Section, the term “Taxes” includes interest,
penalties and expenses payable or incurred in connection therewith.  A
certificate as to any additional amounts payable to a Lender under this
Section 3.7 submitted to the Borrower by such Lender shall, absent manifest
error, be final, conclusive and binding for all purposes upon all parties
hereto.  With respect to each deduction or withholding for or on
account of any Taxes, the Borrower shall promptly furnish to each Lender such
certificates, receipts and other documents as may be required (in the judgment
of such Lender) to establish any tax credit to which such Lender may be
entitled.


30




ARTICLE
IV


Guarantees




4.1.        The
Guarantee.




(a)          Each
of the Guarantors, jointly and severally, hereby unconditionally and irrevocably
guarantees to each Lender, the Agent and the Collateral Agent and their
respective successors, indorsees, transferees and assigns (i) the prompt and
complete payment in full when due (whether at stated maturity, by acceleration
or otherwise) of the Obligations of the Borrower and (ii) the punctual and
faithful performance, keeping, observance and fulfillment by the Borrower of all
duties, agreements, covenants and obligations contained in this Agreement and
each of the Credit Documents (collectively, the “Guaranteed
Obligations”).  Each of the Guarantors hereby further jointly
and severally agrees that if the Borrower shall fail to pay when due (whether at
stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations
or shall fail to perform, keep, observe or fulfill any other Guaranteed
Obligation to the Lenders, Agent or Collateral Agent contained in this Agreement
or any of the Credit Documents in the manner provided for herein or therein and
any such failure shall remain uncured at the expiration of any applicable cure
period provided herein or in the Credit Documents, such Guarantor shall
(i) promptly pay the same, without any demand or notice whatsoever, and
that in the case of any extension of time of payment or renewal or any of the
Guaranteed Obligations, the same will be promptly paid in full when due (whether
at extended maturity, by acceleration or otherwise) in accordance with the terms
of such extension or renewal and (ii) cause to be performed, kept, observed or
fulfilled each of such Guaranteed Obligations, in respect of which such failure
has occurred.  Notwithstanding anything to the contrary contained
herein, the Guaranteed Obligations shall be subject to the terms of the
Revolving Intercreditor Agreement.




(b)          No
payment or performance made by any Guarantor or any other Person or received or
collected by the Lenders (or the Collateral Agent or Agent on behalf of the
Lenders) from any Guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in payment of the Guaranteed Obligations shall
be deemed to modify, reduce, release or otherwise affect the liability or
obligations of each Guarantor hereunder which shall, notwithstanding any such
payment or performance other than payment or performance made to the Lenders (or
the Collateral Agent or Agent on behalf of the Lenders) by any Guarantor or
payment or performance received or collected by the Lenders (or the Collateral
Agent or Agent on behalf of the Lenders) from such Guarantor, remain liable for
the Guaranteed Obligations until the full and final performance and indefeasible
payment paid in full in Cash or Cash Equivalents of the Guaranteed
Obligations.




4.2.         Waiver by
Guarantors.  Each Guarantor hereby waives absolutely and
irrevocably any claim which it may have against the Borrower or any of its
respective Affiliates by reason of any performance or payment to the Agent,
Collateral Agent or any Lender, or to any other Person pursuant to or in respect
of its Guarantee, including any claims by way of subrogation, contribution,
reimbursement, indemnity or otherwise, in each case, until payment in full of
the Guaranteed Obligations.


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4.3.        
Consent by
Guarantors.  Each Guarantor hereby consents and agrees that,
without the necessity of any reservation of rights against such Guarantor and
without notice to or further assent by such Guarantor, any demand for payment or
performance of any of the Guaranteed Obligations made by the Agent, the
Collateral Agent or any Lender may be rescinded by the Lenders (or the Agent or
Collateral Agent on behalf of the Lenders) and any of the Guaranteed Obligations
continued, and the Guaranteed Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised, waived,
surrendered or released by the Lenders (or the Agent or the Collateral Agent on
behalf of the Lenders); and this Agreement or any other Credit Document, or
other documents in connection therewith, or any of them, may be amended,
modified, supplemented or terminated, in whole or in part, as the Lenders (or
the Agent or Collateral Agent on behalf of the Lenders) may deem advisable from
time to time; and any Guarantee or right of offset or any collateral may be
sold, exchanged, waived, surrendered or released, all without the necessity of
any reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, which will remain bound hereunder, notwithstanding any
such renewal, extension, modification, acceleration, compromise, amendment,
supplement, termination, sale, exchange, waiver, surrender or
release.  Neither the Lenders nor the Agent or the Collateral Agent
shall have any obligation to protect, secure, perfect or insure any collateral
or property at any time held as security for the Guaranteed
Obligations.  When making any demand hereunder against any Guarantor,
the Agent, the Collateral Agent or the Lenders may, but shall be under no
obligation to, make a similar demand on any other Guarantor, and any failure by
the Agent, the Collateral Agent or the Lenders to make any such demand or to
collect any payment or performance from such other Guarantor or any release of
such other Guarantor or of such Guarantor’s obligations or liabilities hereunder
shall not impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Agent, the Collateral Agent or the Lenders against any
Guarantor hereunder.  For the purposes hereof “demand” shall include
the commencement and continuance of any legal proceedings.




4.4.         Waivers; Successors and
Assigns.  Each Guarantor hereby waives any and all notice of
the creation, renewal, extension or accrual of any of the Guaranteed Obligations
and notice of or proof of reliance by the Lenders upon this Guarantee or
acceptance of this Guarantee, and the Guaranteed Obligations shall conclusively
be deemed to have been created, contracted or incurred in reliance upon this
Guarantee, and all dealings between any Guarantor, on the one hand, and the
Lenders, on the other hand, shall likewise be conclusively presumed to have been
had or consummated in reliance upon this Guarantee.  Each Guarantor
waives diligence, presentment, protest, demand for payment or performance and
notice of default or non-payment or non-performance to or upon any Guarantor
with respect to the Guaranteed Obligations.  The obligations of the
Guarantors under Section 4.1 shall be construed as a continuing, absolute
and unconditional, joint and several guarantee of payment without regard to the
validity, regularity or enforceability of this Agreement, the other Credit
Documents, any of the Guaranteed Obligations or any guarantee therefor or right
of offset with respect thereto at any time or from time to time held by the
Lenders and without regard to any defense (other than the defense of payment or
performance), set off or counterclaim which may at any time be available to or
be asserted by any Credit Party against the Lenders, or by any other
circumstance whatsoever (with or without notice to or knowledge of any
Guarantor) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Guaranteed Obligations, in bankruptcy or in any other
instance, and the obligations and liabilities of the Guarantors hereunder shall
not be conditioned or contingent upon the pursuit by the Lenders or any other
Person at any time of any right or remedy against any Credit Party or against
any other Person which may be or become liable or obligated in respect of all or
any part of the Guaranteed Obligations or against any collateral security or
guarantee therefor or right of offset with respect thereto.  The
obligations of the Guarantors shall remain in full force and effect and be
binding upon the Guarantor and the successors and assigns thereof, and shall
inure to the benefit of the Lenders, and their respective successors, indorsees,
transferees and assigns (including each holder from time to time of Guaranteed
Obligations) until all of the Guaranteed Obligations and the obligations of the
Guarantor hereunder until the full and final performance and indefeasible
payment paid in full in Cash or Cash Equivalents of the Guaranteed Obligation,
notwithstanding that from time to time during the term of the Agreement any
Credit Party may be released from all of its Guaranteed Obligations
hereunder.


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4.5.        
Guarantee
Secured.  Payment of the Guaranteed Obligations of the
Guarantors hereunder is secured jointly and severally by pledges, encumbrances
and mortgages of Collateral pursuant to applicable Security Documents in
accordance with this Agreement.  Reference is hereby made to the
applicable Security Documents for a description of the Collateral pledged and
the right of the respective parties to such property, to secure all the
obligations of the Guarantors hereunder.




4.6.         Rights of
Set-Off.  The Lenders, and the Agent and Collateral Agent on
behalf of the Lenders, are each hereby irrevocably authorized upon the
occurrence and during the continuance of an Event of Default without notice to
any Guarantor (any such notice being expressly waived by each Guarantor to the
extent permitted by applicable law) to set-off and appropriate and apply any and
all deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect or contingent or matured or unmatured, at
any time held or owing by the Lenders to or for the credit or the account of any
Guarantor, or any part thereof, if such amounts as the Lenders, or the Agent or
Collateral Agent on behalf of the Lenders, may elect, against and on account of
the obligations and liabilities of any Guarantor to the Lenders, in any
currency, whether arising hereunder or otherwise, as the Lenders, or the Agent
or Collateral Agent on behalf of the Lenders, may elect, whether or not the
Lenders, or the Agent or Collateral Agent on behalf of the Lenders, have made
any demand for payment but only to the extent that such obligations, liabilities
and claims shall have become due and payable (whether as stated, by acceleration
or otherwise).  The Lenders, or the Agent or Collateral Agent on
behalf of the Lenders, agree to notify each Guarantor promptly of any such
set-off and the application made by the Lenders, or the Agent on behalf of the
Lenders; provided, that
the failure to give such notice shall not affect the validity of such set-off
and application.  The rights of the Lenders, or the Agent or
Collateral Agent on behalf of the Lenders, under this Section 4.6 are in
addition to other rights and remedies (including other rights of set-off) which
the Lenders, or the Agent or Collateral Agent on behalf of the Lenders, may
otherwise have.


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4.7.        
Effectiveness;
Reinstatement.  The obligations of the Guarantors under this
Article IV shall continue to be effective, or be reinstated, as the case may be,
if at any time payment or performance, or any part thereof, of any of the
Guaranteed Obligations is rescinded or must otherwise be restored or returned by
the Lenders upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Credit Party, or upon or as a result of the appointment of
a receiver, intervenor or conservator of, or trustee or similar officer for, any
Credit Party or any substantial part of its property, or otherwise, all as
though such payments had not been made.  The Guarantors jointly and
severally agree that they will indemnify the Lenders, the Agent and the
Collateral Agent on demand for all reasonable costs and expenses (including
attorneys’ fees) incurred by the Lenders, the Agent or the Collateral Agent in
connection with any rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.




4.8.         Payments of Guaranteed
Obligations.  Each of the Guarantors, jointly and severally,
hereby guarantees that the Guaranteed Obligations will be paid for the ratable
benefit of the Lenders without set-off or counterclaim in lawful currency of the
United States of America at the office of the Collateral Agent located at 666
Third Avenue, New York, New York 10017.  Each Guarantor
shall make any payment and performance required hereunder upon receipt of
written notice thereof from the Agent or Collateral Agent or any Lender; provided,however, that the failure of
the Agent or Collateral Agent or any Lender to give such notice shall not affect
any Guarantor’s obligations hereunder.




4.9.        
Remedies.  Each
of the Guarantors, jointly and severally, hereby agrees that, as between the
Guarantors and the Lenders, the obligations of the Borrower under this Agreement
and any Note may be declared forthwith due and payable as provided in
Article IX hereof (and shall be deemed to have become automatically due and
payable in the circumstances provided in said Article IX) for purposes of
Section 4.1 hereof notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrower and that, in the event of
such declaration (or such obligations being deemed to have become automatically
due and payable), such obligations (whether or not due and payable by the
Borrower) shall forthwith become due and payable by the Guarantors for purposes
of said Section 4.1.




4.10.       Subrogation.  Each
of the Guarantors, jointly and severally, hereby agrees that until the payment
and satisfaction in full of all Guaranteed Obligations and the expiration and
termination of the Loan Amounts of the Lenders under this Agreement, the
Guarantors shall not exercise any right or remedy arising by reason of any
performance by them of their guarantee in Section 4.1 hereof, whether by
subrogation or otherwise, against the Borrower or any other guarantor of the
Guaranteed Obligations or any security for any of the Guaranteed
Obligations.




4.11.       Rights of
Contribution.  Each Frederick’s Subsidiary hereby agrees that
to the extent that a Frederick’s Subsidiary shall have paid more than its
proportionate share of any payment made hereunder, such Frederick’s Subsidiary
shall be entitled to seek and receive contribution from and against any other
Frederick’s Subsidiary hereunder which has not paid its proportionate share of
such payment.  Each Frederick’s Subsidiary’s right of contribution
shall be subject to the terms and conditions of Section 4.10
hereof.  The provisions of this Section 4.11 shall in no respect
limit the obligations and liabilities of any Frederick’s Subsidiary to the
Lenders, the Agent and the Collateral Agent, and each Frederick’s Subsidiary
shall remain liable to the Lenders, the Agent and the Collateral Agent for the
full amount guaranteed by such Frederick’s Subsidiary
hereunder.


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4.12.       General Limitation on
Guarantee Obligations.  In any action or proceeding involving
any state corporation law, or any state or Federal bankruptcy, insolvency,
reorganization or other law affecting the rights of creditors generally, if the
obligations of any Frederick’s Subsidiary under Section 4.1 hereof would
otherwise, taking into account the provisions of Section 4.11 hereof, be
held or determined to be void, invalid or unenforceable, or subordinated to the
claims of any other creditors, on account of the amount of its liability under
said Section 4.1, then, notwithstanding any other provision hereof to the
contrary, the amount of such liability shall, without any further action by such
Frederick’s Subsidiary, any Lender, the Agent, the Collateral Agent or any other
Person, be automatically limited and reduced to the highest amount that is valid
and enforceable and not subordinated to the claims of other creditors as
determined in such action or proceeding.




4.13.       Merger.  If
any Guarantor shall merge into or consolidate with another corporation, or
liquidate, wind up or dissolve itself in a transaction not prohibited hereunder,
or if all of the Capital Stock of any Guarantor shall be sold or otherwise
disposed of in a manner not prohibited hereunder, such Guarantor hereby
covenants and agrees, that upon any such merger, consolidation, liquidation, or
dissolution, the Guarantee given hereunder and the due and punctual performance
and observance of all of the covenants and conditions hereunder to be performed
by such Guarantor, shall be expressly assumed (in the event that such Guarantor
is not the surviving corporation in the merger) by supplemental agreements
satisfactory in form to the Lenders, or the Agent or Collateral Agent on behalf
of the Lenders, by the corporation or corporations formed by such consolidation,
or into which such Guarantor shall have been merged, or by the corporation or
corporations which shall have acquired such property.  In addition,
such Guarantor shall deliver to the Lenders, or the Agent or Collateral Agent on
behalf of the Lenders, an Officers’ Certificate and an opinion of counsel, each
stating that such merger, consolidation or transfer and such supplemental
agreements comply with this Article IV and that all conditions precedent
herein provided relating to such transaction have been complied
with.  In case of any such consolidation, merger, sale or conveyance
and upon the assumption by the successor corporation or corporations, by
supplemental agreements executed and delivered to the Lenders or the Agent or
Collateral Agent on behalf of the Lenders, and satisfactory in form to the
Lenders, or the Agent or Collateral Agent on behalf of the Lenders, of the
Guarantee given pursuant to this Article IV and the due and punctual
performance of all of the covenants and conditions hereunder to be performed by
such Guarantor, such successor corporation or corporations shall succeed to and
be substituted for such Guarantor, with the same effect as if it or they had
been named herein as a Guarantor.




4.14.      No
Waiver.




(a)          No
failure to exercise and no delay in exercising, on the part of the Lenders, or
the Agent or Collateral Agent on behalf of the Lenders, any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege preclude any other or further
exercise thereof, or the exercise of any other power or right.  The
rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.


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(b)          In
the event the Lenders, the Agent or the Collateral Agent on behalf of the
Lenders, shall have instituted any proceeding to enforce any right, power or
remedy hereunder by sale or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Lenders, the Agent or the Collateral Agent on behalf of the Lenders, then
and in every such case, each Guarantor, each Lender, and the Agent or the
Collateral Agent on behalf of the Lenders, shall be restored to its respective
former position and rights hereunder, and all rights, remedies and powers of the
Lenders, the Agent or the Collateral Agent on behalf of the Lenders, shall
continue as if no such proceeding had been instituted.




ARTICLE
V


Conditions
Precedent




5.1.         Conditions Precedent to
Loans.  The obligations of the Tranche A/B Lenders to the
Borrower pursuant to Section 2.1 hereunder and the obligations of the
Tranche C Lenders to the Borrower pursuant to Section 2.2 hereunder are
subject to the satisfaction or waiver in writing by the Agent of each of the
following conditions:




(a)          Effectiveness.  This
Agreement shall have become effective as provided in
Section 11.10.




(b)          Conditions under Revolving
Credit Agreement.  Each of the conditions precedent to the
effectiveness of the Revolving Credit Agreement shall have been
satisfied.




(c)         
Documentation.  On
the Closing Date, the Agent shall have received such other documentation
addressed to each of the Lenders from counsel to each Credit Party as may be
reasonably required with reasonable notice under the circumstances.




(d)          Corporate
Proceedings.  All corporate and legal proceedings and all
instruments and agreements in connection with the transactions contemplated by
the Credit Documents shall be satisfactory in form and substance to the Agent,
and the Agent shall have received all information and copies of all
certificates, documents and papers, including records of corporate proceedings
and governmental approvals, if any, which the Agent reasonably may have
requested from any Credit Party or any Affiliate thereof in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or governmental authorities.  Without limiting the
foregoing, the Agent shall have received (i) evidence satisfactory to it that
the Boards of Directors of each Credit Party and any Affiliate thereof, shall
have approved the execution and delivery of each of the Credit Documents, (ii)
resolutions of the Boards of Directors of each Credit Party and any Affiliate
thereof approving and authorizing such documents and actions as are contemplated
hereby in form and substance reasonably satisfactory to the Agent including the
execution and delivery of all Credit Documents to be executed by such Person,
certified by its corporate secretary or an assistant secretary as being in full
force and effect without modification or amendment, and (iii) signature and
incumbency certificates of officers of each Credit Party and any Affiliate
thereof executing instruments, documents or agreements required to be executed
in connection with this Agreement.




(e)         
Intentionally Omitted.




(f)           Intentionally
Omitted.


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(g)          Organizational
Documentation, etc.  On or prior to the Closing Date, the
Lenders shall have received copies of true and complete certified copies of (A)
the Revolving Credit Agreement and all related agreements and (B) each of
following documents of each Credit Party, the provisions of which shall be
reasonably satisfactory to the Agent:




(i)        
Each such Person’s respective Certificate or Articles of Incorporation or other
corresponding organizational document, which shall be certified and be
accompanied by a good standing certificate from the jurisdiction of its
organization (if such a document exists for such Person) and good standing
certificates from the jurisdictions in which it is qualified to do business as a
foreign corporation, each to be dated a recent date prior to the Closing Date;
and




(ii)        Each
such Person’s respective by-laws or other corresponding organizational
documents, certified as of the Closing Date by its corporate
secretary.




(h)          Credit
Documents.  Each of this Agreement and each other Credit
Document shall (i) be in form and substance satisfactory to the Agent and (ii)
have been, on or prior to the Closing Date, duly authorized, executed and
delivered by each of the parties signatory thereto.




(i)           Notes.  There
shall have been delivered to the Agent, for the account of each of the Lenders,
the Tranche A/B Term Notes and the Tranche C Notes executed by the Borrower, in
the amounts and maturities and as otherwise provided herein.




(j)           Certain
Fees.  All costs, fees and expenses (including legal fees and
expenses) payable on or before the Closing Date to the Agent by the Borrower
shall have been paid in full, and the Borrower shall have paid or have caused to
be paid the commitment and other fees and expenses (including reasonable legal
fees and expenses) contemplated hereby to be paid on or before the Closing Date
or in connection with the Credit Documents.




(k)          Financial Statements,
etc.  On or before the Closing Date, the Agent shall have
received audited financial statements including the consolidated balance sheet,
and the consolidated statements of income, of stockholders’ equity and of cash
flows of Holdings and its Consolidated Subsidiaries for the Fiscal Year ended
July 31, 2004, and the pro
forma balance sheet of Holdings and its Consolidated Subsidiaries as of
the Closing Date after giving effect to the Borrowings under this Agreement and
the obligations under the Revolving Credit Agreement.  The Agent shall
have received a report from Deloitte & Touche with regard to the pro forma estimated opening
balance sheet of Holdings and its Consolidated Subsidiaries as of the Closing
Date, after giving effect to the Borrowings under this Agreement and the
obligations under the Revolving Credit Agreement, which such report shall be
reasonably satisfactory to the Agent and reasonably consistent with the pro forma previously provided
to the Agent.




(l)           Insurance.  On
or before the Closing Date, the Agent shall be reasonably satisfied with (A) all
insurance policies maintained by each of the Credit Parties and their respective
Subsidiaries and summarized on Annex IV and (B) the
insurance coverage provided for each of the Credit Parties and their respective
Subsidiaries by such insurance policies.


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(m)         Performance
Bonds.  On the Closing Date, the Agent shall be reasonably
satisfied that the Borrower shall be able to service and maintain any
performance bonds that may be required in the ordinary cause of business on
reasonable terms and conditions.




(n)          Security
Documents.  Each of the Security Documents shall have been duly
executed and delivered by the respective parties thereto and there shall have
been delivered to the Collateral Agent (i) certificates representing all Pledged
Securities (if certificated), together with executed and undated stock powers or
assignments in blank and (ii) evidence of the completion of all recordings and
filings of each Security Document and delivery of such other security and other
documents (including financing statements on Form UCC-1) as may be necessary or,
in the opinion of the Collateral Agent, desirable to perfect (i) the valid,
perfected and enforceable second priority Lien upon and continuing second
priority security interest in and to (and if the Revolving Credit Termination
shall have occurred, a valid, perfected and enforceable first priority Lien upon
and continuing first priority security interest in and to) all of the Collateral
in favor of the Agent on behalf of the Tranche A/B Lenders, (ii) the valid,
perfected and enforceable third priority Lien upon and continuing third priority
security interest in and to (and (A) if the Revolving Credit Termination shall
have occurred, a valid, perfected and enforceable second priority Lien upon and
continuing second priority security interest in and to, and (B) if (x) if the
Tranche A/B Termination shall have occurred and (y) the Revolving Credit
Termination shall not have occurred, a valid, perfected and enforceable second
priority Lien upon and continuing second priority security interest in and to,
and (C) if each of the Tranche A/B Termination and the Revolving Credit
Termination shall have occurred, a valid, perfected and enforceable first
priority Lien upon and continuing first priority security interest in and to) in
favor of the Collateral Agent on behalf of the Tranche C Lenders, created, or
purported or intended to be created, by the Security Documents..




(o)          Consents,
etc.  All material governmental and third party approvals and
consents (including all material approvals and consents required in connection
with any environmental statutes, rules or regulations), if any, the transactions
contemplated by the Credit Documents, and in either case otherwise referred to
herein or therein to be completed on or before the Closing Date shall have been
obtained and remain in effect.  There shall not exist any judgment,
order, injunction or other restraint issued or filed with respect to the making
of the Loans hereunder.




(p)          Environmental
Review.  On or before the Closing Date, there shall have been
delivered to the Agent for each of the Lenders an Officers’ Certificate of the
Borrower in substantially the form of Exhibit C
hereto.




(q)          Labor
Matters.  There shall be no labor disputes, strikes or work
stoppages, pending or threatened, involving any Credit Party or any of its
Subsidiaries.




(r)           Insurance
Certificates.  On the Closing Date, the Lenders shall have
received the insurance certificates required to be so delivered by the Security
Documents.




(s)          Intentionally
Omitted.


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(t)          
Representations and
Warranties; No Default.  The representations and warranties
contained in Article VI and in each other Credit Document, certificate or other
writing delivered to the Agent or the Lenders pursuant hereto or thereto on or
prior to the Closing Date are true and correct on and as of the Closing Date as
though made on and as of such date.  On and as of the Closing Date,
there shall exist no Default or Event of Default and none would result from this
Agreement or any other Credit Document becoming effective in accordance with its
or their respective terms.




(u)          Adverse Change,
etc.




(i)         Since
March 31, 2005, nothing shall have occurred or become known which the Agent
shall have determined has a Material Adverse Effect.




(ii)        All
material governmental and third party approvals and consents (including all
material approvals and consents required in connection with any environmental
statutes, rules or regulations), if any, in connection with the conduct of the
business of each Credit Party or any of its Subsidiaries shall have been
obtained and remain in effect.




(iii)       There
shall not exist any judgment, order, injunction or other restraint issued or
filed with respect to the making of any Loans hereunder the effect of which
judgment, order, injunction or restraint is adverse to any Lender.




(v)          Real Property
Disclosure.  Each Credit Party shall have made all
notifications, registrations, and filings in accordance with all State and Local
Real Property Disclosure Requirements applicable to the Leased Real Property,
including the use of forms provided by state or local agencies, where such forms
exist, whether to the Borrower or to, or with, the state or local agency to the
extent failure to make such notifications, registrations or filings could
reasonably be expected to have a Material Adverse Effect.




(w)         Intentionally
Omitted.




(x)           Sufficient
Capital.  A certificate of the chief financial officer of each
Credit Party with respect to the matters set forth in Section 6.20 hereto, which
certificate shall be in form and substance satisfactory to the
Agent.




The
acceptance of the Loans shall constitute a representation and warranty by each
Credit Party to each of the Lenders that all of the applicable conditions
specified above have been satisfied or waived as of that time.  All of
the certificates and other documents and papers referred to in this
Section 5.1, unless otherwise specified, shall be delivered to the Agent at
the Agent’s Office (or such other location as may be specified by the Agent) for
the account of each of the Lenders and in sufficient counterparts for each of
the Lenders and shall be satisfactory in form and substance to the
Agent.


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ARTICLE
VI


Representations, Warranties
and Agreements




In order
to induce the Agent and the Lenders to enter into this Agreement and to make the
Loans provided for herein, each Credit Party makes the following representations
and warranties to, and agreements with, the Agent and the Lenders, all of which
shall survive the execution and delivery of this Agreement and the making of the
Loans (with the execution and delivery of this Agreement and the making of each
Loan thereafter being deemed to constitute a representation and warranty that
the matters specified in this Article VI are true and correct in all material
respects as of the date of each such Loan unless such representation and
warranty expressly indicates that it is being made as of any specific
date):




6.1.         Organization, Good Standing,
Etc.  Each Credit Party (i) is a corporation, limited liability
company or limited partnership duly organized, validly existing and in good
standing under the laws of the state of its organization, (ii) has all
requisite power and authority to conduct its business as now conducted and as
presently contemplated and, in the case of the Borrower, to make the borrowings
hereunder, and to execute and deliver each Credit Document to which it is a
party, and to consummate the transactions contemplated thereby, and (iii) is
duly authorized or qualified to do business and is in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary
except where the failure to be qualified or in good standing could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.




6.2.         Authorization.  The
execution, delivery and performance by each Credit Party of each Credit Document
to which it is or will be a party, (i) have been duly authorized by all
necessary action, (ii) do not and will not contravene its charter or by-laws,
its limited liability company or operating agreement or its certificate of
partnership or partnership agreement, as applicable, any applicable law, any
agreement, instrument or other document evidencing, governing or securing any
Indebtedness of such Credit Party, (iii) do not and will not contravene any
other agreement, instrument or document binding on or otherwise affecting any of
its properties (to the extent the obligation thereunder is material or to the
extent such contravention (either individually or in the aggregate) could
reasonably be expected to have a Material Adverse Effect, (iv) do not and will
not result in or require the creation of any Lien (other than pursuant to any
Credit Document or the Revolving Credit Debt Documents) upon or with respect to
any of its properties, and (v) do not and will not result in any suspension,
revocation, impairment, forfeiture or non-renewal of any permit, license,
authorization or approval applicable to its operations or any of its properties,
except where such suspension, revocation, impairment, forfeiture or non-renewal
could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.




6.3.         Government
Approvals.  No authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority is required in
connection with the due execution, delivery and performance by any Credit Party
of any Credit Document to which it is or will be a party.


40




6.4.         Execution and Binding
Effect.  Each of the Credit Documents required to be executed
and delivered on or prior to the date hereof has been duly and validly executed
and delivered by each of the Credit Parties which is a party thereto and
constitute legal, valid and binding obligations of each of the Credit Parties
which is a party thereto enforceable in accordance with the terms hereof or
thereof.  Each Credit Document that is not required to be executed and
delivered by any Credit Party prior to the Effective Date, when executed and
delivered, will be validly executed and delivered by the Credit Party thereto,
and will constitute legal, valid and binding obligations of the Credit Party
thereto, enforceable in accordance with the terms thereof.




6.5.       
 Subsidiaries.  Schedule 6.5 is a
complete and correct description of the name, jurisdiction of incorporation and
ownership of the outstanding Capital Stock of such Subsidiaries of Holdings in
existence on the date hereof.  All of the issued and outstanding
Capital Stock of such Subsidiaries has been validly issued and are fully paid
and nonassessable, and the holders thereof are not entitled to any preemptive,
first refusal or other similar rights.  Except as indicated on such
Schedule 6.5,
all such Capital Stock is owned by Holdings or one or more of its Wholly-Owned
Subsidiaries, free and clear of all Liens.




6.6.         Litigation; Commercial Tort
Claims.  Except as set forth in Schedule 6.6,
(i) there is no pending or, to the knowledge of any Credit Party, threatened
action, suit or proceeding affecting any Credit Party before any court or other
Governmental Authority or any arbitrator that (A) either individually or in
the aggregate could reasonably be expected to have a Material Adverse Effect or
(B) relates to this Agreement, the Notes or any other Credit Document or
any transaction contemplated hereby or thereby and (ii) as of the Closing Date,
none of the Credit Parties holds any commercial tort claim for more than $50,000
in respect of which a claim has been filed in a court of law or a written notice
by an attorney has been given to a potential defendant.




6.7.         Financial
Condition.




(a)          Since
March 31, 2005 no event or development has occurred that has had or could,
either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.




(b)          Holdings
has heretofore furnished to the Lenders a schedule of projected cash receipts,
cash disbursements and monthly cash flows of Holdings and its Consolidated
Subsidiaries prepared on a monthly basis through March 31,
2005.  Such projections are believed by Holdings at the time furnished
to be reasonable, have been prepared on a reasonable basis and in good faith by
Holdings, and have been based on assumptions believed by Holdings to be
reasonable at the time made and upon the best information then reasonably
available to Holdings, and Holdings is not aware of any facts or information
that would lead it to believe that such projections, as so updated, are
incorrect or misleading in any material respect.


41


(c)          Holdings
has heretofore furnished to the Lenders the Financial Projections which show the
projected monthly balance sheets, income statements and statements of cash flows
of Holdings and its Consolidated Subsidiaries for each 12-month period from the
Effective Date through the Fiscal Year ending July 31, 2009.  Such
projections, as so updated, are believed by Holdings at the time furnished to be
reasonable, have been prepared on a reasonable basis and in good faith by
Holdings, and have been based on assumptions believed by Holdings to be
reasonable at the time made and upon the best information then reasonably
available to Holdings, and Holdings is not aware of any facts or information
that would lead it to believe that such projections, as so updated, are
incorrect or misleading in any material respect.




6.8.         Compliance with Law,
etc.  No Credit Party is in violation of (i) its organizational
documents, (ii) any law, rule, regulation, judgment or order of any Governmental
Authority applicable to it or any of its material property or assets, or (iii)
any term of any agreement or instrument binding on or otherwise affecting it or
any of its properties, except in the case of clause (iv), where such violation
of an agreement or instrument could not reasonably be expected to have a
Material Adverse Effect (either individually or in the aggregate).




6.9.        
ERISA.  Except
as set forth on Schedule 6.9,
(i) each Employee Plan is in substantial compliance with ERISA and the Internal
Revenue Code, (ii) no Termination Event has occurred nor is reasonably
expected to occur with respect to any Employee Plan, (iii) the most recent
annual report (Form 5500 Series) with respect to each Employee Plan, including
any required Schedule B (Actuarial Information) thereto, copies of which
have been filed with the Internal Revenue Service and delivered to the Agent, is
complete and correct and fairly presents the funding status of such Employee
Plan, and since the date of such report there has been no material adverse
change in such funding status, (iv) no Employee Plan had an accumulated or
waived funding deficiency or permitted decreases which would create a deficiency
in its funding standard account or has applied for an extension of any
amortization period within the meaning of Section 412 of the Internal
Revenue Code at any time during the previous 60 months, and (v) no
Lien imposed under the Internal Revenue Code or ERISA exists or is likely to
arise on account of any Employee Plan within the meaning of Section 412 of the
Internal Revenue Code at any time during the previous
60 months.  Except as set forth on Schedule 6.9, none of
the Credit Parties or any of their ERISA Affiliates have incurred any withdrawal
liability under ERISA with respect to any Multiemployer Plan, or are aware of
any facts indicating that the Credit Parties or any of their ERISA Affiliates
may in the future incur any such withdrawal liability.  Except as set
forth on Schedule 6.9, there is no claim against any employee benefit plan (as
defined in Section 3(3) of ERISA) sponsored or maintained by any Credit Party
(except routine individual claims for benefits) that could reasonably be
expected to have a Material Adverse Effect.  Except as required by
Section 4980B of the Internal Revenue Code, none of the Credit Parties or any of
their ERISA Affiliates maintains an employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides health or welfare benefits (through the
purchase of insurance or otherwise) for any retired or former employee of any
Credit Party or any of its ERISA Affiliates or coverage after a participant’s
termination of employment.  None of the Credit Parties or any of their
ERISA Affiliates has incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act (“WARN”) or similar state law, which
remains unpaid or unsatisfied.  The hours worked and payments made to
employees of any Credit Party have not been in violation of the Fair Labor
Standards Act or any other applicable legal requirements.  All
material payments due from any Credit Party on account of wages and employee
health and welfare insurance and other benefits have been paid or accrued as a
liability on the books of such Credit Party.


42




6.10.       Taxes,
etc.  All Federal, state and local tax returns and other
reports required by applicable law to be filed by any Credit Party have been
filed, or extensions have been obtained, and all taxes, assessments and other
governmental charges imposed upon any Credit Party or any property of any Credit
Party and which have become due and payable on or prior to the date hereof have
been paid, except to the extent contested in good faith by proper proceedings
which stay the imposition of any penalty, fine or Lien resulting from the
non-payment thereof and with respect to which adequate reserves have been set
aside for the payment thereof.




6.11.       Regulation
U.  None of the Credit Parties is nor will be engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulations T, U or X), and no proceeds of any Loan
will be used to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock.




6.12.       Nature of
Business.  None of the Credit Parties is engaged in any
business other than developing, producing and selling specialty apparel and
related products.




6.13.       Adverse Agreements,
etc..  None of the Credit Parties is subject to any charter,
limited liability company agreement, partnership agreement or other corporate,
partnership or limited liability company restriction or any judgment, order,
regulation, ruling or other requirement of a court or other Governmental
Authority, which has, or in the future could reasonably be expected to have, a
Material Adverse Effect.




6.14.       Permits,
etc..  Each Credit Party has, and is in compliance with, all
material permits, licenses, authorizations, approvals, entitlements and
accreditations required for such Person lawfully to own, lease, manage or
operate, or to acquire, each business currently owned, leased, managed or
operated, or to be acquired, by such Person, except where the failure to have
any of the foregoing or the lack of compliance therewith, either individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect.  No condition exists or event has occurred which, in itself or
with the giving of notice or lapse of time or both, would result in the
suspension, revocation, impairment, forfeiture or non-renewal of any such
permit, license, authorization, approval, entitlement or accreditation, and
there is no claim that any thereof is not in full force and effect, except where
such suspension, revocation, impairment, forfeiture or non-renewal, either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.




6.15.       Properties.




(a)          Each
Credit Party has good and marketable title to, or valid leasehold interests in,
all property and assets material to its business, free and clear of all Liens
except Permitted Liens.  The properties are in good working order and
condition, ordinary wear and tear excepted.


43






(b)         
Schedule 6.15
sets forth a complete and accurate list as of the Effective Date, of the
location, by state and street address, of all real property owned or leased by
each Credit Party.  As of the Closing Date, each Credit Party has
valid leasehold interests in the Leases described on Schedule 6.15 to
which it is a party.  Schedule 6.15 sets
forth with respect to each such Lease, the commencement date, termination date,
renewal options (if any) and annual base rents.  Each such Lease is
valid and enforceable in accordance with its terms in all material respects and
is in full force and effect.  No consent or approval of any landlord
or other third party in connection with any material Lease is necessary for any
Credit Party to enter into and execute the Credit Documents to which it is a
party, except as set forth on Schedule
6.15.  To the best knowledge of any Credit Party, no Credit
Party is in default of its obligations thereunder, and no Credit Party (or any
other party to any such Lease) has at any time received any notice of default
which remains uncured under any such material Lease and, as of the Closing Date,
no event has occurred which, with the giving of notice or the passage of time or
both, would constitute a default by a Credit Party under any such material
Lease.




6.16.      
Full
Disclosure.  Each Credit Party has disclosed to the Agent all
agreements, instruments and corporate or other restrictions to which it is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect.  None of the other reports, financial statements, certificates
or other written information furnished by or on behalf of any Credit Party to
the Agent in connection with the negotiation of this Agreement or delivered
hereunder (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which it was made, not misleading; provided that, with respect
to projected financial information, each Credit Party represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time (it being recognized by the Lenders that such projections
as to future events are not to be viewed as facts and that actual results during
the period or periods covered by any such projections may differ from the
projected results).  There is no contingent liability or fact that
could reasonably be expected to have a Material Adverse Effect which has not
been set forth in a footnote included in the financial statements of Holdings or
a schedule hereto.




6.17.      
Environmental
Matters.  Except as set forth on Schedule 6.17,
(i) the operations of each Credit Party are in compliance in all material
respects with Environmental Laws; (ii) there has been no Release at any of the
properties owned or operated by any Credit Party or a predecessor in interest,
or at any disposal or treatment facility which received Hazardous Materials
generated by any Credit Party or any predecessor in interest which, either
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect; (iii) no Environmental Action has been asserted against
any Credit Party or any predecessor in interest nor does any Credit Party have
knowledge or notice of any threatened or pending Environmental Action against
any Credit Party or any predecessor in interest which, either individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect;
(iv) no Environmental Actions have been asserted against any facilities that may
have received Hazardous Materials generated by any Credit Party or any
predecessor in interest which, either individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect; (v) no property
now or formerly owned or operated by a Credit Party has been used as a treatment
or disposal site for any Hazardous Material; (vi) no Credit Party has
failed to report to the proper Governmental Authority any Release which is
required to be so reported by any Environmental Laws which, either individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect; (vii) each Credit Party holds all licenses, permits and approvals
required under any Environmental Laws in connection with the operation of the
business carried on by it, except for such licenses, permits and approvals as to
which a Credit Party’s failure to maintain or comply with, either individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect; and (viii) no Credit Party has received any notification pursuant to any
Environmental Laws that (A) any work, repairs, construction or Capital
Expenditures are required to be made as a condition of continued compliance with
any Environmental Laws, or any license, permit or approval issued pursuant
thereto or (B) any license, permit or approval referred to above is about to be
reviewed, made, subject to limitations or conditions, revoked, withdrawn or
terminated, in each case, except as, either individually or in the aggregate,
could not reasonably be expected to have a Material Adverse
Effect.


44


6.18.      
Insurance.  Each
Credit Party keeps its property adequately insured and maintains
(i) insurance to such extent and against such risks, including fire, as is
customary with companies in the same or similar businesses, (ii) workmen’s
compensation insurance in the amount required by applicable law,
(iii) public liability insurance, which shall include product liability
insurance, in the amount customary with companies in the same or similar
business against claims for personal injury or death on properties owned,
occupied or controlled by it, and (iv) such other insurance as may be
required by law or as may be reasonably required by the Agent (including,
without limitation, against larceny, embezzlement or other criminal
misappropriation).  Schedule 6.18
sets forth a list of all insurance maintained by each Credit Party on the
Closing Date.




6.19.   
   Use of
Proceeds.  As reflected by the recitals to this Term Loan
Agreement, the parties have agreed to exchange the Indebtedness under the
Tranche A/B Note for the amount of Indebtedness that had been outstanding under
the Tranche A Note and Tranche B Note as of March 30, 2005.




6.20.      
Sufficient
Capital.  After giving effect to the transactions contemplated
by this Agreement, and the Revolving Credit Debt Documents, (w) no Credit Party
nor any of its Subsidiaries expects that final judgments against any Credit
Party or any of its Subsidiaries in actions for money damages with respect to
pending or, to its knowledge, threatened litigation will be rendered at a time
when, or in an amount such that, such Credit Party will be unable to satisfy any
such judgments promptly in accordance with their terms (taking into account the
maximum reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered and the cash available
to each Credit Party or any of its Subsidiaries, after taking into account all
other anticipated uses of the cash of such Credit Party or any of its
Subsidiaries (including the payments on or in respect of debts and insurance
proceeds (including their Contingent Obligations)); (x) no Credit Party or any
of its Subsidiaries will have incurred or intends to, or believes that it will,
incur debts beyond its ability to pay such debts as such debts mature (taking
into account the timing and amounts of cash to be received by such Credit Party
or any of its Subsidiaries from any source, and of amounts to be payable on or
in respect of debts of such Credit Party or any of its Subsidiaries and the
amounts referred to in the preceding clause (w)); (y) each Credit Party and each
of its respective Subsidiaries, after taking into account all other anticipated
uses of the cash of such Credit Party or any of its Subsidiaries, anticipates
being able to pay all amounts on or in respect of debts of such Credit Party or
any of its Subsidiaries when such amounts are required to be paid; and (z) each
Credit Party and each of its respective Subsidiaries will have sufficient
capital with which to conduct its present and presently proposed business and
the property of such Credit Party and each of its respective Subsidiaries does
not constitute unreasonably small capital with which to conduct its present or
proposed business.  For purposes of this Section 6.20, “debt” means any liability on
a claim, and “claim”
means a (i) right to payment whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured; or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, un matured, disputed, undisputed, secured
or unsecured.


45


6.21.       Intellectual
Property.  Each Credit Party owns or licenses or otherwise has
the right to use all licenses, permits, trademarks, trademark applications,
patents, patent applications, service marks, tradenames, copyrights, copyright
applications, franchises, authorizations and other intellectual property rights
that are necessary for the operations of its businesses, without infringement
upon or conflict with the rights of any other Person with respect thereto,
except for such infringements and conflicts which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect.  Set forth on Schedule 6.21 is
a complete and accurate list as of the Closing Date of all trademarks, trademark
applications, tradenames, material licenses, permits, patents, patent
applications, service marks, copyrights, copyright applications, franchises,
authorizations and other intellectual property rights of each Credit
Party.  No slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to
be employed, by any Credit Party infringes upon or conflicts with any rights
owned by any other Person, and no claim or litigation regarding any of the
foregoing is pending or threatened, except for such infringements and conflicts
which could not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.  To the best knowledge of each
Credit Party, no patent, invention, device, application, principle or any
statute, law, rule, regulation, standard or code is pending or proposed, which,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.




6.22.       Holding Company and
Investment Company Acts.  None of the Credit Parties is
(i) a ”holding company” or a “subsidiary company” of a “holding
company” or an “affiliate” of a ”holding company”, as such terms are
defined in the Public Utility Holding Company Act of 1935, as amended, or
(ii) an “investment company” or an “affiliated person” or “promoter” of,
or ”principal underwriter” of or for, an “investment company”, as such
terms are defined in the Investment Company Act of 1940, as
amended.




6.23.       Employee and Labor
Matters.  (i)  There is (A) no unfair labor practice
complaint pending or, to the best knowledge of any Credit Party, threatened
against any Credit Party before any Governmental Authority and no grievance or
arbitration proceeding pending or threatened against any Credit Party which
arises out of or under any collective bargaining agreement, (B) no strike, labor
dispute, slowdown, stoppage or similar action or grievance pending or threatened
against any Credit Party and (C) to the best knowledge of any Credit Party, no
union representation question existing with respect to the employees of any
Credit Party and no union organizing activity taking place with respect to any
of the employees of any of them.


46


6.24.       Name; Jurisdiction of
Organization; Organizational ID Number; Chief Place of Business; Chief Executive
Office; FEIN.  Schedule 6.24 sets
forth a complete and accurate list as of the date hereof of (i) the exact
legal name of each Credit Party, (ii) the jurisdiction of organization of
each Credit Party, (iii) the organizational identification number of each
Credit Party (or indicates that such Credit Party has no organizational
identification number), (iv) each place of business of each Credit Party,
(v) the chief executive office of each Credit Party and (vi) the
federal employer identification number of each Credit Party.




6.25.       Intentionally
Omitted.




6.26.       Security
Interests.  The Security Documents create in favor of the
Agent, for the benefit of the Tranche A/B Lenders and the Tranche C Lenders,
legal, valid and enforceable security interests in the Collateral secured
thereby.  Upon the filing of the UCC-1 financing statements described
in Section 5.1(n) and the recording of the Collateral Assignments for Security
referred to in the Security Documents in the United States Patent and Trademark
Office and the United States Copyright Office, as applicable, such security
interests in and Liens on the Collateral granted thereby shall be (i) valid,
perfected and enforceable second priority Liens upon and continuing second
priority security interests in and to (and if the Revolving Credit Termination
shall have occurred, a valid, perfected and enforceable first priority Lien upon
and continuing first priority security interest in and to) all of the Collateral
in favor of the Agent on behalf of the Tranche A/B Lenders and (ii) valid,
perfected and enforceable third priority Liens upon and continuing third
priority security interests in and to (and (A) if the Revolving Credit
Termination shall have occurred, valid, perfected and enforceable second
priority Liens upon and continuing second priority security interests in and to,
(B) if (x) if the Tranche A/B Termination shall have occurred and (y) the
Revolving Credit Termination shall not have occurred, valid, perfected and
enforceable second priority Liens upon and continuing second priority security
interests in and to, and (C) if each of the Tranche A/B Termination and the
Revolving Credit Termination shall have occurred, valid, perfected and
enforceable first priority Liens upon and continuing first priority security
interests in and to) all of the Collateral in favor of the Agent on behalf of
Tranche C Lenders, and no further recordings or filings are or will be required
in connection with the creation, perfection or enforcement of such security
interests and Liens, other than (i) the filing of continuation statements in
accordance with applicable law, (ii) the recording of the Collateral Assignments
for Security pursuant to the Security Documents in the United States Patent and
Trademark Office and the United States Copyright Office, as applicable, with
respect to after-acquired U.S. patent and trademark applications and
registrations and U.S. copyrights and (iii) the recordation of appropriate
evidence of the security interest in the appropriate foreign registry with
respect to all foreign intellectual property.




6.27.       Revolving Credit Debt
Documents, Etc.  The Credit Parties have the power and
authority to incur the Indebtedness pursuant to the Revolving Credit Debt
Documents and have duly authorized, executed and delivered the Revolving Credit
Debt Documents.  The Revolving Credit Debt Documents constitute the
legal, valid and binding obligations of the Credit Parties, enforceable against
the Credit Parties in accordance with the terms thereof.


47


6.28.       Representations and
Warranties in Documents; No Default.  All representations and
warranties set forth in this Agreement and the other Credit Documents are true
and correct in all respects at the time as of which such representations were
made and on the Closing Date.  No Event of Default has occurred and is
continuing and no condition exists which constitutes a Default or an Event of
Default.




6.29.       Schedules.  All
of the information which is required to be scheduled to this Agreement is set
forth on the Schedules attached hereto, is correct and accurate and does not
omit to state any information material thereto.




ARTICLE
VII


Affirmative
Covenants




Each
Credit Party hereby covenants and agrees that on the Effective Date and
thereafter for so long as this Agreement is in effect and until the Tranche A/B
Term Loan Commitments have terminated and the Loans together with interest and
fees are paid in full and all other Obligations incurred hereunder, to the
extent due and payable, are paid in full:




7.1.         Information
Covenants.  The Borrower will




(a)           Provide
Agent (and if so requested by Agent, with copies for each Lender) with the
documents set forth on Schedule 7.1(a) in
accordance with the delivery schedule set forth thereon.




(b)           Deliver
to Agent, with copies to each Lender:




(i)           as
soon as available, but in any event within 30 days after the end of each month
during each of Holdings’ Fiscal Years:




(A)          a
company prepared consolidated balance sheet, income statement, and statement of
cash flow covering Holdings’ and its Consolidated Subsidiaries’ operations
during the previous month;




(B)           a
certificate signed by the chief financial officer of Holdings to the effect
that:




(1)           the
financial statements delivered hereunder have been prepared in accordance with
GAAP (except for the lack of footnotes and being subject to year-end audit
adjustments) and fairly present in all material respects the financial condition
of Holdings and its Consolidated Subsidiaries, and




(2)           there
does not exist any condition or event that constitutes a Default or Event of
Default (or, to the extent of any non-compliance, describing such non-compliance
as to which he or she may have knowledge and what action the Credit Parties have
taken, are taking, or propose to take with respect thereto).


48


(ii)           as
soon as available, but in any event within 90 days after the end of each of
Holdings’ fiscal years, financial statements of Holdings and its Consolidated
Subsidiaries for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Agent and certified, without any
qualifications, by such accountants to have been prepared in accordance with
GAAP (such audited financial statements to include a balance sheet, income
statement, and statement of cash flow and, if prepared, such accountants’ letter
to management);




(iii)          as
soon as available, but in any event within 30 days prior to the start of each of
Holdings’ fiscal years, copies of the Borrower’s business plan, in form and
substance (including as to scope and underlying assumptions), for the
forthcoming two (2) years, year by year, and for the forthcoming fiscal year,
month by month, certified by the chief financial officer of Holdings as being
such officer’s good faith best estimate of the financial performance of Holdings
and its Subsidiaries during the period covered thereby (it being understood that
(A) such information will be prepared by Holdings in good faith based upon
assumptions believed to be reasonable at the time and based upon the best
information then reasonably available to Holdings, and (B) Agent may in its
Permitted Discretion;




(iv)           if and
when filed by any Credit Party:




(A)          Form
10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current
reports,




(B)          any other filings
made by any Credit Party with the SEC,




(C)           if
and when filed by the Borrower or Holdings, copies of each of the federal income
tax returns of the Borrower and Holdings, and any amendments thereto, filed with
the Internal Revenue Service, and




(D)          any
other written information that is provided in writing by Holdings to the holders
of its Capital Stock (as such) generally;




(v)           if
and when filed by any Credit Party and as requested by Agent, evidence of
payment satisfactory to the Agent (in its Permitted Discretion) of applicable
excise taxes in each jurisdiction in (A) which any Credit Party conducts
business or is required to pay any such excise tax, (B) where any Credit Party’s
failure to pay any such applicable excise tax would result in a Lien on the
properties or assets of any Credit Party, or (C) where any Credit Party’s
failure to pay any such applicable excise tax, either individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect;




(vi)          promptly
after submission to any Government Authority unless prohibited by applicable
law, all documents and information furnished to such Government Authority in
connection with any investigation of any Credit Party other than routine
inquiries by such Governmental Authority;




(vii)         as
soon as possible, and in any event within three days after the occurrence of an
Event of Default or Default or the occurrence of any event or development that
could reasonably be expected to have a Material Adverse Effect, the written
statement of an Authorized Officer setting forth the details of such Event of
Default, Default, other event or Material Adverse Effect and the action which
Holdings and its Consolidated Subsidiaries propose to take with respect
thereto;


49


(viii)        (A)
as soon as possible and in any event (1) within 10 days after any Credit Party
or any ERISA Affiliate thereof knows or has reason to know that any Termination
Event described in clause (i) of the definition of Termination Event with
respect to any Employee Plan has occurred, (2) within 10 days after any Borrower
or any ERISA Affiliate thereof knows or has reason to know that any other
Termination Event with respect to any Employee Plan has occurred, or (3) within
10 days after any Credit Party or any ERISA Affiliate thereof knows or has
reason to know that an accumulated funding deficiency has been incurred or an
application has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including installment payments) or
an extension of any amortization period under Section 412 of the Internal
Revenue Code with respect to an Employee Plan, a statement of an Authorized
Officer setting forth the details of such occurrence and the action, if any,
which such Credit Party or such ERISA Affiliate proposes to take with respect
thereto, (B) promptly and in any event within three days after receipt thereof
by any Credit Party or any ERISA Affiliate thereof from the PBGC, copies of each
notice received by any Credit Party or any ERISA Affiliate thereof of the PBGC’s
intention to terminate any Plan or to have a trustee appointed to administer any
Plan, (C) promptly and in any event within 10 days after the filing thereof with
the Internal Revenue Service if requested by the Agent, copies of each Schedule
B (Actuarial Information) to the annual report (Form 5500 Series) with respect
to each Employee Plan and Multiemployer Plan, (D) promptly and in any event
within 10 days after any Credit Party or any ERISA Affiliate thereof knows or
has reason to know that a required installment within the meaning of
Section 412 of the Internal Revenue Code has not been made when due with
respect to an Employee Plan, (E) promptly and in any event within three days
after receipt thereof by any Credit Party or any ERISA Affiliate thereof from a
sponsor of a Multiemployer Plan or from the PBGC, a copy of each notice received
by any Credit Party or any ERISA Affiliate thereof concerning the imposition or
amount of withdrawal liability under Section 4202 of ERISA or indicating that
such Multiemployer Plan may enter reorganization status under Section 4241 of
ERISA, and (F) promptly and in any event within 10 days after any Credit Party
or any ERISA Affiliate thereof send notice of a plant closing or mass layoff (as
defined in WARN) to employees, copies of each such notice sent by such Credit
Party or such ERISA Affiliate thereof;




(ix)          promptly
after the commencement thereof but in any event not later than five days after
service of process with respect thereto on, or the obtaining of knowledge
thereof by, any Credit Party, notice of each action, suit or proceeding before
any court or other Governmental Authority or other regulatory body or any
arbitrator which, if adversely determined, could reasonably be expected to have
a Material Adverse Effect;




(x)           to
the extent provided to the Revolving Agent, promptly after the sending or filing
thereof, copies of all statements, reports and other information any Credit
Party sends to any holders of its Indebtedness or its securities or files with
the SEC or any national (domestic or foreign) securities exchange, provided that
the Credit Party may redact confidential information contained in any such
statement, report or other information if it provides a summary of the nature of
the information redacted to the Agent;


50


(xi)           promptly
upon receipt thereof, copies of all financial reports including, without
limitation, management letters), if any, submitted to any Credit Party by its
auditors in connection with any annual or interim audit of the books
thereof;




(xii)          promptly
upon request, such other information concerning the condition or operations,
financial or otherwise, of any Credit Party as the Agent may from time to time
may reasonably request; and




(xiii)         In
addition to the financial statements referred to in clauses (i) through (vi)
above, Borrower agrees to deliver financial statements prepared on both a
consolidated and consolidating basis.  Borrower agrees that, upon
prior notice of no Default or Event of Default exists and without any notice if
any Default or Event of Default exists, its independent certified public
accountants is authorized to communicate with Agent and to release to Agent
whatever financial information concerning Borrower that Agent reasonably may
request.  Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or service bureau in
connection with any information requested by Agent pursuant to or in accordance
with this Agreement, and agree that Agent may contact directly any such
accounting firm or service bureau in order to obtain such
information.




7.2.         Additional Guaranties and
Collateral Security.  Each Credit Party shall
cause:




(a)           each
Subsidiary of any Credit Party not in existence on the Effective Date, to
execute and deliver to the Agent promptly and in any event within three days
after the formation, acquisition or change in status thereof (A) a
Guarantee guaranteeing the Obligations, (B) a General Security Agreement, (C) an
Intellectual Property Security Agreement, (D) if such Subsidiary has any
Subsidiaries, a Securities Pledge Agreement together with (x) certificates
evidencing all of the Capital Stock of any Person owned by such Subsidiary,
(y) undated stock powers executed in blank with signature guaranteed, and
(z) such opinion of counsel and such approving certificate of such
Subsidiary as the Agent may reasonably request (in its Permitted Discretion),
(E) one or more Mortgages creating on the real property owned by such
Subsidiary in fee simple (i) a valid, perfected and enforceable second priority
Lien upon and continuing second priority security interest in and to (and if the
Revolving Credit Termination shall have occurred, a valid, perfected and
enforceable first priority Lien upon and continuing first priority security
interest in and to) all of such real property in favor of the Agent on behalf of
the Tranche A/B Lenders and (ii) a valid, perfected and enforceable third
priority Lien upon and continuing third priority security interest in and to
(and (A) if the Revolving Credit Termination shall have occurred, a valid,
perfected and enforceable second priority Lien upon and continuing second
priority security interest in and to, (B) if (x) if the Tranche A/B Termination
shall have occurred and (y) the Revolving Credit Termination shall not have
occurred, a valid, perfected and enforceable second priority Lien upon and
continuing second priority security interest in and to, and (C) if each of the
Tranche A Termination and Revolving Credit Termination shall have occurred, a
valid, perfected and enforceable first priority Lien upon and continuing first
priority security interest in and to) all of such real property in favor of the
Agent on behalf of the Tranche A/B Lenders and the Tranche C Lenders, a Title
Insurance Policy covering such real property, a current ALTA survey thereof and
a surveyor’s certificate, each in form and substance satisfactory to the Agent,
together with such other agreements, instruments and documents as the Agent may
require, and (F) such other agreements, instruments, approvals, legal opinions
or other documents reasonably requested by the Agent in order to create,
perfect, establish the priorities set forth in this sentence above in favor of
(i) the Tranche A/B Lenders and (ii) the Tranche C Lenders or otherwise protect
any Lien purported to be covered by any such General Security Agreement,
Intellectual Property Security Agreement, Pledge Agreement or Mortgage or
otherwise to effect the intent that such Subsidiary shall become bound by all of
the terms, covenants and agreements contained in the Credit Documents and that
all property and assets of such Subsidiary shall become Collateral for the
Obligations; and


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(b)          following
the occurrence of the Revolving Credit Termination, each owner of the Capital
Stock of any such Subsidiary to execute and deliver promptly and in any event
within three days after the formation or acquisition of such Subsidiary a
Securities Pledge Agreement, together with (A) certificates evidencing all
of the Capital Stock of such Subsidiary, (B) undated stock powers or other
appropriate instruments of assignment executed in blank with signature
guaranteed, (C) such opinion of counsel and such approving certificate of
such Subsidiary as the Agent may reasonably request in respect of complying with
any legend on any such certificate or any other matter relating to such shares
and (D) such other agreements, instruments, approvals, legal opinions or
other documents requested by the Agent.




7.3.         Compliance with Laws,
etc.  Each Credit Party will comply, and cause each of their
Subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders (including, without limitation, all Environmental
Laws), such compliance to include, without limitation, (i) paying before the
same become delinquent all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits or upon any of its properties, and
(ii) paying all lawful claims which if unpaid might become a Lien or charge
upon any of its properties, except to the extent contested in good faith by
proper proceedings which stay the imposition of any penalty, fine or Lien
resulting from the non-payment thereof and with respect to which adequate
reserves have been set aside for the payment thereof.




7.4.         Preservation of Existence,
etc.  Except to the extent permitted by Section 8.4(b) and
except as disclosed in writing to the Agent prior to the Closing Date, each
Credit Party will maintain and preserve, and cause each of their Subsidiaries to
maintain and preserve, their existence, rights and privileges, and become or
remain duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by them or in which the transaction
of their business makes such qualification necessary.




7.5.         Keeping of Records and Books
of Account.  Each Credit Party will keep, and cause each
of their Subsidiaries to keep, adequate records and books of account, with
complete entries made in accordance with GAAP.


52


7.6.         Inspection
Rights.  Each Credit Party will permit, and cause each of their
Subsidiaries to permit, the Agent or representatives thereof at any time and
from time to time during normal business hours and, in the absence of a
continuing Event of Default, upon reasonable prior notice and if an Event of
Default exists, without notice, and at the expense of the Borrower, to examine
and make copies of and abstracts from their records and books of account, to
visit and inspect their properties, to verify materials, leases, notes, accounts
receivable, deposit accounts and other assets of the Credit Parties and their
Subsidiaries, to conduct audits, physical counts, valuations, appraisals,
environmental assessments or examinations and to discuss their affairs, finances
and accounts with any of the directors, officers, managerial employees,
independent accountants or other representatives thereof.  The
Borrower agrees to pay the reasonable cost of such audits, counts, valuations,
appraisals, assessments or examinations, provided that, in the absence of a
continuing Event of Default, the Borrower shall not be obligated to pay for more
than four audits and four appraisals in any calendar year.




7.7.         Maintenance of Properties,
etc.  Each Credit Party will maintain and preserve, and cause
each of their Subsidiaries to maintain and preserve, all of their properties
which are necessary or useful in the proper conduct of their business in good
working order and condition, ordinary wear and tear excepted, and comply, and
cause each of their Subsidiaries to comply, at all times with the provisions of
all leases to which each of them is a party as lessee or under which each of
them occupies property, so as to prevent any loss or forfeiture thereof or
thereunder, in each case, other than sales of property otherwise permitted by
the terms of this Agreement.




7.8.         Maintenance of Insurance.  Each Credit Party will maintain, and cause each of their
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to
their properties (including all real properties leased or owned by them) and
business, in such amounts and covering such risks as is required by any
Governmental Authority having jurisdiction with respect thereto or as is carried
generally in accordance with sound business practice by companies in similar
businesses similarly situated and in any event in amount, adequacy and scope
reasonably satisfactory to the Agent.  Immediately following the
occurrence of the Revolving Credit Termination, all policies covering the
Collateral are to be made payable to the Agent for the benefit of the Lenders,
as its interests may appear, in case of loss, under a standard non-contributory
“lender” or “secured party” clause and are to contain such other provisions as
the Agent may require to fully protect the Lenders’ interest in the Collateral
and to any payments to be made under such policies.  Immediately
following the occurrence of the Revolving Credit Termination, all certificates
of insurance are to be delivered to the Agent and the policies are to be premium
prepaid, with the loss payable and additional insured endorsement in favor of
Agent and such other Persons as the Agent may designate from time to time, and
shall provide for not less than 30 days’ prior written notice to the Agent of
the exercise of any right of cancellation.  If the Credit Parties or
any of their Subsidiaries fail to maintain such insurance, the Agent may arrange
for such insurance, but at the Borrower’s expense and without any responsibility
on the Agent’s part for obtaining the insurance, the solvency of the insurance
companies, the adequacy of the coverage, or the collection of
claims.  Subject to the terms set forth in the Revolving Intercreditor
Agreement, upon the occurrence of an Event of Default, the Agent shall have the
sole right, in the name of the Lenders, the Credit Parties and their
Subsidiaries, to file claims under any insurance policies, to receive, receipt
and give acquittance for any payments that may be payable thereunder, and to
execute any and all endorsements, receipts, releases, assignments, reassignments
or other documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.


53


7.9.         Obtaining of
Permits.  Each Credit Party will Obtain, maintain and preserve,
and cause each of their Subsidiaries to obtain, maintain and preserve, all
permits, licenses, authorizations, approvals, entitlements and accreditations
which are necessary or useful in the proper conduct of its business and become
or remain, and cause each of their Subsidiaries to become or remain, duly
qualified and in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary, except where all such failures to comply
with this Section 7.9 could not reasonably be expected to have a Material
Adverse Effect.




7.10.       Environmental.  Each
Credit Party will (i) keep any property either owned or operated by them or any
of their Subsidiaries free of any Environmental Liens; (ii) comply, and
cause their Subsidiaries to comply, in all material respects with Environmental
Laws and provide to the Agent documentation of such compliance which the Agent
reasonably requests; (iii) immediately notify the Agent of any Release of a
Hazardous Material in excess of any reportable quantity from or onto property
owned or operated by the Credit Parties or any of their Subsidiaries and take
any Remedial Actions required to abate said Release; (iv) promptly provide
the Agent with written notice within 10 days of the receipt of any of the
following:  (A) notice that an Environmental Lien has been filed
against any property of any Credit Party or any of its Subsidiaries;
(B) commencement of any Environmental Action or notice that an
Environmental Action will be filed against any Credit Party or any of its
Subsidiaries; and (C) notice of a violation, citation or other
administrative order which could not reasonably be expected to have a Material
Adverse Effect and (v) defend, indemnify and hold harmless the Agent and
the Lenders and their transferees, and their respective employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses (including, without
limitation, attorney and consultant fees, investigation and laboratory fees,
court costs and litigation expenses) arising out of (A) the presence,
disposal, release or threatened release of any Hazardous Materials on any
property at any time owned or operated by any Credit Party or any of its
Subsidiaries (or its respective predecessors in interest or title), (B) any
personal injury (including wrongful death) or property damage (real or personal)
arising out of or related to such Hazardous Materials, (C) any
investigation, lawsuit brought or threatened, settlement reached or government
order relating to such Hazardous Materials and/or (D) any violation of any
Environmental Law at or relating to or arising in connection with any property
owned or operated by any Credit Party or any of their
Subsidiaries.


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7.11.       Further
Assurances.  Each Credit Party will take such action and
execute, acknowledge and deliver, and cause each of their Subsidiaries to take
such action and execute, acknowledge and deliver, at their sole cost and
expense, such agreements, instruments or other documents as the Agent may
reasonably require from time to time in order (i) to carry out more
effectively the purposes of this Agreement and the other Credit Documents,
(ii) to subject to (x)  a valid, perfected and enforceable second
priority Lien upon and continuing second priority security interest in and to
(and if the Revolving Credit Termination shall have occurred, a valid, perfected
and enforceable first priority Lien upon and continuing first priority security
interest in and to) all any of the Collateral or any other property in favor of
the Agent on behalf of the Tranche A/B Lenders and (y) a valid, perfected and
enforceable third priority Lien upon and continuing third priority security
interest in and to (and (A) if the Revolving Credit Termination shall have
occurred, a valid, perfected and enforceable second priority Lien upon and
continuing second priority security interest in and to, (B) if (1) if the
Tranche A/B Termination shall have occurred and (2) the Revolving Credit
Termination shall not have occurred, a valid, perfected and enforceable second
priority Lien upon and continuing second priority security interest in and to,
and (C) if each of the Tranche A/B Termination and the Revolving Credit
Termination shall have occurred, a valid, perfected and enforceable first
priority Lien upon and continuing first priority security interest in and to)
all of the Collateral or any other property of the Credit Parties and their
Subsidiaries, (iii) to establish and maintain the validity and
effectiveness of any of the Credit Documents and the validity, perfection and
priority of the Liens intended to be created thereby, (iv) to file
financing statements or otherwise perfect its Lien under applicable
nonbankruptcy law and (v) to better assure, convey, grant, assign, transfer
and confirm unto the Agent the rights now or hereafter intended to be granted to
the Agent and the Lenders under this Agreement or any other Credit
Document.  In furtherance of the foregoing, to the maximum extent
permitted by applicable law, each Credit Party (i) authorizes the Agent to
execute any such agreements, instruments or other documents in such Credit
Party’s name and to file such agreements, instruments or other documents in any
appropriate filing office, (ii) authorizes the Agent to file any financing
statement required hereunder or under any other Credit Document, and any
continuation statement or amendment with respect thereto, in any appropriate
filing office without the signature of such Credit Party, and
(iii) ratifies the filing of any financing statement, and any continuation
statement or amendment with respect thereto, filed without the signature of such
Credit Party prior to the date hereof.




7.12.       Change in Collateral;
Collateral Records.  Each Credit Party will provide to the
Agent the notices and information provided to the Revolving Credit Agent
pursuant to Section 7.01(m) of the Revolving Credit Agreement.




7.13.       Subordination.  Each
Credit Party will cause all Indebtedness and other obligations now or hereafter
owed by it to any of its Affiliates, to be subordinated in right of payment and
security to the Indebtedness and other Obligations owing to the Agent and the
Lenders in accordance with a subordination agreement in form and substance
satisfactory to the Agent.




7.14.       Guarantor
Reports.  The Borrower will cause each guarantor to deliver its
annual financial statements at the time when Holdings provides its audited
financial statements to Agent and copies of all federal income tax returns as
soon as the same are available and in any event no later than 30 days after the
same are required to be filed by law.




7.15.       Fiscal
Year.  Holdings will cause its Fiscal Year to end on July 31 of
each calendar year unless the Agent consents to a change in such Fiscal Year
(and appropriate related changes to this Agreement), and cause the Fiscal Year
of each  Subsidiary to be the same as that of
Holdings.


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7.16.       Management of
Holdings.  Holdings will employ a new chief financial officer
within 90 days of the Closing Date, subject to the Agent’s review of
qualifications, receipt of satisfactory reference checks and approval of any
such Person by the Agent in its Permitted Discretion; provided that from the
Closing Date until the employment of such new chief financial officer, an
interim chief financial officer acceptable to the Agent (in its Permitted
Discretion) shall at all times be retained.




7.17.       Immediate Notice to
Agent.  The Borrower shall provide Agent with written notice
promptly upon the occurrence of any of the following events, which written
notice shall state with reasonable particularity the facts and circumstances of
the event for which such notice is being given:




(i)           
any change in any of the Executive Officers;




(ii)           to
the extent notice thereof is provided to the Revolving Agent, the completion of
any physical count of all or a material portion of the Borrowers’ Inventory
(together with a copy of the results thereof certified by the
Borrower);




(iii)          any
cessation by the Borrower of its making payment to its creditors generally as
Borrower’s debts become due;




(iv)          any
failure by Borrower to pay rent at any of Borrower’s locations, which failure
continues for more than 15 days following the last day on which such rent was
payable without more than a minimal adverse effect on Borrower; or




(v)           any
intention on the part of Borrower to discharge the Borrower’s present
independent accountants or any withdrawal or resignation by such independent
accountants from their acting in such capacity.




ARTICLE
VIII


Negative
Covenants




Each
Credit Party hereby covenants and agrees that on the Effective Date and
thereafter for so long as this Agreement is in effect and until the Tranche A/B
Term Loan Commitments have terminated and the Loans together with interest and
fees are paid in full and all other Obligations incurred hereunder, to the
extent due and payable, are paid in full:




8.1.         Lien Priority; Payment of
Claims.  No Credit Party will, nor will any Credit Party permit
any of its Subsidiaries any time suffer to exist any Lien on the Collateral
having a priority equal or superior to the Lien in favor of the Lenders in
respect of the Collateral except for Liens in favor of the Revolving Credit
Lenders.




8.2.         Liens,
etc.  No Credit Party will, nor will any Credit Party permit
any of its Subsidiaries to, create, incur, assume or suffer to exist, or any
Lien upon or with respect to any of their properties, whether now owned or
hereafter acquired, to file or suffer to exist under the UCC or any similar law
or statute of any jurisdiction, a financing statement (or the equivalent
thereof) that names any Credit Party or any of its Subsidiaries as debtor, to
sign or suffer to exist any security agreement authorizing any secured party
thereunder to file such financing statement (or the equivalent thereof), to sell
any of its property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable) with recourse to any Credit Party or any of its
Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries
to assign or otherwise transfer, any account or other right to receive income,
other than Permitted Liens.


56


8.3.         Indebtedness.  No
Credit Party will, nor will any Credit Party permit any of its Subsidiaries to,
create, incur, assume, guarantee or suffer to exist or otherwise become or
remain liable with respect to, any Indebtedness other than Permitted
Indebtedness.




8.4.         Fundamental
Changes.  No Credit Party will, nor will any Credit Party
permit any of its Subsidiaries to, wind-up, liquidate or dissolve (or permit or
suffer any thereof) or merge, consolidate or amalgamate with any Person, convey,
sell, lease or sublease, transfer or otherwise dispose of, whether in one
transaction or a series of related transactions, all or substantially all of
their business, property or assets, whether now owned or hereafter acquired, or
(agree to do any of the foregoing) or purchase or otherwise acquire, whether in
one transaction or a series of related transactions, all or substantially all of
the assets of any Person (or any division thereof) (or agree to do any of the
foregoing); provided,
however, that:




(a)          any
Credit Party may be merged into or may consolidate with another Credit Party,
Wholly-Owned Subsidiary of a Credit Party, or a Tokarz Affiliate, so long as (x)
no other provision of this Agreement would be violated thereby, (y) no Default
or Event of Default shall have occurred and be continuing either before or after
giving effect to such transaction and (z) the Lenders' rights in any Collateral,
including, without limitation, the existence, perfection and priority of any
Lien thereon, are not adversely affected by such merger or consolidation;
and




(b)          any
of the Credit Parties and their Subsidiaries may (A) sell Inventory in the
ordinary course of business, (B) dispose of obsolete or worn-out equipment in
the ordinary course of business, (C) dispose of Inventory in the ordinary course
of business, (D) dispose of Inventory for cash in connection with store closings
and lease expirations, provided that (w) not more than 25 stores of the Credit
Parties are closed in any calendar year, (x) the cash proceeds of Inventory sold
in connection with any such store closing or expiration of lease shall not be
less than 80% of the aggregate book value of such Inventory, (y) the Borrower
must hire a third party liquidator reasonably satisfactory to the Agent to
dispose of Inventory in connection with any such store closing or lease
expiration and (z) such cash shall immediately be applied in accordance with
Section 3.3, and (E) sell or otherwise dispose of other property or assets for
cash in an aggregate amount not less than the fair market value of such property
or assets, provided that (x) the greater of the fair market value of all such
property and assets and the cash received from all such sales and dispositions
in any Fiscal Year shall in no event exceed $150,000 and (y) such cash shall
immediately be applied in accordance with Section 3.3.




8.5.         Change in Nature of
Business  No Credit Party will, nor permit any of their
Subsidiaries to, make any change in the nature of its business as carried on at
the date hereof.


57


8.6.         Loans, Advances,
Investments, etc.  No Credit Party will, nor will any Credit
Party permit any of its Subsidiaries to, make or commit or agree to make any
Investment, except for: (i) Investments existing on the date hereof, as set
forth on Schedule 8.6
hereto, but not any increase in the amount thereof as set forth in such Schedule
or any other modification of the terms thereof, (ii) temporary loans and
advances by any Credit Party to another Credit Party, made in the ordinary
course of business, (iii) Permitted Investments and (iv) other investments
in an aggregate amount (valued at cost) not to exceed $150,000at any
time.




8.7.         Lease
Obligations.  No Credit Party will, nor will any Credit Party
permit any of its Subsidiaries to, create, incur or suffer to exist any
obligations as lessee (i) for the payment of rent for any real or personal
property in connection with any sale and leaseback transaction, or (ii) for
the payment of rent for any real or personal property under leases or agreements
to lease other than Capitalized Lease Obligations which would not cause the
aggregate amount of all obligations under Capital Leases entered into after the
Closing Date owing by the Credit Parties and their Subsidiaries in any Fiscal
Year to exceed the amounts set forth in Section 8.8.




8.8.         Capital
Expenditures.




(a)           No
Credit Party will, nor will any Credit Party permit any of their Subsidiaries
to, make or commit or agree to make, any Consolidated Capital Expenditure that
would cause the aggregate amount of all such Consolidated Capital Expenditures
arising from purchases made or Capitalized Leases entered into by the Credit
Parties and their Subsidiaries to exceed (i) for Fiscal Year ending in 2005 the
sum of (A) $8,000,000, plus (B) the portion of Loss Proceeds that may be used
during such period to replace property or assets of the Credit Parties in
accordance with Section 3.3(a)(iv) and (ii) for the Fiscal Year ending in 2006,
the sum of (A) $4,000,000, plus (B) up to $4,000,000 of amounts set forth in
Section 8.8(a)(i) which the Credit Parties do not utilize during the Fiscal Year
ending in 2005, plus (C) the portion of Loss Proceeds that may be used during
such period to replace property or assets of the Credit Parties in accordance
with Section 3.3(a)(vi); provided, however, in
connection with the relocation of the flagship retail store presently located at
6608 Hollywood Boulevard, Los Angeles, California (the "Flagship Store"), the
Credit Parties shall be permitted to make an additional $1,000,000 of Capital
Expenditures in connection with the Flagship Store during the fifteen
consecutive month period commencing on March 2, 2005.




(b)          Subject
to the provisions of the Revolving Credit Agreement, the amount of Consolidated
Capital Expenditures permitted by this Section 8.8 for any Fiscal Year shall be
increased by an amount equal to 50% of the excess of (x) the permitted
Consolidated Capital Expenditures for the immediately preceding Fiscal Year
(without giving effect to this sentence) over (y) the amount of Consolidated
Capital Expenditures actually made in such immediately preceding Fiscal Year;
provided, that any amount that is carried forward to any subsequent Fiscal Year
and the amount of Consolidated Capital Expenditures made in any Fiscal Year
shall first be applied against the permitted amount set forth on the schedule
above and thereafter applied to the amount available from the prior
year.




8.9.         Intentionally
Omitted.




8.10.       Intentionally
Omitted.


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8.11.       Restricted Payments.  No Credit Party will, nor will any Credit Party permit any
of its Subsidiaries to, (i) declare or pay any dividend or other distribution,
direct or indirect, on account of any Capital Stock of any Credit Party or any
of its Subsidiaries, now or hereafter outstanding, (ii) make any repurchase,
redemption, retirement, defeasance, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any Capital Stock of any
Credit Party or any direct or indirect parent of any Credit Party, now or
hereafter outstanding (excluding the repurchase of any stock acquired by an
employee pursuant to an option acquired under the Equity Incentive Plan), (iii)
make any payment to retire, or to obtain the surrender of, any outstanding
warrants, options or other rights for the purchase or acquisition of shares of
any class of Capital Stock of any Credit Party, now or hereafter outstanding
(excluding the repurchase of any warrant, option or other right acquired by an
employee pursuant to the Equity Incentive Plan), (iv) return any capital to any
shareholders or other equity holders of any Credit Party or any of its
Subsidiaries, or make any other distribution of property, assets, shares of
Capital Stock, warrants, rights, options, obligations or securities thereto as
such (excluding the repurchase of any stock acquired by an employee pursuant to
the Equity Incentive Plan) or (v) pay any management fees or any other fees or
expenses (including the reimbursement thereof by any Credit Party or any of its
Subsidiaries) pursuant to any management, consulting or other services agreement
to any of the shareholders or other equity holders of any Credit Party or any of
its Subsidiaries or other Affiliates, or to any other Subsidiaries or Affiliates
of any Credit Party, providedthat payments under (i), (ii), (iii) and (iv) hereof may be made so long
as no Default or Event of Default shall have occurred and be continuing either
before or after giving effect to such payment; and provided, further, that this
Section 8.11 shall not prohibit payments to outside members of the Board of
Directors of Holdings for each meeting of the Board of Directors of Holdings
attended by such director so long as such payments are reasonable and consistent
with industry practice, including grants of stock options, reimbursement of
travel expenses, and reasonable compensation.




8.12.       Federal Reserve
Regulations.  No Credit Party will, nor will any Credit Party
permit any of their Subsidiaries to, permit any Loan or the proceeds of any Loan
under this Agreement to be used for any purpose that would cause such Loans to
be margin loans under the provisions of Regulation T, U or X.




8.13.       Transactions with
Affiliates.  No Credit Party will, nor will any Credit Party
permit any of their Subsidiaries to, enter into, renew, extend or be a party to
any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease, transfer or exchange of property or
assets of any kind or the rendering of services of any kind) with any Affiliate,
except (i) in the ordinary course of business in a manner and to an extent
consistent with past practice and necessary or desirable for the prudent
operation of its business, for fair consideration and on terms no less favorable
to the Credit Parties or such Subsidiaries than would be obtainable in a
comparable arm’s length transaction with a Person that is not an Affiliate
thereof, (ii) transactions among the Credit Parties, (iii) the Credit
Documents and transactions related thereto, and (iv) the purchase of Common
Stock by the Permitted Holders, individually or collectively.


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8.14.       Limitations on Dividends and
Other Payment Restrictions Affecting Subsidiaries.  No Credit
Party will, nor will any Credit Party permit any of their Subsidiaries to,
create or otherwise cause, incur, assume, suffer or permit to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Subsidiary of any Credit Party (i) to pay dividends or to make any other
distribution on any shares of Capital Stock of such Subsidiary owned by any
Credit Party or any of its Subsidiaries, (ii) to pay or prepay or to
subordinate any Indebtedness owed to any Credit Party or any of its
Subsidiaries, (iii) to make loans or advances to any Credit Party or any of
its Subsidiaries or (iv) to transfer any of its property or assets to any
Credit Party or any of its Subsidiaries, or permit any of its Subsidiaries to do
any of the foregoing; provided,however,that nothing in any of
clauses (i) through (iv) of this Section 8.14 shall prohibit or restrict
compliance with:




(a)           this
Agreement and the other Credit Documents;




(b)          any
agreements in effect on the date of this Agreement and described on Schedule
8.14;




(c)          any
applicable law, rule or regulation (including, without limitation, applicable
currency control laws and applicable state corporate statutes restricting the
payment of dividends in certain circumstances);




(d)          in
the case of clause (iv) any agreement setting forth customary restrictions on
the subletting, assignment or transfer of any property or asset that is a lease,
license, conveyance or contract of similar property or assets;




(e)          in
the case of clause (iv) any agreement, instrument or other document evidencing a
Permitted Lien from restricting on customary terms the transfer of any property
or assets subject thereto; or




(f)           the
Revolving Credit Debt Documents and the transactions contemplated
thereby.




8.15.       Limitation on Issuance of
Capital Stock.  No Credit Party will, nor will any Credit Party
permit any of their Subsidiaries to, issue or sell or enter into any agreement
or arrangement for the issuance and sale of, any shares of its Capital Stock,
any securities convertible into or exchangeable for its Capital Stock or any
warrants, except that Holdings may issue (i) Common Stock and (ii) Capital Stock
pursuant to the Equity Incentive Plan.


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8.16.       Modifications of
Indebtedness, Organizational Documents and Certain Other Agreements;
Etc.  No Credit Party will, nor will any Credit Party permit
any of their Subsidiaries to, (i) amend, modify or otherwise change (or permit
the amendment, modification or other change in any manner of) any of the
provisions of any agreement, instrument or document evidencing or governing any
of the other Indebtedness of Holdings or its Subsidiaries or any instrument or
agreement (including, without limitation, any purchase agreement, indenture,
loan agreement or security agreement) relating to any such Indebtedness if such
amendment, modification or change would shorten the final maturity or average
life to maturity of, or require any payment to be made earlier than the date
originally scheduled on, such Indebtedness, would increase the interest rate
applicable to such Indebtedness, would change the subordination provision, if
any, of such Indebtedness, or would otherwise be adverse to the Lenders or the
issuer of such Indebtedness in any material respect, (ii) except for the
Obligations and except as otherwise expressly provided in Section 3.3, make any
voluntary or optional payment, prepayment, redemption, defeasance, sinking fund
payment or other acquisition for value of any of its or its Subsidiaries’
Indebtedness (including, without limitation, by way of depositing money or
securities with the trustee therefor before the date required for the purpose of
paying any portion of such Indebtedness when due), or refund, refinance, replace
or exchange any other Indebtedness for any such Indebtedness (except to the
extent such Indebtedness is otherwise expressly permitted by the definition of
“Permitted Indebtedness”), or make any payment, prepayment, redemption,
defeasance, sinking fund payment or repurchase of any outstanding Indebtedness
as a result of any asset sale, change of control, issuance and sale of debt or
equity securities or similar event, or give any notice with respect to any of
the foregoing, (iii) except as otherwise permitted hereunder, amend, modify
or otherwise change its name, jurisdiction of organization, organizational
identification number or FEIN or (iv) amend, modify or otherwise change its
certificate of incorporation or bylaws (or other similar organizational
documents), including, without limitation, by the filing or modification of any
certificate of designation, or any agreement or arrangement entered into by it,
with respect to any of its Capital Stock (including any shareholders’
agreement), or enter into any new agreement with respect to any of its Capital
Stock, except any such amendments, modifications or changes or any such new
agreements or arrangements pursuant to this clause (iv) that either
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect, provided, that this Section 8.16 shall not prohibit the
execution, amendment or restatement on or prior to the Effective Date of the
Shareholders Agreement.




8.17.       Investment Company Act of
1940.  No Credit Party will, nor will any Credit Party permit
any of their Subsidiaries to, engage in any business, enter into any
transaction, use any securities or take any other action that would cause it or
any of its Subsidiaries to become subject to the registration requirements of
the Investment Company Act of 1940, as amended, by virtue of being an
“investment company” or a company “controlled” by an “investment company” not
entitled to an exemption within the meaning of such Act.




8.18.       ERISA.  No
Credit Party will, nor will any Credit Party permit any of their Subsidiaries
to, (i) engage, or permit any ERISA Affiliate to engage, in any transaction
described in Section 4069 of ERISA; (ii) engage, or permit any ERISA
Affiliate to engage, in any prohibited transaction described in Section 406 of
ERISA or 4975 of the Internal Revenue Code for which a statutory or class
exemption is not available or a private exemption has not previously been
obtained from the U.S. Department of Labor; (iii) adopt or permit any ERISA
Affiliate to adopt any employee welfare benefit plan within the meaning of
Section 3(1) of ERISA which provides benefits to employees after termination of
employment other than as required by Section 601 of ERISA or Section 4980B of
the Internal Revenue Code; (iv) fail to make any contribution or payment to any
Multiemployer Plan which it or any ERISA Affiliate may be required to make under
any agreement relating to such Multiemployer Plan, or any law pertaining
thereto; or (v) fail, or permit any ERISA Affiliate to fail, to pay any required
installment or any other payment required under Section 412 of the Internal
Revenue Code on or before the due date for such installment or other
payment.




8.19.       Environmental.  No
Credit Party will, nor will any Credit Party permit any of their Subsidiaries
to, permit the use, handling, generation, storage, treatment, release or
disposal of Hazardous Materials at any property owned or operated by the Credit
Parties or any of their Subsidiaries except in compliance with Environmental
Laws and so long as such use, handling, generation, storage, treatment, release
or disposal of Hazardous Materials does not result in a Material Adverse
Effect.


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8.20.       Store Openings and
Closings.  No Credit Party will, nor will any Credit Party
permit any of their Subsidiaries to, commit to open, open or close any location
at which any Credit Party maintains, offers for sale or stores any of the
Collateral unless such Credit Party has provided Agent at least 30 days’ prior
written notice of such commitment, opening or closing and (i) in the case of any
such opening, such opening is consistent with the Financial Projections, as
updated by the business plans delivered to the Agent pursuant to Section
7.1(b)(iii) or (ii) in the case of any such closing, Agent has consented in
writing to the manner in which such Credit Party shall effect such closing,
including, without limitation, any third party agent that such Credit Party
proposes to employ in connection therein.




8.21.       Fixed Charge Coverage Ratio;
EBITDA.  Holdings will not permit (i) the Fixed Charge Coverage
Ratio of Holdings and its Consolidated Subsidiaries for each calendar month
ending on the last day of a month set forth in Schedule 8.21 to be
less than the applicable amount set forth opposite such month in Schedule 8.21, or
(ii) Consolidated EBITDA of Holdings and its Consolidated Subsidiaries at the
end of each calendar month ending on the last day of a month set forth in Schedule 8.21 to be
less than the applicable amount set forth opposite such month in Schedule
8.21.  For each month after the last month set forth in Schedule 8.21 hereto,
upon receipt of the final projections required to be delivered to the Agent
pursuant to Section 7.1(b)(iii) hereof, the Agent shall establish in its
Permitted Discretion a revised Schedule 8.21,
setting forth for each month covered by such financial projections the required
Fixed Charge Coverage Ratio and Consolidated EBITDA of Holdings and its
Consolidated Subsidiaries;  The financial covenants in this Section
8.21 shall be tested in the event that the Borrowers fail to maintain
Availability under the Revolving Credit Agreement, at all times beginning April
1, 2005, of at least $1,500,000.  Following April 1, 2005, the
financial covenants in this Section 8.21 shall be tested in the event that the
Borrowers fail to maintain Availability under the Revolving Credit Agreement, at
all times beginning April 1, 2005.  Notwithstanding the
foregoing, prior to the payment in full of the Senior Indebtedness (as
such term is defined in the revolving Credit Agreement, as amended or otherwise
modified from time to time), for each applicable period after the last month set
forth in Schedule
8.21 hereto, Schedule 8.21 shall
be revised to contain the same required Fixed Charge Coverage Ratio and
Consolidated EBITDA of Holdings and its Consolidated Subsidiaries contained in
Schedule 7.02(u) to the Revolving Credit Agreement, as amended or otherwise
modified from time to time and Section 8.21 shall incorporate by reference as
though expressly adopted by amendment to the Term Loan Agreement any further
modifications to the testing procedure set forth in Section 7.02(u) to the
revolving Credit Agreement, as amended or otherwise modified from time to
time.




ARTICLE
IX


Events of
Default




Upon the
occurrence and during the continuance of any of the following specified events
(each an “Event of
Default”):


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9.1.         Payments. The
Borrower shall fail to pay any principal of or interest on any Loan or any fee,
indemnity or other amount payable under this Agreement or any other Credit
Document when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise); provided, that with respect
to the Tranche C Term Loans, only a default in the payment of interest under
Section 2.10 shall constitute an Event of Default; provided further, that with
respect to any such failure to pay interest on any Loan or any fee, indemnity or
other amount payable under this Agreement (other than any principal payment),
such failure shall have continued for five Business Days following the due date
thereof ; or




9.2.         Representations,
etc.  Any representation or warranty made or deemed made by or
on behalf of any Credit Party or by any officer of the foregoing under or in
connection with any Credit Document or under or in connection with any report,
certificate, or other document delivered to the Agent or the Lenders pursuant to
any Credit Document shall have been incorrect in any material respect when made
or deemed made; or




9.3.         Covenants.  Any
Credit Party or any of its Subsidiaries shall fail to perform or comply with any
other term, covenant or agreement contained in this Agreement or any other
Credit Document to be performed or observed by it and, except as set forth in
Section 9.1 or 9.2, such failure, if capable of being remedied, shall
remain unremedied for 30 days after the earlier of the date a senior officer of
any Credit Party becomes aware of such failure and the date written notice of
such default shall have been given by the Agent to such Credit Party;
or




9.4.         Default Under Other
Agreements.  Any Credit Party or any of its Subsidiaries shall
fail to pay any principal of or interest on any of its Indebtedness (excluding
Indebtedness evidenced by this Agreement) in excess of $150,000, or any interest
or premium thereon, when due whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to any such Indebtedness, or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such default or event is to accelerate the
maturity of such Indebtedness; or any such Indebtedness shall be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), redeemed, purchased or defeased or an offer to prepay,
redeem, purchase or defease such Indebtedness shall be required to be made, in
each case, prior to the stated maturity thereof; or




9.5.         Bankruptcy.




(a)           Voluntary Bankruptcy
Proceeding.  Any Credit Party or any Subsidiary thereof (i)
shall institute any proceeding or voluntary case seeking to adjudicate it a
bankrupt or insolvent, or seeking dissolution, liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or composition of it
or its debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for any
such Person or for any substantial part of its property, (ii) shall be generally
not paying its debts as such debts become due or shall admit in writing its
inability to pay its debts generally, (iii) shall make a general assignment for
the benefit of creditors, or (iv) shall take any action to authorize or effect
any of the actions set forth above in this Section 9.5(a); or


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(b)          Involuntary Bankruptcy
Proceeding.  Any proceeding shall be instituted against any
Credit Party seeking to adjudicate it bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
any such Person or for any substantial part of its property, and either such
proceeding shall remain undismissed or unstayed for a period of 45 days or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against any such Person or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur; or




9.6.         Failure of
Agreements.  Any material provision of any Credit Document
shall at any time for any reason (other than pursuant to the express terms
thereof) cease to be valid and binding on or enforceable against any Credit
Party intended to be a party thereto, or the validity or enforceability thereof
shall be contested by any party thereto, or a proceeding shall be commenced by
any Credit Party or any Governmental Authority having jurisdiction over any of
them, seeking to establish the invalidity or unenforceability thereof, any
Credit Party shall deny in writing that it has any liability or obligation
purported to be created under any Credit Document; or




9.7.         Security
Document.  Any Security Document shall for any reason fail or
cease to create (i) a valid, perfected and enforceable second priority Lien upon
and continuing second priority security interest in and to (and if the Tranche
A/B Termination shall have occurred, a valid, perfected and enforceable first
priority Lien upon and continuing first priority security interest in and to)
all of the Collateral in favor of the Agent on behalf of the Tranche A/B Lenders
and (ii) a valid, perfected and enforceable third priority Lien upon and
continuing third priority security interest in and to (and (A) if the Revolving
Credit Termination shall have occurred, a valid, perfected and enforceable
second priority Lien upon and continuing second priority security interest in
and to, (B) if (1) if the Tranche A/B Termination shall have occurred and (2)
the Revolving Credit Termination shall not have occurred, a valid, perfected and
enforceable second priority Lien upon and continuing second priority security
interest in and to, and (C) if each of the Tranche A/B Termination and the
Revolving Credit Termination shall have occurred, a valid, perfected and
enforceable first priority Lien upon and continuing first priority security
interest in and to) all of the Collateralpurported to be covered
thereby in favor of the Agent on behalf of the Tranche C Lenders; or;
or




9.8.         Guarantees.  Any
provisions under Article IV hereof shall cease to be in full force or effect in
all material respects, or the Guarantor thereunder or Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor’s obligations
under Article IV or the Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to Article IV; or




9.9.         Judgments.  One
or more judgments or orders for the payment of money exceeding $150,000 in the
aggregate shall be rendered against any Credit Party and remain unsatisfied and
either (i) enforcement proceedings shall have been commenced by any
creditor upon any such judgment or order, or (ii) there shall be a period
of 30 consecutive days after entry thereof during which a stay of enforcement of
any such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; provided, however, that any such
judgment or order shall not give rise to an Event of Default under this Section
9.9 if and for so long as (A) the amount of such judgment or order is covered by
a valid and binding policy of insurance between the defendant and the insurer
covering full payment thereof and (B) such insurer has been notified, and
has not disputed the claim made for payment, of the amount of such judgment or
order; or


64


9.10.       Operation of
Business.




(a)           Any
Credit Party is enjoined, restrained or in any way prevented by the order of any
court or any Governmental Authority from conducting all or any material part of
its business for more than 15 days; or




(b)           Any
material damage to, or loss, theft or destruction of, any Collateral, whether or
not insured, or any strike, lockout, labor dispute, embargo, condemnation, act
of God or public enemy, or other casualty which causes, for more than 15
consecutive days, the cessation or substantial curtailment of revenue producing
activities at any facility of any Credit Party, if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect;
or




(c)           Any
cessation of a substantial part of the business of any Credit Party for a period
which materially and adversely affects the ability of such Person to continue
its business on a profitable basis; or




(d)           The
loss, suspension or revocation of, or failure to renew, any license or permit
now held or hereafter acquired by any Credit Party, if such loss, suspension,
revocation or failure to renew could reasonably be expected to have a Material
Adverse Effect; or




9.11.       Criminal or Civil
Proceedings.  The indictment, or the threatened indictment of
any Credit Party under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against any Credit Party, pursuant
to which statute or proceedings the penalties or remedies sought or available
include forfeiture to any Governmental Authority of any material portion of the
property of such Person; or




9.12.       ERISA.




(a)           Any
Credit Party or any of its ERISA Affiliates shall have made a complete or
partial withdrawal from a Multiemployer Plan, and, as a result of such complete
or partial withdrawal any Credit Party or such ERISA Affiliate incurs a
withdrawal liability in an annual amount exceeding $750,000; or a Multiemployer
Plan enters reorganization status under Section 4241 of ERISA, and, as a
result thereof such Credit Party’s, or such ERISA Affiliate’s annual
contribution requirement with respect to such Multiemployer Plan increases in an
annual amount exceeding $750,000; or




(b)          any
Termination Event with respect to any Employee Plan shall have occurred, and, 30
days after notice thereof shall have been given to any Credit Party by the
Agent, (i) such Termination Event (if correctable) shall not have been
corrected, and (ii) the then current value of such Employee Plan’s benefits
liabilities exceeds the then current value of such Employee Plan’s assets
determined in accordance with the assumptions used by the PBGC for plan
terminations by more than $750,000 (or, in the case of a Termination Event
involving liability under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the Internal
Revenue Code, the liability is in excess of such amount); or


65


9.13.          Environmental.  Any
Credit Party shall be liable for any Environmental Liabilities and Costs, the
payment of which could reasonably be expected to have a Material Adverse Effect;
or




9.14.          Intentionally
Omitted.




9.15.          Acceleration of Revolving
Credit Indebtedness.  The Revolving Credit Collateral Agent or
the Revolving Credit Lenders shall declare the Indebtedness under the Revolving
Credit Debt Documents to be due and payable, or require such Indebtedness to be
prepaid other than by a regularly scheduled required prepayment, prior to the
stated maturity thereof;




then, and
in any such event, and at any time thereafter, if any Event of Default shall
then be continuing, the Agent may, and upon the written request of the Required
Lenders shall, by written notice to the Borrower, take any or all of the
following actions, without prejudice to the rights of the Agent or any Lender to
enforce its claims against the Borrower, except as otherwise specifically
provided for in this Agreement (provided, that if an Event of
Default specified in Section 9.5 shall occur, with respect to any Credit
Party or any of its Subsidiaries, the result which would occur upon the giving
of written notice by the Agent as specified in clauses (i) and (ii) below shall
occur automatically without the giving of any such notice): (i) declare the
principal of and accrued interest in respect of all Loans and all Obligations
owing hereunder and thereunder to be, whereupon the same shall become, forthwith
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by each Credit Party; or (ii) enforce, as
Collateral Agent (or direct the Collateral Agent to enforce), any or all of the
remedies created pursuant to the Security Documents and applicable law, in order
to satisfy all of the Borrower’s Obligations.




The
enumeration of the rights and remedies of the Agent and the Lenders set forth in
this Agreement is not intended to be exhaustive and the exercise by the Agent
and the Lenders of any right or remedy shall not preclude the exercise of any
other rights or remedies, all of which shall be cumulative, and shall be in
addition to any other right or remedy given hereunder or under the Credit
Documents or that may now or hereafter exist in law or in equity or by suit or
otherwise.  No delay or failure to take action on the part of the
Agent or any Lender in exercising any right, power or privilege shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude other or further exercise thereof or the exercise of
any other right, power or privilege or shall be construed to be a waiver of any
Event of Default.  No course of dealing between the Credit Parties,
the Agent and the Lenders or their respective agents or employees shall be
effective to change, modify or discharge any provision of this Agreement or any
of the other Credit Documents or to constitute a waiver of any Event of
Default.


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ARTICLE
X


The
Agent




10.1.          Appointment.  Each
Lender hereby irrevocably designates and appoints SPV as Agent (such term to
include the Agent acting as Collateral Agent or in any other representative
capacity under any other Credit Document) of such Lender to act as Agent as
specified herein and in the other Credit Documents.  Each Lender
hereby irrevocably authorizes the Agent to take such action on its behalf under
the provisions of this Agreement and the other Credit Documents and to exercise
such powers and perform such duties as are expressly delegated to the Agent by
the terms of this Agreement, the other Credit Documents.  The Agent
agrees to act as such upon the express conditions contained in this Article
X.  Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein or in the other Credit Documents, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Agent.  The
provisions of this Article X are solely for the benefit of the Agent and the
Lenders, and no Credit Party shall have any rights as a third party beneficiary
of any of the provisions hereof.  In performing its functions and
duties under this Agreement or, the Agent shall act solely as agent of the
Lenders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for any Credit
Party.  The Borrower hereby agrees to pay the Agent an annual agency
fee as previously agreed with the Agent.




10.2.          Delegation of
Duties.  The Agent may execute any of its duties under this
Agreement, any other Credit Document or by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties.  The Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.




10.3.          Exculpatory
Provisions.  Neither the Agent nor any of its officers,
directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates
shall be (i) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement, the other Credit
Documents (except for actions occasioned solely by its or such Person’s own
gross negligence or willful misconduct) or (ii) responsible in any manner to any
of the Lenders for any recitals, statements, representations or warranties made
by any Credit Party or its Subsidiaries or any of their respective officers
contained in this Agreement, any other Credit Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Agent under or in connection with, this Agreement, any other Credit
Document or for any failure of any Credit Party or any of its Subsidiaries or
any of their respective officers to perform its obligations hereunder or
thereunder.  The Agent shall not be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of any Credit Party or any of its
Subsidiaries.  The Agent shall not be responsible to any Lender for
the effectiveness, genuineness, value, validity, enforceability, collectibility
or sufficiency of this Agreement, any Credit Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates or any other documents in connection herewith
or therewith furnished or made by the Agent to the Lenders or by or on behalf of
the Borrower to the Agent or any Lender or be required to ascertain or inquire
as to the performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any Default
or Event of Default.


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10.4.          Reliance by the
Agent.  The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any Note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including counsel to the Credit
Parties), independent accountants and other experts selected by the
Agent.  The Agent may deem and treat the payee of any Note as the
owner thereof for all purposes unless such Note shall have been transferred in
accordance with Section 11.4 hereof.  The Agent shall be fully
justified in failing or refusing to take any action under this Agreement, any
other Credit Document unless it shall first receive such advice or concurrence
of the Required Lenders (or, when expressly required hereby or by the relevant
other Credit Document, all the Lenders) as it deems appropriate, or it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.  The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement
and the other Credit Documents in accordance with a request of the Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon all the Lenders and all future holders of the
Obligations.




10.5.          Notice of
Default.  The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless it
has received notice from a Lender or the Borrower or any other Credit Party
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a “notice of default”.  In the event that
the Agent receives such a notice, the Agent shall give prompt notice thereof to
the Lenders.  The Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders, provided that
unless and until the Agent shall have received such directions, the Agent may
(but shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Lenders, except to the extent that other
provisions of this Agreement expressly require that any such action be taken or
not be taken only with the consent and authorization or the request of the
Lenders or Required Lenders, as applicable.


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10.6.          Non-Reliance on Agent and
Other Lenders.  Each Lender expressly acknowledges that neither
the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact, Subsidiaries or Affiliates has made any representations or
warranties to it and that no act by the Agent hereinafter taken, including any
review of the affairs of any Credit Party or any of its Subsidiaries, shall be
deemed to constitute any representation or warranty by the Agent to any
Lender.  Each Lender represents to the Agent that it has,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, assets, operations, property,
financial and other conditions, prospects and creditworthiness of the Credit
Parties and their respective Subsidiaries and made its own decision to make its
Loans hereunder and enter into this Agreement and the Credit
Documents.  Each Lender also represents that it will, independently
and without reliance upon the Agent or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement, the other Credit Documents, and to make such
investigation as it deems necessary to inform itself as to the business, assets,
operations, property, financial and other conditions, prospects and
creditworthiness of the Credit Parties and their respective
Subsidiaries.  Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Agent hereunder or by
the other Credit Documents, the Agent shall not have any duty or responsibility
to provide any Lender with any credit or other information concerning the
business, operations, assets, property, financial and other conditions,
prospects or creditworthiness of any Credit Party or any of its Subsidiaries
which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates.  Neither the Agent nor any Lender shall be deemed to be a
fiduciary or have any fiduciary duty to any other Lender or Credit
Party.




10.7.          Indemnification.  The
Lenders agree to indemnify the Agent in its capacity as such or in any other
representative capacity under any other Credit Document ratably according to
their respective aggregate Loan Amounts, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including at any time following the payment of the Obligations) be
imposed on, incurred by or asserted against the Agent in its capacity as such in
any way relating to or arising out of this Agreement, or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted to be taken by the Agent under or in connection with
any of the foregoing, but only to the extent that any of the foregoing is not
paid by the Borrower or any of its Subsidiaries; provided, that no Lender
shall be liable to the Agent for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the Agent’s gross negligence or
willful misconduct.  If any indemnity furnished to the Agent for any
purpose shall, in the opinion of the Agent, be insufficient or become impaired,
the Agent may call for additional indemnity and cease, or not commence, to do
the acts indemnified against until such additional indemnity is
furnished.  The agreements in this Section 10.7 shall survive the
payment of all Obligations and all other amounts payable hereunder and
termination of this Agreement.




10.8.          The Agent in Its Individual
Capacity.  The Agent and its Subsidiaries and Affiliates may
make loans to, accept deposits from and generally engage in any kind of business
with each Credit Party and each of its respective Subsidiaries and other
Affiliates of any Credit Party as though the Agent were not the Agent
hereunder.  With respect to the Loans made by it and all Obligations
owing to it, the Agent shall have the same rights and powers under this
Agreement, the other Credit Documents, and the terms “Lender” and “Lenders” shall include the
Agent in its individual capacity.




10.9.          Successor
Agent.  Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all rights, powers, privileges and duties of the
resigning Agent.  The resigning Agent’s rights, powers and duties as
Agent shall be terminated, without any other or further act or deed on the part
of such former Agent or any of the parties to this Agreement.  After
the retiring Agent’s resignation hereunder as Agent, the provisions of this
Article X shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.


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10.10.      Resignation by
Agent.




(a)           The
Agent may resign from the performance of all its functions and duties hereunder
at any time by giving 15 Business Days’ prior written notice to the Borrower and
the Lenders.  Such resignation shall take effect upon the acceptance
by a successor Agent of appointment pursuant to Sections 10.10(b) and
10.10(c) below or as otherwise provided below.




(b)           Upon
any such notice of resignation of the Agent, the Required Lenders shall appoint
a successor Agent acceptable to the Borrower and which shall be an incorporated
Lender, a limited liability Lender, trust company or other qualified financial
institution with operations in the United States.




(c)           If
a successor Agent shall not have been so appointed within said 15 Business Day
period, the resigning Agent, on behalf of the Lenders and with the consent of
the Borrower, shall then appoint a successor Agent who shall serve as Agent
until such time, if any, as the Required Lenders appoint a successor Agent as
provided above.




(d)           If
no successor Agent has been appointed pursuant to Sections 10.10(b) and
10.10(c) by the 20th
Business Day after the date such notice of resignation was given by the
resigning Agent, such Agent’s resignation shall become effective and the
Required Lenders shall thereafter perform all the duties of Agent hereunder
until such time, if any, as the Required Lenders with the consent of the
Borrower appoint a successor Agent as provided above.




(e)           Notwithstanding
anything to the contrary contained in this Article X, SPV, as Agent, may
transfer its rights and obligations to perform all of its functions and duties
hereunder to its parent company or to any Affiliate of it or its parent
company.




ARTICLE
XI


Miscellaneous




11.1.        Notices.  Except
as otherwise expressly provided herein, all notices and other communications
provided for hereunder shall be in writing (which may include telecopier
communication) and couriered for delivery of the next Business Day, and shall be
sent,




if to any
Credit Party, to:




Frederick’s
of Hollywood, Inc.


6608
Hollywood Boulevard


Hollywood,
California 90028


Telecopy
No.: 323-464-4219


Attention:
Chief Executive Officer


70


with
copies to:




Van Etten
Suzumoto & Becket LLP


1620 26th
Street


Suite
6000 North


Santa
Monica, California 90404


Telecopy
No.: 310-315-8210


Attention:
Marilyn Barrett, Esq.





if to the
Agent, to:





Mellon HBV Alternative Strategies
LLC


200 Park Avenue, Suite
5400


New York, New York
10166-3399


Telecopy
No.:212-922-8953


Attention:
James P. Jenkins





with
copies to:





Heller
Ehrman LLP


7 Times
Square


New York,
New York 10036


Telecopy
No.: (212) 763-7600


Attention:
Guy N. Molinari, Esq.





if to any
Lender, at its address specified for such Lender on Annex V hereto; or,
at such other address as shall be designated by any party in a written notice to
the other parties hereto.  All such notices and communications shall,
when telecopied or sent by overnight courier, be effective when sent by
telecopier or delivered to the overnight courier, as the case may be, except
that notices and communications to the Agent shall not be effective until
received by the Agent.


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11.2.        Payment of Expenses,
etc.  The Borrower agrees to: (i) whether or not the
transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses (x) of the Agent in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (including the fees and disbursements of Heller Ehrman
LLP and local counsel to the Lenders) with prior notice to the Borrower of the
engagement of any counsel (y) of the Agent and each of the Lenders in connection
with the enforcement of the Credit Documents (including in connection with any
“work-out” or other restructuring of the Borrower’s Obligations or in connection
with any bankruptcy, reorganization or similar proceeding with respect to any
Credit Party or its Subsidiaries) and the documents and instruments referred to
therein (including the fees and disbursements of counsel for each of the
Lenders) with prior notice to the Borrower of the engagement of any counsel, and
the reasonable fees and expenses of any appraisers, accountants, engineers,
attorneys, consultants or other advisors engaged with prior notice to the
Borrower of any such engagement with respect to environmental or other matters,
and (z) of the Lenders and Tokarz (including the fees and disbursements of
outside counsel in connection with (A) the negotiation, preparation, execution
and delivery of any amendment, waiver or consent relating to the Credit
Documents, (B) the enforcement of the Credit Documents, (C) the negotiation,
preparation, execution and delivery of all documents related to the refinancing
of the Borrower in March, 2005, (D) any fees in connection with Lender's
appointment as Agent, and (E) any fees incurred by SPV in connection with the
issuance of new notes and the amending and restating of this Agreement; (ii) pay
all reasonable out-of-pocket costs and expenses (including attorneys’ fees) of
the Agent or SPV or in connection with the assignment or attempted assignment to
any other Person of all or any portion of SPV’s interest under this Agreement
pursuant to Section 11.4 incurred prior to 120 days following the Effective
Date; (iii) pay and hold each of the Lenders harmless from and against any
and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Lender) to pay such taxes; and
(iv) indemnify each Lender, its officers, directors, employees,
representatives and agents from and hold each of them harmless against any and
all losses, penalties, fines, liabilities, claims, settlements, damages, costs
or expenses (including any and all losses, penalties, fines, liabilities,
claims, settlements, damages, costs or expenses arising under Environmental
Laws) incurred by any of them as a result of, or arising out of, or in any way
related to the entering into or performance of any Credit Document or the use of
the proceeds of any Loans hereunder or the consummation of any other
transactions contemplated in any Credit Document, including the documented
reasonable fees and disbursements of counsel incurred by any of them (but
excluding any such losses, penalties, fines, liabilities, claims, settlement,
damages costs or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified).




11.3.        Management
Fee.  Until the Indebtedness is repaid or otherwise discharged in
full, Tokarz and SPV shall be available to Borrower (and its subsidiaries) to
provide financial advice and related management services.  In exchange
for their services hereunder, the Company agrees to pay SPV and Tokarz an annual
management services fee in the amount of $200,000, which amount shall be
apportioned between them as they shall mutually agree.  Such fee shall
be payable quarterly in arrears on the last Business Day of each March, June,
September and December, with the first of such payments due upon the date
hereof.  The Board of Directors of the Company can determine to waive
or defer any such quarterly payment if it is in their reasonable business
judgment to do so.




11.4.        Right of
Setoff.  In addition to any rights now or hereafter granted
under applicable law or otherwise, and not by way of limitation of any such
rights, upon and after the occurrence and during the continuance of an Event of
Default, each Lender and any assignee or participant of such Lender in
accordance with Section 11.5 is hereby authorized by the Borrower at any
time or from time to time, without presentment, demand, protest or other notice
of any kind to any Credit Party or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and apply any and all
deposits (general or special time or demand, including indebtedness evidenced by
certificates of deposit, whether matured or unmatured) and any other
Indebtedness at any time held or owing by such Lender (including by branches and
agencies of such Lender wherever located) to or for the credit or the account of
any Credit Party against and on account of the Obligations and liabilities of
such Credit Party to such Lender under this Agreement or under any of the other
Credit Documents, including all interests in Obligations of such Credit Party
purchased by such Lender pursuant to Section 11.5(b), and all other claims
of any nature or description arising out of or connected with this Agreement or
any other Credit Document, irrespective of (a) whether or not such Lender shall
have made any demand hereunder and although said Obligations, liabilities or
claims, or any of them, shall be contingent or unmatured or (b) the Agent shall
have declared any or all of the Obligations to be due and payable as permitted
by Article IX.


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11.5.        Successors and Assigns;
Participations.




(a)           Benefit of
Agreement.  This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto, all future holders of
the Notes, and their respective successors and assigns; provided, that no Credit
Party may assign or transfer any of its interests hereunder without the prior
written consent of all of the Lenders in their sole discretion (and any
attempted assignment or transfer by any Credit Party without such consent shall
be null and void); provided, further, that the rights of
each Lender to transfer, assign or grant participations in its rights or
obligations hereunder shall be limited as set forth below in this
Section 11.5; and provided, further, that nothing in this
Section 11.5 shall prevent or prohibit any Lender from (i) pledging its
Loans or Notes hereunder to a Federal Reserve Bank in support of borrowings made
by such Lender from such Federal Reserve Bank and (ii) subject to
Section 11.5(b)(ii), granting participations in or assignments of all or a
portion of such Lender’s Loans or Notes hereunder (y) to its parent company or
to any Affiliate of such Lender that is at least 50% owned by such Lender or its
parent company or (z) to an entity managed by a Person referred to in
Section 11.5(a)(ii)(y).




(b)           Each
Lender shall have the right to transfer, assign or grant participations in all
or any part of its remaining Loans or Notes hereunder on the basis set forth
below in this Section 11.5(b).  Each Lender may furnish any
information concerning the Borrower in the possession of such Lender from time
to time to assignees and participants (including prospective assignees and
participants).


73


(i)           Assignments.  Each
Lender, with the written consent of the Agent, which shall not be unreasonably
withheld, which shall be evidenced on the notice in the form of Exhibit D-1 hereto,
may assign pursuant to an Assignment and Assumption Agreement substantially in
the form of Exhibit
D-2 hereto all or a portion of its Loans or Notes hereunder pursuant to
this clause (b)(i) to an Eligible Assignee; provided, that any such
assignment shall be in an amount equal to at least $1,000,000 or such Lender’s
remaining Loans or Notes if less than $1,000,000.  Any assignment
pursuant to this clause (b)(i) will become effective no later than five Business
Days after the Agent’s receipt of (1) a written notice in the form of Exhibit D-1 hereto
from the assigning Lender and the assignee Lender and (2) a processing and
recordation fee of $2,000 from the assigning Lender in connection with the
Agent’s recording of such sale, assignment, transfer or negotiation; provided, that such fee shall
only be payable if the assignment is between a Lender and a party that is not a
Lender or its Subsidiary or Affiliate prior to the assignment.  The
Borrower shall issue new Notes to the assignee in conformity with
Section 2.6 and the assignor shall return the old Notes to the
Borrower.  Such new Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Notes, shall be
dated the effective date of the Assignment and Assumption Agreement and shall
otherwise be in substantially the form of the assigned Notes delivered to the
assigning Lender; provided, that if such
surrendered Notes shall be in respect of Tranche C Term Loans, the Borrower
shall issue and deliver such new Tranche C Term Note in an aggregate
principal amount as calculated by giving effect to the operation of
Section 2.10(d).  Upon the effectiveness of any assignment in
accordance with this clause (b)(i), the assignee thereunder will become a
“Lender” for all purposes of this Agreement and the other Credit Documents and,
to the extent of such assignment, the assigning Lender shall be relieved of its
obligations hereunder with respect to the Loans or Notes being
assigned.  The Agent shall maintain at its address specified in Annex V hereto a copy
of each Assignment and Assumption Agreement delivered to and accepted by it and
a register in which it shall record the names and addresses of the Lenders and
the Loan Amount of, and principal amount of the Obligations owing to, each
Lender from time to time (the “Register”) taking into
account, with respect to Tranche C Term Loans, the operation of
Section 2.10(d).  The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Credit Parties, the
Agent and the Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement and the other
Credit Documents.  The Register shall be available for inspection by
the Borrower, the Agent or any Lender at any reasonable time and from time to
time upon reasonable prior notice.




(ii)          Participations.  Each
Lender may transfer, grant or assign participations in all or any portion of
such Lender’s Loans or Notes hereunder pursuant to this clause (b)(ii) to any
Person; provided, that
(1) such Lender shall remain a “Lender” for all purposes of this Agreement and
the transferee of such participation shall not constitute a Lender hereunder;
(2) each such participation shall be in an amount not less than $1,000,000; (3)
such Lender shall remain the holder of the Notes held by it for all purposes of
this Agreement; and (4) no participant under any such participation shall have
rights to approve any amendment to or waiver of this Agreement or any other
Credit Document except to the extent such amendment or waiver would (x) extend
the scheduled final maturity date of any of the Loans or Notes in which such
participant is participating or (y) reduce the principal amount, interest rate
or fees applicable to any of the Loans or Notes in which such participant is
participating or postpone the payment of any interest or fees or (z) release all
or substantially all of the Collateral (except as expressly permitted by the
Credit Documents).  In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant’s rights against the granting Lender in
respect of such participation to be those set forth in the agreement with such
Lender creating such participation) and all amounts payable by the Borrower
hereunder shall be determined as if such Lender had not sold such participation;
provided, that such
participant shall be considered to be a “Lender” for purposes of
Sections 3.6 and 11.3.




11.6.        No Waiver; Remedies
Cumulative.  No failure or delay on the part of the Agent or
any Lender in exercising any right, power or privilege hereunder or under any
other Credit Document and no course of dealing between any Credit Party and the
Agent or any Lender shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power, or privilege hereunder or under any other
Credit Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder or thereunder.  The
rights and remedies herein expressly provided are cumulative and not exclusive
of any rights or remedies which the Agent or any Lender would otherwise
have.  No notice to or demand on any Credit Party in any case shall
entitle any Credit Party to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Agent or the
Lenders to any other or further action in any circumstances without notice or
demand.


74


11.7.        Calculations;
Computations.




(a)           The
financial statements to be furnished to the Lenders pursuant hereto shall be
made and prepared in accordance with GAAP consistently applied throughout the
periods involved (except as set forth in the notes thereto or as otherwise
disclosed in writing by Borrower to the Lenders); provided, that, except as
otherwise specifically provided herein, all computations determining compliance
with Article VIII and all definitions used herein for any purpose shall utilize
accounting principles and policies in effect at the time of the preparation of,
and in conformity with those used to prepare, the historical financial
statements delivered to the Lenders pursuant to
Section 5.1(k).




(b)           All
computations of interest and fees hereunder shall be made on the actual number
of days elapsed over a year 365 days.




11.8.        Governing Law; Submission to
Jurisdiction; Venue.




(a)           THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS.




(b)           Each
Credit Party and each of its respective Subsidiaries hereby irrevocably and
unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of the Supreme Court of the State of New York sitting in
New York County and of the United States District Court for the Southern
District of New York, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to any of the Credit Documents,
or for recognition or enforcement of any judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in such
New York State or, to the extent permitted by law, in such Federal
court.  Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.  Nothing in this Agreement shall affect any right that the Agent
or any Lender may otherwise have to bring any action or proceeding relating to
this Agreement against any Credit Party, its Subsidiaries or any of their
properties in the courts of any jurisdiction.




(c)           Each
Credit Party and each of its respective Subsidiaries hereby irrevocably waives
any objection which it may now or hereafter have to the laying of venue of any
of the aforesaid actions or proceedings arising out of or in connection with the
Agreement or any other Credit Document brought in the courts referred to in
paragraph (b) above and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.


75


(d)           Each
party to this Agreement irrevocably consents to service of process in the manner
provided for notices in Section 11.1 for the purposes relating to any of
the Credit Documents.  Nothing in this Agreement will affect the right
of any party to this Agreement to service process in any other manner permitted
by law.




11.9.        Counterparts.  This
Agreement may be executed in any number of counterparts and by the different
parties hereto on separate counterparts, each of which when so executed and
delivered shall be an original, but all of which shall together constitute one
and the same instrument.  A set of counterparts executed by all the
parties hereto shall be held and maintained by each of the Borrower and the
Agent.




11.10.      Effectiveness.  This
Agreement shall become effective on the date (the “Effective Date”) and at the
time (the “Effective
Time”) on which the Borrower, each Credit Party and each of the Lenders
shall have signed a copy hereof (whether the same or different copies) and shall
have delivered the same to the Agent at the Agent’s Office or, in the case of
the Lenders, shall have given to the Agent telephonic (confirmed in writing),
written, telex or telecopy notice (actually received) at such office that the
same has been signed and mailed to it.  The Agent will give the
Borrower and each Lender prompt written notice of the occurrence of the
Effective Time.  This Agreement shall remain in effect from the
Effective Date through and including (i) the date upon which all Obligations
shall have been indefeasibly and irrevocably paid and satisfied in full or (ii)
30 Business Days following the Effective Date if the Closing Date shall not have
occurred by such date.  No termination of this Agreement shall affect
the rights and obligations of the parties hereto arising prior to such
termination.




11.11.      Headings
Descriptive.  The headings of the several articles, sections
and subsections of this Agreement are inserted for convenience of reference only
and shall not in any way affect the meaning or construction of, or be taken into
consideration in interpreting, any provision of this Agreement.




11.12.      Amendment or
Waiver.  Neither this Agreement nor any other Credit Document
nor any terms hereof or thereof may be changed, waived, discharged or terminated
(other than pursuant to the terms hereof) unless such change, waiver, discharge
or termination is in writing signed by each of the Agent, the Required Lenders
and the Borrower; provided that no such change,
waiver, discharge or termination shall:




(a)           without
the consent of each affected Lender and the Agent, (i) extend the scheduled
final maturity date of any Loan, or any portion thereof; (ii) reduce the rate or
extend the time of payment of interest thereon or fees or reduce the principal
amount thereof; or (iii) increase the Loan Amounts of any Lender or the
Total Loan Amounts, in each case over the amount thereof then in effect (it
being understood that a waiver of any Default or Event of Default shall not
constitute a change in the terms of any Loan Amount of any Lender);




(b)           without
the consent of all of the Lenders or the Agent acting with the consent of all of
the Lenders (i) release all or substantially all of the Collateral or Guarantees
(except as expressly permitted by the Credit Documents); (ii) consent to the
assignment or transfer by any Credit Party of any of its rights and obligations
under this Agreement and the other Credit Documents; (iii) alter the terms of
this Section 11.12; or (iv) modify the definition of the term “Required
Lenders”;


76


(c)           without
the consent of all of the Tranche A/B Lenders, (i) reduce the percentage in the
definition of the term “Required Tranche A/B Lenders” or (ii) amend, modify or
waive Section 3.1(a);




(d)           without
the consent of all of the Tranche C Lenders, (i) reduce the percentage in the
definition of the term “Required Tranche C Lenders” or (ii) amend, modify or
waive Section 3.1(b);




(e)           amend,
modify or waive any provision of Article X hereof or any other rights or duties
of the Agent hereunder without the written consent of the then Agent;
or




(f)           amend,
modify or waive any provision of Article IV hereof without the written consent
of each Guarantor.




Any such
waiver and any such amendment, supplement or modification shall apply equally to
each of the Lenders and shall be binding upon each Credit Party, the Lenders,
the Agent and all future holders of the Loans.




11.13.      Survival.  All
indemnities set forth herein including in Section 3.7, 4.7, 10.7 or 11.2
shall survive the execution and delivery of this Agreement and the making of the
Loans, the repayment of the Obligations and the termination of the Total Loan
Amounts.




11.14.      Domicile of
Loans.  Each Lender may transfer and carry its Loans at, to or
for the account of any branch office, Subsidiary or Affiliate of such
Lender.




11.15.      WAIVER OF JURY
TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY
LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATE HEREBY (WHETHER BASED ON CONTRACT,
TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.




11.16.      Independence of
Covenants.  All covenants hereunder shall be given independent
effect so that if a particular action or condition is not permitted by any of
such covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitation of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.


77


11.17.      Reversal of
Payments.  To the extent the Borrower makes a payment or
payments to the Agent for the ratable benefit of the Lenders or the Agent
receives any payment or proceeds of the Collateral which payments or proceeds or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds repaid, the
Obligations or part thereof intended to be satisfied shall be revived and
continued in full force and effect as if such payment of proceeds had not been
received by the Agent.




11.18.      Severability.  Any
provision of this Agreement or any other Credit Document which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
the remainder of such provision or the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.




11.19.      Conflict in
Terms.  Where any conflict exists between any term or provision
of this Agreement and a term or provision of the Revolving Intercreditor
Agreement, such term or provision of the Revolving Intercreditor Agreement shall
govern and control.  Without limiting the generality of the foregoing,
at any time prior to the occurrence of the Revolving Credit Termination, a
Credit Party shall be deemed to have complied with its obligations hereunder (i)
to deliver physical possession of Collateral, and proceeds thereof (including
insurance proceeds), to the Agent or a Lender by delivering (and paying over)
such Collateral to the Revolving Credit Agent, (ii) to provide control the Agent
or a Lender with control of Collateral, and proceeds thereof (including
insurance proceeds), by providing control of such Collateral to the Revolving
Credit Agent, and (iii) to prepay the Obligations by paying such amount to the
Revolving Credit Agent and prepaying the “Obligations” under the Revolving
Credit Debt Documents.


78


IN
WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
Agreement to be duly executed and delivered as of the date first above
written.





Frederick’s
      of Hollywood, Inc.By:
                  /s/ Linda LoReName:  Linda
      LoReTitle:
      President and CEOFOH
      Holdings, Inc.By:
      :
                  /s/ Linda LoReName:  Linda
      LoReTitle:
      President and CEOFrederick’s
      of Hollywood Stores, Inc.By:
      :
                  /s/ Linda LoReName:
      Linda LoReTitle:
      President and CEOHollywood
      Mail Order, LLCBy:
      FOH Holdings, Inc., its ManagerBy:
                  :/s/ Linda LoReName:  Linda
      LoReTitle:
      President and CEOFredericks.com,
      Inc.By:
      :
                  /s/ Linda LoReName:  Linda
      LoReTitle:
      President and
CEO








MellonHBV SPV LLC, as Agent andCollateral
      Agent and as a LenderBy:
                  Mellon HBV Alternative
      StrategiesLLC, its managing
      memberBy:
                  /s/ James P.
      JenkinsName:  James P
      JenkinsTitle:  Portfolio
      Manager





Tranche
      A/B Term Loan Commitment: $4,965,792.68Tranche
      C Term Loan Amount: $7,638,081.51Mellon
      HBV Master Rediscovered Opportunities Fund L.P.By:
                  /s/ James P. JenkinsName:  James
      P. JenkinsTitle:  Portfolio
      ManagerTranche
      A/B Term Loan Commitment: $2,634,207.92Tranche
      C Term Loan Amount: $2,596,598.77





TABLE OF
CONTENTS





ARTICLE
      IDEFINITIONS
                                                              
                                                              11.1.
                                                              Definitions
                                                              
                                                              11.2.
                                                              Terms
      Generally
                                                              
                                                              211.3.
                                                              Accounting
      Terms
                                                              
                                                              21ARTICLE
      IIAMOUNT
      AND TERMS OF CREDIT
                                                              
                                                              212.1.
                                                              Tranche
      A/B Loans
                                                              
                                                              212.2.
                                                              Tranche
      C Loans
                                                              
                                                              212.6.
                                                              Evidence
      of Obligations
                                                              
                                                              222.8.
                                                              Pro
      Rata Loans
                                                              
                                                              222.8.
                                                              Interest
      on Tranche A/B Term Loans
                                                              
                                                              232.9.
                                                              Interest
      on Tranche C Term Loans
                                                              
                                                              232.10.
                                                              Capital
      Requirements
                                                              
                                                              242.11.
                                                              Total
      Loan Amounts
                                                              
                                                              242.12.
                                                              Delivery
      of Tax Forms
                                                              
                                                              252.16.
                                                              Closing
      Fee
                                                              
                                                              25ARTICLE
      IIIPAYMENTS
                                                              
                                                              253.1.
                                                              Repayments
                                                              
                                                              253.2.
                                                              Voluntary
      Prepayments
                                                              
                                                              263.3.
                                                              Mandatory
      Prepayments
                                                              
                                                              273.4.
                                                              Method
      and Place of Payment
                                                              
                                                              293.6.
                                                              Pro
      Rata Treatment; Sharing of Set-Offs
                                                              
                                                              293.6.
                                                              Net
      Payments
                                                              
                                                              30ARTICLE
      IVGUARANTEES
                                                              
                                                              314.1.
                                                              The
      Guarantee.
                                                              
                                                              314.2.
                                                              Waiver
      by Guarantors
                                                              
                                                              314.3.
                                                              Consent
      by Guarantors
                                                              
                                                              324.4.
                                                              Waivers;
      Successors and Assigns
                                                              
                                                              324.5.
                                                              Guarantee
      Secured
                                                              
                                                              334.6.
                                                              Rights
      of Set-Off
                                                              
                                                              334.7.
                                                              Effectiveness;
      Reinstatement
                                                              
                                                              334.8.
                                                              Payments
      of Guaranteed Obligations
                                                              
                                                              344.9.
                                                              Remedies
                                                              
                                                              344.10.
                                                              Subrogation
                                                              
                                                              344.11.
                                                              Rights
      of Contribution
                                                              
                                                              344.12.
                                                              General
      Limitation on Guarantee Obligations
                                                              
                                                              354.13.
                                                              Merger
                                                              
                                                              354.14.
                                                              No
      Waiver
                                                              
                                                              35ARTICLE
      VCONDITIONS
      PRECEDENT
                                                              
                                                              365.1.
                                                              Conditions
      Precedent to Loans
                                                              
                                                              36


i




ARTICLE
      VIREPRESENTATIONS,
      WARRANTIES AND AGREEMENTS
                                    
                                    406.1.
                                    Organization,
      Good Standing, Etc
                                    
                                    406.2.
                                    Authorization
                                    
                                    406.3.
                                    Government
      Approvals
                                    
                                    406.4.
                                    Execution
      and Binding Effect
                                    
                                    416.5.
                                    Subsidiaries
                                    
                                    416.6.
                                    Litigation;
      Commercial Tort Claims
                                    
                                    416.7.
                                    Financial
      Condition
                                    
                                    416.8.
                                    Compliance
      with Law, etc
                                    
                                    426.9.
                                    ERISA
                                    
                                    426.10.
                                    Taxes,
      etc
                                    
                                    436.11.
                                    Regulation
      U
                                    
                                    436.12.
                                    Nature
      of Business
                                    
                                    436.13.
                                    Adverse
      Agreements, etc.
                                    
                                    436.14.
                                    Permits,
      etc.
                                    
                                    436.15.
                                    Properties
                                    
                                    436.16.
                                    Full
      Disclosure
                                    
                                    446.17.
                                    Environmental
      Matters
                                    
                                    446.18.
                                    Insurance
                                    
                                    456.19.
                                    Use
      of Proceeds
                                    
                                    456.20.
                                    Sufficient
      Capital
                                    
                                    456.21.
                                    Intellectual
      Property
                                    
                                    466.22.
                                    Holding
      Company and Investment Company Acts
                                    
                                    466.23.
                                    Employee
      and Labor Matters
                                    
                                    466.24.
                                    Name;
      Jurisdiction or Organization; etc
                                    
                                    476.26.
                                    Security
      Interests
                                    
                                    476.27.
                                    Revolving
      Credit Debt Documents
                                    
                                    476.28.
                                    Representations
      and Warranties in Documents; No Default
                                    
                                    486.29.
                                    Schedules
                                    
                                    48ARTICLE
      VIIAFFIRMATIVE
      COVENANTS
                                    
                                    487.1.
                                    Information
      Covenants
                                    
                                    487.2.
                                    Additional
      Guaranties and Collateral Security
                                    
                                    517.3.
                                    Compliance
      with Laws, etc
                                    
                                    527.4.
                                    Preservation
      of Existence, etc
                                    
                                    527.5.
                                    Keeping
      of Records and Books of Account
                                    
                                    527.6.
                                    Inspection
      Rights
                                    
                                    537.7.
                                    Maintenance
      of Properties, etc
                                    
                                    537.8.
                                    Maintenance
      of Insurance
                                    
                                    537.9.
                                    Obtaining
      of Permits
                                    
                                    547.10.
                                    Environmental
                                    
                                    547.11.
                                    Further
      Assurances
                                    
                                    557.12.
                                    Change
      in Collateral; Collateral Records
                                    
                                    557.13.
                                    Subordination
                                    
                                    557.14.
                                    Guarantor
      Reports
                                    
                                    557.15.
                                    Fiscal
      Year
                                    
                                    55








7.17.
                                                                    Management
      of Holdings
                                                                    
                                                                    567.19.
                                                                    Immediate
      Notice to Agent
                                                                    
                                                                    56ARTICLE
      VIIINEGATIVE
      COVENANTS
                                                                    
                                                                    568.1.
                                                                    Lien
      Priority
                                                                    
                                                                    568.2.
                                                                    Liens,
      etc
                                                                    
                                                                    568.3.
                                                                    Indebtedness
                                                                    
                                                                    578.4.
                                                                    Fundamental
      Changes
                                                                    
                                                                    578.5.
                                                                    Change
      in Nature of Business
                                                                    
                                                                    578.6.
                                                                    Loans,
      Advances, Investments, etc
                                                                    
                                                                    588.7.
                                                                    Lease
      Obligations
                                                                    
                                                                    588.8.
                                                                    Capital
      Expenditures
                                                                    
                                                                    588.9.
                                                                    Restricted
      Payments
                                                                    
                                                                    598.10.
                                                                    Federal
      Reserve Regulations
                                                                    
                                                                    598.11.
                                                                    Transactions
      with Affiliates
                                                                    
                                                                    598.12.
                                                                    Limitations
      on Dividends and Other Payment Restrictions Affecting
      Subsidiaries
                                                                    
                                                                    608.13.
                                                                    Limitation
      on Issuance of Capital Stock
                                                                    
                                                                    608.14.
                                                                    Modification
      of Indebtedness, Organizational Documents and Certain Other
      Agreements
                                                                    
                                                                    618.15.
                                                                    Investment
      Company Act of 1940
                                                                    
                                                                    618.16.
                                                                    ERISA
                                                                    
                                                                    618.17.
                                                                    Environmental
                                                                    
                                                                    618.18.
                                                                    Store
      Openings and Closings
                                                                    
                                                                    628.19.
                                                                    Fixed
      Charge Coverage Ratio; EBITDA
                                                                    
                                                                    62ARTICLE
      IXEVENTS
      OF DEFAULT
                                                                    
                                                                    629.1.
                                                                    Payments
                                                                    
                                                                    639.2.
                                                                    Representations,
      etc.
                                                                    
                                                                    639.3.
                                                                    Covenants
                                                                    
                                                                    639.4.
                                                                    Default
      Under Other Agreements
                                                                    
                                                                    639.5.
                                                                    Bankruptcy
                                                                    
                                                                    639.6.
                                                                    Failure
      of Agreements
                                                                    
                                                                    649.7.
                                                                    Security
      Document
                                                                    
                                                                    649.8.
                                                                    Guarantees
                                                                    
                                                                    649.9.
                                                                    Judgments
                                                                    
                                                                    649.10.
                                                                    Operation
      of Business
                                                                    
                                                                    659.11.
                                                                    Criminal
      or Civil Proceedings
                                                                    
                                                                    659.12.
                                                                    ERISA
                                                                    
                                                                    659.13.
                                                                    Environmental
                                                                    
                                                                    669.15.
                                                                    Acceleration
      of Revolving Credit Indebtedness
                                                                    
                                                                    66ARTICLE
      XTHE
      AGENT
                                                                    
                                                                    6710.1.
                                                                    Appointment
                                                                    
                                                                    6710.2.
                                                                    Delegation
      of Duties
                                                                    
                                                                    6710.3.
                                                                    Exculpatory
      Provisions
                                                                    
                                                                    6710.4.
                                                                    Reliance
      by the Agent
                                                                    
                                                                    68








10.5.
                            Notice
      of Default
                            
                            6810.6.
                            Non-Reliance
      on Agent and Other Lenders
                            
                            6910.7.
                            Indemnification
                            
                            6910.8.
                            The
      Agent in Its Individual Capacity
                            
                            6910.9.
                            Successor
      Agent
                            
                            6910.10.
                            Resignation
      by Agent
                            
                            70ARTICLE
      XIMISCELLANEOUS
                            
                            7011.1.
                            Notices
                            
                            7011.2.
                            Payment
      of Expenses, etc.
                            
                            7211.3.
                            Management
      Fee
                            
                            7211.4.
                            Right
      of Setoff
                            
                            7211.5.
                            Successors
      and Assigns; Participations
                            
                            7311.6.
                            No
      Waiver; Remedies Cumulative
                            
                            7411.7.
                            Calculations;
      Computations
                            
                            7511.8.
                            Governing
      Law; Submission to Jurisdiction; Venue
                            
                            7511.9.
                            Counterparts
                            
                            7611.10.
                            Effectiveness
                            
                            7611.11.
                            Headings
      Descriptive
                            
                            7611.12.
                            Amendment
      or Waiver
                            
                            7611.13.
                            Survival
                            
                            7711.14.
                            Domicile
      of Loans
                            
                            7711.15.
                            WAIVER
      OF JURY TRIAL
                            
                            7711.16.
                            Independence
      of Covenants
                            
                            7711.17.
                            Reversal
      of Payments
                            
                            7811.18.
                            Severability
                            
                            7811.19.
                            Conflict
      in Terms
                            
                            78








Annex
      I
              -
              List
      of Frederick’s SubsidiariesAnnex
      II
              -
              List
      of Tranche A/B LendersAnnex
      III
              -
              Tranche
      C LendersAnnex
      IV
              -
              Summary
      of Corporate Insurance PoliciesAnnex
      V
              -
              Lender
      AddressesSchedule
      6.5
              -
              SubsidiariesSchedule
      6.6
              -
              Litigation;
      Commercial Tort ClaimsSchedule
      6.9
              -
              ERISASchedule
      6.15
              -
              PropertiesSchedule
      6.17
              -
              Environmental
      MattersSchedule
      6.18
              -
              InsuranceSchedule
      6.21
              -
              Intellectual
      PropertySchedule
      6.24
              -
              Name;
      Jurisdiction of Organization; Organizational ID Number,
    etc.Schedule
      7.1(a)
              -
              Information
      Covenant DocumentsSchedule
      7.12
              -
              Location
      of CollateralSchedule
      8.2
              -
              Existing
      LiensSchedule
      8.6
              -
              Existing
      InvestmentsSchedule
      8.12
              -
              Existing
      Agreements Restricting Dividends and other Payments Affecting
      SubsidiariesSchedule
      8.19
              -
              Fixed
      Charge Coverage Ratio; EBITDAExhibit
      A
              -
              Form
      of Tranche A/B Term NoteExhibit
      B
              -
              Form
      of Tranche C Term NoteExhibit
      C
              -
              Form
      of Officer’s Certificate Regarding Environmental ReviewExhibit
      D-1
              -
              Form
      of Notice of AssignmentExhibit
      D-2
              -
              Form
      of Assignment and Assumption AgreementExhibit
      E
              -
              Form
      of Compliance CertificateExhibit
      F
              -
              Financial
      Projections