**EXHIBIT 10.26**

 

**AMENDMENT NO. 1**

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**TO**

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**FINANCING AGREEMENT**

 

THIS AMENDMENT NO. 1 (this “Amendment”) is enteredinto as of March 31, 2006, by and among RAFAELLA APPAREL GROUP, INC., aDelaware corporation (“Borrower”), VERRAZANO, INC., a New York corporation (“Verrazano)”,HSBC BANK USA, NATIONAL ASSOCIATION (“HSBC”) and the other financialinstitutions which are now or which hereafter become a party hereto (each a “Lender”and collectively, the “Lenders”) and HSBC, as agent for the Lenders (in suchcapacity, the “Agent”).

 

**BACKGROUND**

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Borrower, Verrazano, Agent and Lenders are partiesto a Financing Agreement dated June 20, 2005 (as amended, restated,supplemented or otherwise modified from time to time, the “Loan Agreement”)pursuant to which Agent and Lenders provide Borrower with certain financialaccommodations.

 

Borrower has requested that Agent and Lenders amendcertain reporting requirements contained in the Loan Agreement, and Agent andLenders are willing to do so on the terms and conditions hereafter set forth.

 

NOW, THEREFORE, in consideration of any loan oradvance or grant of credit heretofore or hereafter made to or for the accountof Borrower by Agent and Lenders, and for other good and valuableconsideration, the receipt and sufficiency of which are hereby acknowledged,the parties hereto hereby agree as follows:

 

1.             Definitions.  All capitalized terms not otherwise definedherein shall have the meanings given to them in the Loan Agreement

 

2.             Amendment toLoan Agreement.  Subject tosatisfaction of the conditions precedent set forth in Section 3 below, theLoan Agreement is hereby amended as follows:

 

(a)           Section 9.7of the Loan Agreement is hereby amended by amending and restating the firstsentence thereof in its entirety to provide as follows:

 

“Furnish Agent and Lenders within one hundred twenty(120) days after the end of each fiscal year of Loan Parties annualinformation that would be required to be contained in a filing with the SEC on Form 10-Kif Borrower was required to file such form, including a “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” thatdescribes the financial condition and results of the Loan Parties on aConsolidated Basis (showing in reasonable detail, either on the face of thefinancial statements or in the footnotes thereto and in 

 

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Management’s Discussion and Analysis of FinancialCondition and Results of Operations, the financial condition and results ofoperations of Borrower and its Restricted Subsidiaries (as that term is definedin the Senior Note Indenture) separate from the financial condition and resultsof operations of the Unrestricted Subsidiaries (as that term is defined in theSenior Note Indenture) of the Borrower, if any), audited by an independentpublic accounting firm selected by Loan Parties and satisfactory to Agent (the “Accountants”).

 

(b)           Section 9.8of the Loan Agreement is hereby amended by amending and restating the first twosentences thereof in their entirety to provide as follows:

 

“Furnish to Agent and Lenders within one hundredtwenty (120) days after the end of the second fiscal quarter of LoanParties quarterly information that would be required to be contained in afiling with the SEC on Form 10-Q if Borrower were required to file suchforms, including a “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” that describes the financial condition and resultsof operations of Loan Parties on a Consolidated Basis (showing in reasonabledetail, either on the face of the financial statements or in the footnotesthereto and in Management’s Discussion and Analysis of Financial Condition andResults of Operations, the financial condition and results of operations ofBorrower and its Restricted Subsidiaries (as that term is defined in the SeniorNote Indenture) separate from the financial condition and results of operationsof the Unrestricted Subsidiaries (as that term is defined in the Senior NoteIndenture) of the Borrower, if any), reviewed by the Accountants.  In addition to the financial informationprovided above, Borrower will provide a balance sheet, statement of income andequityholders’ equity and statement of cash flow setting forth a comparison ofthe figures for (x) the current year-to-date with the figures for (y) thesame year-to-date period of the immediately preceding fiscal year, and (z) theprojections for such year-to-date period delivered pursuant to Section 5.5(b) orSection 9.12, is applicable.”

 

3.             Conditions ofEffectiveness.  ThisAmendment shall become effective upon satisfaction of the following conditionsprecedent:  Agent shall have receivedfour (4) copies of this Amendment executed by Borrower, Verrazano, Agentand Lenders.

 

4.             Representationsand Warranties.  Borrowerand Verrazano each hereby represents and warrants as follows:

 

(a)           This Amendmentand the Loan Agreement, as amended hereby, constitute its legal, valid andbinding obligations and are enforceable against it in accordance with theirrespective terms.

 

(b)           Upon theeffectiveness of this Amendment, it hereby reaffirms, in all material respects,all representations, warranties and covenants made in the Loan Agreement on 

 

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and as of the date hereof except:  (i) to the extent such representation,warranties or covenants are limited by their terms to a specific date in whichcase they shall be true and correct in all material respects as of such date or(ii) for changes in the nature of its business or operations that mayoccur after the Closing Date in the ordinary course of business so long asAgent has consented to such changes or such changes are not in violation of anyprovision of the Loan Agreement or any Other Document.

 

(c)           No Event ofDefault or Default has occurred and is continuing or would exist after givingeffect to this Amendment.

 

(d)           It does nothave any defense, counterclaim or offset with respect to the Loan Agreement.

 

5.             Effecton the Loan Agreement.

 

(a)           Upon theeffectiveness of Section 2 hereof, each reference in the Loan Agreement to“this Agreement,” “hereunder,” “hereof,” “herein” or words of like import shallmean and be a reference to the Loan Agreement as amended hereby.

 

(b)           Except asspecifically amended herein, the Loan Agreement, and all other documents,instruments and agreements executed and/or delivered in connection therewith,shall remain in full force and effect, and are hereby ratified and confirmed.

 

(c)           The execution,delivery and effectiveness of this Amendment shall not operate as a waiver ofany right, power or remedy of Agent or Lenders, nor constitute a waiver of anyprovision of the Loan Agreement, or any other documents, instruments oragreements executed and/or delivered under or in connection therewith.

 

6.             Governing Law.  This Amendment shall be binding upon andinure to the benefit of the parties hereto and their respective successors andassigns and shall be governed by and construed in accordance with the laws ofthe State of New York.

 

7.             Headings.  Section headings in this Amendment areincluded herein for convenience of reference only and shall not constitute apart of this Amendment for any other purpose.

 

8.             Counterparts;Facsimile.  ThisAmendment may be executed by the parties hereto in one or more counterparts,each of which shall be deemed an original and all of which when taken togethershall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall bedeemed to be an original signature hereto.

 

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IN WITNESS WHEREOF, this Amendment has been dulyexecuted as of the day and year first written above.

 
|   | RAFAELLA APPAREL GROUP,  as a Borrower      |
|--------|---------------------------------------------|
|   |                                        |   |
|   |                                        |   |
|   | By:                                         | /s/ Chad J. Spooner |
|   |                                        | Name: Chad J. Spooner |
|   |                                        | Title: CFO |
|   |                                        |   |
|   |                                        |   |
|   | VERRAZANO, INC., as  Guarantor              |
|   |                                        |   |
|   | By: :                                       | /s/ Chad J. Spooner |
|   |                                        | Name: Chad J. Spooner |
|   |                                        | Title: Vice President |
|   |                                        |   |
|   |                                        |   |
|   | HSBC BANK USA, N.A., as  Agent and a Lender |
|   |                                        |   |
|   | By:                                         | /s/ Lisa Augustus |
|   |                                        | Name: Lisa Augustus |
|   |                                        | Title: Vice President |
|   |                                        |   |
|   |                                        |   |
|   | ISRAEL DISCOUNT BANK OF  NEW YORK, as       |
|   | a Lender                                    |
|   |                                        |   |
|   | By:                                         | /s/ Matilde Reyes |
|   |                                        | Name: Matilde Reyes |
|   |                                        | Title: First Vice President |
|   |                                        |   |   |
|   |                                        |   |   |
|   | By:                                         | /s/ Dina Tourloukis |
|   |                                        | Name: Dina Tourloukis |
|   |                                        | Title: Assistant Vice  President |

 

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