**EXHIBIT10.27**

 

**AMENDMENT NO. 2**

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**TO**

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**FINANCING AGREEMENT**

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THIS AMENDMENT NO. 2 (this “Amendment”) is enteredinto effective as of December 31, 2006, by and among RAFAELLA APPARELGROUP, INC., a Delaware corporation (“Borrower”), VERRAZANO, INC., a New York corporation(“Verrazano”), HSBC BANK USA, NATIONAL ASSOCIATION (“HSBC”) and the otherfinancial institutions which are now or which hereafter become a party hereto(each a “Lender” and collectively, the “Lenders”) and HSBC, as agent for theLenders (in such capacity, the “Agent”).

 

**BACKGROUND**

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Borrower, Verrazano, Agent and Lenders are partiesto a Financing Agreement dated June 20, 2005 (as amended by Amendment No. 1to Financing Agreement dated as of March     , 2006,and as hereafter further amended, restated, supplemented or otherwise modifiedfrom time to time, the “Financing Agreement”) pursuant to which Agent andLenders provide Borrower with certain financial accommodations.

 

Borrower has requested that Agent and Lenders amendcertain financial covenants contained in the Financing 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 defined hereinshall have the meanings given to them in the Financing Agreement.

 

2.             Amendment to FinancingAgreement.  Subject tosatisfaction of the conditions precedent set forth in Section 3 below, Section 6.8(b) ofthe Financing Agreement is hereby amended and restated in its entirety asfollows:

 

“(b) Net Income.  Maintain (i) Net Income in excess of $0during each fiscal quarter ending on or after September 30, 2005 throughand including September 30, 2006, (ii) Net Income during each fiscalquarter ending on or after December 31, 2006 in excess of ($3,000,000)(i.e. not suffer a loss of greater than $3,000,000 in any fiscal quarter) and (iii) NetIncome in excess of $0 during each period of two consecutive fiscal quarters(on a rolling basis) ending on or after December 31, 2006.”

 

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3.             Condition of Effectiveness.  This Amendment shall become effective uponreceipt by Agent of four (4) copies of this Amendment executed byBorrower, Verrazano, Agent and Lenders.

 

4.             Representations andWarranties.  Borrower andVerrazano each hereby represents and warrants as follows:

 

(a)           This Amendment and theFinancing Agreement, as amended hereby, constitute its legal, valid and bindingobligations and are enforceable against it in accordance with their respectiveterms.

 

(b)           Upon the effectiveness ofthis Amendment, it hereby reaffirms, in all material respects, allrepresentations, warranties and covenants made in the Financing Agreement onand as of the date hereof except:  (i) tothe extent such representation, warranties or covenants are limited by theirterms to a specific date in which case they shall be true and correct in allmaterial respects as of such date or (ii) for changes in the nature of itsbusiness or operations that may occur after the Closing Date in the ordinarycourse of business so long as Agent has consented to such changes or suchchanges are not in violation of any provision of the Financing Agreement or anyOther Document.

 

(c)           No Event of Default orDefault has occurred and is continuing or would exist after giving effect tothis Amendment.

 

(d)           It does not have anydefense, counterclaim or offset with respect to the Financing Agreement.

 

5.             Effect on the FinancingAgreement.

 

(a)           Upon the effectiveness of Section 2hereof, each reference in the Financing Agreement to “this Agreement,” “hereunder,”“hereof,” “herein” or words of like import shall mean and be a reference to theFinancing Agreement as amended hereby.

 

(b)           Except as specificallyamended herein, the Financing Agreement, and all other documents, instrumentsand agreements executed and/or delivered in connection therewith, shall remainin full force and effect, and are hereby ratified and confirmed.

 

(c)           The execution, delivery andeffectiveness of this Amendment shall not operate as a waiver of any right,power or remedy of Agent or Lenders, nor constitute a waiver of any provisionof the Financing Agreement, or any other documents, instruments or agreementsexecuted 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.

 

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8.             Counterparts; Facsimile.  This Amendment may be executed by the partieshereto in one or more counterparts, each of which shall be deemed an originaland all of which when taken together shall constitute one and the sameagreement.  Any signature delivered by aparty by facsimile or electronic transmission, including via “pdf” format,shall be deemed to be an original signature hereto.

 

**[THEREMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK]**

 

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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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