EX-101



 





Exhibit 10.1



This Note Purchase Agreement is subject to the provisions of that certain Intercreditor Agreement
(as may be amended, modified, supplemented, extended, renewed, restated or replaced from time to
time, the “Intercreditor Agreement”) dated as of May 25, 2007 among, Laminar Direct Capital L.P.,
GMAC Commercial Finance LLC, Rocky Brands, Inc. and certain subsidiaries of Rocky Brands, Inc., and
each party to this Note Purchase Agreement, by its acceptance hereof, shall be bound by the
provisions of the Intercreditor Agreement.



 





NOTE PURCHASE AGREEMENT




by and among




ROCKY BRANDS, INC.

AND THE OTHER LOAN PARTIES IDENTIFIED ON

THE SIGNATURE PAGES HERETO,




LAMINAR DIRECT CAPITAL L.P.,

AS COLLATERAL AGENT,




and




THE PURCHASERS IDENTIFIED ON

ANNEX A HERETO




May 25, 2007




 





$40,000,000 Second Priority Senior Secured Notes Due May 25, 2012




 









 








TABLE OF CONTENTS




	 	 	 	 	 
	 	 	Page
	ARTICLE 1 DEFINITIONS
	 	 	1	 
	 
	 	 	 	 
	1.1 Certain Definitions
	 	 	1	 
	1.2 Accounting Principles
	 	 	16	 
	1.3 Other Definitional Provisions; Construction
	 	 	16	 
	 
	 	 	 	 
	ARTICLE 2 ISSUE AND SALE OF THE SENIOR TERM NOTES
	 	 	17	 
	 
	 	 	 	 
	2.1 Senior Term Notes
	 	 	17	 
	2.2 Sale and Purchase
	 	 	17	 
	2.3 The Closing
	 	 	17	 
	 
	 	 	 	 
	ARTICLE 3 REPAYMENT OF SENIOR TERM NOTES
	 	 	17	 
	 
	 	 	 	 
	3.1 Interest Rates and Interest Payments
	 	 	17	 
	3.2 Repayment of Senior Term Notes
	 	 	18	 
	3.3 Optional Prepayment of Senior Term Notes
	 	 	18	 
	3.4 Notice of Optional Prepayment
	 	 	18	 
	3.5 Mandatory Prepayment
	 	 	18	 
	3.6 Equity Payment
	 	 	19	 
	3.7 Home Office Payment
	 	 	20	 
	3.8 Maximum Lawful Rate
	 	 	20	 
	3.9 Taxes
	 	 	21	 
	3.10 Capital Adequacy
	 	 	21	 
	3.11 Certain Waivers
	 	 	22	 
	 
	 	 	 	 
	ARTICLE 4 CONDITIONS
	 	 	22	 
	 
	 	 	 	 
	4.1 Conditions to the Purchase of the Senior Term Notes
	 	 	22	 
	4.2 Waiver
	 	 	24	 
	 
	 	 	 	 
	ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES
	 	 	25	 
	 
	 	 	 	 
	5.1 Representations and Warranties of the Loan Parties
	 	 	25	 
	5.2 Absolute Reliance on the Representations and Warranties
	 	 	33	 
	 
	 	 	 	 
	ARTICLE 6 TRANSFER OF SENIOR TERM NOTES
	 	 	33	 
	 
	 	 	 	 
	6.1 Restricted Securities
	 	 	33	 
	6.2 Legends; Purchasers’ Representations
	 	 	34	 
	6.3 Transfer of Senior Term Notes
	 	 	34	 
	6.4 Replacement of Lost Senior Term Notes
	 	 	35	 
	6.5 No Other Representations Affected
	 	 	35	 
	 
	 	 	 	 
	ARTICLE 7 COVENANTS
	 	 	35	 
	 
	 	 	 	 





 









 






	 	 	 	 	 
	 	 	Page
	7.1 Affirmative Covenants
	 	 	35	 
	7.2 Negative Covenants
	 	 	39	 
	7.3 Financial Covenant
	 	 	46	 
	 
	 	 	 	 
	ARTICLE 8 EVENTS OF DEFAULT
	 	 	47	 
	 
	 	 	 	 
	8.1 Events of Default
	 	 	47	 
	8.2 Consequences of Event of Default
	 	 	49	 
	 
	 	 	 	 
	ARTICLE 9 AGENT
	 	 	49	 
	 
	 	 	 	 
	9.1 Authorization and Action
	 	 	49	 
	9.2 Delegation of Duties
	 	 	50	 
	9.3 Exculpatory Provisions
	 	 	50	 
	9.4 Reliance
	 	 	50	 
	9.5 Non-Reliance on Agent and Other Purchasers
	 	 	50	 
	9.6 No Liability of Purchasers
	 	 	51	 
	9.7 Agent in its Individual Capacity
	 	 	51	 
	9.8 Successor Agent
	 	 	51	 
	9.9 Consent of Purchasers.
	 	 	51	 
	9.10 This Article Not Applicable to the Loan Parties
	 	 	51	 
	 
	 	 	 	 
	ARTICLE 10 MISCELLANEOUS
	 	 	52	 
	 
	 	 	 	 
	10.1 Successors and Assigns
	 	 	52	 
	10.2 Modifications and Amendments
	 	 	52	 
	10.3 No Implied Waivers; Cumulative Remedies; Writing Required
	 	 	52	 
	10.4 Reimbursement of Expenses
	 	 	52	 
	10.5 Holidays
	 	 	53	 
	10.6 Notices
	 	 	53	 
	10.7 Survival
	 	 	54	 
	10.8 Governing Law
	 	 	54	 
	10.9 Jurisdiction, Consent to Service of Process.
	 	 	54	 
	10.10 Jury Trial Waiver
	 	 	55	 
	10.11 Severability
	 	 	55	 
	10.12 Headings
	 	 	55	 
	10.13 Indemnity
	 	 	55	 
	10.14 Environmental Indemnity
	 	 	56	 
	10.15 Counterparts
	 	 	56	 
	10.16 Integration
	 	 	57	 
	10.17 Intercreditor
	 	 	57	 
	10.18 Confidentiality
	 	 	57	 
	 
	 	 	 	 
	SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT
	 	 	59	 
	 
	 	 	 	 
	ANNEX A INFORMATION RELATING TO THE PURCHASERS
	 	 	3	 
	 
	 	 	 	 
	ANNEX B ALLOCATION OF SENIOR TERM NOTES AMONG PURCHASERS
	 	 	5	 







ii









 








NOTE PURCHASE AGREEMENT




$40,000,000 Aggregate Principal Amount of

Second Priority Senior Secured Notes Due May 25, 2012




          THIS NOTE PURCHASE AGREEMENT (this “Agreement”), dated as of May 25, 2007, is by and among
ROCKY BRANDS, INC., an Ohio corporation (“Parent”) and the other parties identified on the
signature pages hereto as “Loan Parties” (each a “Loan Party” and, together with Parent, the “Loan
Parties”), the note purchasers that are now and hereafter at any time parties hereto and are listed
in Annex A (or any amendment or supplement thereto) attached hereto (each, together with
its successors and permitted assigns, a “Purchaser” and collectively, the “Purchasers”), and
Laminar Direct Capital L.P., a Delaware limited partnership, as collateral agent for the Purchasers
(in such capacity “Agent”). Capitalized terms used and not defined elsewhere in this Agreement are
defined in Article 1 hereof.




RECITALS




          A. The Loan Parties have proposed selling Second Priority Senior Secured Notes to the
Purchasers designated on Annex A in the aggregate amount of $40,000,000 for the purpose of
(i) refinancing certain existing outstanding indebtedness of the Loan Parties (A) to the Lenders
under the GMAC Credit Agreement (as defined herein), including a Term Loan A in the original
principal amount of $18,000,000 (“Term Loan A”) and a Term Loan C in the original principal amount
of $15,000,000 (“Term Loan C”) and (B) under a certain Note Purchase Agreement in the original
aggregate principal amount in favor of American Capital Financial Services, Inc. and the purchasers
thereunder (collectively, the “Refinancing”), (ii) paying transaction costs associated with the
Refinancing and (iii) providing for general business purposes of the Loan Parties.




          B. The Loan Parties have also proposed to enter into an amended and restated revolving credit
facility with the Lenders (as defined herein) in the aggregate amount of $100,000,000.




          NOW, THEREFORE, the parties hereto, in consideration of the promises and their mutual
covenants and agreements herein set forth and intending to be legally bound hereby, covenant and
agree as follows:




ARTICLE 1

DEFINITIONS




          1.1 Certain Definitions. In addition to other words and terms defined elsewhere in this
Agreement, the following words and terms shall have the meanings set forth below:




          “Affiliate” shall mean, with respect to any Person, any other Person that is directly or
indirectly controlling, controlled by or under common control with such Person or
entity or any of its Subsidiaries, and





 









 







the term “control” (including the terms “controlled by”
and “under common control with”) means having, directly or indirectly, the power to direct or cause
the direction of the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise. Without limiting the foregoing, the ownership of ten percent
(10%) or more of the voting securities of a Person shall be deemed to constitute control and
notwithstanding anything to the contrary herein, neither the Purchasers nor any of their respective
Affiliates shall be deemed to be Affiliates of the Loan Parties by virtue of the transactions
contemplated in this Agreement.




          “Agent” shall have the meaning assigned to such term in the preamble hereto and shall include
any successor agent provided for hereunder.




          “Agreement” shall mean this Note Purchase Agreement, as the same may be amended, restated,
supplemented or otherwise modified from time to time.




          “Business” shall mean the principal business of the Loan Parties as set forth in Section
5.1(b) herein and as such shall continue to be conducted following the purchase and sale of the
Senior Term Notes.




          “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banking
institutions in New York are authorized or required by law to close.




          “By-laws” shall mean, with respect to any Person, the by-laws, partnership agreement,
operating agreement, limited liability company agreement or analogous instrument governing the
operations of the Loan Parties, as applicable, including all amendments and supplements thereto.




          “Capital Expenditures” shall mean, for any period of determination, with respect to any
Person, the sum of expenditures for, or contracts for expenditures with respect to, any fixed
assets or improvements, or for replacements, substitutions or additions thereto, that in accordance
with GAAP either would be required to be capitalized on the balance sheet of such Person, or would
be classified and accounted for as capital expenditures on a statement of cash flows of such
Person.




          “Capitalization Schedule” shall have the meaning assigned to such term in Section 5.1(d).




          “Capitalized Leases” shall mean, with respect to any Person, any lease of any property
(whether real, personal or mixed) that in conformity with GAAP, would be required to be classified
and accounted for as a capital lease on a balance sheet of such Person.




          “Cash Interest Expense” shall mean, without duplication, for any period, for Parent on a
Consolidated Basis: interest expense deducted in the determination of net income (excluding (a) the
amortization of fees and costs with respect to the Parent’s acquisition of certain equity interests
and the financing thereof on or about January 6, 2005, which have been capitalized as transaction
costs in accordance with the provisions of Section 1.3; (b) any non-cash charges and/or
amortization of other capitalized fees and costs subsequent to January 6, 2005, and (c) interest
paid in kind).




2









 








          “CERCLA” shall mean the Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. § 9604, et seq.), as amended, and rules, regulations, and standards promulgated
thereunder.




          “Change of Control” shall mean the occurrence of any of the following:




          (a) any person or group of persons (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934, as amended) shall obtain ownership or control in one or more series of
transactions of more than 50% of the common stock or 50% of the voting power of the Parent entitled
to vote in the election of members of the board of directors of the Parent;




          (b) a merger, consolidation, reorganization, recapitalization or share exchange (whether or
not Parent is the surviving and continuing corporation) in which the stockholders of Parent
immediately prior to such transaction own, as a result of such transaction, less than fifty percent
(50%) of the securities entitled to vote for the election of directors of the resulting corporation
or less than fifty percent (50%) of the capital stock of the resulting corporation; or




          (c) a sale, transfer or other disposition of all or substantially all of the assets of Parent
and its Subsidiaries, on a consolidated basis.




          “Charges” shall mean all taxes, charges, fees, imposts, levies or other assessments,
including, without limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp, occupation and
property taxes, custom duties, fees, assessments, liens, claims and charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional amounts, imposed by
any taxing or other authority, domestic or foreign (including, without limitation, the PBGC or any
environmental agency or superfund), upon the Collateral, the Loan Parties or any of their
Affiliates.




          “Charter Documents” shall mean, with respect to any Person, the articles of incorporation,
certificate of incorporation, certificate of limited partnership, certificate of limited liability
company, charter or analogous organic instrument filed with the appropriate Governmental
Authorities of such Person, as applicable, including all amendments and supplements thereto.




          “Closing” shall have the meaning assigned in Section 2.3 hereof.




          “Closing Date” shall have the meaning assigned to such term in Section 2.3 hereof.




          “Code” shall mean the Internal Revenue Code of 1986, as amended.




          “Collateral” shall have the meaning assigned to such term in the Security Agreement.




          “Common Stock” shall mean the common stock, without par value, of Parent.




3









 








          “Condition” shall mean any condition that results in or otherwise relates to any Environmental
Liabilities.




          “Controlled Group” shall mean the “controlled group of corporations” as that term is defined
in Section 1563 of the Code, of which the Loan Parties are a party from time to time.




          “Copyright Licenses” means any agreement, whether written or oral, providing for the grant by
or to the Loan Parties or any of their Subsidiaries of any right under any Copyright, including the
grant of any right to use, copy, publicly perform, display, create derivative works, manufacture,
distribute, exploit or sell materials derived from any Copyright.




          “Copyrights” means (a) all right, title and interest in or relating to copyrights, whether now
owned or hereafter acquired or existing, arising under the laws of the United States or any other
country or any political subdivision thereof, whether registered or unregistered and whether
published or unpublished, all registrations and recordings thereof and all applications in
connection therewith, including all registrations, recordings and applications in the United States
Copyright Office or in any counterparts thereof, and (b) the right to obtain all renewals,
continuations, reversions and extensions thereof.




          “Covered Taxes” shall have the meaning assigned to such term in Section 3.9 hereof.




          “Default” shall mean any event or condition that, but for the giving of notice or the lapse of
time, or both, would constitute an Event of Default.




          “Deposit Account Control Agreements” shall have the meaning assigned to such term in Section
4.1(c).




          “Domestic Subsidiary” shall mean, with respect to any Person, a Subsidiary of such Person,
which Subsidiary is incorporated or otherwise organized under the laws of a State of the United
States of America.




          “EBITDA” means, for any period, without duplication, the total of the following for Parent on
a Consolidated Basis, each calculated for such period: (a) net income determined in accordance with
GAAP; plus, to the extent included in the calculation of net income, (b) the sum of (i) income and
franchise taxes paid or accrued; (ii) interest expense, net of interest income, paid or accrued;
(iii) amortization and depreciation, (iv) Non-Recurring Charges and (v) any non-cash intellectual
property impairment charges, non-cash stock compensation expense charges and other non-cash charges
(excluding accruals for cash expenses made in the ordinary course of business); less, to the extent
included in the calculation of net income, (c) the sum of (i) the income of any Person (other than
wholly-owned Subsidiaries of Parent) in which Parent or a wholly-owned Subsidiary of Parent has an
ownership interest, except to the extent such income is received by Parent or such wholly-owned
Subsidiary in a cash distribution during such period; (ii) gains or losses from sales or other
dispositions of assets (other than inventory in the normal course of business) and (iii)
extraordinary gains.




4









 








          “Environmental Laws” shall mean any Laws that address, are related to or are otherwise
concerned with environmental, health or safety issues, including any Laws relating to any
emissions, releases or discharges of Pollutants into ambient air, surface water, ground water or
land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, handling, clean-up or control of Pollutants or any exposure or impact on
worker health and safety.




          “Environmental Liabilities” shall mean any obligations or liabilities (including any claims,
suits or other assertions of obligations or liabilities) that are:




          (a) related to environmental, health or safety issues (including on-site or off-site
contamination by Pollutants of surface or subsurface soil or water, and occupational safety and
health); and




          (b) based upon or related to (i) any provision of past, present or future United States or
foreign Environmental Law (including CERCLA and RCRA) or common law, or (ii) any judgment, order,
writ, decree, permit or injunction imposed by any court, administrative agency, tribunal or
otherwise.




          The term “Environmental Liabilities” includes: (i) fines, penalties, judgments, awards,
settlements, losses, damages (including foreseeable and unforeseeable consequential damages),
costs, fees (including attorneys’ and consultants’ fees), expenses and disbursements; (ii) defense
and other responses to any administrative or judicial action (including claims, notice letters,
complaints, and other assertions of liability); and (iii) financial responsibility for (1) cleanup
costs and injunctive relief, including any Removal, Remedial or other Response actions, and natural
resource damages, and (2) any other compliance or remedial measures.




          “Environmental Schedule” shall have the meaning assigned to such term in Section 5.1(l)
hereof.




          “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may from
time to time be amended, and the rules and regulations of any governmental agency or authority, as
from time to time in effect, promulgated thereunder.




          “Equity Equivalent” shall have the meaning assigned to such term in Section 3.6 hereof.




          “Equity Prepayment” shall have the meaning assigned to such term in Section 3.6 hereof.




          “Equity Prepayment Premium” shall have the meaning assigned to such term in Section 3.6
hereof.




          “ERISA Affiliate” shall mean any Loan Party and any Person who is a member of a group which is
under common control with any Loan Party, who together with any Loan Party is treated as a single
employer within the meaning of Section 414 of the Internal Revenue Code.




5









 








          “Event of Default” shall mean any of the events of default described in Section 8.1 hereof.




          “Financial Statements” shall have the meaning assigned to such term in Section 5.1(c) hereof.




          “Financing Statements” shall have the meaning assigned to such term in Section 4.1(c) hereof.




          “Fiscal Year” or “fiscal year” shall mean each twelve (12) month period ending on December 31
of each year.




          “Fixed Charge Coverage Ratio” shall mean, for any period of four (4) consecutive calendar
quarters, the ratio of EBITDA of Parent on a Consolidated Basis less Capital Expenditures on a
consolidated basis during such period to the Fixed Charges during such period.




          “Fixed Charges” shall mean, for any period, and each calculated for such period (without
duplication) of Parent on a Consolidated Basis, the sum of (a) Cash Interest Expense of the Loan
Parties; (b) scheduled payments of principal with respect to all Indebtedness (other than (i) the
Revolving Financing and (ii) payments made with respect to Term Loan A and Term Loan C); (c) any
provision for income or franchise taxes included in the determination of net income, excluding any
provision for deferred taxes; and (d) payment of deferred taxes, income and franchise taxes accrued
in any prior period.




          “Foreign Subsidiary” means, with respect to any Person, a Subsidiary of such Person, which
Subsidiary is not incorporated or otherwise organized under the laws of a state of the United
States of America.




          “GAAP” shall have the meaning assigned to such term in Section 1.2 hereof.




          “GMAC” shall mean GMAC Commercial Finance, LLC, a Delaware limited liability company.




          “GMAC Agent” shall mean the administrative agent as defined in the GMAC Credit Agreement.




          “GMAC Credit Agreement” shall mean that certain Amended and Restated Loan and Security
Agreement by and among the Loan Parties and GMAC, dated as of May 25, 2007, as such may be amended
or modified from time to time as permitted hereunder; and any loan and security agreement, credit
agreement or other financing agreement evidencing any refinancing of the Indebtedness evidenced by
such GMAC Credit Agreement; provided that (i) the principal amount of such refinanced
Indebtedness does not exceed the amount permitted by the definition of “Revolving Financing”, (ii)
such Indebtedness does not extend beyond December 31, 2013, (iii) the terms and conditions of the
agreements, documents and instruments related to such refinancing, taken as a whole, are not, in
the reasonable judgment of Agent or the Required Purchasers, materially more onerous to the Agent
and the Required Purchases or the Loan Parties than those set forth in the GMAC Credit Agreement,
as in effect on the date of such




6









 







refinancing and (iv) such Indebtedness, including the documentation therefore, otherwise
constitutes Senior Indebtedness under the Intercreditor Agreement and the agent or lender
thereunder has executed a joinder or supplement to the Intercreditor Agreement or a new
intercreditor agreement on substantially the same terms as the Intercreditor Agreement.




          “GMAC Credit Documents” shall mean the GMAC Credit Agreement and all ancillary documents and
materials entered into in connection with the GMAC Credit Agreement.




          “GMAC Financing” shall mean, collectively, the Indebtedness and other obligations under or
relating to the Revolving Financing.




          “Governmental Authorities” shall mean any federal, state or municipal court or other
governmental department, commission, board, bureau, agency or instrumentality, governmental or
quasi-governmental, domestic or foreign.




          “Guaranty” shall mean any guaranty of the payment or performance of any Indebtedness or other
obligation and any other arrangement whereby credit is extended to one obligor on the basis of any
promise of another Person, whether that promise is expressed in terms of an obligation to pay the
Indebtedness of such obligor, or to purchase an obligation owed by such obligor, or to purchase
goods and services from such obligor pursuant to a take-or-pay contract, or to maintain the
capital, working capital, solvency or general financial condition of such obligor, whether or not
any such arrangement is reflected on the balance sheet of such other Person, firm or corporation,
or referred to in a footnote thereto, but shall not include endorsements of items for collection in
the ordinary course of business. For the purpose of all computations made under this Agreement,
the amount of a Guaranty in respect of any obligation shall be deemed to be equal to the maximum
aggregate amount of such obligation or, if the Guaranty is limited to less than the full amount of
such obligation, the maximum aggregate potential liability under the terms of the Guaranty.




          “Indebtedness” shall mean, for any Person at the time of any determination, without
duplication, all obligations, contingent or otherwise, of such Person that, in accordance with
GAAP, should be classified upon the balance sheet of such Person as indebtedness, but in any event
including: (i) all obligations for borrowed money, (ii) all obligations arising from installment
purchases of property or representing the deferred purchase price of property or services in
respect of which such Person is liable, contingently or otherwise, as obligor or otherwise (other
than trade payables and other current liabilities incurred in the ordinary course of business on
terms customary in the trade), (iii) all obligations evidenced by notes, bonds, debentures,
acceptances or instruments, or arising out of letters of credit or bankers’ acceptances issued for
such Person’s account, (iv) all obligations, whether or not assumed, secured by any Lien or payable
out of the proceeds or production from any property or assets now or hereafter owned or acquired by
such Person, (v) all obligations for which such Person is obligated pursuant to a Guaranty which
are classified under GAAP as indebtedness, (vi) the capitalized portion of lease obligations under
Capitalized Leases, (vii) all obligations for which such Person is obligated pursuant to any
Interest Rate Protection Agreements or derivative agreements or arrangements, (viii) all factoring
arrangements and (ix) all obligations of such Person upon which interest charges are customarily
paid or accrued.




7









 








          “Intellectual Property Agreements” shall have the meaning assigned to such term in Section
4.1(c) hereof.




          “Intellectual Property Schedule” shall have the meaning assigned to such term in Section
5.1(r) hereof.




          “Intercreditor Agreement” shall have the meaning assigned to such term in Section 10.17
hereof.




          “Interest Rate Protection Agreement” shall mean any interest rate swap, interest rate cap,
interest rate collar or other interest rate hedging agreement or arrangement.




          “Investment” as applied to any Person shall mean the amount paid or agreed to be paid or
loaned, advanced or contributed to other Persons, and in any event shall include, without
limitation, (i) any direct or indirect purchase or other acquisition of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership interests and joint
venture interests) and (ii) any capital contribution to any other Person.




          “Laws” shall mean all U.S. and foreign federal, state or local statutes, laws, rules,
regulations, ordinances, codes, policies, rules of common law, and the like, now or hereafter in
effect, including any judicial or administrative interpretations thereof, and any judicial or
administrative orders, consents, decrees or judgments.




          “Lenders” shall collectively mean the lenders party to the GMAC Credit Agreement.




          “Liabilities” shall have the meaning given that term in accordance with GAAP and shall
include, without limitation, Indebtedness.




          “Lien” shall mean any security interest, lien, pledge, bailment, mortgage, hypothecation, deed
of trust, conditional sales and title retention agreement (including any lease in the nature
thereof), charge, encumbrance or other similar arrangement or interest in real or personal
property, now owned or hereafter acquired, whether such interest is based on common law, statute or
contract.




          “Litigation Schedule” shall have meaning assigned to such term in Section 5.1(j) hereof.




          “Loan Party” and “Loan Parties” shall have the meanings assigned to such terms in the preamble
hereto.




          “Management” shall mean generation, production, handling, distribution, processing, use,
storage, treatment, operation, transportation, recycling, reuse and/or disposal, as those terms are
defined in CERCLA, RCRA and other Environmental Laws (including as those terms are further defined,
construed, or otherwise used in rules, regulations, standards, guidelines and publications issued
pursuant to, or otherwise in implementation of, such Environmental Laws).




8









 








          “Material Adverse Change” shall mean any change that has a Material Adverse Effect.




          “Material Adverse Effect” shall mean (a) a material adverse effect on the business,
properties, assets, liabilities or condition (financial or otherwise) of the Loan Parties, taken
together as a whole, (b) a material impairment of the ability of the Loan Parties, taken as a
whole, to perform their material obligations under the Transaction Documents to which they are
parties, taken as a whole, or (c) a material adverse effect upon the legality, validity, binding
effect or enforceability against the Loan Parties of the Transaction Documents to which they are
parties, taken as a whole.




          “Material Contracts” shall have the meaning assigned to such term in Section 5.1(w) hereof.




          “Maturity Date” shall have the meaning assigned to such term in Section 3.2 hereof.




          “Moody’s” shall have the meaning assigned to such term in Section 7.2(h) hereof.




          “Multiemployer Plan” shall mean a multiemployer plan (within the meaning of Section 3(37) of
ERISA) that is maintained for the benefit of the employees of the Loan Parties or any member of the
Controlled Group.




          “Non-Recurring Charges” shall mean the sum of the aggregate amount of fees, expenses,
financing costs and other expenses incurred in connection with (i) the Parent’s acquisition of
certain equity interests and the financing thereof on or about January 6, 2005, to the extent paid
substantially contemporaneously with, on or about such acquisition and (ii) the Transactions, to
the extent paid substantially contemporaneously with, on or about the Closing Date.




          “Offering Memorandum” shall mean that certain Second Priority Senior Secured Notes $40,000,000
Confidential Private Placement Offering Memorandum dated April, 2007, prepared in conjunction with
Piper Jaffray & Co.




          “Organization Schedule” shall have the meaning assigned to such term in Section 5.1(a) hereof.




          “Other Taxes” shall have the meaning assigned to such term in Section 3.9 hereof.




          “Parent” shall have the meaning assigned to such term in the preamble hereof.




          “Parent on a Consolidated Basis” shall mean the consolidation, in accordance with GAAP, of the
financial accounts of Parent and its Subsidiaries.




          “Parent SEC Reports” shall have the meaning assigned to such term in Section 5.1(y) hereof.




9









 








          “Patent License” means all agreements, whether written or oral, providing for the grant by or
to the Loan Parties or any of their Subsidiaries of any right to any Patent, including the grant of
any right to manufacture, have manufactured, use, import, lease, sell or offer for sale any
invention covered in whole or in part by a Patent.




          “Patents” means (a) all right, title and interest in or relating to letters patent of the
United States, any other country or any political subdivision thereof and all reissues,
reexaminations, and extensions thereof, (b) all applications for letters patent of the United
States or any other country or any political subdivisions thereof and all divisionals,
continuations and continuations-in-part thereof and (c) all rights to obtain any reissues,
reexaminations or extensions of the foregoing.




          “Patriot Act” shall have the meaning assigned to such term in Section 5.1(x) hereof.




          “PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A
of Title IV of ERISA, or any other governmental agency, department or instrumentality succeeding to
the functions thereof.




          “PCBs” shall have the mean assigned to such term within the definition of the term “Pollutant”
below.




          “Permitted Acquisition” means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement by which the Parent or any Subsidiary thereof
(a) acquires any ongoing business or all or a substantially all of the operations or assets of any
Person, any division thereof or operating unit thereof, whether through purchase of assets, merger
or otherwise or (b) directly or indirectly acquires (in one transaction or in a series of
transactions) all or substantially all (in number of votes) of the equity interests of a Person
which have ordinary voting power for the election of directors or constitute a majority (by
percentage of voting power) of the outstanding equity interests of another Person (any of the
foregoing an “Acquisition”); provided that:





(i) such Acquisition is made at a time when, after giving effect to such Acquisition and the
related financing thereof, no Default or Event of Default exists;




(ii) after giving effect to such Acquisition, no Default or Event of Default exists or would
occur based on a 12 month pro forma good faith prospective calculation of the covenant set
forth in Section 7.3(A) (excluding any Acquisition as a Capital Expenditure), giving effect
to the EBITDA of the acquired operations or Person and any higher levels of Indebtedness
associated with the acquired operations or Person;




(iii) the acquired Person or post-merger Person (other than any Foreign Subsidiary), if such
Acquisition is of equity interests, guarantees all obligations under this Agreement and
grants to Agent, for the benefit of Agent and Purchasers, a first Lien upon all of the
tangible and intangible personal property of such acquired Person, whether then owned or
thereafter acquired or arising, subject only to Liens permitted by this Agreement;



10









 






(iv) if the Acquisition is of equity interests, such Loan Party acquiring such equity
interests grants to Agent, for the benefit of Agent and Purchasers, a Lien upon all such
equity interests (or not less than 65% of such equity interests if a Foreign Subsidiary)
pursuant to a pledge agreement or joinder in form and substance satisfactory to Agent;




(v) any acquired assets become subject to Liens in favor of Agent, for the benefit of Agent
and Purchasers, pursuant to such agreements, instruments and documents as shall be
satisfactory in form and substance to Agent, and are free and clear of all other Liens
except as permitted under this Agreement;




(vi) Parent delivers written notice to Agent of its or such Subsidiary’s intention to make
such Acquisition no less than 15 Business Days prior to the proposed closing date for such
Acquisition, together with a certificate that sets forth (A) information regarding
liabilities and obligations with respect to tax, ERISA and environmental matters, if any, to
be incurred by such Person (including, without limitation, the acquired Person in the event
of an Acquisition of equity interests) as a result of such Acquisition, any indemnities
afforded under the terms of such Acquisition and the scope and results of any tax, ERISA or
environmental review undertaken by the Parent or such Subsidiary in connection therewith and
(B) any available financial statements of (1) such acquired Person if such Acquisition of
equity interests, and (2) operating unit or division if such Acquisition is of assets;




(vii) on the date of the closing of the Permitted Acquisition, all representations and
warranties under the Transaction Documents shall be true and correct in all material
respects as though made on and as of such date, except to the extent that any such
representation or warranty expressly relates to an earlier date;




(viii) such Acquisition is of or with a Person assembling and selling specialty footwear,
apparel and accessories or an industry related thereto;




(ix) such Acquisition shall have been approved by the board of directors of such Person (or
similar governing body if such Person is not a corporation) that is the subject of such
Acquisition, and such Person shall not have announced that it will oppose such Acquisition
or shall not have commenced any action which alleges that such Acquisition will violate any
applicable law;




(x) the consideration for the Permitted Acquisition shall have been paid only (A) in cash,
(B) in deferred installment payments, provided that any indebtedness incurred in
connection therewith is permitted pursuant to Section 7.2(a) or equity interests of the
Parent or such Subsidiary making such Acquisition, and the purchase price for any such
Acquisition, including (1) the original stated purchase price therefor, plus (2) the
reasonably estimated transaction costs associated with such Acquisition, plus (3)
the amount of Indebtedness for borrowed money assumed (directly or indirectly) as a result
thereof, plus (4) all amounts payable of any nature whatsoever, including cost of
goods sold, to the seller or any Affiliate of such seller following such Acquisition, shall
not



11









 







exceed the amount set forth in Section 7.2(d) (excluding any portion of any of the foregoing
payable in common equity of the Parent or any Subsidiary thereof); and




(xi) on the funding date for any borrowing of any Loans for the purpose of consummating a
Permitted Acquisition, Agent shall have received a certificate from an officer of Parent (A)
certifying that (1) such Acquisition meets the requirements of the definition of Permitted
Acquisition and (2) the liabilities assumed with respect to such Permitted Acquisition do
not or are not reasonably likely to have a Material Adverse Effect, and (B) attaching
calculations of financial covenant set forth in Section 7.3, copies of the
definitive purchase agreement or most recent draft of the same, and copies of all material,
business and financial information relating to the business purchased in the Permitted
Acquisition, all as Agent may reasonably request.



          “Permitted Encumbrances Schedule” shall have the meaning assigned to such term in
Section 7.2(b) hereof.




          “Permitted Indebtedness Schedule” shall have the meaning assigned to such term in Section
7.2(a) hereof.




          “Permitted Investment” shall have the meaning assigned to such term in Section 7.2(h) hereof.




          “Permitted Liens” shall have the meaning assigned to such term in Section 7.2(b) hereof.




          “Permitted Sale/Leaseback” means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement by which the Parent or any Subsidiary thereof
(a) sells any of its real property and equipment which is subject to, as of the Closing Date, a
Lien in favor of General Electric Capital Business Asset Funding Corporation and, substantially
simultaneously therewith, (b) leases such real property (or a portion thereof) from the purchaser
thereof or an Affiliate of such purchaser, or otherwise enters into a contractual relationship
pursuant to which such purchaser (or an Affiliate thereof) provides logistic services for one or
more of the Loan Parties at such property; provided that:





(i) such sale/leaseback is made at a time when, after giving effect thereto, no Default or
Event of Default exists;




(ii) the entire balance of the mortgage secured by such real property is paid in full from
the sale proceeds thereof;




(iii) any Net Cash Proceeds (as defined in the GMAC Credit Agreement) thereof are remitted
to GMAC Agent in accordance with the GMAC Credit Agreement; and




(iv) any non-cash proceeds thereof consisting of any notes or other evidence of Indebtedness
are delivered to the GMAC Agent as additional Collateral, together with such Transaction
Documents as Agent may reasonable request in connection therewith.



12









 





          “Person” shall mean any individual, partnership, limited partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture, unincorporated
organization or governmental entity or department, agency or political subdivision thereof.




          “Plan” shall mean any employee benefit plan (within the meaning of Section 3(3) of ERISA),
other than a Multiemployer Plan, established or maintained by the Loan Parties or any member of the
Controlled Group.




          “Pledge Agreement” shall have the meaning assigned to such term in Section 4.1(c) hereof.




          “Pollutant” shall include any “hazardous substance” and any “pollutant or contaminant” as
those terms are defined in CERCLA; any “hazardous waste” as that term is defined in RCRA; and any
“hazardous material” as that term is defined in the Hazardous Materials Transportation Act (49
U.S.C. § 1801 et seq.), as amended (including as those terms are further defined, construed, or
otherwise used in rules, regulations, or standards promulgated pursuant to, or otherwise in
implementation of, said Environmental Laws); and including without limitation any petroleum product
or byproduct, solvent, flammable or explosive material, radioactive material, asbestos,
polychlorinated biphenyls (“PCBs”), dioxins, dibenzofurans, heavy metals, and radon gas; and
including any other substance or material that is reasonably determined to present a threat, hazard
or risk to human health or the environment.




          “Prepayment Fee” shall mean a non-refundable fee payable pro rata to the Purchasers equal to
the principal amount of any Senior Term Note prepaid pursuant to Section 3.3 or 3.5, multiplied by
(i) five percent (5%), if such prepayment occurs during the period beginning with the first
anniversary of the Closing Date and ending with the day immediately preceding the second
anniversary of the Closing Date, (ii) three percent (3%), if such prepayment occurs during the
period beginning with the second anniversary of the Closing Date and ending with the day
immediately preceding the third anniversary of the Closing Date, (iii) one and one-half percent
(1.5%) if such prepayment occurs during the period beginning with the third anniversary of the
Closing Date and ending with the day immediately preceding the fourth anniversary of the Closing
Date, and (iv) zero percent (0%) if such prepayment occurs at any time thereafter.




          “Pro Forma Balance Sheet” shall have the meaning assigned to such term in Section 5.1(c)(iii).




          “Properties and Facilities” shall have the meaning assigned to such term in Section 5.1(q)
hereof.




          “Properties Schedule” shall have the meaning assigned to such term in Section 5.1(q) hereof.




          “Proprietary Rights” shall mean, collectively, whether now owned or hereafter acquired or
existing, (a) all right, title and interest of the Loan Parties or any of their Subsidiaries in or
relating to intellectual property or industrial property, whether arising under United States,
multinational or foreign laws or otherwise, including Copyrights, Copyright Licenses, Patents,
Patent Licenses, Trademarks, Trademark Licenses, trade secrets, Internet domain names and

13









 








domain name registrations, software and contract rights relating to software, websites,
advertising rights, rights in designs, including registrations thereof, and rights in data, and (b)
all right to income, royalties, proceeds and damages now or hereafter due and/or payable under and
with respect thereto, including all rights to sue and recover at law or in equity for any past,
present and future infringement, misappropriation, dilution, violation or other impairment thereof.




          “Purchaser” and “Purchasers” shall have the meanings assigned to such terms in the preamble
hereto and in Section 6.2 hereof.




          “RCRA” shall mean the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), as
amended, and all rules, regulations, standards, guidelines, and publications issued thereunder.




          “Refinancing” shall have the meaning assigned to such term in the recitals hereto.




          “Removal,” “Remedial” and “Response” actions shall include the types of
activities “covered”
by CERCLA, RCRA, and other comparable Environmental Laws, and whether the activities are those that
might be taken by a government entity or those that a government entity or any other person might
seek to require of waste generators, handlers, distributors, processors, users, storers, treaters,
owners, operators, transporters, recyclers, reusers, disposers, or other persons under “removal,”
“remedial,” or other “response” actions.




          “Reportable Event” shall mean any of the events that are reportable under Section 4043 of
ERISA and the regulations promulgated thereunder, other than an occurrence for which the thirty
(30) day notice contained in 29 C.F.R. § 2615.3(a) is waived.




          “Required Purchasers” shall mean, at any time, the Purchasers holding a pro rata percentage of
the outstanding principal amount of the Senior Term Notes aggregating at least 50.1% at such time.




          “Revolving Financing” shall mean a secured revolving line of credit facility pursuant to the
GMAC Credit Agreement in an aggregate principal amount not to exceed $100,000,000,
provided, however, that the outstanding principal amount of Revolving Financing may
be increased to $110,000,000, so long as the advance rates and standards for determining the
eligible receivables and eligible inventory for inclusion in the borrowing base under the GMAC
Credit Agreement in effect on the Closing Date support such increase and are satisfied.




          “S&P” shall have the meaning assigned to such term in Section 7.2(h) hereof.




          “Sarbanes Oxley” shall mean the United States Sarbanes-Oxley Act of 2002.




          “SEC” shall mean the Securities and Exchange Commission and any governmental body or agency
succeeding to the functions thereof.




          “Securities Act” shall mean the Securities Act of 1933, as amended.




14









 








          “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.




          “Securitization” shall have the meaning assigned to such term in Section 10.18 hereof.




          “Security Agreement” shall have the meaning assigned to such term in Section 4.1(c) hereof.




          “Security Documents” shall mean the Security Agreement, the Pledge Agreement, the Financing
Statements, and all other documents, instruments and other materials necessary to create or perfect
the security interests created pursuant to the Security Agreement.




          “Senior Term Notes” shall have the meaning assigned to such term in Section 2.1 hereof.




          “Subsidiary” of any corporation shall mean any other corporation or limited liability company
of which the outstanding capital stock possessing a majority of voting power in the election of
directors (otherwise than as the result of a default) is owned or controlled by such corporation
directly or indirectly through Subsidiaries.




          “Subsidiary Schedule” shall have the meaning assigned to such term in Section 5.1(e) hereof.




          “Taxes” shall have the meaning assigned to such term in Section 3.9 hereof.




          “Term Loan A” shall have the meaning assigned to such term in the recitals hereto.




          “Term Loan C” shall have the meaning assigned to such term in the recitals hereto.




          “Third Party Proprietary Rights” means any right, title or interest of any Person other than
the Loan Parties or any of their Subsidiaries under patent, copyright, trademark or trade secret
law or any other statutory provision or common law doctrine relating to intellectual property or
proprietary rights.




          “Trademark License” means any agreement, whether written or oral, providing for the grant by
or to the Loan Parties or any of their Subsidiaries of any right under any Trademark.




          “Trademarks” means (a) all trademarks, trade names, corporate names, company names, business
names, fictitious business names, trade styles, trade dress, service marks, logos and other source
or business identifiers, and, in each case, all goodwill associated therewith, whether now owned or
hereafter acquired or existing, all registrations and recordings thereof and all applications in
connection therewith, in each case whether in the United States Patent and Trademark Office or in
any similar office or agency of any state thereof or any other country or

15









 








any political subdivision thereof, or otherwise, and all common-law rights related thereto,
and (b) the right to obtain all renewals and extensions thereof.




          “Transaction Documents” shall mean this Agreement, the Senior Term Notes and the Security
Documents and all other agreements, instruments and documents delivered in connection therewith as
any or all of the foregoing may be supplemented or amended from time to time.




          “Transactions” shall mean the incurrence of debt and the issuance of securities in connection
therewith, as contemplated by this Agreement, the Senior Term Notes, the consummation of the
Refinancing, and all other agreements contemplated hereby and thereby.




          “UCC” shall mean the New York Uniform Commercial Code.




          “UST” shall mean an underground storage tank, including as that term is defined, construed and
otherwise used in RCRA and in rules, regulations, standards, guidelines and publications issued
pursuant to RCRA and comparable state and local laws.




          1.2 Accounting Principles. The character or amount of any asset, liability, capital account
or reserve and of any item of income or expense to be determined, and any consolidation or other
accounting computation to be made, and the construction of any definition containing a financial
term, pursuant to this Agreement shall be determined or made in accordance with generally accepted
accounting principles in the United States of America consistently applied (“GAAP”), unless such
principles are inconsistent with the express requirements of this Agreement. In the event any
“Accounting Changes” (as defined below) shall occur and such changes affect financial covenants,
standards or terms in this Agreement, then Loan Parties and Required Purchasers agree to enter into
negotiations in order to amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating the financial condition
of the Loan Parties shall be the same after such Accounting Changes as if such Accounting Changes
had not been made, and until such time as such an amendment shall have been executed and delivered
by Loan Parties and Requisite Lenders, (A) all financial covenants, standards and terms in this
Agreement shall be calculated and/or construed as if such Accounting Changes had not been made, and
(B) the Loan Parties shall prepare footnotes to each compliance certificate and the financial
statements required to be delivered hereunder that show the differences between the financial
statements delivered (which reflect such Accounting Changes) and the basis for calculating
financial covenant compliance (without reflecting such Accounting Changes). “Accounting Changes”
means: (a) changes in accounting principles required by GAAP and implemented by Loan Parties and
(b) changes in accounting principles recommended by Loan Parties’ accountants.




          1.3 Other Definitional Provisions; Construction. Whenever the context so requires, neuter
gender includes the masculine and feminine, the singular number includes the plural and vice versa.
The word “including” when used herein shall mean “including without limitation” unless the context
states otherwise. The words “hereof,” “herein” and “hereunder” and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this
Agreement, and references to any section, article, annex, schedule, exhibit or like references are
references to this Agreement unless

16









 







otherwise specified. A Default or Event of Default shall
“continue” or be “continuing” until such Default or Event of Default has been cured or waived by
Agent and the Required Purchasers or the Purchasers, as applicable, pursuant to Section 10.2.
References in this Agreement to any Persons shall include such Persons, successors and permitted
assigns. Other terms contained in this Agreement (which are not otherwise specifically defined
herein) shall have the meanings provided to such terms in Article 9 of the UCC on the date hereof
to the extent the same are used or defined therein.




ARTICLE 2

ISSUE AND SALE OF THE SENIOR TERM NOTES




          2.1 Senior Term Notes. On the Closing Date, the Loan Parties duly authorized the issuance to
the Purchasers designated on Annex A of $40,000,000 aggregate principal amount of the Loan
Parties’ Second Priority Senior Secured Notes due May 25, 2012 (together with any promissory notes
issued in substitution therefor pursuant to Sections 6.3 and 6.4, the “Senior Term Notes”)
substantially in the form of the promissory notes made by the Loan Parties in favor of the
Purchasers thereof in the form attached hereto as Exhibit A.




          2.2 Sale and Purchase. Subject to the terms and conditions and in reliance upon the
representations, warranties and agreements set forth herein, the Loan Parties shall sell to the
Purchasers, and the Purchasers shall purchase from the Loan Parties, in amounts designated in Annex
B, the Senior Term Notes in the aggregate principal amount set forth in Section 2.1 hereof.




          2.3 The Closing. Delivery of and payment for the Senior Term Notes (the “Closing”) shall be
made at on May 25, 2007, or at such other date as may be mutually agreeable to the Loan Parties and
the Purchasers. The date and time of the Closing as finally determined pursuant to this Section
2.3 are referred to herein as the “Closing Date.” Delivery of the Senior Term Notes shall be made
to the Purchasers against payment of the purchase price therefor, less any amounts payable pursuant
to Section 4.1(g) hereof, by wire transfer of immediately available funds in the manner agreed to
by the Loan Parties and the Purchasers. The Senior Term Notes shall be issued in such name or
names and in such permitted denomination or denominations, numbers and amounts as set forth in
Annex A or as the Purchasers may request in writing not less than two (2) Business Days
before the Closing Date.




ARTICLE 3

REPAYMENT OF SENIOR TERM NOTES




          3.1 Interest Rates and Interest Payments.




          (a) Senior Term Notes. The Loan Parties, jointly and severally, covenant and agree to make
payments to the Purchasers holding Senior Term Notes, of accrued interest on the Senior Term Notes
semi-annually in arrears on the first Business Day of each June and December, commencing on
December 1, 2007, through the date of repayment in full of the Senior Term Notes. The Senior Term
Notes shall bear interest on the outstanding principal thereof at a rate equal to the fixed rate of
eleven and one-half percent (11.50%).




17









 








          (b) Computation of Interest. Interest on the Senior Term Notes shall be computed on the basis
of a year with three hundred sixty (360) days and twelve 30-day months.




          3.2 Repayment of Senior Term Notes. The Loan Parties, jointly and severally, covenant and
agree to repay any and all unpaid principal on the Senior Term Notes, together with all accrued and
unpaid interest, fees and other amounts due in connection with the Senior Term Notes upon maturity
of the Senior Term Notes on May 25, 2012 (the “Maturity Date”).




          3.3 Optional Prepayment of Senior Term Notes. At any time on or after the first anniversary
of the Closing Date, subject to the terms of this Section 3.3, and in connection with any Equity
Prepayment pursuant to Section 3.9 (regardless of when such event occurs), the Loan Parties may
prepay to the Purchasers the outstanding principal amount of the Senior Term Notes in whole or in
part in multiples of $500,000, or such lesser amount as is then outstanding, plus accrued interest,
if any, to the date set for prepayment on the principal amount to be repaid. At the time of each
such prepayment made at any time prior to the fourth anniversary of the Closing Date, the Loan
Parties shall pay to the Purchasers the applicable Prepayment Fee or Equity Prepayment Premium.
All such prepayments shall be so applied after application of such prepayment to any accrued
interest payable, if any, in connection therewith and any applicable Prepayment Fee or Equity
Prepayment Premium.




          3.4 Notice of Optional Prepayment. If the Loan Parties shall elect to prepay any Senior Term
Notes pursuant to Section 3.3 hereof, the Loan Parties shall give notice of such prepayment to the
Agent and the Purchasers not less than thirty (30) days or more than ninety (90) days prior to the
date fixed for prepayment, specifying (i) the date on which such prepayment is to be made, (ii) the
principal amount of such Senior Term Notes to be prepaid on such date and (iii) the applicable
Prepayment Fee or Equity Prepayment Premium, if any, and accrued interest applicable to such
prepayment. Such notice shall be accompanied by a certificate of the Chief Executive Officer, the
Chief Financial Officer, or the Chief Operating Officer of Parent that such prepayment is being
made in compliance with Section 3.3. Notice of prepayment having been so given, the aggregate
principal amount of the Senior Term Notes specified in such notice, together with accrued interest
thereon and the premium, if any, shall become due and payable on the prepayment date set forth in
such notice.




          3.5 Mandatory Prepayment: Change of Control; Event of Default.




     (a) Upon the occurrence of a Change of Control, each Purchaser shall have the right to require
the Loan Parties to repurchase all or any part of such Purchaser’s Senior Term Notes pursuant to
the offer described below (the “Change of Control Offer”) at an offer price (the
“Change of Control Payment”) in cash equal to the outstanding principal amount of the
applicable Senior Term Notes, together with all accrued and unpaid interest, fees, expenses and a
premium for the ratable benefit of the Purchasers equal to five percent (5%) of the aggregate
outstanding principal amounts of the Senior Term Notes being prepaid, in each case as of the date
of purchase (the “Change of Control Payment Date”). The Loan Parties will make the Change
of Control Offer by delivering a written notice of such offer to the Purchasers at least five (5)
Business Days prior to the occurrence of a Change of Control, specifying the Change of Control
Payment Date (which such date shall not be more than five (5) Business Days following



18









 







such Change
of Control). A Purchaser may accept such Change of Control Offer by delivering a written notice of
acceptance to the Loan Parties within five (5) Business Days after receipt of the Change of Control
Offer specifying the amount of the Senior Term Notes to be redeemed.



     (b) By 2:00 p.m. (noon) Central Time on the Change of Control Payment Date, the Loan Parties
shall (1) accept for payment all Senior Term Notes or portions thereof properly tendered pursuant
to the Change of Control Offer, and (2) pay via wire transfer in immediately available funds an
amount equal to the Change of Control Payment in respect of all Senior Term Notes or portions
thereof so tendered. All payments under this Section 3.5 shall be applied first to all costs,
expenses, indemnities and other amounts payable hereunder and under the applicable Senior Term
Notes, then to payment of default interest, if any, then to payment of premium, if any, then to
payment of accrued interest and thereafter to payment of principal. The Loan Parties shall send to
each Purchaser that has tendered its Senior Term Notes the applicable Change of Control Payment for
such Senior Term Notes, and the Loan Parties shall promptly execute and mail to each Purchaser a
new Senior Term Note equal in principal amount to any unpurchased portion of the Senior Term Notes
surrendered, if any.



     (c) In addition, the Senior Term Notes shall be prepaid in full, together with all accrued and
unpaid interest, fees, any applicable Prepayment Fee, for the ratable benefit of the Purchasers,
and expenses upon such Senior Term Notes becoming due as a consequence of an Event of Default
(other than due to a Change of Control) pursuant to Section 8.2. If the Senior Term Notes shall
become due prior to the first anniversary of the Closing Date as a result of an Event of Default,
the applicable Prepayment Fee shall be deemed to be 5.0% of the aggregate principal amount of the
Senior Term Notes prepaid.



          3.6 Equity Payment. In the event the Parent or any Subsidiary shall at any time or from time
to time issue any equity securities to any Person other than the Parent or any Subsidiary thereof,
notwithstanding any provision of this Agreement, but subject to the terms of this Section 3.6, the
Loan Parties may prepay to the Purchasers, on a ratable basis, from the net cash proceeds of any
such equity issuance, up to 35% of the aggregate outstanding principal amount of the Senior
Term Notes then outstanding (an “Equity Prepayment”) in whole or in part in multiples of
$500,000, or such lesser amount as is then outstanding, plus accrued interest, if any, to the date
set for prepayment on the principal amount to be repaid. If any such prepayment or redemption is
made at any time prior to the first anniversary of the Closing Date, the Loan Parties shall pay to
the Purchasers a prepayment premium (an “Equity Prepayment Premium”) (expressed as a percentage of
principal amount) equal to 11.50% of the aggregate principal amount of the Senior Term Notes
prepaid or redeemed with each Equity Prepayment. If any such prepayment or redemption is made at
any time on or after the first anniversary of the Closing Date, the Loan Parties shall pay to the
Purchasers any applicable Prepayment Fee on the Senior Term Notes prepaid or redeemed with each
Equity Prepayment to the extent applicable. In the event of any such prepayment from the net cash
proceeds of an equity issuance, at the election of the Parent, and provided no Default or Event of
Default then exists, such Equity Prepayment Premium or Prepayment Fee may be paid, subject to the
terms of this Section 3.6, either in cash or in equity securities of the Parent. If the Parent
elects to pay such Equity Prepayment Premium or Prepayment Fee in equity securities rather than
cash, such securities shall be paid in registered, marketable, publicly traded equity securities of
the Parent in an




19









 







amount equal to the Equity Equivalent (as defined below). If the Parent elects to
prepay any Senior Term Notes pursuant to this Section 3.6 hereof, the Parent shall give notice of
such prepayment to Agent and the Purchasers not less than forty-five (45) days or more than one
hundred and five (105) days prior to the date fixed for such Equity Prepayment, specifying (i) the
date on which such prepayment is to be made, (ii) the principal amount of such Senior Term Notes to
be prepaid on such date, (iii) such Equity Prepayment Premium or Prepayment Fee, if any, and
accrued interest applicable to such prepayment and (iv) whether such Equity Prepayment Premium or
Prepayment Fee will be paid in cash or equity securities. Such notice shall be accompanied by a
certificate of the Chief Executive Officer, the Chief Financial Officer, or the Chief Operating
Officer of Parent that such prepayment is being made in compliance with this Section 3.6. Notice
of prepayment having been so given, the aggregate principal amount of the Senior Term Notes
specified in such notice, together with accrued interest thereon and the premium, if any, shall
become due and payable on the prepayment date set forth in such notice. “Equity Equivalent” shall
be determined by dividing (i) the cash value of the applicable Equity Prepayment Premium or
Prepayment Fee by (ii) the per share average closing price of Parent’s equity securities as
reported on the exchange on which such equity securities are then listed for the seven trading days
prior to a date that is three trading days prior to the date fixed for prepayment or redemption.




          3.7 Home Office Payment. The Loan Parties will pay all sums becoming due on any Senior Term
Note for principal, prepayment penalty, if any, and interest to the respective Purchasers by the
method and at the address specified for such purpose in Annex A, or by such other method or
at such other address as the Purchasers shall have from time to time specified to the Loan Parties
in writing for such purpose, without the presentation or surrender of such Senior Term Note or the
making of any notation thereon, except that upon written request of the Loan Parties made
concurrently with or reasonably promptly after payment or prepayment in full of any Senior Term
Note, each holder of a Senior Term Note shall surrender such Senior Term Note for cancellation,
reasonably promptly after such request, to the Loan Parties at their principal executive office.
Notwithstanding anything to the contrary contained herein, all payments of principal and interest
due from the Loan Parties hereunder shall be made to the Purchasers on an equal and ratable
basis.




          3.8 Maximum Lawful Rate. This Agreement, the Senior Term Notes and the other Transaction
Documents are hereby limited by this Section 3.8. In no event, whether by reason of acceleration
of the maturity of the amounts due hereunder or otherwise, shall interest and fees contracted for,
charged, received, paid or agreed to be paid to the Purchasers exceed the maximum amount
permissible under applicable Law. If, from any circumstance whatsoever, interest and fees would
otherwise be payable to Agent or the Purchasers in excess of the maximum amount permissible under
applicable Law, the interest and fees shall be reduced to the maximum amount permitted under such
Law. If from any circumstance, Agent or the Purchasers shall have received anything of value
deemed interest by applicable Law in excess of the maximum lawful amount, an amount equal to any
excess of interest shall be applied to the reduction of the principal amount of the Senior Term
Notes, in such manner as may be determined by the Purchasers, and not to the payment of fees or
interest, or if such excess interest exceeds the unpaid balance of the principal amount of the
Senior Term Notes, such excess shall be refunded to the Loan Parties.




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          3.9 Taxes. Any and all payments by the Loan Parties hereunder or under the Senior Term Notes or
other Transaction Documents that are made to or for the benefit of the Purchasers shall be made
free and clear of and without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings and penalties, interests and all other liabilities with respect
thereto (collectively, “Taxes”), excluding taxes imposed on Agent’s or the Purchasers’ net income
or capital and franchise taxes imposed on any of them by the jurisdiction under the laws of which
any of them is organized or any political subdivision thereof (all such non-excluded Taxes being
hereinafter referred to as “Covered Taxes”). If any of the Loan Parties shall be required by Law
to deduct any Covered Taxes from or in respect of any sum payable hereunder or under any Senior
Term Notes or other Transaction Documents to the Purchasers the sum payable shall be increased as
may be necessary so that after making all required deductions of Covered Taxes (including
deductions of Covered Taxes applicable to additional sums payable under this paragraph), each
Purchaser receives an amount equal to the sum it would have received had no such deductions been
made. The Loan Parties shall make such deductions and the Loan Parties shall pay the full amount
so deducted to the relevant taxation authority or other authority in accordance with applicable
law. In addition, the Loan Parties agree to pay any present or future stamp, documentary, excise,
privilege, intangible or similar levies that arise at any time or from time to time from any
payment made under any and all Transaction Documents or from the execution or delivery by the Loan
Parties or from the filing or recording or maintenance of, or otherwise with respect to the
exercise by Agent or the Purchasers of their respective rights under any and all Transaction
Documents (collectively, “Other Taxes”). The Loan Parties will indemnify Agent and the Purchasers
for the full amount of Covered Taxes imposed on or with respect to amounts payable hereunder and
Other Taxes, and any liability (including penalties, interest and expenses) arising therefrom or
with respect thereto. Payment of this indemnification shall be made within thirty (30) days from
the date Agent or the Purchasers provide the Loan Parties with a certificate certifying and setting
forth in reasonable detail the
calculation thereof as to the amount and type of such Taxes. Any such certificates submitted by
Agent or the Purchasers in good faith to the Loan Parties shall, absent manifest error, be final,
conclusive and binding on all parties. The obligations of the Loan Parties under this Section 3.9
shall survive the payment of the Senior Term Notes and the termination of this Agreement. Within
thirty (30) days after the Loan Parties having received a receipt for payment of Covered Taxes
and/or Other Taxes, the Loan Parties shall furnish to the Purchasers the original or certified copy
of a receipt evidencing payment thereof.




          3.10 Capital Adequacy. If, after the date hereof, either the introduction of or any change of
the interpretation of any Law or the compliance by the Purchasers with any guideline or request
from any Governmental Authority (whether or not having the force of Law) has or would have the
effect of reducing the rate of return on the capital or assets of the Purchasers as a consequence
of, as determined by Agent or the Purchasers in their reasonable discretion, the existence of any
Purchaser’s obligations under this Agreement or any other Transaction Documents, then, upon demand
by the Purchasers, the Loan Parties immediately shall pay to the Purchasers, from the time as
specified by Purchasers, additional amounts sufficient to compensate the Purchaser in light of such
circumstances. The obligations of the Loan Parties under this Section 3.10 shall survive the
payments of the Senior Term Notes and the termination of this Agreement.




21









 








          3.11 Certain Waivers. The Loan Parties unconditionally waive (i) any rights to presentment,
demand, protest or (except as expressly required hereby) notice of any kind, and (ii) any rights of
rescission, setoff, counterclaim or defense to payment under the Senior Term Notes or otherwise
that the Loan Parties may have or claim against any Purchaser, Agent or any prior Purchaser or
Agent.




ARTICLE 4

CONDITIONS




          4.1 Conditions to the Purchase of the Senior Term Notes. The obligation of the Purchasers to
purchase and pay for the Senior Term Notes is subject to the satisfaction, prior to or at the
Closing, of the following conditions:




          (a) Representations and Warranties True. The representations and warranties contained in
Article 5 hereof shall be true and correct at and as of the Closing Date as though then made,
except to the extent of changes caused by the transactions expressly contemplated herein.




          (b) Material Adverse Change. There shall have been no Material Adverse Change in the
business, financial condition, assets, Business or prospects of Parent on a Consolidated Basis
(prior to the effective date of the Transactions), or the capital markets since December 31, 2006.




          (c) Security Agreement; Etc. The Loan Parties and Agent, for the benefit of the Purchasers,
shall have entered into (i) a security agreement or security agreements with Agent, in form and
substance as set forth in Exhibit B attached hereto (as the same may be amended, modified
or supplemented from time to time in accordance with the terms thereof, the “Security Agreement”),
(ii) security agreements for all Patents, Patent Licenses, Trademarks, Trademark Licenses and
registered Copyrights of the Loan Parties in form and substance reasonably acceptable to Agent for
filing with the United States Patent and Trademark Office and the United States Copyright Office in
the form set forth in Exhibit C attached hereto (such security agreements set forth under
the foregoing (ii), as the same may be amended, modified or supplemented from time to time in
accordance with the terms thereof, the “Intellectual Property Agreements”), (iii) a stock pledge
and security agreement in form and substance as set forth in Exhibit D attached hereto (as
the same may be amended, modified or supplemented from time to time in accordance with the terms
thereof, the “Pledge Agreement”) and (iv) if reasonably requested by GMAC Agent and Agent, the Loan
Parties and their depository banks shall have entered into deposit account control agreements in
form and substance satisfactory to Agent (“Deposit Account Control Agreements”). The Loan Parties
shall have executed and delivered to Agent, for the benefit of the Purchasers, an authorization to
file such financing statements and other instruments (collectively, “Financing Statements”), and
shall have delivered to Agent such certificates, instruments and documents, as Agent shall
reasonably require in order to perfect and maintain the continued perfection of the security
interests created by the agreements described herein. Agent shall have received reports of filings
with appropriate government agencies showing that there are no Liens on the assets of the Loan
Parties other than Permitted Liens.




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          (d) Intercreditor Agreement. Agent, GMAC Agent and Loan Parties shall have executed the
Intercreditor Agreement on terms reasonably satisfactory to Agent and the Purchasers.




          (e) Charter and Bylaws. Each Loan Party shall have made such amendments to its articles of
incorporation, certificate of incorporation, By-laws, membership agreement and such other documents
as the Purchasers shall reasonably request.




          (f) Closing Documents. The Loan Parties will have delivered or caused to be delivered to
Agent all of the following documents in form and substance satisfactory to Agent:





          (i) a Senior Term Note for each Purchaser pursuant to Section 2.1 and Annex A
hereof in the respective aggregate original principal amounts as set forth herein, duly
completed and executed by the Loan Parties;




          (ii) certificates of good standing dated not more than thirty (30) days prior to the
Closing Date for the Loan Parties, issued by their respective jurisdiction of organization
and each jurisdiction where a Loan Party is qualified to operate as a foreign
corporation, or its equivalent, except where the failure to so qualify is not
reasonably likely to have a Material Adverse Effect;




          (iii) a copy of the Charter Documents of each of the Loan Parties, certified by the
appropriate governmental official of the jurisdiction of its organization as of a date not
more than thirty (30) days prior to the Closing Date;




          (iv) a copy of the By-laws or members agreement of the Loan Parties, certified as of
the Closing Date by the secretary, assistant secretary, manager or general partner, as
applicable, of the Loan Parties;




          (v) a certificate of the secretary or assistant secretary, manager or general partner
of the Loan Parties, certifying as to the names and true signatures of the officers or other
authorized person of the Loan Parties authorized to sign this Agreement and the other
documents to be delivered by the Loan Parties hereunder;




          (vi) copies of the resolutions duly adopted by the board of directors, general
partners, board of managers or other governing body of the Loan Parties, authorizing the
execution, delivery and performance by the Loan Parties of this Agreement and each of the
other agreements, instruments and documents contemplated hereby to which each of the Loan
Parties is a party to, and the consummation of all of the other Transactions, certified as
of the Closing Date by the secretary, assistant secretary, manager or general partner of the
Loan Parties;




          (vii) a certificate dated as of the Closing Date from an officer, general partner or
manager of each of the Loan Parties stating that the conditions specified in this Section
4.1 have been fully satisfied or waived by Agent and the Purchasers;



23









 






          (viii) certificates of insurance evidencing the existence of all insurance required to
be maintained by the Loan Parties pursuant to Section 7.1(c), and Agent and the Purchasers
shall be satisfied with the type and extent of such coverage;




          (ix) an opinion of Porter, Wright, Morris & Arthur LLP, counsel to Parent, in form and
substance satisfactory to Agent and the Purchasers;




          (x) copies of all material leases and contracts to which each of the Loan Parties is a
party; and




          (xi) such other documents relating to the Transactions contemplated by this Agreement
as Agent, any Purchaser or their respective counsel may reasonably request.



          (g) Purchaser’s Fees and Expenses.





          (i) Other Fees and Expenses. On the Closing Date, the Loan Parties shall have paid the
fees and expenses of Agent and the Purchasers, payable by the Loan Parties pursuant to
Section 10.4 hereof (and the Loan Parties hereby authorize each
Purchaser to deduct all such applicable amounts from the aggregate proceeds of the sale
of the Senior Term Notes by the Loan Parties).



          (h) Legal Investment. On the Closing Date, the Purchasers’ purchases of the Senior Term Notes
shall not be prohibited by any applicable law, rule or regulation of any Governmental Authority
(including, without limitation, Regulations T, U or X of the Board of Governors of the Federal
Reserve System) as a result of the promulgation or enactment thereof or any changes therein, or
change in the interpretation thereof by any Governmental Authority, subsequent to the date of this
Agreement.




          (i) Proceedings. All proceedings taken or required to be taken in connection with the
transactions contemplated hereby to be consummated at or prior to the Closing and all documents
incident thereto will be satisfactory in form and substance to Agent, each Purchaser and their
respective counsel.




          (j) Charter and Bylaw Amendments. The Loan Parties shall have entered into such amendments to
their respective articles of incorporation or certificates of incorporation and Bylaws as the
Purchasers shall reasonably request.




          (k) Consummation of GMAC Financing and Refinancing. The GMAC Financing shall have been
consummated in form and substance satisfactory to the Purchasers in the Purchasers’ sole discretion
and the Purchasers shall have been provided copies of all agreements, instruments and documents in
connection therewith. The Refinancing shall have occurred and the Agent shall have received payoff
and lien release letters and/or other evidence thereof satisfactory to the Agent.




          4.2 Waiver. Any condition specified in this Article 4 may be waived by Agent and the
Purchasers; provided that no such waiver will be effective unless it is set forth in a
writing executed by Agent and the Purchasers.

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ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES




          5.1 Representations and Warranties of the Loan Parties. As a material inducement to Agent and
the Purchasers to enter into this Agreement and for the Purchasers to purchase the Senior Term
Notes, Parent for itself and each Loan Party and each Loan Party as to itself, hereby represent and
warrant to Agent and the Purchasers as follows:




          (a) Organization and Power. Each of the Loan Parties is a legal entity of the type designated
on Schedule 5.1(a). Each of the Loan Parties is duly organized, validly existing and in
good standing under the laws of its state of formation. Each of the Loan Parties has all requisite
corporate or other organizational power and authority and all material licenses, permits, approvals
and authorizations necessary to own and operate its properties, to carry on its businesses as now
conducted and presently proposed to be conducted and to carry out the Transactions, and is
qualified to do business in the jurisdictions listed on the “Organizational Schedule” attached
hereto as Schedule 5.1(a), which includes every jurisdiction where the failure to so
qualify is reasonably likely to have a Material Adverse Effect. Each of the Loan Parties has its
principal place of business as set forth on the Organizational Schedule. The copies of the Charter
Documents and By-laws of each of the Loan Parties that have been furnished to Agent reflect all
amendments made thereto at any time prior to the date of this Agreement and are correct and
complete.




          (b) Principal Business. The Loan Parties are primarily engaged in the business of assembling
and selling specialty footwear and related apparel and accessories (the “Business”).




          (c) Financial Statements.





          (i) Financial Statements; Historical Statements. Parent has delivered to Agent copies
of its audited consolidated year-end financial statements for and as of the end of its
fiscal year ended December 31, 2006, and unaudited balance sheet, income statements and cash
flow statements for the three (3) month period ended March 31 , 2007 (together, the
“Financial Statements”). The Financial Statements were compiled from the books and records
maintained by Parent’s management are correct and complete and fairly represent the
consolidated financial condition of Parent as of their dates and the results of operations
for the fiscal periods then ended and have been prepared in accordance with GAAP
consistently applied (with such interim financial statements being subject to the absence of
footnotes required by GAAP and subject to normal year-end adjustments).




          (ii) Offering Memorandum. The projected financial information contained in the
Offering Memorandum has been prepared in good faith based upon assumptions believed to be
reasonable at the time of the preparation thereof.




          (iii) Pro Forma Balance Sheet. The unaudited pro forma balance sheet of Parent on a
Consolidated Basis as of the Closing Date, a copy of which has heretofore been delivered to
Agent, gives pro forma effect to the consummation of the



25









 







Refinancing, the initial extensions
of credit made under this Agreement, and the payment of transaction fees and expenses
related to the foregoing, all as if such events had occurred on such date (the “Pro Forma
Balance Sheet”). The Pro Forma Balance Sheet has been prepared in a manner consistent with
customary accounting practices and the financial statements described in Section 5.1(c)(i)
(subject to the absence of footnotes
required by GAAP and subject to normal year-end adjustments) and, subject to stated
assumptions made in good faith and having a reasonable basis set forth therein, presents
fairly the financial condition of the Loan Parties on an unaudited pro forma basis as of the
date set forth therein after giving effect to the consummation of the transactions described
above.




          (iv) Accuracy of Financial Statements. As of the dates of such Financial Statements,
Parent on a Consolidated Basis did not have any liabilities, contingent or otherwise, or
forward or long-term commitments that are not disclosed in the Financial Statements or in
the notes thereto, and except as disclosed therein, as of such dates, there are no
unrealized or anticipated losses from any commitments of the Loan Parties that are
reasonably likely to have a Material Adverse Effect.



          (d) Capitalization and Related Matters. As of the Closing Date and immediately thereafter,
the authorized capital stock of Parent is as set forth on the “Capitalization Schedule” attached
hereto as Schedule 5.1(d). As of the Closing Date, the authorized capital stock or other
equity interests of each of the Subsidiaries of Parent and the number and ownership of all
outstanding capital stock or equity interests of each of the Loan Parties (other than Parent) is
set forth on Schedule 5.1(d). Except as set forth on the Schedule 5.1(d), as of
the Closing Date, none of the Loan Parties will have outstanding any stock or securities
convertible into or exchangeable for any shares of its capital stock and none will have outstanding
any rights or options to subscribe for or to purchase its capital stock or other equity interests
or any stock or securities convertible into or exchangeable for its capital stock or other equity
interests. As of the Closing Date, none of the Loan Parties will be subject to any obligation
(contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital
stock or other equity interests. As of the Closing Date, all of the outstanding shares and capital
stock or other equity interests of the Loan Parties will be validly issued, fully paid and
nonassessable. None of the Loan Parties have violated any applicable federal or state securities
laws in any material respect in connection with the offer, sale or issuance of any of its capital
stock or other equity interests, and the offer, sale and issuance of the Senior Term Notes
hereunder do not require registration under the Securities Act or any applicable state securities
laws.




          (e) Subsidiaries. Except as set forth on the “Subsidiary Schedule”, attached hereto as
Schedule 5.1(e), the Loan Parties do not own, or hold any rights to acquire, any shares of
stock or any other security or interest in any other Person.




          (f) Authorization; No Breach. The execution, delivery and performance of this Agreement, the
other Transaction Documents to which each of the Loan Parties is a party, and the consummation of
the Transactions and the Refinancing have been duly authorized by the Loan Parties. The execution
and delivery by the Loan Parties of the Transaction Documents and the consummation of the
Transactions and the Refinancing does not and will not (i) conflict with




26









 







or result in a
breach of the terms, conditions or provisions of, (ii) constitute a default under, (iii)
except as created pursuant to the Security Documents and the GMAC Credit Documents, result in the
creation of any Lien upon the Loan Parties’ capital stock or assets pursuant to, (iv) give any
third party the right to accelerate any material obligation under, (v) result in a violation of, or
(vi) require any authorization, consent, approval, exemption or other action by or notice to any
Governmental Authority pursuant to, the Charter Documents of the Loan Parties, or any law, statute,
rule or regulation to which the Loan Parties are subject, or any material agreement or instrument,
order, judgment or decree to which any of the Loan Parties is a party or to which it or each of its
respective assets are subject.




          (g) Governmental Approvals. Except as specifically provided by the Transaction Documents, no
registration with or consent or approval of, or other action by, any Governmental Authority is or
will be required in connection with the consummation of the Transactions by the Loan Parties. No
registration with or consent or approval of, or other action by, any Governmental Authority was
required in connection with the consummation of the Refinancing.




          (h) Enforceability. This Agreement constitutes, and each of the other Transaction Documents
when duly executed and delivered by each of the Loan Parties who is a party thereto will
constitute, legal, valid and binding obligations of the Loan Parties enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other laws affecting the enforcement of creditors’ rights generally and
by general principles of equity.




          (i) No Material Adverse Change. Since December 31, 2006, there has been no Material Adverse
Change, with respect to Parent and its Subsidiaries taken as a whole, prior to giving effect to the
Transactions; provided, that the consummation of the Transactions shall not, in and of itself, be
deemed to be a Material Adverse Change.




          (j) Litigation. Except as described in the “Litigation Schedule” attached hereto as
Schedule 5.1(j), as of the Closing Date, there are no actions, suits or proceedings at law
or in equity or by or before any arbitrator or any Governmental Authority now pending or, to the
knowledge of the Loan Parties’ management after reasonable inquiry, threatened against or filed by
or affecting the Loan Parties or their respective directors or officers or the businesses, assets
or rights of any of the Loan Parties, which are reasonably likely to have a Material Adverse
Effect.




          (k) Compliance with Laws. The Loan Parties are not in violation of any applicable Law which violation or violations
are reasonably likely to have a Material Adverse Effect. The Loan Parties are not in, and the
consummation of the Transactions will not cause any, default concerning any judgment, order, writ,
injunction or decree of any Governmental Authority. As of and after the Closing Date, there is no
investigation, enforcement action or regulatory action pending or, to the knowledge of the Loan
Parties, threatened against or affecting any of the Loan Parties by any Governmental Authority,
except as set forth on the Litigation Schedule, which is reasonably likely to have a Material
Adverse Effect. Except as set forth in the Litigation Schedule, as of and after the Closing Date,
there is no remedial or other




27









 







corrective action that any of the Loan Parties is required to take to
remain in compliance with any judgment, order, writ, injunction or decree of any Governmental
Authority or to maintain any material permits, approvals or licenses granted by any Governmental
Authority in full force and effect which is reasonably likely to have a Material Adverse Effect.
To the knowledge of Parent, during the past ten (10) years, none of the executive officers,
directors or management of Parent or any of its Subsidiaries have been arrested or convicted of any
material crime nor have any of them been bankrupt or an officer or director of a bankrupt
corporation or other entity.




          (l) Environmental Protection. Except as specified in “Environmental Schedule” attached hereto
as Schedule 5.1(l) and after giving effect to the Transactions, except for materials,
conditions, operations and noncompliance which are not reasonably likely to have a Material Adverse
Effect: (i) the business of the Loan Parties and each of their Subsidiaries, the methods and means
employed by the Loan Parties (and their Subsidiaries) in the operation thereof (including all
operations and conditions at or in the properties of the Loan Parties or any of their
Subsidiaries), the assets owned, leased, managed, used, controlled, held or operated by the Loan
Parties and/or their Subsidiaries comply in all material respects with all applicable Environmental
Laws; (ii) with respect to the Properties and Facilities, and except as disclosed in the
Environmental Schedule, the Loan Parties have obtained, possess, and are in compliance in all
material respects with all permits, licenses, reviews, certifications, approvals, registrations,
consents, and any other authorizations under any Environmental Laws; (iii) the Loan Parties have
not received (x) any claim or notice of violation, lien, complaint, suit, order or other claim or
notice to the effect that the Loan Parties are or may be liable to any Person as a result of (A)
the environmental condition of any of their Properties and Facilities or any other property, or (B)
the release or threatened release of any Pollutant, or (y) any letter or request for information
under Section 104 of the CERCLA, or comparable state laws, and to Loan Parties’ knowledge, none of
the operations of the Loan Parties is the subject of any investigation by a Governmental Authority
evaluating whether any remedial action is needed to respond to a release or threatened release of
any Pollutant at the Properties and Facilities or at any other location, including any location to
which the Loan Parties have transported, or arranged for the transportation of, any Pollutants with
respect to the Properties and Facilities; (iv) except as disclosed in the Environmental Schedule,
neither the Loan Parties, nor, to the knowledge of the Loan Parties, any prior owner or operator
has incurred in the past, or is now subject to, any Environmental Liabilities; (v) except as
disclosed in the Environmental Schedule, to the knowledge of the Loan Parties, there are no Liens,
covenants, deed restrictions, notice or registration requirements, or other limitations applicable
to the Properties and Facilities, based upon any Environmental Laws or other legal obligations;
(vi) to the knowledge of the Loan Parties, there are no USTs located in, at, on, or
under the Properties and Facilities or other than the USTs identified in the Environmental
Schedule as USTs; and, to the knowledge of the Loan Parties, each of those USTs is in compliance
with all Environmental Laws and other legal obligations; and (vii) except as disclosed in the
Environmental Schedule, to the knowledge of the Loan Parties, there are no PCBs, lead paint,
asbestos (of any type or form), or materials, articles or products containing PCBs, lead paint or
asbestos, located in, at, on, under, a part of, or otherwise related to the Properties and
Facilities, and, to the knowledge of the Loan Parties, all of the PCBs, lead paint, asbestos, and
materials, articles and products containing PCBs, lead paint or asbestos identified in the
Environmental Schedule are in compliance with all Environmental Laws and other legal obligations.




28









 








          (m) Legal Investments; Use of Proceeds. The Loan Parties will use the proceeds from the sale
of the Senior Term Notes to effect the Refinancing. The Loan Parties are not engaged in the
business of extending credit for the purpose of purchasing or carrying any “margin stock”
or “margin security” (within the meaning of Regulations T, U or X issued by the Board of
Governors of the Federal Reserve System), and no proceeds of the sale of the Senior Term Notes will
be used to purchase or carry any margin stock or margin security or to extend credit to others for
the purpose of purchasing or carrying any margin stock or margin security.




          (n) Taxes. The Loan Parties have filed or caused to be filed all federal, state and local tax
returns that are required to be filed by it and their Subsidiaries, and have paid or caused to be
paid all taxes shown to be due and payable on such returns or on any assessments received by it,
including payroll taxes, other than such Charges (i) which are being contested in good faith by
such Person, as the case may be, by appropriate proceedings diligently instituted and conducted and
without the risk of the imposition of a Lien with respect to a material portion of the Collateral
and (ii) with respect to which a reserve or other appropriate provision, if any, as is required in
conformity with GAAP shall have been made. Parent has no knowledge of any proposed tax assessment
against Parent or any of its Subsidiaries that is reasonably likely to have a Material Adverse
Effect.




          (o) Labor and Employment. Except where noncompliance is not reasonably likely to have a
Material Adverse Effect, each Loan Party, ERISA Affiliate and each Plan is in compliance in all
material respects with those provisions of ERISA, the Code, the Age Discrimination in Employment
Act, and the regulations and published interpretations thereunder that are applicable to the Loan
Party, ERISA Affiliate or any such Plan. As of the date hereof, no Reportable Event has occurred
with respect to any Plan maintained by any Loan Party or ERISA Affiliate as to which said Loan
Party or ERISA Affiliate is or was required to file a report with the PBGC. No Plan has any amount
of unfunded benefit liabilities (within the meaning of Section 4001(a)(18) of ERISA) or any
accumulated funding deficiency (within the meaning of Section 302(a)(2) of ERISA), whether or not
waived, and none of the Loan Parties, nor any ERISA Affiliate or member of the Controlled Group has
incurred or expects to incur any withdrawal liability under Subtitle E of
Title IV of ERISA to a Multiemployer Plan. Except where noncompliance is not reasonably
likely to have a Material Adverse Effect, the Loan Parties and ERISA Affiliates are in compliance
in all material respects with all labor and employment laws, rules, regulations and requirements of
all applicable domestic and foreign jurisdictions. There are no pending or threatened labor
disputes, work stoppages or strikes as of the Closing Date that are reasonably likely to have a
Material Adverse Effect.




          (p) Investment Company Act. None of the Loan Parties are an “investment company” or
“controlled” by an investment company within the meaning of the Investment Company Act of 1940, as
amended.




          (q) Properties; Security Interests. The Loan Parties have good and, solely as to real estate,
marketable title to, or valid leasehold interests in, or valid licenses to use, all of the material
assets and properties used or useful by the Loan Parties in the Business (collectively, the
“Properties and Facilities”), subject to no Liens except for Permitted Liens. All of the
Properties and Facilities are in good repair, working order and condition and all such assets and
properties are owned by the Loan Parties free and clear of all Liens except for Permitted Liens.





29









 







The Properties and Facilities constitute all of the material assets, properties and rights of the
Loan Parties of any type used in or necessary for the conduct of the Business. The Security
Agreement creates and grants to Agent a valid and perfected security interest in all the collateral
thereunder, subject only to Permitted Liens. All real estate owned or leased by the Loan Parties
listed on the “Properties Schedule,” attached hereto as Schedule 5.1(q).




          (r) Intellectual Property; Licenses. The Loan Parties and each of their Subsidiaries owns or
licenses, pursuant to a valid and enforceable written license agreement, all Proprietary Rights
necessary and sufficient to conduct the Business and all other businesses conducted by the Loan
Parties and their Subsidiaries as heretofore conducted and as proposed to be conducted. The
“Intellectual Property Schedule” attached hereto as Schedule 5.1(r) sets forth a true and
complete list of all registered Proprietary Rights and material unregistered Trademarks owned by
the Loan Parties and their Subsidiaries and applications therefor filed by the Loan Parties and
their Subsidiaries, which list includes the owner, the title and description, the registration or
application number, and the registration or application date of each such Proprietary Right and the
jurisdiction in which each such Proprietary Right is registered, subject to an application for
registration or otherwise arises. No event has occurred that permits, or after notice or lapse of
time or both would permit, the revocation or termination of any of the foregoing, which taken in
isolation or when considered with all other such revocations or terminations is reasonably likely
to have a Material Adverse Effect. The entity identified as of the owner of each such Proprietary
Right required to be set forth on the Intellectual Property Schedule is the sole and exclusive
owner (unless otherwise indicated) of such Proprietary Right. All Proprietary Rights required to
be identified on the Intellectual Property Schedule are valid, subsisting and enforceable, except
where the lack of validity or enforceability is not reasonably likely to have a Material Adverse
Effect. None of the Proprietary Rights owned, licensed or otherwise used by the Loan Parties
infringes, misappropriates, dilutes, violates or otherwise impairs any Third Party Proprietary
Rights or other rights of any other Person. The conduct of the Business and all other businesses
conducted by the Loan Parties and their Subsidiaries as heretofore conducted and as proposed to be
conducted, and the products and services sold by the Loan Parties and their Subsidiaries in
connection therewith, does not infringe, misappropriate, dilute, violate or otherwise impair any
Third Party Proprietary Rights or other rights of any other Person, except where any such
infringement, misappropriation or use is not reasonably likely to have a Material Adverse Effect.
No other Person is infringing, misappropriating, diluting, violating or making any other unlawful
or unauthorized use of any Proprietary Right, except where any such infringement, misappropriation
or use is not reasonably likely to have a Material Adverse Effect. The Loan Parties do not have
notice or knowledge of any facts or any past, present or threatened occurrence that could preclude
or impair the Loan Parties’ or any of their Subsidiaries’ ability to retain or obtain any
authorization necessary for the operation of the Business and all other businesses conducted by the
Loan Parties and their Subsidiaries as heretofore conducted and as proposed to be conducted.




          (s) Solvency. After giving effect to the Transactions, (i) the fair value of the assets of
the Loan Parties, at a fair valuation, will exceed their debts and liabilities, subordinated,
contingent or otherwise, (ii) the present fair saleable value of the property of the Loan Parties
will be greater than the amount that will be required to pay the probable liability of their debts
and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities
become absolute and matured, (iii) the Loan Parties will be able to pay their debts and
liabilities,

30









 








subordinated, contingent or otherwise, as such debts and liabilities become absolute
and matured, and (iv) the Loan Parties will not have unreasonably small capital with which to
conduct the business in which they are engaged as such business is now conducted and is proposed to
be conducted following the Closing Date. The determination of whether a Person is Solvent shall
take into account all such Person’s properties and liabilities regardless of whether, or the amount
at which, any such property or liability is included on a balance sheet of such Person prepared in
accordance with GAAP, including properties such as contingent contribution or subrogation rights,
business prospects, distribution channels and goodwill. The determination of the sum of a Person’s
properties at a fair valuation or the present fair saleable value of a Person’s properties shall be
made on a going concern basis, unless at the time of such determination the liquidation of the
business in which such properties are used or useful is in process or is reasonably anticipated.
In computing the amount of contingent or unrealized properties or contingent or unliquidated
liabilities at any time, such properties and liabilities will be computed at the amounts which, in
light of all the facts and circumstances existing at such time, represent the amount that
reasonably can be expected to become realized properties or matured liabilities, as the case may
be. In computing the amount that would be required to pay a Person’s probable liability on its
existing debts as they become absolute and matured, reasonable valuation techniques, including a
present value analysis, shall be applied using such rates over such periods as are appropriate
under the circumstances, and it is understood that, in appropriate circumstances, the present value
of contingent liabilities or obligations under Guaranties may be zero.




          (t) Complete Disclosure. All factual information furnished by or on behalf of the Loan Parties to Agent and the
Purchasers for purposes of or in connection with this Transaction Document and the transactions
contemplated hereby and in the Refinancing is, and all other such factual information hereafter
furnished by or on behalf of the Loan Parties will be, true and accurate in all material respects
on the date as of which such information is furnished and not incomplete by omitting to state any
fact necessary to make such information not materially misleading at such time in light of the
circumstances under which such information was provided.




          (u) Side Agreements. Except as set forth in Schedule 5.1(u), none of the Loan Parties
nor any Affiliate of the Loan Parties nor any director, officer or employee of the Loan Parties or
any of their Affiliates, respectively, has entered into, as of the date hereof, any side agreement,
either oral or written, with any individual or business, pursuant to which the director, officer,
employee, Loan Party or Affiliate agreed to do anything beyond the requirements of the formal,
written contracts executed by the Loan Parties and disclosed to the Purchasers and Agent herein.




          (v) Broker’s or Finder’s Commissions. No broker’s or finder’s or placement fee or commission
will be payable to any broker or agent engaged by the Loan Parties or any of their officers,
directors or agents with respect to the issuance and sale of the Senior Term Notes or the
transactions contemplated by this Agreement, including without limitation the Transactions, except
for fees payable to Piper Jaffray & Co., the Purchasers and Agent, if any. The Loan Parties agree
to indemnify Agent and the Purchasers and to hold them harmless from and against any claim, demand
or liability for broker’s or finder’s or placement fees or similar commissions, whether or not
payable by the Loan Parties, alleged to have been incurred in




31









 







connection with such transactions,
other than any broker’s or finder’s fees payable to Persons engaged by Agent or the Purchasers
without the knowledge of the Loan Parties.




          (w) Material Contracts. Schedule 5.1(w) lists, as of the Closing Date, each material
contract to which the Loan Parties are a party, by which any of them or their respective properties
is bound or to which any of them is subject (collectively, “Material Contracts”), and also
indicates the parties, subject matter and term thereof. As of the Closing Date, (i) each Material
Contract is in full force and effect and is enforceable by the Loan Party that is a party thereto
in accordance with its terms, and (ii) none of the Loan Parties (nor, to the knowledge of the Loan
Parties , any other party thereto) is in breach of or default under any Material Contract in any
material respect or has given notice of termination or cancellation of any Material Contract.




          (x) Foreign Assets Control Regulations, Etc. None of the Loan Parties are an “enemy” or an
“ally of the enemy” within the meaning of Section 2 of the Trading with the Enemy Act of the United
States of America (50 U.S.C. App. §§ 1 et seq.), as amended. None of the Loan Parties are in
violation of (a) the Trading with the Enemy Act, as amended, (b) any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or
any enabling legislation or executive order relating thereto or (c) the USA Patriot Act, Title III
of Pub. L. 107-56, signed into law October 26, 2001 (the “Patriot Act”). No Loan Party (i) is a
blocked person described in section 1 of the Anti-Terrorism Order or (ii) to the best of its
knowledge, engages in any dealings or transactions, or is otherwise associated, with any such
blocked person.




          (y) Parent SEC Reports.





          (i) Parent has filed all required material forms, reports, schedules, statements and
other documents (including exhibits and other information incorporated therein) with the SEC
since December 31, 2002 (collectively, the “Parent SEC Reports”). As of their respective
dates, or, if amended, as of the date of the last such amendment, each Parent SEC Report,
(a) complied in all material respects with the applicable requirements of the Securities
Act, the Securities Exchange Act, and the rules and regulations thereunder applicable to
such Parent SEC Reports and (b) did not, and in the case of such forms, reports, schedules,
statements and other documents filed after the date hereof will not as of the time they are
filed, contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. Each of the consolidated
financial statements included in or incorporated by reference into the Parent SEC Reports
(including the related notes and schedules) were, and in the case of such consolidated
financial statements filed after the date hereof will be, prepared materially in accordance
with the published rules and regulations of the SEC, and fairly presents (as to such
previously filed items) in all material respects the consolidated financial position of
Parent and its Subsidiaries as of its date, and each of the consolidated statements of
operations, stockholders’ equity and cash flows included in or incorporated by reference
into the Parent SEC Reports (including any related notes and schedules) fairly presents (as
to such previously filed items) in all material respects the financial position, results of
operations and cash flows,



32









 







as the case may be, of Parent and its Subsidiaries for the
periods set forth therein, in each case in accordance with GAAP consistently applied during
the periods involved, except as may be noted therein (and subject, in the case of unaudited
statements, to normal year-end audit adjustments and the absence of footnotes).




          (ii) As of the Closing Date, (x) there is no investigation by the SEC pending or
threatened with respect to any Parent SEC Report, (y) none of the Parent SEC Reports are the
subject of open, unresolved comments from the SEC, and (z) to the knowledge of Parent, there
is no material unresolved violation of the Securities Exchange Act or the published rules
and regulations of the SEC asserted by the SEC with respect to the Parent SEC Reports.



          (z) Current Business Practices. None of the Loan Parties, nor, to the knowledge of the Loan
Parties, any of their respective directors, officers, agents, employees or representatives in their
capacities as such has
knowingly (or unknowingly, in the case where such conduct is reasonably likely to have had a
Material Adverse Effect): (i) used any funds for unlawful contributions, unlawful gifts, unlawful
entertainment or other unlawful expenses relating to political activity; (ii) directly or
indirectly paid or delivered any fee, commission or other sum of money or item of property, however
characterized, to any finder, agent or other party acting on behalf of or under the auspices of a
governmental official or Governmental Authority, in the United States of America or any other
country, which is in any manner related to the Business that was illegal under federal, state or
local laws of the United States of America or any other country having jurisdiction; (iii) made any
payment to any customer or subcontractor of the Business or to any officer, director, partner,
employee or agent of any such customer or subcontractor, for the unlawful influence of any such
customer or subcontractor or any such officer, director, partner, employee or agent; (iv) engaged
in any other unlawful reciprocal practice, or made any other unlawful payment or given any other
unlawful consideration to any such customer or subcontractor or any such officer, director,
partner, employee or agent, in respect of the Business; or (v) except as set forth on Schedule
5.1(z), violated any federal, state or local campaign finance, election or similar Laws.




          5.2 Absolute Reliance on the Representations and Warranties. All representations and
warranties contained in this Agreement and any financial statements, instruments, certificates,
schedules or other documents delivered in connection herewith, shall survive the execution and
delivery of this Agreement, regardless of any investigation made by Agent or the Purchasers or on
Agent’s or the Purchasers’ behalf.




ARTICLE 6

TRANSFER OF SENIOR TERM NOTES




          6.1 Restricted Securities. The Purchasers acknowledge that the Senior Term Notes have not
been registered under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is available, and that the
Loan Parties are not required to register any of the Senior Term Notes under the Securities Act.




33









 








          6.2 Legends; Purchasers’ Representations. Each of the Purchasers hereby represents and
warrants to the Loan Parties that it is an “accredited investor” within the meaning of Rule 501(a)
under the Securities Act and is acquiring the Senior Term Notes for investment for its own account,
with no present intention of dividing its participation with others (except for a potential
transfer or transfers of the Senior Term Notes to an Affiliate or Affiliates of the Purchasers) or
reselling or otherwise distributing the same. Each Purchaser understands that the acquisition of
the Senior Term Notes has not been registered under the Securities Act or registered or qualified
under any state securities law in reliance on specific exemptions therefrom, which exemptions may
depend upon, among other things, the bona fide nature of such Purchaser’s representations as
expressed herein. Each Purchaser will not, directly or indirectly, offer, sell, pledge, transfer
or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a
pledge of) the Senior Term Notes, except in compliance with the Securities Act and any applicable
state securities laws, and
the rules and regulations promulgated thereunder. The Loan Parties may place an appropriate
legend on the Senior Term Notes owned by the Purchasers concerning the restrictions set forth in
this Article 6. Upon the assignment or transfer by the Purchasers or any of its successors or
assignees of all or any part of the Senior Term Notes, the term “Purchaser” as used herein shall
thereafter mean, to the extent thereof, the then holder or holders of such Senior Term Notes, or
portion thereof




          6.3 Transfer of Senior Term Notes. Subject to Section 6.2, a holder of a Senior Term Note may
transfer such Senior Term Note to a new holder, or may exchange such Senior Term Note for Senior
Term Notes of different denominations (but in no event of denominations of less than $1,000,000 in
original principal amount), by surrendering such Senior Term Note to the Loan Parties duly endorsed
for transfer or accompanied by a duly executed instrument of transfer naming the new holder (or the
current holder if submitted for exchange only), together with written instructions for the issuance
of one or more new Senior Term Notes specifying the respective principal amounts of each new Senior
Term Note and the name of each new holder and each address therefor. The Loan Parties shall
simultaneously deliver to such holder or its designee such new Senior Term Notes, shall mark the
surrendered Senior Term Notes as canceled and shall provide notice of such transfer to Agent. In
lieu of the foregoing procedures, a holder may assign a Senior Term Note (in whole but not in part)
to a new holder by allonge or other assignment document and by sending written notice to the Loan
Parties and Agent of such assignment specifying the new holder’s name and address; in such case,
the Loan Parties shall promptly acknowledge such assignment in writing to both the old and new
holder.




          Notwithstanding anything in the Transaction Documents to the contrary, (a) in the absence of
an Event of Default, if after giving effect to any transfer hereunder there are 10 (10) or more
unaffiliated holders of Senior Term Notes (i.e., a holder of a Senior Term Note and its Affiliates
who hold Senior Term Notes (and who receive notices and payments at a common address) shall count
as a single holder for purposes of this clause), an agent shall be appointed by such holders of the
Senior Term Notes to handle payments, notices and other administrative matters related to the
Senior Term Notes on terms reasonably acceptable to all such holders, (b) a Purchaser may pledge,
or grant a security interest in, all or any portion of its Senior Term Notes and other rights and
interests under the Transaction Documents to a bank or other funding source in support of
borrowings made by such Purchaser from such Person and (c) any Purchaser which is a fund may
pledge, or grant a security interest in, all or any portion of its Senior Term Notes

34









 








and other
rights and interests under the Transaction Documents to its trustee in support of its obligations
to its trustee.




          6.4 Replacement of Lost Senior Term Notes. Upon receipt of evidence reasonably satisfactory
to the Loan Parties of the mutilation, destruction, loss or theft of any Senior Term Notes and the
ownership thereof, the Loan Parties shall, upon the written request of the holder of such Senior
Term Notes, execute and deliver in replacement thereof new Senior Term Notes in the same form, in
the same original tenor and dated the same date as the Senior Term Notes so mutilated, destroyed,
lost or stolen; and such Senior Term Notes so mutilated, destroyed, lost or stolen shall then be
deemed no longer outstanding hereunder. If the Senior Term Notes being replaced have been mutilated, they
shall be surrendered to the Loan Parties; and if such replaced Senior Term Notes have been
destroyed, lost or stolen, such holder shall furnish the Loan Parties with an indemnity in writing
to save it harmless in respect of such replaced Senior Term Notes.




          6.5 No Other Representations Affected. Nothing contained in this Article 6 shall limit the
full force or effect of any representation, agreement or warranty made herein or in connection
herewith to the Purchasers.




ARTICLE 7

COVENANTS




          7.1 Affirmative Covenants. The Loan Parties, jointly and severally, covenant that, so long as
all or any of the Senior Term Notes shall remain outstanding, the Loan Parties shall and shall
cause each of their Subsidiaries to:




          (a) Existence. Do or cause to be done all things necessary to preserve, renew and keep in
full force and effect their legal existence and the legal existence of their Subsidiaries.




          (b) Businesses and Properties; Compliance with Laws. At all times (i) do or cause to be done
all things necessary to preserve, renew and keep in full force and effect the rights, licenses,
registrations, permits, certifications, approvals, consents, franchises, and Proprietary Rights
that are material to the conduct of their businesses; (ii) comply in all material respects with all
Laws and regulations applicable to the operation of such business, including but not limited to,
all Environmental Laws, whether now in effect or hereafter enacted and with all other applicable
Laws and regulations; (iii) comply in all material respects with Sarbanes Oxley and all regulations
promulgated thereunder; (iv) take all action that may be required to obtain, preserve, renew and
extend all rights, Proprietary Rights, franchises, registrations, certifications, approvals,
consents, licenses, permits and any other authorizations that may be material to the operation of
such business; (v) maintain, preserve and protect all property material to the conduct of such
business; and (vi) except for obsolete or worn out equipment, keep their property in good repair,
working order and condition and from time to time make, or cause to be made, all needful and proper
repairs, renewals, additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be properly conducted at all times.




          (c) Insurance. Maintain insurance required by the Transaction Documents and any and all
contracts entered into by the Loan Parties, including but not limited to: (i)

35









 








coverage on their
insurable properties (including all inventory, equipment and real property) against the perils of
fire, theft, hazard and burglary; (ii) public liability; (iii) workers’ compensation; (iv) business
interruption; (v) product liability; and (vi) such other risks as are customary with companies
similarly situated and in the same or similar business as that of the Loan Parties under policies
issued by financially sound and reputable insurers in such amounts as are customary with companies
similarly situated and in the same or similar business. Each of the Loan Parties shall pay or
shall cause to be paid all insurance premiums payable by it or its Subsidiaries and, upon Agent’s
request, shall deliver copies of the policy or policies of such insurance (or certificates of
insurance with copies of such policies) to Agent. All insurance policies of the Loan Parties shall
contain endorsements, in form and substance reasonably satisfactory to Agent, providing that the
insurance shall not be cancelable except upon thirty (30) days’ prior written notice to Agent.
Agent, on behalf of the Purchasers, shall be shown as a loss payee and an additional named insured
party under all such insurance policies, in each case pursuant to appropriate endorsements
reasonably satisfactory to Agent.




          (d) Obligations and Taxes. Pay and discharge promptly when due all taxes, assessments and
governmental charges or levies imposed upon them or upon their income or profits or in respect of
their properties before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might give rise to Liens
or charges upon such properties or any part thereof; provided, however, that the
Loan Parties shall not be required to pay and discharge or to cause to be paid and discharged any
such tax, assessment, charge, levy or claim so long as (i) the validity or amount thereof shall be
contested in good faith by appropriate proceedings and (ii) the Loan Parties shall have set aside
on their books adequate reserves with respect thereto.




          (e) Financial Statements; Reports. Furnish to each Purchaser:





          (i) Annual Statements. Within ninety (90) days after the end of each fiscal year, a
balance sheet and statements of operations, stockholders’ equity and cash flows of Parent on
a Consolidated Basis showing the financial condition as of the close of such year and the
results of operations during such year, all of the foregoing financial statements to be
audited by a firm of independent certified public accountants of recognized national
standing acceptable to Agent and accompanied by an opinion of such accountants without
material exceptions or qualifications. Additionally, such financial statements shall be
accompanied by a certificate of such accountants (which shall not contain any qualification
exception or scope limitation not acceptable to Agent) stating that in the course of its
regular audit of the Business, which audit was conducted in accordance with GAAP, no Default
or Event of Default relating to financial and accounting matters has come to their
attention, or if any Default or Event of Default exists, a statement as to the nature
thereof.




          (ii) Monthly Statements. Within (A) ninety (90) calendar days after the end of each
December, (B) sixty (60) calendar days after the end of each January, (C) forty-five
calendar days after the end of each March, June and September and (D) thirty (30) calendar
days after the end of each other calendar month, financial statements
(including a balance sheet and income statements) showing the financial condition and
results of operations of Parent on a Consolidated Basis as of the end of each such month



36









 







and for the then elapsed portion of the current fiscal year, together with comparisons to the
corresponding periods in the preceding year and the budget for such periods, accompanied by
a certificate of an officer that such financial statements have been prepared in accordance
with GAAP, consistently applied, subject to year end audit adjustments and setting forth in
comparative form the respective financial statements for the corresponding date and period
in the previous fiscal year.




          (iii) Certificate of Compliance. Each financial statement furnished to the Purchasers
pursuant to subsections (i) and (ii) of this Section 7.1(e) shall be accompanied by a
written certificate signed by the chief financial officer of Parent to the effect that no
Default or Event of Default has occurred during the period covered by such statements or, if
any such Default or Event of Default has occurred during such period, setting forth a
description of such Default or Event of Default and specifying the action, if any, taken by
the Loan Parties to remedy the same, and a compliance certificate in the form of Exhibit
E showing the Loan Parties’ compliance with the covenants set forth in Section 7.3.




          (iv) Projections. As soon as available, but in no event later than December 31 of each
year, a projection of the balance sheet, and income statement of Parent on a Consolidated
Basis, respectively, for the following fiscal year; and within ten (10) days after any
material update or amendment of any such plan or forecast, a copy of such update or
amendment, including a description of and reasons for such update or amendment. Each such
projection, update or amendment shall be accompanied by a written certificate signed by the
chief financial officer of Parent to the effect that it has been prepared on the basis of
historical financial statements and records, together with the assumptions set forth in such
projection and that it reflects expectations, after reasonable analysis, of Parent’s
management as to the matters set forth therein.




          (v) Additional Information. Promptly, from time to time, such other information
regarding the compliance by the Loan Parties with the terms of this Agreement and the other
Transaction Documents or the affairs, operations or condition (financial or otherwise) of
the Loan Parties as Agent or Required Purchasers may reasonably request and that is capable
of being obtained, produced or generated by the Loan Parties or of which the Loan Parties
have knowledge.



          (f) Litigation and Other Notices. Give Agent and the Purchasers prompt written notice of the
following:





          (i) Orders; Injunctions. The issuance by any court or governmental agency or authority
of any injunction, order, decision or other restraint prohibiting, or having the effect of
prohibiting, the making of any loan or the initiation of any litigation or similar
proceeding seeking any such injunction, order or other restraint.




          (ii) Litigation. The notice, filing or commencement of any action, suit or proceeding
against any of the Loan Parties whether at law or in equity or by or before any court or any
Federal, state, municipal or other governmental agency or authority and



37









 







that, if adversely
determined against any of the Loan Parties (or their Subsidiaries), could result in
uninsured liability in excess of $1,000,000 in the aggregate.




          (iii) Environmental Matters. (A) Any release or threatened release of any Pollutant
required to be reported to any Federal, state or local governmental or regulatory agency
under any applicable Environmental Laws, (B) any Removal, Remedial or Response action taken
by any of the Loan Parties or any other person in response to any Pollutant in, at, on or
under, a part of or about the Loan Parties’ properties or any other property, (C) any
violation by the Loan Parties of any Environmental Law, in each case, that could result in a
Material Adverse Effect, or (D) any notice, claim or other information that the Loan Parties
might be subject to an Environmental Liability that could result in uninsured liability in
excess of $1,000,000.




          (iv) Default. Any Default or Event of Default, specifying the nature and extent
thereof and the action (if any) that is proposed to be taken with respect thereto.




          (v) Material Adverse Effect. Any development in the business or affairs of the Loan
Parties that is reasonably likely to have a Material Adverse Effect.



          (g) ERISA. Comply in all material respects with the applicable provisions of ERISA and the
provisions of the Code relating thereto and furnish to Agent and the Purchasers (i) as soon as
possible, and in any event within thirty (30) days after the Loan Parties knew or had reason to
know thereof, notice of (A) the establishment by the Loan Parties or ERISA Affiliate of any Plan,
(B) the commencement by a Loan Party or ERISA Affiliate of contributions to a Multiemployer Plan,
(C) any failure by any of the Loan Parties or any of their ERISA Affiliates to make contributions
required by Section 302 of ERISA (whether or not such requirement is waived pursuant to Section 303
of ERISA), or (D) the occurrence of any Reportable Event with respect to any Plan or Multiemployer
Plan for which the reporting requirement is not waived, together with a statement of an officer
setting forth details as to such Reportable Event and the action that the Loan Parties propose to
take with respect thereto, together with a copy of the notice of such Reportable Event given to the
PBGC if any such notice was provided by the Loan Parties, and (ii) promptly after receipt thereof,
a copy of any notice a Loan Party or ERISA Affiliate may receive from the PBGC relating to the
intention of the PBGC to terminate any Plan or Multiemployer Plan, or to appoint a trustee to
administer any Plan or Multiemployer Plan, and (iii) promptly after receipt thereof, a copy of any
notice of withdrawal liability from any Multiemployer Plan.




          (h) Maintaining Records; Access to Premises and Inspections. Maintain financial records in
accordance with generally accepted practices and, upon reasonable notice, at all reasonable times
and as often as Agent or any Purchaser may reasonably request (and at any time after the occurrence
and during the continuation of a Default
or Event of Default), subject to the same confidentiality provisions for Agent and Purchaser
contained in this Agreement, permit any authorized representative designated by Agent or the
Required Purchasers to visit and inspect the properties and financial records of the Loan Parties
and to make extracts from such financial records, all at the Loan Parties’ reasonable expense, and
permit any authorized representative designated by Agent or any Purchasers to discuss the affairs,
finances and condition of the Loan Parties with the chief financial officer of each of the Loan
Parties and such


38









 







other officers as the Loan Parties shall deem appropriate, and the Loan Parties’
independent public accountants.




          (i) Patriot Act Compliance. The Loan Parties shall provide such information and take such
actions as are reasonably required by Agent or any Purchaser in order to assist Agent and the
Purchasers with compliance with the Patriot Act.




          (j) Research Reports. Promptly after the sending, delivery or dissemination thereof, the Loan
Parties, if permitted by the preparer thereof, shall send to Agent and the Purchasers copies of
research reports, investment memorandum or other similar materials that shall have been prepared
for or on behalf of Parent by an investment banking firm, financial institution or other financial
advisory firm.




          (k) Non-Loan Party Guaranty. Any Foreign Subsidiary of Parent, that, after the Closing Date,
becomes a Loan Party or Guarantor under the GMAC Credit Agreement, shall enter into a Guaranty, in
a form reasonably satisfactory to Agent, in favor of Agent and the Purchasers securing the payment
of and guaranteeing all Indebtedness and other obligations incurred by the Loan Parties pursuant to
this Agreement or any other Transaction Document.




          (l) Deposit Account Control Agreements, Landlord Waivers. Within 45 days after the Closing
Date (or such later date as the Agent may agree to), the Loan Parties shall use commercially
reasonable efforts to enter into and deliver to Agent such Deposit Account Control Agreements and
Landlord Waivers (as defined in the GMAC Credit Agreement) that are reasonably satisfactory to
Agent with respect to (x) in the case of Deposit Account Control Agreements, any deposit accounts
that were subject to deposit account control agreements solely in favor of GMAC Agent as part of
the GMAC Financing and (y) in the case of Landlord Waivers, the Kane distribution center. Without
limiting the foregoing, if all of the indebtedness under the GMAC Credit Agreement is satisfied and
any obligations to lend thereunder are terminated, the Loan Parties shall promptly use commercially
reasonable efforts to enter into and deliver to Agent such Deposit Account Control Agreements and
all Landlord Waivers that were in favor of GMAC Agent.




          7.2 Negative Covenants. The Loan Parties, jointly and severally, covenant that, so long as all or any part of the
Senior Term Notes shall remain outstanding:




          (a) Indebtedness. The Loan Parties shall not create, incur, assume guarantee or be or remain
liable for, contingently or otherwise, or suffer to exist any Indebtedness, except:





          (i) Indebtedness under this Agreement;




          (ii) Indebtedness incurred in the ordinary course of business with respect to customer
deposits, trade payables and other unsecured current liabilities not the result of borrowing
and not evidenced by any note or other evidence of indebtedness;




          (iii) Indebtedness under the GMAC Financing, in an amount not to exceed the applicable
cap on principal amount set forth in the definition of Revolving Financing;



39









 






          (iv) Purchase money Indebtedness of any Loan Party and Indebtedness consisting of
Capitalized Leases, in the aggregate, not to exceed $2,500,000 at any time outstanding;




          (v) Intercompany Indebtedness between the Loan Parties, including between Parent and
its Subsidiaries (which, for the sake of clarification, does not include trade payables
incurred in the ordinary course of business); provided, that the aggregate
outstanding amount of the intercompany indebtedness owing at any time by Subsidiaries that
are not Loan Parties to Loan Parties shall not exceed $10,000,000;




          (vi) Indebtedness to shareholders of Parent from share repurchases and redemptions
under the Stockholders Agreement not to exceed $500,000 in the aggregate in any Fiscal Year;




          (vii) Other Indebtedness of Loan Parties in the aggregate at any time outstanding of
$1,000,000; provided that such Indebtedness is unsecured and/or subordinated to the
Indebtedness under this Agreement on terms reasonably satisfactory to Agent;




          (viii) Indebtedness of any Loan Party listed on the “Permitted Indebtedness Schedule”
attached hereto as Schedule 7.2(a);




          (ix) Indebtedness incurred in connection with the financing of Loan Parties’ insurance
premiums;




          (x) Indebtedness incurred in connection with Interest Rate Protection Agreements, in
all cases not for speculative purposes, not to exceed in the aggregate a maximum potential
liability for the termination of such any and all such agreements, of $7,500,000 at any time
outstanding;




          (xi) Indebtedness incurred in connection with the purchase, financing or refinancing of
real property, not to exceed the sum of $5,000,000 in the aggregate at any time outstanding;




          (xii) obligations under any lease which is accounted for by the lessee as an operating
lease and under which the lessee is intended to be the “owner” of the leased property for
Federal income tax purposes; and




          (xiii) Indebtedness incurred in connection with a Permitted Sale/Leaseback.



          (b) Negative Pledge; Liens. The Loan Parties shall not create, incur, assume or suffer to
exist any Lien of any kind on any of their properties or assets of any kind, except the following
(collectively, “Permitted Liens”):





          (i) Liens created in connection with the Security Documents;



40









 






          (ii) Liens created in connection with the GMAC Financing which are subject to the terms
of the Intercreditor Agreement;




          (iii) Liens for or priority claims imposed by law that are incidental to the conduct of
business or the ownership of properties and assets (including mechanic’s, warehousemen’s,
attorneys’ and statutory landlords’ Liens) and deposits and pledges incurred in the ordinary
course of business and not in connection with the borrowing of money; provided,
however, that in each case, the obligation secured is not overdue, or, if overdue,
is being contested in good faith and adequate reserves have been set up by the Loan Parties
as the case may be; and provided, further, that the Lien and security interest provided in
the Security Documents or any portion thereof created or intended to be created thereby is
not, in the opinion of Agent, unreasonably jeopardized thereby;




          (iv) Liens securing the payments of Charges incurred in the ordinary course of business
that either (A) are not delinquent, or (B) are being contested in good faith by appropriate
legal or administrative proceedings and as to which adequate reserves have been set aside on
their books, and so long as during the period of any such contest, the Loan Parties shall
suffer no loss of any privilege of doing business or any other right, power or privilege
necessary or material to the operation of the Business; provided, however,
that a stay of enforcement of any such Lien is in effect and the priority status of the Lien
of Agent under the Security Documents shall not be affected thereby;




          (v) Liens securing Capitalized Leases, purchase money Indebtedness permitted under
Section 7.2(a) and Indebtedness incurred in connection with a Permitted Sale/Leaseback, in
each case which attach solely to the assets being leased or purchased;




          (vi) Liens securing Indebtedness permitted under Section 7.2(a) which attach solely to
applicable insurance policies and proceeds thereof;




          (vii) Liens securing Indebtedness permitted under Section 7.2(a) which attach solely to
the relevant real property and improvements;




          (viii) Liens listed on the “Permitted Encumbrances Schedule” attached hereto as
Schedule 7.2(b); and




          (ix) Extensions, renewals and replacements of Liens referred to in clauses (i), (ii),
(v), (vi), (vii), (viii) of this Section 7.2(b); provided, however, that any
such extension, renewal or replacement Lien shall be limited to the property or assets
covered by the Lien extended, renewed or replaced and that the obligations secured by any
such extension, renewal or replacement Lien shall be in an amount not greater than the
amount of the obligations secured by the Lien extended, renewed or replaced at the time of
such extension, renewal or replacement;




          (x) Liens of any licensor or licensee in connection with license agreements entered
into in the ordinary course of business, which such Liens do not constitute security
interests in any assets of any Loan Party;



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          (xi) any Lien or encumbrance, UCC financing statement, interest or title of a lessor
under any operating lease entered into in the ordinary course of business, or any interest
or title of any lessee under any leases or subleases of real property, with respect solely
to the leased property and not to any other Collateral;




          (xii) with respect solely to real property, defects and irregularities in title, survey
exceptions, encumbrances, licenses, covenants, restrictions, easements or reservations of
others for rights-of-way, roads, pipelines, railroad crossings, services, utilities or other
similar purposes; outstanding mineral rights or reservations (including rights with respect
to the removal of material resources) which do not materially diminish the value of the
surface estate, assuming usage of such surface estate similar to that being carried on by
any Person as of the effective date, and Liens arising with respect to zoning restrictions,
licenses, covenants, building restrictions and other similar charges or encumbrances on the
use of real property of such Person which do not materially interfere with the ordinary
conduct of such Person’s business;




          (xiii) Liens on any interest in life insurance on any officer, director or employee;




          (xiv) Liens incurred or pledges and deposits made in the ordinary course of business in
connection with worker’s compensation, unemployment insurance, pensions or other types of
social security benefits, or to secure the performance of statutory obligations or to secure
the performance of bids, tenders, sales and contracts (other than for the repayment of
borrowed money) and Liens incurred to secure any surety bonds, appeal bonds, supersedeas
bonds or other instruments serving a similar purpose in connection with the appeal of any
judgment or defense of any claim relating to a prejudgment Lien;




          (xv) Liens consisting of financing statements or similar notices filed by a Person of a
type listed in Section 9-505 of the UCC solely in such capacity; and




          (xvi) Liens consisting of judgments or attachments that would not constitute an Event
of Default under Section 8.1(j).



          (c) Contingent Liabilities. The Loan Parties shall not become liable for any Guaranties,
except for (i) the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, (ii) Guaranties by a Loan Party with respect to
Indebtedness of any Loan Party permitted under Section 7.2(a), (iii) Guaranties of a Loan Party
with respect to a maximum potential liability of $1,000,000 at any time outstanding, (iv)
Guaranties, obligations, warranties and indemnities, not with respect to senior or funded
Indebtedness of any Person, which have been or are undertaken or made in the ordinary course of
business, in connection with the Transactions or in connection with the issuance of securities of
Parent, and (v) Guaranties of any Loan Party on behalf of such Loan Party’s Subsidiary which is
not a Loan Party not to exceed in the aggregate at any time outstanding, guaranteed Indebtedness in
the sum of $1,000,000.




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          (d) Mergers, Asset Sales, etc. Except for a merger or consolidation of any Subsidiary or Loan
Party into another Loan Party, Loan Parties shall not alter the corporate, capital or legal
structure of the Loan Parties, or merge into or consolidate or combine with any other Person, or
liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) or purchase, lease
or otherwise acquire (in one transaction or a series of related transactions) all or any
substantial part of the property or assets of any Person, other than in connection with Permitted
Acquisitions the consideration for which does not exceed the aggregate sum of (i) $5,000,000 for
all such Permitted Acquisitions prior to January 10, 2010 and (ii) $7,500,000 for all such
Permitted Acquisitions during the term of this Agreement. The Loan Parties shall not sell,
transfer or otherwise dispose of any of their assets, including without limitation the collateral
under the respective Security Documents, other than (i) sales, leases, assignments, transfers,
conveyances or other dispositions of Inventory in the ordinary course of business; (ii) the sale of
Parent’s former office and warehouse properties in Nelsonville, Ohio, and sales, assignments,
transfers, conveyances or other dispositions (other than leases or subleases of leases) of
properties outside of the ordinary course of business not to exceed in the aggregate more than
$250,000 in any Fiscal Year (exclusive of any sales or other dispositions of Parent’s former
warehouse property); (iii) in addition to dispositions permitted under clauses (i) and
(ii) above, the disposition of equipment of any Loan Party if such equipment is obsolete or
no longer useful in the ordinary course of such Loan Party’s business; (iv) licenses of
intellectual property in the ordinary course of business; (v) the sale or transfer of property of
any Loan Party to any other Loan Party; (vi) subleases of leases or leases of property which, at
the time of such sublease or lease, is not then currently being utilized in the Business; and (vii)
any Permitted Sale/Leaseback.




          (e) Affiliate Transactions. Other than by and between, or among, Parent, the Loan Parties and
their respective Subsidiaries, in each case in a manner that is not materially economically
detrimental to any Loan Party, the Loan Parties shall not make any loan or advance to any director,
officer or
employee of any of the Loan Parties or to any Affiliate or enter into or be a party to any
transaction or arrangement with any Affiliate of the Loan Parties, including, without limitation,
the purchase from, sale to or exchange of property with, or the rendering of any service by or for,
any Affiliate, except pursuant to the reasonable requirements of the Loan Parties’ business and
upon fair and reasonable terms no less favorable to the Loan Parties than would be obtained in a
comparable arm’s-length transaction with a Person other than an Affiliate.




          (f) Dividends and Stock Purchases. The Loan Parties shall not, directly or indirectly,
declare or pay any dividends or make any distribution of any kind on their outstanding capital
stock or any other payment of any kind to any of their stockholders or its Affiliates (including
any redemption, purchase or acquisition of, whether in cash or in property, securities or a
combination thereof, any partnership interests or capital accounts or warrants, options or any of
their other securities), or set aside any sum for any such purpose other than (i) for such
dividends, distributions or payments paid solely to other Loan Parties and (ii) for any other
purpose up to $500,000 in the aggregate in any Fiscal Year.




          (g) Advances, Investments and Loans. The Loan Parties shall not purchase, or hold
beneficially any stock, other securities or evidences of Indebtedness of, or make or permit to
exist any loan or advance to, or make any Investment or acquire any interest




43









 







whatsoever in, any
other Person (including, but not limited to, the formation or acquisition of any Subsidiaries),
except prior to the occurrence and continuance of Default or Event of Default, and subject to the
substantially contemporaneous delivery to GMAC Agent and/or Agent of such agreements, documents or
instruments reasonably requested by such Agent to obtain a perfected security interest in any such
Investment that constitutes Collateral, any of the following (each, a “Permitted Investment”):





          (i) securities issued or directly and fully guaranteed or insured by the United States
of America or any agency or instrumentality thereof having maturities of not more than six
(6) months from the date of acquisition;




          (ii) United States dollar-denominated time deposits, certificates of deposit and
bankers acceptances of any bank whose short-term debt rating from Standard & Poor’s Ratings
Group, a division of The McGraw-Hill Companies, Inc. (“S&P”), is at least A-1 or the
equivalent or whose short-term debt rating from Moody’s Investors Service, Inc. (“Moody’s”)
is at least P-1 or the equivalent with maturities of not more than six months from the date
of acquisition;




          (iii) commercial paper with a rating of at least A-1 or the equivalent by S&P or at
least P-1 or the equivalent by Moody’s maturing within six months after the date of
acquisition;




          (iv) marketable direct obligations issued by any state of the United States of America
or any political subdivision of any such state or any public instrumentality thereof
maturing within six months from the date of acquisition thereof
and, at the time of acquisition, having one of the two highest ratings obtainable from
either S&P or Moody’s;




          (v) Investments in money market funds substantially all the assets of which are
comprised of securities of the types described in clauses (i) through (iv) above;




          (vi) deposit accounts maintained in accordance with the GMAC Credit Documents;




          (vii) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the ordinary
course of business;




          (viii) receivables owing to the Loan Parties, prepaid expenses and accrued expenses
created or acquired in the ordinary course of Business and payable on customary trade terms
of the Loan Parties;




          (ix) deposits made in the ordinary course of Business consistent with past practices to
secure the performance of leases or in connection with bidding on government contracts;



44









 






          (x) loans to employees in an aggregate amount not in excess of $100,000 at any one (1)
time per such employee (not to exceed in the aggregate at any time outstanding the sum of
$1,000,000 with respect to all employees of the Loan Parties), for the purpose of assisting
such employees in the purchase of Common Stock;




          (xi) Investments or intercompany loans and advances of (A) Parent or a Subsidiary in or
to any other Subsidiary (subject to a maximum amount of such loans and advances (which, for
the sake of clarification, does not include trade payables incurred in the ordinary course
of business) by Parent and any other Loan Party to any and all such Subsidiaries of
$10,000,000 in the aggregate at any one (1) time outstanding and provided that each such
loan and advance is evidenced by a promissory note in form and substance satisfactory to
Agent which is pledged by the payee as additional security for the obligations), (B) any
Subsidiary in or to Parent or (C) any Foreign Subsidiary of Parent, that, after the Closing
Date, becomes a Loan Party or Guarantor under the GMAC Credit Agreement and enters into a
Guaranty pursuant to this Agreement, in or to any Loan Party;




          (xii) advances to sales representatives of Parent or any of its Subsidiaries in the
ordinary course of their business and consistent with past practices;




          (xiii) additional Investments not otherwise permitted in this Section not to exceed
$1,000,000 in the aggregate at any one (1) time outstanding;




          (xiv) Investments in certificates of deposit and bank deposits with financial
institutions located in Puerto Rico and the Dominican Republic, solely to the
extent necessary to maintain preferred tax treatment or country of origin status in
such locations, not to exceed $5,000,000, in the aggregate at any time outstanding;




          (xv) Investments made pursuant to Permitted Acquisitions;




          (xvi) Investments in Interest Rate Protection Agreements, derivative agreements,
materials future contracts or other arrangements in connection with Indebtedness, in all
cases not for speculative purposes, not to exceed in the aggregate a notional amount of
$60,000,000 at any time outstanding; and




          (xvii) Deposit Accounts with financial institutions available for withdrawal on demand,
subject to the provisions of the GMAC Credit Documents.



          (h) Use of Proceeds. The Loan Parties shall not use any proceeds from the sale of the Senior
Term Notes hereunder, directly or indirectly, for the purposes of purchasing or carrying any
“margin securities” within the meaning of Regulations T, U or X promulgated by the Board of
Governors of the Federal Reserve Board or for the purpose of arranging for the extension of credit
secured, directly or indirectly, in whole or in part by collateral that includes any “margin
securities.”




          (i) Modifications of Revolving Loan Documents. The Loan Parties shall not amend, replace,
refinance, refund, restructure, supplement, extend or otherwise modify the

45









 








GMAC Credit Agreement in
effect on the Closing Date or any other GMAC Credit Documents in effect on the Closing Date in
contravention of the terms set forth in the Intercreditor Agreement.




          (j) Amendment of Charter Documents. The Loan Parties shall not amend, terminate, modify or
waive or agree to the amendment, modification or waiver of any material term or provision of their
Charter Documents, or By-laws, other than any amendment, modification or other change to any
Charter Document or By-laws that does not adversely affect the rights and privileges of Parent or
any Loan Party under this Agreement and the Security Documents, or the interests of Agent or the
Purchasers under the Security Documents or in the collateral thereunder.




          (k) Subsidiaries. The Loan Parties shall not establish nor acquire any new Subsidiary except
(i) Foreign Subsidiaries, with the prior written consent of Agent not to be unreasonably withheld;
provided, that at least sixty-five percent (65%) of all of the outstanding equity
securities of such Foreign Subsidiaries are pledged to the Agent for the benefit of the Purchasers
pursuant to a pledge agreement on terms reasonably satisfactory to Agent or (ii) Domestic
Subsidiaries, in connection with any acquisition permitted by this Agreement and/or where such
Subsidiary becomes a Loan Party or obligated pursuant to a Guaranty and grants Agent a priority
perfected security interest in substantially all of its assets, subject only to Permitted Liens.




          (l) Business. The Loan Parties shall not engage, directly or indirectly, in any business
other than the Business and any business reasonably incidental thereto.




          (m) Fiscal Year; Accounting. The Loan Parties shall not change their Fiscal Year from ending
on December 31, or method of accounting (other than immaterial changes in methods), except as
required by GAAP.




          (n) Establishment of New or Changed Business Locations. The Loan Parties shall not relocate
their principal executive offices or other facilities or establish new business locations or store
any inventory or other assets at a location not identified to Agent on or before the date hereof,
without providing not less than thirty (30) days advance written notice to Agent.




          (o) Changed or Additional Business Names. The Loan Parties shall not change their corporate
names, establish new or additional trade names or change their state of organization without
providing not less than thirty (30) days advance written notice to Agent.




          (p) Limitations on Affiliate Ownership of Obligations. No Loan Party nor any Affiliate
thereof shall, directly or indirectly, purchase, participate, be assigned or in any way
beneficially own any of the Indebtedness arising under any of the Loan Documents or the Revolving
Loan Documents.




          7.3 Financial Covenant. Parent covenants and agrees that, so long as all or any part of the
Senior Term Notes remain outstanding, it shall maintain on a consolidated basis the following:




46









 








          (a) Fixed Charge Coverage. A minimum Fixed Charge Coverage Ratio as of the end of each period
set forth below of not less than the respective ratio set forth below:




	 	 	 
	 	 	Fixed Charge
	Period
	 	Coverage Ratio
	Four Quarters ending June 30, 2007,
	 	1.20 to 1.00
	Four Quarters ending September 30, 2007,
	 	1.10 to 1.00
	Four Quarters ending December 31, 2007, and
	 	1.05 to 1.00
	Each four Quarter period ending thereafter
	 	1.00 to 1.00






ARTICLE 8

EVENTS OF DEFAULT




          8.1 Events of Default. An “Event of Default” shall mean the occurrence of one or more of the
following described events:




          (a) any Loan Party shall default in the payment of (i) interest on any Senior Term Note when
due, (ii) principal of any Senior Term Note when due, whether at maturity, upon notice of
prepayment in accordance with Sections 3.3, 3.4, or 3.9 upon any scheduled payment date, a
mandatory prepayment date in accordance with Section 3.5 or by acceleration or otherwise, or (iii)
any other amount due under any Transaction Document within 30 Business Days after the same is due;




          (b) an event of default shall occur under the GMAC Credit Agreement (i) in respect of any
payment due thereunder, (ii) in respect of any other provision thereof and more than 90 days have
elapsed since the date of any such event of default without such event of default being cured or
waived, or (iii) that has resulted in the acceleration of the Indebtedness thereunder;




          (c) with respect to Indebtedness other than the GMAC Financing, there shall occur a default
under any agreement under which any Indebtedness having an individual principal amount of
$1,000,000 or more or having an aggregate principal amount of $2,000,000 or more is created, which
default permits the holder(s) of such Indebtedness to accelerate the maturity of such Indebtedness;




          (d) any representation or warranty herein made by any of the Loan Parties, or any certificate
or financial statement furnished pursuant to the provisions hereof, shall prove to have been false
or misleading in any material respect as of the time made or furnished or deemed made or furnished;




          (e) any Loan Party shall default in the performance of any covenant, condition or provision
set forth in Section 7.2 or 7.3;




          (f) a default or event of default shall occur under any other Transaction Document, beyond any
applicable notice or cure periods;




47









 








          (g) any Loan Party shall breach any other covenant, condition or provision of this Agreement,
any Senior Term Note or any other Transaction Document not otherwise addressed in this Section 8.1,
and such breach shall not be remedied to Agent’s or Required Purchasers’ satisfaction for a period
of fifteen (15) days of the written notice from the Agent of such default;




          (h) a proceeding shall have been instituted in a court having jurisdiction in the premises
seeking a decree or order for relief in respect of any Loan Party having assets in excess of
$1,000,000 in an involuntary case under any applicable bankruptcy, insolvency or other similar Law
now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or similar official) of any such Loan Party or for any
substantial part of its property, or for the winding-up or liquidation of their affairs, and such
proceeding shall remain undismissed or unstayed and in effect for a period of sixty (60) days;




          (i) any Loan Party shall commence a voluntary case under any applicable bankruptcy, insolvency
or other similar Law now or hereafter in effect, shall consent to the entry of an order for relief
in an involuntary case under any such Law, or any Loan Party having assets in excess of $1,000,000
shall consent to the appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of any Loan Party or for any
substantial part of their property, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay their debts as they become due, or shall take any action
in furtherance of any of the foregoing;




          (j) either of the following events shall occur: (i) a Reportable Event, the occurrence of
which would have a Material Adverse Effect that could cause the imposition of a Lien under Section
4068 of ERISA, shall have occurred with respect to any Plan or Plans; or (ii) the aggregate amount
of the then “current liability” (as defined in Section 412(l)(7) of the Code) of all accrued
benefits under such Plan or Plans exceeds the then current value of the assets allocable to such
benefits by more than $1,000,000 at such time;




          (k) a final judgment that exceeds $500,000 or, together with other undischarged final
judgments against any Loan Party, exceeds an aggregate of $1,000,000 (excluding judgments to the
extent the applicable Loan Party is fully insured or the deductible or retention limit does not
(when aggregated with other undischarged judgments) exceed $1,000,000 and with respect to which the
insurer has assumed responsibility in writing), shall have been entered against the Loan Party if,
within thirty (30) days after the entry thereof, such judgment, or any other judgment which,
together with such judgment exceeds $1,000,000 in the aggregate, shall not have been discharged or
execution thereof stayed pending appeal or if, within thirty (30) days after the expiration of any
such stay, any such judgment shall not have been discharged; or




          (l) any material Transaction Document shall at any time after the Closing Date cease for any
reason to be in full force and effect or shall cease to create perfected security interests in
favor of Agent in the collateral subject or purported to be subject thereto, subject to no other
Liens other than Permitted Liens, or such collateral shall have been transferred to any Person
other than as permitted under this Agreement without the prior written consent of the holders of a
majority in principal amount of the outstanding Senior Term Notes.




48









 








          8.2 Consequences of Event of Default.




          (a) Bankruptcy. If an Event of Default specified in paragraphs (h) or (i) of Section 8.1
hereof shall occur, the unpaid balance of the Senior Term Notes, all interest accrued thereon and
all other liabilities of the Loan Parties hereunder and thereunder shall be immediately due and
payable, together with any applicable prepayment premium, without presentment, demand,
protest or (except as expressly required hereby) notice of any kind, all of which are hereby
expressly waived.




          (b) Other Defaults. If any other Event of Default shall occur, Required Purchasers may at
their option, by written notice to the Loan Parties, declare the entire unpaid balance of the
Senior Term Notes, all interest accrued thereon and all other liabilities of the Loan Parties
hereunder and thereunder to be forthwith due and payable, together with any applicable prepayment
premium, and the same shall thereupon become immediately due and payable, without presentment,
demand, protest or (except as expressly required hereby) notice of any kind, all of which are
hereby expressly waived; provided, that if a Default specified in clause (ii) of paragraph (a) of
Section 8.1 hereof shall occur, any holder of a Senior Term Note as to which such Event of Default
has occurred may declare the entire unpaid balance of such Senior Term Note (but only such Senior
Term Note) and other amounts due hereunder and thereunder with respect to such Senior Term Note
immediately due and payable and same shall thereupon become immediately due and payable, without
presentment, demand, protest or (except as expressly provided hereby) notice of any kind, all of
which are expressly waived.




          (c) Default Interest. Following the occurrence and during the continuance of any Event of
Default, the holders of the Senior Term Notes shall be entitled to receive, to the extent permitted
by applicable Law, interest on the outstanding principal of, and premium and overdue interest, if
any, on, the Senior Term Notes at a rate per annum equal to 13.5%.




          (d) Security. Payments of principal of, and premium, if any, and interest on, the Senior Term
Notes and all other obligations of the Loan Parties under this Agreement or the Senior Term Notes
are secured pursuant to the terms of the Security Documents.




ARTICLE 9

AGENT




          9.1 Authorization and Action. Each Purchaser and each subsequent holder of any Senior Term
Note, by its acceptance thereof, hereby designates and appoints Laminar Direct Capital L.P. as
collateral agent and Agent hereunder and authorizes Laminar Direct Capital L.P. to take such
actions as agent on its behalf and to exercise such powers as are delegated to Agent by the terms
of this Agreement and the other Transaction Documents, together with such powers as are reasonably
incidental thereto. Agent shall not have any duties or responsibilities, except those expressly
set forth herein, or any fiduciary relationship with any Purchaser, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities on the part of Agent shall be read
into this Agreement or otherwise exist for Agent. In performing its functions and duties
hereunder, Agent shall act solely as agent for the Purchasers and does not assume, nor shall be
deemed to have assumed, any obligation or relationship of trust or agency with or for the Loan
Parties or any of their respective successors or assigns.




49









 







Agent shall not be required to take any action that exposes
Agent to personal liability or that is contrary to this Agreement or applicable Laws. The
appointment and authority of Agent hereunder shall terminate at the indefeasible payment in full of
the Senior Term Notes and related obligations.




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




          9.3 Exculpatory Provisions. Neither Agent nor any of its directors, officers, agents or
employees shall be (i) liable for any action lawfully taken or omitted to be taken by it or them
under or in connection with this Agreement (except for its, their or such Person’s own gross
negligence or willful misconduct or, in the case of Agent, the breach of its obligations expressly
set forth in this Agreement, unless such action was taken or omitted to be taken by Agent at the
direction of the Required Purchasers), or (ii) responsible in any manner to any of the Purchasers
for any recitals, statements, representations or warranties made by the Loan Parties contained in
this Agreement or in any certificate, report, statement or other document referred to or provided
for in, or received under or in connection with, this Agreement or the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other document
furnished in connection herewith, or for any failure of the Loan Parties to perform their
respective obligations hereunder, or for the satisfaction of any condition specified in Article 4.
Agent shall not be under any obligation to any Purchaser to ascertain or to inquire as to the
observance or performance of any of the agreements or covenants contained in, or conditions of,
this Agreement or any other Transaction Document, or to inspect the properties, books or records of
the Loan Parties.




          9.4 Reliance. Agent shall in all cases be entitled to rely, and shall be fully protected in
relying, upon any document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and upon advice and statements of legal
counsel (including, without limitation, counsel to Parent and to the other Loan Parties),
independent accountants and other experts selected by Agent. Agent shall in all cases be fully
justified in failing or refusing to take any action under this Agreement or any other document
furnished in connection herewith unless it shall first receive such advice or concurrence of the
Required Purchasers or all of the Purchasers, as applicable, as it deems appropriate or it shall
first be indemnified to its satisfaction by the Purchasers; provided, that, unless and until Agent
shall have received such advice, Agent may take or refrain from taking any action, as Agent shall
deem advisable and in the best interests of the Purchasers. Agent shall in all cases be fully
protected in acting, or in refraining from acting, in accordance with a request of the Required
Purchasers or all of the Purchasers, as applicable, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all Purchasers.




          9.5 Non-Reliance on Agent and Other Purchasers. Each Purchaser expressly acknowledges that
neither Agent, nor any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representations or warranties to it and that no act by Agent or hereafter
taken, including, without limitation, any review of the affairs of the Loan Parties, shall be
deemed to constitute any representation or warranty by Agent. Each Purchaser




50









 







represents and
warrants to Agent that it has and will, independently and without reliance upon Agent or any other
Purchaser and based on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property, prospects, financial and
other conditions and creditworthiness of the Loan Parties and made its own decision to enter into
this Agreement.




          9.6 No Liability of Purchasers. The Purchasers shall have no liability to any Loan Party or
any other entity as a result of any actions or failures to act by Agent, hereunder or otherwise.




          9.7 Agent in its Individual Capacity. Agent and each of its Affiliates may make loans to,
purchase securities from, provide services to, accept deposits from and generally engage in any
kind of business with the Loan Parties or any Affiliate of the Loan Parties as though Agent were
not Agent hereunder.




          9.8 Successor Agent. Agent may, upon forty-five (45) days’ notice to the Loan Parties and the
Purchasers, and Agent will, upon the direction of the Required Purchasers (other than Agent, in its
individual capacity), resign as Agent. If Agent shall resign, then during such forty-five (45) day
period the Required Purchasers shall appoint a successor Agent and, if the Required Purchasers
direct Agent to resign, such direction shall include an appointment of a successor Agent. If for
any reason no successor Agent is appointed by the Required Purchasers during such forty-five (45)
day period, then effective upon the expiration of such forty-five (45) day period, the Purchasers
shall perform all of the duties of Agent hereunder and the Loan Parties shall make all payments in
respect of the Senior Term Notes directly to the applicable Purchasers and for all purposes shall
deal directly with the Purchasers. After any retiring Agent’s resignation hereunder as Agent, the
provisions of Article 9 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was Agent under this Agreement.




          9.9 Consent of Purchasers.




          After an acceleration of the Indebtedness, Agent may, after consultation (to the extent
reasonably practicable under the circumstances) with all Purchasers and, upon written instruction
from the Required Purchasers shall, exercise or refrain from exercising any and all rights,
remedies, privileges and options under this Agreement or the other Transaction Documents and
available at law or in equity to protect the rights of Agent and the Purchasers and collect the
Indebtedness under the Senior Term Notes, including, without limitation, instituting and pursuing
all legal actions brought against any Loan Party or to collect the Indebtedness under the Senior
Term Notes, or defending any and all actions brought by any Loan Party or
other Person; or incurring expenses or otherwise making expenditures to protect the
collateral, the Senior Term Notes or Agent’s or any Purchaser’s rights or remedies.




          9.10 This Article Not Applicable to the Loan Parties. Except for this Section 9.10, this
Article 9 is included in this Agreement solely for the purpose of determining certain rights as
between Agent and the Purchasers and does not create, nor shall it give rise to, any rights in or
obligations on the part of the Loan Parties and all rights and obligations of the Loan Parties
(other than as specifically set forth herein) under this Agreement shall be determined by reference
to the provisions of this Agreement other than this Article 9.




51









 








ARTICLE 10

MISCELLANEOUS




          10.1 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that (i) the Loan Parties
may not assign or transfer its rights hereunder or any interest herein or delegate their duties
hereunder and (ii) the Purchasers shall have the right to assign their rights hereunder and under
the Senior Term Notes in accordance with Article 6.




          10.2 Modifications and Amendments. The provisions of this Agreement may be modified, waived
or amended, but only by a written instrument signed by each of the Loan Parties and the Required
Purchasers; provided that (a) without the prior written consent of all Purchasers then holding
Senior Term Notes none of the following modifications may be made: (i) extend any payment date
under the Senior Term Notes; (ii) reduce any interest rate applicable to any of the Senior Term
Notes or any fee payable to the Purchasers hereunder; (iii) waive any Event of Default under
Section 8.1(a); (iv) compromise or settle all or a portion of the Indebtedness under the Senior
Term Notes; (v) release any obligor from the Indebtedness under the Senior Term Notes except in
connection with full payment and satisfaction of all Indebtedness under the Senior Term Notes; (vi)
amend the definition of Required Purchasers, or (vii) amend this Section 10.2 and (b) unless also
signed by the Agent, no amendment, waiver or consent shall affect the rights or duties of the Agent
under this Agreement or any other Transaction Document.




          10.3 No Implied Waivers; Cumulative Remedies; Writing Required. No delay or failure in
exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof; nor
shall any single or partial exercise thereof or any abandonment or discontinuance of steps to
enforce such a right, power or remedy preclude any further exercise thereof or of any other right,
power or remedy. The rights and remedies hereunder are cumulative and not exclusive of any rights
or remedies that Agent or the Purchasers or any holder of Senior Term Notes would otherwise have.
Any waiver, permit, consent or approval of any kind or character of any breach or default under
this Agreement or any such waiver of any
provision or condition of this Agreement must be in writing, satisfy the conditions set forth
in Section 9.11 and shall be effective only to the extent in such writing specifically set forth.




          10.4 Reimbursement of Expenses. The Loan Parties agree to pay or reimburse Agent and the
Purchasers upon demand for all reasonable fees and expenses incurred or payable by Agent or the
Purchasers (including, without limitation, reasonable fees and expenses of special counsel for
Agent or any Purchaser and charges for services performed for the Purchasers by Agents’ internal
auditing staff), from time to time (i) up to a mutually agreed amount, arising in connection with
the negotiation, preparation and execution of this Agreement, the Senior Term Notes, the other
Transaction Documents and all other instruments and documents to be delivered hereunder or
thereunder or arising in connection with the transactions contemplated hereunder or thereunder
(whether such fees and expenses are invoiced at or after the Closing), (ii) relating to the
administration of this Agreement and the Transaction Documents, including any amendments, waivers
or consents pursuant to the provisions hereof or thereof, and (iii) arising in connection with the
enforcement of this Agreement or any Security Document, or collection of any Senior Term Note.




52









 








          10.5 Holidays. Whenever any payment or action to be made or taken hereunder or under the
Senior Term Notes shall be stated to be due on a day that is not a Business Day, such payment or
action shall be made or taken on the next following Business Day, and such extension of time shall
be included in computing interest or fees, if any, in connection with such payment or action.




          10.6 Notices. All notices and other communications given to or made upon any party hereto in
connection with this Agreement shall, except as otherwise expressly herein provided, be in writing
(including telecopy, but in such case, a confirming copy will be sent by another permitted means)
and mailed via certified mail, telecopied or delivered by guaranteed overnight parcel express
service or courier to the respective parties, as follows:




	 	 	 
	to the Loan Parties:

	 	Rocky Brands, Inc.
	 

	 	39 East Canal Street
	 

	 	Nelsonville, Ohio 45764
	 

	 	Attn: James E. McDonald
	 

	 	          Chief Financial Officer
	 

	 	Telecopier: 740-753-4024
	 
	 	 
	with a copy to:

	 	Porter, Wright, Morris & Arthur LLP
	 

	 	41 South High Street
	 

	 	Columbus, Ohio 43215
	 

	 	Attn: Timothy E. Grady, Esq.
	 

	 	Telecopier: (614) 227-2100
	 
	 	 
	to Agent:
	 	 
	 

	 	Laminar Direct Capital L.P.
	 

	 	3 Bethesda Metro Center
	 

	 	Suite 1450
	 

	 	Bethesda, MD 20814
	 

	 	Attn: Dean D’Angelo
	 

	 	Telecopier: (301) 634-3051
	 
	 	 
	with a copy to:

	 	D. E. Shaw & Co., L.P.
	 

	 	120 West 45th Street, 39th Floor
	 

	 	New York, New York 10036
	 

	 	Attn: Hilda Blair.
	 

	 	Telecopier: (212) 478-0100
	 
	 	 
	with a copy to:

	 	Moore & Van Allen PLLC
	 

	 	100 North Tryon Street, 47th Floor
	 

	 	Charlotte, NC 28202
	 

	 	Attn: C. Wayne McKinzie, Esq.
	 

	 	Telecopier: (704) 378-2061
	 
	 	 
	to the Purchasers:

	 	As set forth on Annex A






53









 





or in accordance with any subsequent written direction from the recipient party to the sending
party. All such notices and other communications shall, except as otherwise expressly herein
provided, be effective upon delivery if delivered by courier or overnight parcel express service;
in the case of certified mail, three (3) Business Days after the date sent; or in the case of
telecopy, when received.




          10.7 Survival. All representations, warranties, covenants and agreements of the Loan Parties
contained herein or made in writing in connection herewith shall survive the execution and delivery
of this Agreement and the purchase of the Senior Term Notes and shall continue in full force and
effect so long as any Senior Term Note is outstanding and until payment in full of all of the Loan
Parties’ obligations hereunder or thereunder. All obligations relating to indemnification
hereunder shall survive any termination of this Agreement and shall continue for the length of any
applicable statute of limitations.




          10.8 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.




          10.9 Jurisdiction, Consent to Service of Process.




          (a) EACH OF THE LOAN PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND
ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT OF THE
UNITED STATES OF AMERICA SITTING IN THE STATE OF NEW YORK, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE SENIOR TERM
NOTES OR ANY OTHER TRANSACTION DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN SUCH NEW YORK STATE COURT 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 AGENT AND THE
PURCHASERS MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE
SENIOR TERM NOTES OR ANY OTHER TRANSACTION DOCUMENT AGAINST THE LOAN PARTIES OR THEIR PROPERTIES IN
THE COURTS OF ANY JURISDICTION.




          (b) EACH OF THE LOAN PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT THEY MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT,
THE SENIOR

54









 








TERM NOTES OR ANY OTHER TRANSACTION DOCUMENT IN ANY OHIO STATE OR FEDERAL COURT. EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.




          (c) EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER
PROVIDED FOR NOTICES IN SECTION 10.6 HEREOF. NOTHING IN THIS AGREEMENT SHALL AFFECT THE RIGHT OF
ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.




          10.10 Jury Trial Waiver. EACH OF THE LOAN PARTIES HEREBY IRREVOCABLY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING (I) TO ENFORCE OR DEFEND
ANY RIGHTS UNDER OR IN CONNECTION WITH THIS AGREEMENT, OR (II) ARISING FROM ANY DISPUTE OR
CONTROVERSY IN CONNECTION WITH OR RELATED TO THIS AGREEMENT AND AGREE THAT ANY SUCH ACTION OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.




          10.11 Severability. Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable Law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable Law in any jurisdiction, such
provision shall be ineffective only to the extent of such prohibition or invalidity, without
invalidating any other provision of this Agreement.




          10.12 Headings. Article, section and subsection headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement for any other
purpose.




          10.13 Indemnity. The Loan Parties, jointly and severally, hereby agree to indemnify, defend
and hold harmless Agent and the Purchasers and their officers, directors, employees, agents and
representatives, and their respective successors and assigns in connection with any losses, claims,
damages, liabilities and expenses, including reasonable attorneys’ fees, to which Agent or any
Purchaser may become subject (other than as a result of the gross negligence or willful misconduct
of any such Person), insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or by reason of any investigation, litigation or other proceedings related to
or resulting from any act of, or omission by, the Loan Parties or their Affiliates or any officer,
director, employee, agent or representative of the Loan Parties or their Affiliates with respect to
the Transactions, the Senior Term Notes, Charter Documents, the By-laws or any agreements entered
into in connection with any such agreements, instruments or documents and to reimburse Agent and
the Purchasers and each such Person and Affiliate, upon demand, for any legal or other expenses
incurred in connection with investigating or defending any such loss, claim, damage, liability,
expense or action. To the extent that the foregoing undertakings may be unenforceable for any
reason, the Loan Parties agree to make the maximum contribution to the payment and satisfaction of
indemnified liabilities set forth in this Section 10.13 that is permissible under applicable Law.




55









 








          10.14 Environmental Indemnity. The Loan Parties, and their successors and assigns, hereby
release and discharge, and agree to defend, indemnify and hold harmless, Agent, the Purchasers and
their Affiliates (including their partners, subsidiaries, customers, guests, and invitees, and the
successors and assigns of all of the foregoing, and their respective officers, employees and
agents) from and against any and all Environmental Liabilities, (other than as a result of the
gross negligence or willful misconduct of any such Person), whenever and by whomever asserted, to
the extent that such Environmental Liabilities are based upon, or otherwise relate to: (i) any
Condition at any
time in, at, on, under, a part of, involving or otherwise related to the Properties and
Facilities (including any of the properties, materials, articles, products, or other things
included in or otherwise a part of the Properties and Facilities); (ii) any action or failure to
act of any Person, including any prior owner or operator of the Properties and Facilities
(including any of the properties, materials, articles, products, or other things included in or
otherwise a part of the Properties and Facilities), involving or otherwise related to the
Properties and Facilities or operations of the Loan Parties; (iii) the Management of any Pollutant,
material, article or product (including Management of any material, article or product containing a
Pollutant) in any physical state and at any time, involving or otherwise related to the Properties
and Facilities or any property covered by clause (iv) (including Management either from the
Properties and Facilities or from any property covered by clause (iv), and Management to, at,
involving or otherwise related to the Properties and Facilities or any property covered by clause
(iv)); (iv) Conditions, and actions or failures to act, in, at, on, under, a part of, involving or
otherwise related to any property other than the Properties and Facilities, which property was, at
or prior to the Closing Date, (I) acquired, held, sold, owned, operated, leased, managed, or
divested by, or otherwise associated with, (A) the Loan Parties or any of their Subsidiaries, (B)
any of the Loan Parties’ Affiliates, or (C) any predecessor or successor organization of those
identified in (A) or (B); or (II) engaged in any tolling, contract manufacturing or processing, or
other similar activities for, with, or on behalf of the Loan Parties; (v) any violation of or
noncompliance with or the assertion of any Lien under the Environmental Laws, (vi) the presence of
any toxic or hazardous substances, wastes or contaminants on, at or from the past and present
properties and facilities, including, without limitation, human exposure thereto; (vii) any spill,
release, discharge or emission affecting the past and present properties and facilities, whether or
not the same originates or emanates from such properties and facilities or any contiguous real
estate, including, without limitation, any loss of value of such properties and facilities as a
result thereof; or (viii) a misrepresentation in any representation or warranty or breach of or
failure to perform any covenant in respect of Environmental Law made by the Loan Parties in this
Agreement. This indemnity and agreement to defend and hold harmless shall survive any termination
or satisfaction of the Senior Term Notes or the sale, assignment or foreclosure thereof or the
sale, transfer or conveyance of all or part of the past and present Properties and Facilities or
any other circumstances that might otherwise constitute a legal or equitable release or discharge,
in whole or in part, of the Loan Parties under the Senior Term Notes.




          10.15 Counterparts. This Agreement may be executed in any number of counterparts and by
either party hereto on separate counterparts, each of which, when so executed and delivered, shall
be an original, but all such counterparts shall together constitute one and the same instrument.




56









 








          10.16 Integration. This Agreement and the other Transaction Documents set forth the entire
understanding of the parties hereto with respect to all matters contemplated hereby and supersede
all previous agreements and understandings among them concerning such matters. No statements or
agreements, oral or written, made prior to or at the signing hereof, shall vary, waive or modify
the written terms hereof.




          10.17 Intercreditor. The obligations evidenced hereby are subject to that certain
Intercreditor Agreement (as amended or otherwise modified from time to time in accordance with its
terms, or as replaced with the prior written agreement of the Loan Parties, Agent, the Required
Purchasers, and the agent then appointed under the GMAC Credit Agreement, the “Intercreditor
Agreement”), with respect to the indebtedness and, other liabilities owed by the Loan Parties
under and pursuant to the GMAC Credit Agreement and each related GMAC Credit Document, and the
Purchasers and Agent, by their acceptance hereof, acknowledge and agree to be bound by the
provisions of the Intercreditor Agreement.




          10.18 Confidentiality. Agent and each Purchaser agree to exercise their best efforts to keep
confidential any non-public information delivered pursuant to the Transaction Documents and
identified as such by any Loan Party and not to disclose such information to Persons other than to:
(a) to any actual or prospective transferee (who agrees to treat such information as confidential)
of a Senior Term Note, (b) to its employees, directors, agents, attorneys, accountants and other
professional advisors or those of any of its affiliates, (c) upon the request or demand of any
Governmental Authority, (d) in response to any order of any court or other Governmental Authority
or as may otherwise be required pursuant to any applicable Law or rules of any stock exchanges, (e)
that has been publicly disclosed, (f) to the National Association of Insurance Commissioners or any
similar organization or any nationally recognized rating agency that requires access to information
about a Purchaser’s investment portfolio in connection with ratings issued with respect to such
Purchaser, (g) in connection with the exercise of any remedy hereunder or under any other
Transaction Document, (h) to an investor or prospective investor in a Securitization that agrees
that its access to information regarding the Loan Parties and the Senior Term Notes and Transaction
Documents is solely for purposes of evaluating an investment in such Securitization and who agrees
to treat such information as confidential, (i) to a trustee, collateral manager, servicer, backup
servicer, noteholder or secured party in a Securitization in connection with the administration,
servicing and reporting on the assets serving as collateral for a Securitization, (j) to a
nationally recognized rating agency that requires access to information regarding the Loan Parties
and the Senior Term Notes and Transaction Documents in connection with ratings issued with respect
to a Securitization and (k) to a Purchaser’s lender or other financing source (who agrees to treat
such information as confidential) that requires access to information regarding the Loan Parties
and the Senior Term Notes and Transaction Documents in connection with providing financing to such
Purchaser. The obligations of Agent and Purchasers under this Section 10.18 shall supersede and
replace the obligations of Agent and Purchasers under any confidentiality agreement in respect of
this financing executed and delivered by Agent or any Purchaser prior to the date hereof. In no
event shall Agent or any Purchaser be obligated or required to return any materials furnished by
Loan Parties; provided, however, each potential assignee or participant shall be
required to agree that if it does not become an assignee (or participant) it shall return all
materials furnished to it by Loan Parties in connection herewith.




57









 








          For purposes of this Section 10.18, “Securitization” means a public or private offering by a
Purchaser or any of its direct or indirect Affiliates or their respective successors and
assigns, of securities which represent an interest in, or which are collateralized, in whole or in
part, by the loans evidenced by the Senior Term Notes.




* * *




58









 








SIGNATURE PAGE TO

NOTE PURCHASE AGREEMENT




          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.




	 	 	 	 	 	 	 
	 	 	LOAN PARTIES:	 	 
	 
	 	 	 	 	 	 
	 	 	ROCKY BRANDS, INC.,

LIFESTYLE FOOTWEAR, INC.,

ROCKY BRANDS WHOLESALE LLC, and

ROCKY BRANDS RETAIL LLC
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ James E. McDonald	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: James E. McDonald	 	 
	 

	 	 	 	Title: Executive Vice President, Chief Financial
Officer and Treasurer of each of the foregoing Loan
Parties	 	 
	 
	 	 	 	 	 	 
	 	 	PURCHASER:	 	 
	 
	 	 	 	 	 	 
	 	 	LAMINAR DIRECT CAPITAL L.P.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Robert Ladd	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Robert Ladd	 	 
	 

	 	 	 	Title: Authorized Signatory	 	 
	 
	 	 	 	 	 	 
	 	 	PURCHASER:	 	 
	 
	 	 	 	 	 	 
	 	 	WHITEBOX HEDGED HIGH YIELD PARTNERS, LP	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jonathan Wood	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Jonathan Wood	 	 
	 

	 	 	 	Title: Director — CFO	 	 
	 
	 	 	 	 	 	 
	 	 	PURCHASER:	 	 
	 
	 	 	 	 	 	 
	 	 	GPC LIX, L.L.C.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Jonathan Wood	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Jonathan Wood	 	 
	 

	 	 	 	Title: Director — CFO	 	 






59









 






SIGNATURE PAGE TO

NOTE PURCHASE AGREEMENT




	 	 	 	 	 	 	 
	 	 	AGENT:	 	 
	 
	 	 	 	 	 	 
	 	 	LAMINAR DIRECT CAPITAL L.P., as Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Robert Ladd	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: Robert Ladd	 	 
	 

	 	 	 	Title: Authorized Signatory	 	 






 









 






ANNEX




	 	 	 
	Annex A

	 	Information Relating to the Purchasers
	Annex B

	 	Allocation of Senior Term Notes among the Purchasers






SCHEDULES




	 	 	 
	“Organizational Schedule”

	 	Section 5.1(a)
	“Capitalization Schedule”

	 	Section 5.1(d)
	“Subsidiary Schedule”

	 	Section 5.1(e)
	“Litigation Schedule”

	 	Section 5.1(j)
	“Environmental Schedule”

	 	Section 5.1(l)
	“Properties Schedule”

	 	Section 5.1(q)
	“Intellectual Property Schedule”

	 	Section 5.1(r)
	“Side Agreements Schedule”

	 	Section 5.1(u)
	“Material Contracts Schedule”

	 	Section 5.1(w)
	“Current Business Practices Schedule”

	 	Section 5.1(z)
	“Permitted Indebtedness Schedule”

	 	Section 7.2(a)
	“Permitted Encumbrances Schedule”

	 	Section 7.2(b)






EXHIBITS




	 	 	 
	EXHIBIT A

	 	Form of Senior Term Note
	EXHIBIT B

	 	Form of Security Agreement
	EXHIBIT C

	 	Form of Intellectual Property Agreements
	EXHIBIT D

	 	Form of Pledge Assignment
	EXHIBIT E

	 	Form of Compliance Certificate






2









 






ANNEX A

INFORMATION RELATING TO THE PURCHASERS




Name and Address

of Initial Purchaser




LAMINAR DIRECT CAPITAL L.P.



(1) All payments:



If by wire:



Bank: HSBC Bank

ABA#: 021001088

Credit: Laminar Direct Capital L.P.

Account #: 639-722598

Ref: Rocky Brands, Inc.



If by mail:



Laminar Direct Capital L.P.

10000 Memorial Drive, Suite 500

Houston, Texas 77024

Attention: Debbie Blank

Facsimile: (703) 292-5454



If by overnight parcel service

(e.g., FedEx, UPS, etc):



Laminar Direct Capital L.P.

10000 Memorial Drive, Suite 500

Houston, Texas 77024

Attention: Debbie Blank

Facsimile: (703) 292-5454



with sufficient information

to identify the source and

application of such funds.



 




** All checks should be made payable to “Laminar Direct Capital L.P.”




3









 









	(2)	 	All notices of payments and
written confirmations of
such wire transfers:




Laminar Direct Capital L.P.

10000 Memorial Drive, Suite 500

Houston, Texas 77024

Attention: Debbie Blank

Facsimile: (703) 292-5454





	(3)	 	All other communications:




Laminar Direct Capital L.P.

3 Bethesda Metro Center

Suite 1450

Bethesda, MD 20

Attn: Dean D’Angelo

Facsimile: (301) 634-3051




     with a copy to:


D. E. Shaw & Co., L.P.

120 West 45th Street, 39th Floor

New York, New York 10036

Attn: Hilda Blair.

Facsimile: (212) 478-0100




     with a copy to:


Moore & Van Allen PLLC

100 North Tryon Street, 47th Floor

Charlotte, NC 28202

Attn: C. Wayne McKinzie, Esq.:

Facsimile: (704) 378-2061





4









 








Whitebox Hedged High Yield Partners, LP

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416




(1) All payments:




     If by wire:


Bank: Wells Fargo Bank N.A.

ABA#: 121000248

Account Name: Whitebox Hedged High Yield Partners, LP

Account #: 3369948900

Reference Rocky Brands




     If by mail:


Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416



Attn: Barb Reller

Telephone: 612-253-6014

Facsimile: 612-253-6114



If by overnight parcel service

(e.g., FedEx, UPS, etc):



Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416



Attn: Barb Reller

Telephone: 612-253-6014

Facsimile: 612-253-6114



with sufficient information

to identify the source and

application of such funds.




 




** All checks should be made payable to “Whitebox Hedged High Yield Partners, LP”




 









 









	(2)	 	All notices of payments and
written confirmations of
such wire transfers:




Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416



Attn: Barb Reller

Telephone: 612-253-6014

Facsimile: 612-253-6114





	(3)	 	All other communications:




Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416

Attn: Nick Swenson

Facsimile: (612) 253-6100



with a copy to:



Faegre & Benson, LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 55402

Attn: Daniel J. Amen, Esq.

Facsimile: (612) 766-1600




2









 








GPC LIX, L.L.C.

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416





	(1)	 	All payments:
	 
	 	 	If by wire:




Bank: Bank of America, NA

ABA#: 026009593

Account Name: Bank of America Securities LLC

Account #: 001233932118

FFC: GPC LIX, L.L.C.

FFC A/C#: 118-02069

Reference: Rocky Brands



If by mail:



GPC LIX, L.L.C.

C/O Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416



Attn: Barb Reller

Telephone: 612-253-6014

Facsimile: 612-253-6114



If by overnight parcel service

(e.g., FedEx, UPS, etc):



GPC LIX, L.L.C.

C/O Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416

Attn: Barb Reller

Telephone: 612-253-6014

Facsimile: 612-253-6114



with sufficient information

to identify the source and

application of such funds.




 




** All check should be made payable to “GPC LIX, L.L.C.”




3









 









	(2)	 	All notices of payments and
written confirmations of
such wire transfers:




Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416



Attn: Barb Reller

Telephone: 612-253-6014

Facsimile: 612-253-6114





	(3)	 	All other communications:




Whitebox Advisors, LLC

3033 Excelsior Boulevard

Suite 300

Minneapolis, MN 55416

Attn: Nick Swenson

Facsimile: (612) 253-6100



with a copy to:



Faegre & Benson, LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 55402

Attn: Daniel J. Amen, Esq.

Facsimile: (612) 766-1600




4









 








ANNEX B

ALLOCATION OF SENIOR TERM NOTES AMONG PURCHASERS




	 	 	 	 	 	 	 	 	 
	Senior Term Notes	 	Allocation	 	Percentage
	Purchaser: Laminar Direct Capital L.P.
	 	$	20,000,000	 	 	 	50.00	%
	Purchaser: Whitebox Hedged High Yield Partners, LP
	 	$	17,500,000	 	 	 	43.75	%
	Purchaser: GPC LIX, L.L.C.
	 	$	2,500,000	 	 	 	6.25	%







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