Document:

Exhibit
10.38

 

AMENDED AND
RESTATED AGREEMENT 

FOR CHAIRMAN OF BOARD OF DIRECTORS

 

This AMENDED AND RESTATED AGREEMENT FOR CHAIRMAN OF
BOARD OF DIRECTORS (this “Agreement”) is
dated as of May 21, 2010, between Rafaella Apparel Group, Inc. (the “Company”) and John Kourakos, an individual (“Director”) (the Company and Director, together, the “Parties”).

 

WHEREAS, the Parties wish to amend and restate the
terms of Director’s service as Chairman of the Board of Directors of the
Company (the “Board”) set forth in the Agreement
for Chairman of Board of Directors between the Parties, dated as of October 1,
2007 (the “Prior Agreement”); and

 

WHEREAS, the Company desires to amend and restate
the terms of the Prior Agreement and the Director wishes to continue his service
with the Company on the terms and conditions set forth herein.

 

NOW, THEREFORE, in consideration of the premises and
of Director agreeing to serve the Company and intending to be legally bound
hereby, the Parties hereto agree as follows:

 

1.                                       Service as Director. Director hereby agrees to be elected and to serve
as Chairman of
the Board and to assume the following obligations and responsibilities:

 

1.1                                 Director shall provide active strategic and management
leadership and oversight for the Company (as opposed to having responsibilities
for the day-to-day operations of the Company) and shall perform such other
duties and responsibilities as may be reasonably requested by the Board or as
are normally related to the position of Chairman of the Board in accordance
with the Company’s bylaws and applicable law, including those services
described on Exhibit A (the “Services”).
Director hereby agrees to use reasonable efforts to provide the Services.
Director shall not allow any other person or entity to perform any of the
Services for or instead of Director. Director shall, based upon advice from
counsel to the Company, comply with the statutes, rules, regulations and orders
of any governmental or quasi-governmental authority, which are applicable to
the performance of the Services, and the Company’s rules, regulations, and
practices as they may from time-to-time be adopted or modified.

 

1.2                                 Director may be employed by another company, may serve on
other Boards of Directors and may engage in any other business activity
(whether or not pursued for pecuniary advantage), as long as such outside
activities do not violate Director’s obligations under this Agreement or
Director’s fiduciary obligations to the shareholders. The ownership of less
than a five percent (5%) interest in a public Company, by itself, shall not
constitute a violation of this duty. Except as set forth in Exhibit B.
Director represents that he has no outstanding agreement or obligation that is
in conflict with any of the provisions of this Agreement, and Director agrees
to use reasonable efforts to avoid or minimize any such conflict and agrees not
to enter into any agreement or obligation that could create such a conflict,
without the approval of a majority of the Board of Directors, which shall not be
unreasonably withheld, conditioned or delayed. If, at any time, Director is
required to make any material disclosure or take any action that may 

 

 

conflict
with any of the provisions of this Agreement, Director will promptly notify the
Board of such obligation, prior to making such disclosure or taking such
action.

 

1.3                                 Except as set forth in Section 1.2 and Exhibit B.
Director will not engage in any activity that creates an actual conflict of
interest with the Company, regardless of whether such activity is prohibited by
the Company’s conflict of interest guidelines or this Agreement, and Director
agrees to notify the Board before engaging in any activity that creates a
potential conflict of interest with the Company. Specifically and except as set
forth in Section 1.2 and Exhibit B of this Agreement,
Director shall not engage in any activity that is in direct competition with
the Company or serve in any capacity (including, but not limited to, as an
employee, consultant, advisor or director) in any company or entity that
competes directly with the Company, as reasonably determined by a majority of
the Company’s disinterested board members, without the approval of the Board.

 

2.                                       Term.

 

2.1                                 Subject to earlier termination pursuant to Section 4,
this Agreement shall commence on October 1, 2007 (the “Effective Date”) and continue until the
first (1st) anniversary
of the Effective Date and thereafter as long as Director shall continue to be
elected as Chairman of the Board.

 

2.2                                 Notwithstanding the foregoing, and provided that Director
does not voluntarily resign and is not removed from his position pursuant to Section 4
below, the Company agrees to use its best efforts to reeled Director to the
Board at each Meeting of the Shareholders for an aggregate period of four (4) years
(the “Term”).

 

3.                                       Compensation and Benefits.
 In consideration for the Services, the
Company shall provide Director with the following during the Term:

 

3.1                                 Director’s Fee.
In consideration of the Services, the Company shall pay Director a fee as
follows:

 

(a)                                  from the Effective Date through June 30,
2008, Director shall be paid a fee at the annualized rate of One Hundred Fifty
Thousand Dollars ($150,000) per year, and

 

(b)                                 commencing on July 1, 2008, Director
shall be paid a fee at the annualized rate of Two Hundred Thousand Dollars
($200,000).

 

All amounts paid pursuant to this Section 3.1
shall be paid in accordance with the Company’s regularly established practices
regarding the payment of Directors’ fees, but in no event less frequently than
in quarterly installments and in no event later than March 15 of the
calendar year following the calendar year in which such fees are earned.

 

3.2                                 Participation in Employee Benefit Plans. Director shall be entitled, if and to the extent eligible,
to participate in the Company’s group health plan on the same terms as other
directors and executives of the Company. The Company may at any time or from
time to time amend, modify, suspend or terminate any such plan, program or
arrangement for any reason without Director’s consent if such amendment,
modification, suspension or termination is consistent 

 

2

 

with
the amendment, modification, suspension or termination for executives of the
Company.  Any benefits provided under
this Section 3.2 shall be subject to the following: (i) any
such benefits provided during one calendar year shall not affect the amount of
such benefits provided during a subsequent calendar year; and (ii) such
benefits may not be exchanged or substituted for other forms of compensation to
Director.  This Section 3.2
shall be in effect for the period beginning on the Effective Date and ending on
the date that the Director ceases to be Chairman of the Board.

 

3.3                                 Expense Reimbursement.
Director shall be entitled to receive reimbursement for all appropriate
business expenses incurred by him in connection with his duties under this
Agreement in accordance with the policies of the Company as in effect from time
to time.  Any reimbursements provided
under this Section 3.3 shall be subject to the following: (i) any
such reimbursement provided during one calendar year shall not affect the
amount of such reimbursement provided during a subsequent calendar year; (ii) such
reimbursements may not be exchanged or substituted for other forms of
compensation to director; and (iii) reimbursement payments shall be made
to Director no later than the last day of the calendar year immediately
following the calendar year in which the expense is incurred.  This Section 3.3 shall be in
effect for the period beginning on the Effective Date and ending on the date
that the Director ceases to be Chairman of the Board.

 

3.4                                 Equity Grant.  Director shall be eligible to participate in
the Company’s Equity Incentive Plan (the “Equity
Incentive Plan”).  Director shall
receive an equity grant to be determined by the Board subsequent to the
execution hereof.  The equity award shall
be subject to the terms and conditions of the Equity Incentive Plan and the
Company’s customary documentation with respect thereto.

 

4.                                       Termination.

 

4.1                                 Right to Terminate.
 At any time, Director may be removed as
Chairman, and Director may resign as Chairman or Director, in each instance as
provided in the Company’s Certificate of Incorporation, as amended, bylaws, as
amended, and applicable law. Notwithstanding anything to the contrary contained
in or arising from this Agreement or any statements, policies, or practices of
the Company, neither Director nor the Company shall be required to provide any
advance notice or any reason or cause for termination of Director’s status as
Chairman, except as provided in the Company’s Certificate of Incorporation, as
amended, the Company’s bylaws, as amended, and applicable law.

 

4.2                                 Effect of Termination.
Upon a termination of Director’s status as Chairman under circumstances in
which Director remains a director, this Agreement will terminate, and the
Company and Director will sign a mutually agreed upon superseding Director’s
Agreement. Upon a termination of Director’s status as Chairman under
circumstances in which Director does not continue as a director, this Agreement
will terminate; the Company shall pay to Director all compensation and benefits
to which Director is entitled up through the date of termination, and,
thereafter, all of the Parties’ rights and obligations under this Agreement
shall cease, except for such rights and obligations that expressly survive such
termination. Upon termination of this Agreement, Director shall be deemed to
have resigned from 

 

3

 

all
offices then held with the Company by virtue of his position as Chairman.
Director agrees that following any termination of this Agreement, he shall, at
the Company’s sole cost and expense, cooperate with the Company in the winding
up or transferring to other directors any pending work and shall also cooperate
with the Company (to the extent allowed by law, and at the Company’s expense)
in the defense of any action brought by any third party against the Company
that relates to the Services.

 

5.                                       Restrictions and Obligations of Director.

 

5.1                                 Confidentiality.

 

(a)                                  During the Term, Director will have
access to certain trade secrets and confidential information relating to the
Company and its subsidiaries (the “Protected
Parties”) which is not readily available from sources outside the
Company.  The confidential and
proprietary information and, in any material respect, trade secrets of the
Protected Parties are among their most valuable assets, including but not
limited to, their customer, supplier and vendor lists, databases, competitive
strategies, computer programs, frameworks, or models, their marketing programs,
their sales, financial, marketing, training and technical information, their
product development (and proprietary product data) and any other information,
whether communicated orally, electronically, in writing or in other tangible
forms concerning how the Protected Parties create, develop, acquire or maintain
their products and marketing plans, target their potential customers and
operate their retail and other businesses. The Protected Parties invested, and
continue to invest, considerable amounts of time and money in their process,
technology, know-how, obtaining and developing the goodwill of their customers,
their other external relationships, their data systems and data bases, and all
the information described above (hereinafter collectively referred to as “Confidential Information”), and any
misappropriation or unauthorized disclosure of Confidential Information in any
form, would irreparably harm the Protected Parties.

 

(b)                                 Director acknowledges that such
Confidential Information constitutes valuable, highly confidential, special and
unique property of the Protected Parties. Director shall hold in a fiduciary
capacity for the benefit of the Protected Parties all Confidential Information
obtained by Director during the Term of this Agreement. Except as required by
law, an order of a court or governmental agency with jurisdiction, or a subpoena
or other lawful process, Director shall not, during the Term or at any time
thereafter, disclose any Confidential Information, directly or indirectly, to
any person or entity for any reason or purpose whatsoever, nor shall Director
use it in any way, except in the course of providing the Services or to enforce
any rights or defend any claims hereunder or under any other agreement to which
Director is a party, provided that such disclosure is relevant to the
enforcement of such rights or defense of such claims and is only disclosed in
the formal proceedings related thereto. Director shall take reasonable steps to
safeguard the Confidential Information and to protect it against disclosure,
misuse, corporate espionage, loss and theft. Director understands and agrees
that Director shall acquire no rights to any such Confidential Information.

 

(c)                                  All files, records, documents, drawings,
specifications, data, computer programs, evaluation mechanisms and analytics
and similar items relating thereto 

 

4

 

or to the Company’s business, as well as all customer
lists, specific customer information, compilations of product research and
marketing techniques of the Company and its subsidiaries, whether prepared by
Director or otherwise coming into Director’s possession, shall remain the
exclusive property of the Company and its subsidiaries, and Director shall not
remove any such items from the premises of the Company and its subsidiaries,
except in furtherance of Director’s duties under this Agreement.

 

(d)                                 As requested by the Company and at the
Company’s expense, from time to time and upon the termination of this
Agreement, Director will promptly deliver to the Company all copies and
embodiments, in whatever form, of all Confidential Information in Director’s
possession or within his control (including, but not limited to, memoranda,
records, notes, plans, photographs, manuals, notebooks, documentation, program
listings, flow charts, magnetic media, disks, diskettes, tapes and all other
materials containing any Confidential Information) irrespective of the location
or form of such material. If requested by the Company, Director will provide
the Company with written confirmation that all such materials have been
delivered to the Company as provided herein.

 

5.2                                 Director will not at any time (whether during or after the
Term) publish or communicate to any person or entity any Disparaging Remarks
(as defined below) concerning the Company or Cerberus Capital Management, L.P.,
or their parents, subsidiaries and affiliates, and their respective present
members, partners, directors, officers, shareholders, successors and assigns
(including any person who held any such position during the Term). “Disparaging Remarks” are remarks, comments
or statements that impugn the character, honesty, integrity or morality or
business acumen or abilities in connection with any aspect of the operation of
business of the individual or entity being disparaged.

 

6.                                       Liability Insurance.
The Company shall continue to maintain an insurance policy or policies
providing directors’ and officers’ liability insurance in an amount and on
terms at least as favorable as those in effect on the date hereof or that may
be obtained by the Company hereafter. Director shall be covered by such policy
or policies, in accordance with its or their terms, to the maximum extent of
the coverage available for any other director of the Company.

 

7.                                       Indemnification.

 

(a)                                  The Company agrees, to the extent
permitted by applicable law and its organizational documents, to indemnify,
defend and hold harmless Director from and against any and all losses, suits,
actions, causes of action, judgments, damages, liabilities, penalties, fines,
costs or claims of any kind or nature (“Indemnified
Claim”), including reasonable legal fees and related costs incurred
by Director in connection with the preparation for or defense of any
Indemnified Claim, whether or not resulting in any liability, to which Director
may become subject (including without limitation as a witness) or liable or
which may be incurred by or assessed against Director, relating to or arising
out of his engagement by the Company or the Services to be performed pursuant to
this Agreement, provided that the Company shall only defend, but not indemnify
or hold Director harmless, from and against an Indemnified Claim in the event
there is a final, non-appealable, determination that Director’s liability with
respect to such Indemnified Claim resulted from Director’s willful misconduct
or gross negligence.

 

5

 

(b)                                 At Director’s request, the Company shall
advance to Director the cost of all reasonable legal fees and related costs
incurred by Director arising out of or relating to any Indemnified Claim,
provided as a condition to any such advance the Company may require that
Director agree to repay the funds advanced to the extent it is determined by a final,
non-appealable judgment of a court of competent jurisdiction that Director is
not entitled to indemnification for such reasonable legal fees and related
costs.

 

(c)                                  Notwithstanding the foregoing, Director’s
attorneys’ hourly billing rates shall not be deemed unreasonable as long as
such rates are consistent with the hourly billing rates of the Company’s other
outside counsel.

 

(d)                                 The Company’s obligations under this Section 7
shall be in addition to any other right, remedy or indemnification which
Director may have or be entitled to at common law or otherwise. The provisions
of this Section 7 shall survive the termination of this Agreement
for any reason.

 

8.                                       Other Provisions.

 

8.1                                 Notices.
Any notice or other communication required or which may be given hereunder
shall be in writing and shall be delivered personally, sent by facsimile transmission
or sent by certified, registered or express mail, postage prepaid or overnight
mail and shall be deemed given when so delivered personally, or sent by
facsimile transmission or, if mailed, four (4) days after the date of
mailing or one (1) day after overnight mail, as follows:

 

(a)                                  If the Company, to:

 

Rafaella Apparel Group, Inc. 

1411 Broadway 

New York, New York 10018 

Attention:  Secretary 

Telephone:  (212) 403-0300 

Fax:  (212) 764-9275

 

With copies to:

 

Milbank, Tweed, Hadley & McCloy LLP

One Chase Manhattan Plaza

New York, NY 10005

Attention:  Roland Hlawaty

Telephone:  (212) 530-5735

Fax:  (212) 822-5735

 

6

 

and

 

Cerberus Capital Management, L.P.

299 Park Avenue

New York, NY 10171

Attention:  George Kollitides

Fax:  (212)284-7916

 

(b)                                 If Director, to Director’s home address
reflected in the Company’s records,

 

With a copy to:

 

Ken Gardner

Gardner Weiss and Rosenblum LLP

100 Park Avenue, 18th floor

New York, New York 10017

Telephone:  (212) 907-0600

Fax:  (212) 907-0610

 

8.2                                 Section 409A.
It is intended that all payments hereunder shall comply with Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations and other
guidance issued thereunder (in aggregate, “Section 409A”)
so as not to subject Director to payment of interest or any additional tax
under Section 409A. In furtherance thereof, the parties agree to the
following:

 

(a)                                  If payment or provision of any amount or
benefit hereunder that is subject to Section 409A at the time specified
herein would subject such amount or benefit to any additional tax under Section 409A,
the payment or provision of such amount or benefit shall be postponed to the
earliest commencement date on which the payment or provision of such amount or
benefit could be made without incurring such additional tax.

 

(b)                                 In addition, to the extent that any
regulations or other guidance issued under Section 409A (after application
of the previous provisions of this Section 8.2 would result in
Director’s being subject to the payment of interest or any additional tax under
Section 409A, the parties agree, to the extent reasonably possible, to
amend this Agreement in order to avoid the imposition of any such interest or
additional tax under Section 409A, which amendment shall have the minimum
economic effect necessary and be reasonably determined in good faith by the
Company and Director.

 

8.3                                 Entire Agreement.
This Agreement contains the entire agreement between the Parties with respect
to the subject matter hereof and supersedes all prior agreements, written or oral,
with respect thereto, including, but not limited to the Prior Agreement. To the
extent that any provision of this Agreement conflicts with any current or
future policy or procedure of the Company, the provisions of this Agreement
shall prevail.

 

8.4                                 Waiver and Amendments.
This Agreement may be amended, modified, superseded, canceled, renewed or
extended, and the terms and conditions hereof may be waived, 

 

7

 

only
by a written instrument signed by the Parties or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any Party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any right, power or privilege hereunder, nor
any single or partial exercise of any right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other right,
power or privilege hereunder.

 

8.5                                 Governing Law. Dispute Resolution and Venue.

 

(a)                                  This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and not to be performed entirely within such state, without
regard to conflict of law principles.

 

(b)                                 The parties agree irrevocably to submit
to the exclusive jurisdiction of the federal courts or, if no federal
jurisdiction exists, the state courts, located in the City of New York, Borough
of Manhattan, for the purposes of any suit, action or other proceeding brought
by any party arising out of this Agreement and hereby waive, and agree not to
assert by way of motion, as a defense or otherwise, in any such suit, action, or
proceeding, any claim that it is not personally subject to the jurisdiction of
the above-named courts, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is
improper, or that the provisions of this Agreement may not be enforced in or by
such courts. In addition, the parties agree to the waiver of a jury trial.

 

8.6                                 Counterparts.
This Agreement may be executed in counterparts, each of which shall be deemed
an original but both of which shall constitute one and the same instrument.

 

8.7                                 Headings.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning of terms contained herein.

 

8.8                                 Severabilitv.
If any term or provision of this Agreement, or any part thereof, is held by a
court of competent jurisdiction of any foreign, federal, state, county or local
government or any other governmental, regulatory or administrative agency or
authority to be invalid, void, unenforceable or against public policy for any
reason, the remainder of the terms and provisions of this Agreement shall
remain in full force and effect and shall in no way be affected or impaired or
invalidated.

 

[Signatures
on following page]

 

8

 

IN WITNESS WHEREOF, the Parties hereto, intending to
be legally bound hereby, have executed this Amended and Restated Agreement as
of the day and year first above mentioned.

 

 

	
   

  	
  DIRECTOR

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:
  John Kourakos

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RAFAELLA
  APPAREL GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:
  Christa Michalaros

  
	
   

  	
   

  	
  Title: Chief Executive
  Officer

  

 

 

EXHIBIT
A

 

DESCRIPTION
OF SERVICES

 

The Services shall include, but shall not be limited
to, the following:

 

1.                                       Strategic Planning. Leading and
overseeing the development, implementation and assessment of the Company’s
strategic plan and annual budgets and forecasts.

 

2.                                       Management Development. Participating
in annual and other periodic management assessments; providing executive
coaching to management; and promoting professional development of management.

 

3.                                       Business Reviews. Overseeing
the preparation of annual, quarterly and monthly operational business reviews
and leading the presentation thereof to the Board of Directors.

 

4.                                       Meetings of the Board. Chairing
meetings of the Board, of which the Company intends to have (A) one
in-person Board meeting per quarter, (b) one telephonic Board meeting per
month in which there is no in-person Board meeting, and (c) such
additional number of Board meetings as are otherwise required by the business
and affairs of the Company.

 

5.                                       Promoting Business. Using
reasonable efforts to promote the business of the Company.

 

6.                                       Act as a Fiduciary. Representing
the stockholders and the interests of the Company as a fiduciary.

 

7.                                       Participation. Participating
as a full voting member of the Company’s Board of Directors in setting overall
objectives, approving plans and programs of operation, formulating general
policies, offering advice and counsel, serving on Board Committees and reviewing
management performance.

 

 

EXHIBIT
B

 

AUTHORIZED
ACTIVITIES

None.Exhibit 10.39

 

AMENDED
AND RESTATED FINANCING AGREEMENT

 

 

HSBC
BANK USA, NATIONAL ASSOCIATION

(AS
AGENT AND AS LENDER)

 

 

and

 

 

THE
OTHER LENDERS SIGNATORY HERETO

FROM
TIME TO TIME

(AS
LENDERS)

 

 

with

 

 

RAFAELLA
APPAREL GROUP, INC.

 

 

and

 

 

THE
OTHER LOAN PARTIES SIGNATORY HERETO

(AS
LOAN PARTIES)

 

 

May 21,
2010

 

 

TABLE OF CONTENTS

 

	
  I.

  	
  DEFINITIONS

  	
  2

  
	
   

  	
  1.1.

  	
  Accounting Terms

  	
  2

  
	
   

  	
  1.2.

  	
  General Terms

  	
  2

  
	
   

  	
  1.3.

  	
  UCC Terms

  	
  22

  
	
   

  	
  1.4.

  	
  Certain Matters of
  Construction

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  II.

  	
  ADVANCES, PAYMENTS

  	
  22

  
	
   

  	
  2.1.

  	
  Maximum Advances

  	
  22

  
	
   

  	
  2.2.

  	
  Procedure for Borrowing

  	
  23

  
	
   

  	
  2.3.

  	
  Disbursement of Advance
  Proceeds

  	
  26

  
	
   

  	
  2.4.

  	
  Intentionally Omitted

  	
  26

  
	
   

  	
  2.5.

  	
  Intentionally Omitted

  	
  26

  
	
   

  	
  2.6.

  	
  Repayment of Advances

  	
  26

  
	
   

  	
  2.7.

  	
  Repayment of Excess
  Revolving Advances

  	
  27

  
	
   

  	
  2.8.

  	
  Statement of Account

  	
  27

  
	
   

  	
  2.9.

  	
  Letters of Credit and Air
  Releases/Steamship Guarantees

  	
  27

  
	
   

  	
  2.10.

  	
  Issuance of Letters of
  Credit and Air Releases/Steamship Guarantees

  	
  28

  
	
   

  	
  2.11.

  	
  Requirements For Issuance
  of Letters of Credit and Air Releases/Steamship Guarantees

  	
  29

  
	
   

  	
  2.12.

  	
  Additional Payments

  	
  30

  
	
   

  	
  2.13.

  	
  Manner of Borrowing and
  Payment

  	
  31

  
	
   

  	
  2.14.

  	
  Mandatory Prepayments

  	
  31

  
	
   

  	
  2.15.

  	
  Use of Proceeds

  	
  32

  
	
   

  	
  2.16.

  	
  Defaulting Lender

  	
  32

  
	
   

  	
  2.17.

  	
  Term Loans

  	
  33

  
	
   

  	
   

  	
   

  	
   

  
	
  III.

  	
  INTEREST AND FEES

  	
  33

  
	
   

  	
  3.1.

  	
  Interest

  	
  33

  
	
   

  	
  3.2.

  	
  Letter of Credit and Air
  Release/Steamship Guarantee Fees; Cash Collateral

  	
  34

  
	
   

  	
  3.3.

  	
  Loan Fees

  	
  35

  
	
   

  	
  3.4.

  	
  Computation of Interest
  and Fees

  	
  35

  
	
   

  	
  3.5.

  	
  Maximum Charges

  	
  36

  
	
   

  	
  3.6.

  	
  Increased Costs

  	
  36

  
	
   

  	
  3.7.

  	
  Basis For Determining
  Interest Rate Inadequate or Unfair

  	
  37

  
	
   

  	
  3.8.

  	
  Capital Adequacy

  	
  37

  
	
   

  	
  3.9.

  	
  Gross-Up for Taxes

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  IV.

  	
  COLLATERAL: GENERAL TERMS

  	
  38

  
	
   

  	
  4.1.

  	
  Security Interest in the
  Collateral

  	
  38

  
	
   

  	
  4.2.

  	
  Perfection of Security
  Interest

  	
  39

  
	
   

  	
  4.3.

  	
  Disposition of Collateral

  	
  40

  
	
   

  	
  4.4.

  	
  Preservation of Collateral

  	
  40

  
	
   

  	
  4.5.

  	
  Ownership of Collateral

  	
  40

  
	
   

  	
  4.6.

  	
  Defense of Agent’s and
  Lenders’ Interests

  	
  41

  

 

i

 

	
   

  	
  4.7.

  	
  Books and Records

  	
  41

  
	
   

  	
  4.8.

  	
  Financial Disclosure

  	
  41

  
	
   

  	
  4.9.

  	
  Compliance with Laws

  	
  42

  
	
   

  	
  4.10.

  	
  Inspection of Premises

  	
  42

  
	
   

  	
  4.11.

  	
  Insurance

  	
  42

  
	
   

  	
  4.12.

  	
  Failure to Pay Insurance

  	
  43

  
	
   

  	
  4.13.

  	
  Payment of Taxes

  	
  43

  
	
   

  	
  4.14.

  	
  Payment of Leasehold
  Obligations

  	
  44

  
	
   

  	
  4.15.

  	
  Receivables

  	
  44

  
	
   

  	
  4.16.

  	
  Inventory

  	
  46

  
	
   

  	
  4.17.

  	
  Maintenance of Equipment

  	
  46

  
	
   

  	
  4.18.

  	
  Exculpation of Liability

  	
  47

  
	
   

  	
  4.19.

  	
  Environmental Matters

  	
  47

  
	
   

  	
  4.20.

  	
  Financing Statements

  	
  49

  
	
   

  	
  4.21.

  	
  Collateral Audits

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  V.

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
  49

  
	
   

  	
  5.1.

  	
  Authority

  	
  49

  
	
   

  	
  5.2.

  	
  Formation and
  Qualification

  	
  50

  
	
   

  	
  5.3.

  	
  Survival of
  Representations and Warranties

  	
  50

  
	
   

  	
  5.4.

  	
  Tax Returns

  	
  50

  
	
   

  	
  5.5.

  	
  Financial Statements

  	
  51

  
	
   

  	
  5.6.

  	
  Organization Name

  	
  51

  
	
   

  	
  5.7.

  	
  O.S.H.A. and Environmental
  Compliance

  	
  51

  
	
   

  	
  5.8.

  	
  Solvency; No Litigation,
  Violation, Indebtedness or Default

  	
  52

  
	
   

  	
  5.9.

  	
  Patents, Trademarks,
  Copyrights and Licenses

  	
  53

  
	
   

  	
  5.10.

  	
  Licenses and Permits

  	
  53

  
	
   

  	
  5.11.

  	
  No Defaults

  	
  54

  
	
   

  	
  5.12.

  	
  No Burdensome Restrictions

  	
  54

  
	
   

  	
  5.13.

  	
  No Labor Disputes

  	
  54

  
	
   

  	
  5.14.

  	
  Margin Regulations

  	
  54

  
	
   

  	
  5.15.

  	
  Investment Company Act

  	
  54

  
	
   

  	
  5.16.

  	
  Disclosure

  	
  54

  
	
   

  	
  5.17.

  	
  Delivery of Senior Note
  Documentation and Factoring Agreement

  	
  55

  
	
   

  	
  5.18.

  	
  Swaps

  	
  55

  
	
   

  	
  5.19.

  	
  Conflicts

  	
  55

  
	
   

  	
  5.20.

  	
  Application of Certain
  Laws and Regulations

  	
  55

  
	
   

  	
  5.21.

  	
  Business and Property of
  Loan Parties

  	
  55

  
	
   

  	
  5.22.

  	
  Material Contracts

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
  VI.

  	
  AFFIRMATIVE COVENANTS

  	
  56

  
	
   

  	
  6.1.

  	
  Payment of Fees

  	
  56

  
	
   

  	
  6.2.

  	
  Conduct of Business and
  Maintenance of Existence and Assets

  	
  56

  
	
   

  	
  6.3.

  	
  Violations

  	
  57

  
	
   

  	
  6.4.

  	
  Government Receivables

  	
  57

  
	
   

  	
  6.5.

  	
  Execution of Supplemental
  Instruments

  	
  57

  
	
   

  	
  6.6.

  	
  Payment of Indebtedness

  	
  57

  

 

ii

 

	
   

  	
  6.7.

  	
  Standards of Financial
  Statements

  	
  57

  
	
   

  	
  6.8.

  	
  Financial Covenants

  	
  57

  
	
   

  	
  6.9.

  	
  Subsidiaries

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
  VII.

  	
  NEGATIVE COVENANTS

  	
  59

  
	
   

  	
  7.1.

  	
  Merger, Consolidation,
  Acquisition and Sale of Assets

  	
  59

  
	
   

  	
  7.2.

  	
  Creation of Liens;
  Negative Pledges

  	
  59

  
	
   

  	
  7.3.

  	
  Guarantees

  	
  59

  
	
   

  	
  7.4.

  	
  Investments

  	
  60

  
	
   

  	
  7.5.

  	
  Loans

  	
  60

  
	
   

  	
  7.6.

  	
  Intentionally Omitted

  	
  60

  
	
   

  	
  7.7.

  	
  Dividends and
  Distributions

  	
  60

  
	
   

  	
  7.8.

  	
  Indebtedness

  	
  61

  
	
   

  	
  7.9.

  	
  Nature of Business

  	
  62

  
	
   

  	
  7.10.

  	
  Transactions with
  Affiliates

  	
  62

  
	
   

  	
  7.11.

  	
  Intentionally Omitted

  	
  62

  
	
   

  	
  7.12.

  	
  Subsidiaries

  	
  62

  
	
   

  	
  7.13.

  	
  Fiscal Year and Accounting
  Changes

  	
  63

  
	
   

  	
  7.14.

  	
  Pledge of Credit

  	
  63

  
	
   

  	
  7.15.

  	
  Amendment of
  Organizational Documents and Material Agreements

  	
  63

  
	
   

  	
  7.16.

  	
  Compliance with ERISA

  	
  63

  
	
   

  	
  7.17.

  	
  Prepayment of Indebtedness

  	
  64

  
	
   

  	
  7.18.

  	
  Senior Secured Notes

  	
  64

  
	
   

  	
  7.19.

  	
  State of Organization

  	
  64

  
	
   

  	
  7.20.

  	
  Other Agreements

  	
  64

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII.

  	
  CONDITIONS PRECEDENT

  	
  64

  
	
   

  	
  8.1.

  	
  Closing Conditions

  	
  64

  
	
   

  	
  8.2.

  	
  Conditions to Each Advance
  and Each of the Term Loans

  	
  66

  
	
   

  	
  8.3.

  	
  Conditions to Each Term
  Loan

  	
  67

  
	
   

  	
   

  	
   

  	
   

  
	
  IX.

  	
  INFORMATION AS TO BORROWER

  	
  67

  
	
   

  	
  9.1.

  	
  Disclosure of Material
  Matters

  	
  67

  
	
   

  	
  9.2.

  	
  Schedules

  	
  67

  
	
   

  	
  9.3.

  	
  Environmental Reports

  	
  68

  
	
   

  	
  9.4.

  	
  Litigation

  	
  68

  
	
   

  	
  9.5.

  	
  Material Occurrences

  	
  68

  
	
   

  	
  9.6.

  	
  Government Receivables

  	
  69

  
	
   

  	
  9.7.

  	
  Annual Audited Financial
  Statements

  	
  69

  
	
   

  	
  9.8.

  	
  Semi-Annual Reviewed
  Financial Statements

  	
  69

  
	
   

  	
  9.9.

  	
  Quarterly Internally
  Prepared Financial Statements

  	
  70

  
	
   

  	
  9.10.

  	
  Other Reports

  	
  70

  
	
   

  	
  9.11.

  	
  Additional Information

  	
  70

  
	
   

  	
  9.12.

  	
  Projected Operating Budget

  	
  71

  
	
   

  	
  9.13.

  	
  Variances From Operating
  Budget

  	
  71

  
	
   

  	
  9.14.

  	
  Notice of Suits, Adverse
  Events

  	
  71

  
	
   

  	
  9.15.

  	
  ERISA Notices and Requests

  	
  72

  

 

iii

 

	
   

  	
  9.16.

  	
  Additional Documents

  	
  72

  
	
   

  	
   

  	
   

  	
   

  
	
  X.

  	
  EVENTS OF DEFAULT

  	
  72

  
	
   

  	
   

  	
   

  
	
  XI.

  	
  LENDERS’ RIGHTS AND
  REMEDIES AFTER DEFAULT

  	
  74

  
	
   

  	
  11.1.

  	
  Rights and Remedies

  	
  74

  
	
   

  	
  11.2.

  	
  Allocation of Payments
  After Event of Default

  	
  75

  
	
   

  	
  11.3.

  	
  Agent’s Discretion

  	
  77

  
	
   

  	
  11.4.

  	
  Setoff

  	
  77

  
	
   

  	
  11.5.

  	
  Rights and Remedies not
  Exclusive

  	
  78

  
	
   

  	
   

  	
   

  	
   

  
	
  XII.

  	
  WAIVERS AND JUDICIAL
  PROCEEDINGS

  	
  78

  
	
   

  	
  12.1.

  	
  Waiver of Notice

  	
  78

  
	
   

  	
  12.2.

  	
  Delay

  	
  78

  
	
   

  	
  12.3.

  	
  Jury Waiver

  	
  78

  
	
   

  	
   

  	
   

  	
   

  
	
  XIII.

  	
  EFFECTIVE DATE AND
  TERMINATION

  	
  79

  
	
   

  	
  13.1.

  	
  Term

  	
  79

  
	
   

  	
  13.2.

  	
  Termination

  	
  79

  
	
   

  	
   

  	
   

  	
   

  
	
  XIV.

  	
  REGARDING AGENT

  	
  79

  
	
   

  	
  14.1.

  	
  Appointment

  	
  79

  
	
   

  	
  14.2.

  	
  Nature of Duties

  	
  80

  
	
   

  	
  14.3.

  	
  Lack of Reliance on Agent
  and Resignation

  	
  80

  
	
   

  	
  14.4.

  	
  Certain Rights of Agent

  	
  81

  
	
   

  	
  14.5.

  	
  Reliance

  	
  81

  
	
   

  	
  14.6.

  	
  Notice of Default

  	
  81

  
	
   

  	
  14.7.

  	
  Indemnification

  	
  82

  
	
   

  	
  14.8.

  	
  Agent in its Individual
  Capacity

  	
  82

  
	
   

  	
  14.9.

  	
  Delivery of Documents

  	
  82

  
	
   

  	
  14.10.

  	
  Intentionally Deleted

  	
  82

  
	
   

  	
  14.11.

  	
  Agent under Collateral
  Documents and Guaranty

  	
  82

  
	
   

  	
   

  	
   

  	
   

  
	
  XV.

  	
  GUARANTEE

  	
  83

  
	
   

  	
  15.1.

  	
  Guaranty

  	
  83

  
	
   

  	
  15.2.

  	
  Waivers

  	
  83

  
	
   

  	
  15.3.

  	
  No Defense

  	
  84

  
	
   

  	
  15.4.

  	
  Guaranty of Payment

  	
  84

  
	
   

  	
  15.5.

  	
  Liabilities Absolute

  	
  84

  
	
   

  	
  15.6.

  	
  Waiver of Notice

  	
  85

  
	
   

  	
  15.7.

  	
  Agent’s Discretion

  	
  85

  
	
   

  	
  15.8.

  	
  Reinstatement

  	
  85

  
	
   

  	
  15.9.

  	
  Action Upon Event of
  Default

  	
  87

  
	
   

  	
  15.10.

  	
  Statute of Limitations

  	
  87

  
	
   

  	
  15.11.

  	
  Interest

  	
  87

  
	
   

  	
  15.12.

  	
  Guarantor’s Investigation

  	
  88

  
	
   

  	
  15.13.

  	
  Termination

  	
  88

  

 

iv

 

	
   

  	
  15.14.

  	
  Discharge of Guaranty Upon
  Sale of Guarantor

  	
  88

  
	
   

  	
   

  	
   

  	
   

  
	
  XVI.

  	
  MISCELLANEOUS

  	
  88

  
	
   

  	
  16.1.

  	
  Governing Law

  	
  88

  
	
   

  	
  16.2.

  	
  Entire Understanding;
  Amendments

  	
  89

  
	
   

  	
  16.3.

  	
  Successors and Assigns;
  Participations; New Lenders

  	
  91

  
	
   

  	
  16.4.

  	
  Application of Payments

  	
  93

  
	
   

  	
  16.5.

  	
  Indemnity

  	
  94

  
	
   

  	
  16.6.

  	
  Notice

  	
  94

  
	
   

  	
  16.7.

  	
  Survival

  	
  96

  
	
   

  	
  16.8.

  	
  Severability

  	
  96

  
	
   

  	
  16.9.

  	
  Expenses

  	
  96

  
	
   

  	
  16.10.

  	
  Injunctive Relief

  	
  96

  
	
   

  	
  16.11.

  	
  Consequential Damages

  	
  97

  
	
   

  	
  16.12.

  	
  Captions

  	
  97

  
	
   

  	
  16.13.

  	
  Counterparts; Telecopied
  Signatures

  	
  97

  
	
   

  	
  16.14.

  	
  Construction

  	
  97

  
	
   

  	
  16.15.

  	
  Confidentiality; Sharing
  Information

  	
  97

  
	
   

  	
  16.16.

  	
  Publicity

  	
  98

  

 

v

 

List
of Exhibits and Schedules

 

	
  Exhibits

  	
   

  
	
   

  	
   

  
	
  Exhibit A

  	
  Form of
  Borrowing Base Certificate

  
	
  Exhibit 2.1(a)

  	
  Form of
  Revolving Credit Note

  
	
  Exhibit 2.17

  	
  Form of
  Term Note

  
	
  Exhibit 6.9

  	
  Form of
  Joinder Agreement

  
	
  Exhibit 16.3

  	
  Form of
  Commitment Transfer Supplement

  
	
   

  	
   

  
	
  Schedules

  	
   

  
	
   

  	
   

  
	
  Schedule
  2.10(g)

  	
  Existing
  Letters of Credit and Existing Air Release/Steamship Guarantees

  
	
  Schedule
  4.5

  	
  Equipment
  and Inventory Locations

  
	
  Schedule
  4.15(c)

  	
  Location
  of Executive Offices

  
	
  Schedule
  5.2(a)

  	
  States
  of Qualification and Good Standing

  
	
  Schedule
  5.2(b)

  	
  Subsidiaries
  and Equityholders

  
	
  Schedule
  5.4

  	
  Federal
  Tax Identification Number

  
	
  Schedule
  5.6

  	
  Prior
  Names

  
	
  Schedule
  5.7

  	
  Environmental

  
	
  Schedule
  5.8(b)

  	
  Litigation

  
	
  Schedule
  5.8(d)

  	
  Plans

  
	
  Schedule
  5.9

  	
  Intellectual
  Property, Source Code Escrow Agreements

  
	
  Schedule
  5.10

  	
  Licenses
  and Permits

  
	
  Schedule
  5.13

  	
  Labor
  Disputes

  
	
  Schedule
  5.22

  	
  Material
  Contracts

  
	
  Schedule
  7.2

  	
  Existing
  Liens

  
	
  Schedule
  7.4

  	
  Investments

  
	
  Schedule 7.8

  	
  Existing Indebtedness

  

 

vi

 

AMENDED
AND RESTATED FINANCING AGREEMENT

 

Amended and Restated
Financing Agreement dated as of May 21, 2010 among RAFAELLA APPAREL GROUP,
INC., a Delaware corporation (the “Borrower”), Verrazano, Inc., a New
York corporation (“Verrazano”), each other subsidiary of the Borrower
which becomes a guarantor of the obligations hereunder from time to time
(collectively with Verrazano, the “Guarantors”; each a “Guarantor”),
HSBC BANK USA, NATIONAL ASSOCIATION (“HSBC”), CERBERUS CAPITAL
MANAGEMENT, L.P., a Delaware limited partnership, (“CCM”) and the other
financial institutions which are now or which hereafter become a party hereto
(with respect to their Commitments to make Advances) (each a “Lender”
and collectively, the “Lenders”), CCM, as the term loan lender (“Term
Lender”) and HSBC, as agent for the Lenders and the Term Lender (in such
capacity, the “Agent”).

 

BACKGROUND

 

Borrower and Guarantors
(jointly and severally, “Loan Parties”), Lenders and Agent entered into
a certain Financing Agreement dated as of June 20, 2005 (as amended, restated
or otherwise modified from time to time prior to the date hereof, the “Original
Financing Agreement”) pursuant to which Agent and Lenders provide Borrower
with certain financial accommodations.

 

Loan Parties, Term Lender, Lenders
and Agent entered into a certain Amended and Restated Financing Agreement dated
as of February 22, 2010 (the “Originally Restated Agreement”) pursuant
which Term Lender agreed to extend to Borrower a term loan in the aggregate
principal amount of up to $10,000,000 (“Proposed Term Loan”), as a “first-in
last-out” loan, repayable by Borrower as set forth in therein, with the
concurrent reduction in the Maximum Loan Amount from $30,000,000 to
$20,000,000.  Term Lender agreed to fund
the Proposed Term Loan on the terms and subject to the conditions set forth
therein.  The Originally Restated
Agreement purported to amend and modify the Original Financing Agreement, inter alia, to (a) provide for the Proposed Term Loan, (b) modify
the amount of the Availability Reserve, (c) modify the Working Capital
requirements, (d) modify the Net Income requirements and (e) extend the term of
the Financing Agreement from December 15, 2010 to April 1, 2011.  The conditions precedent to the effectiveness
of the Originally Restated Agreement were not satisfied and, prior to the
effectiveness of this Agreement, the Original Financing Agreement remains in
full force and effect.

 

Loan Parties have now
requested Lender and Agent to again amend and modify the Original Financing Agreement,
inter alia, to (a) provide for Term
Lender to extend Term Loans, from time to time, in the aggregate sum of up to
$5,000,000, (b) eliminate the right of Borrower to obtain Revolving Advances
during the period commencing on the Closing Date hereunder and continuing until
after December 15, 2010, and provide for Revolving Advances thereafter to be
funded by CCM in an aggregate amount not to exceed $5,000,000 from time to time
outstanding, (c) require the cash collateralization of all Letters of Credit
and Air Release/Steamship Guarantees on and after December 16, 2010, (d) revise
the Borrowing Base and the requirements for Cash Collateral, (e) revise the
Minimum Working Capital requirements and (f) extend the term of the Financing
Agreement from December 15, 2010 to June 10, 2011, and Agent and Lenders
(including without limitation HSBC and CCM) are willing to do so on the terms
and conditions set forth herein.

 

 

Loan Parties, Term Lender,
Lenders and Agent now wish to amend and restate the Original Financing
Agreement on the terms and conditions set forth in this Agreement.

 

AMENDMENT
AND RESTATEMENT

 

The parties hereto
acknowledge and agree that the Originally Restated Agreement was ineffective
due to the failure of the conditions precedent set forth therein to be timely
satisfied.  Upon and subject to the
satisfaction of the conditions precedent set forth in Section 8.1, the terms,
conditions, covenants, agreements, representations and warranties contained in
the Original Financing Agreement shall be deemed amended and restated in their
entirety as follows and the Original Financing Agreement shall be consolidated
with and into and superseded by this Agreement; provided, however,
that nothing contained in this Agreement shall impair, limit or affect the
Liens heretofore granted, pledged and/or assigned to Agent and Lenders as
security for Borrower’s Obligations to Lenders under the Original Financing
Agreement or for Borrower’s Obligations to Term Lender under this Agreement.

 

IN CONSIDERATION of the
mutual covenants and undertakings herein contained, Borrower, Guarantors, Term
Lender, Lenders and Agent hereby agree as follows:

 

I.                                         DEFINITIONS.

 

1.1.                              Accounting
Terms.

 

As used in this Agreement,
the Notes, any Other Document, or any certificate, report or other document
made or delivered pursuant to this Agreement, accounting terms not defined in Section
1.2 or elsewhere in this Agreement and accounting terms partly defined in Section
1.2 to the extent not defined, shall have the respective meanings given to them
under GAAP; provided, however, whenever such accounting terms are
used for the purposes of determining compliance with financial covenants in
this Agreement, such accounting terms shall be defined in accordance with GAAP
as applied in preparation of the audited financial statements of Borrower for
the fiscal year ended June 30, 2009.

 

1.2.                              General Terms.

 

For purposes of this
Agreement the following terms shall have the following meanings:

 

“Accountants” shall
have the meaning set forth in Section 9.7.

 

“ACH Transactions”
shall mean any cash management, disbursement, or related services, including
overdrafts and the automated clearinghouse transfer of funds by HSBC or any
affiliate of HSBC for the account of any Loan Party.

 

“Adjusted LIBO Rate” shall
mean, with respect to any Eurodollar Rate Loan for any Interest Period a rate
of interest equal to:

 

(a)                                  the offered
rate for deposits in U.S. dollars in the London interbank market for the
relevant Interest Period which is shown on the Reuters Screen LIBOR01 as of
11:00 a.m. 

 

2

 

(London
time) on the day which is two (2) Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period; provided,
however, that if, for any reason, such a rate is not published by the British
Bankers’ Association or available on the Reuters Screen LIBOR01, Adjusted LIBO
Rate shall be equal to a rate per annum equal to the average rate (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (0.0625%))
at which Agent determines that U.S. dollars in an amount comparable to the
amount of the applicable Advances or Term Loans are being offered to prime
banks at approximately 11:00 a.m. (London time) on the day which is two (2) Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period for settlement in immediately available funds by leading
banks in the London interbank market selected by Agent; divided by

 

(b)                                 a number equal
to 1.0 minus the aggregate (but without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on the day which is two (2)
Business Days prior to the beginning of such Interest Period (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System or
other governmental authority having jurisdiction with respect thereto, as now
and from time to time in effect) for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of such Board) which are
required to be maintained by a member bank of the Federal Reserve System; such
rate (if greater than zero) to be rounded upward to the next whole multiple of
one-sixteenth of one percent (0.0625%).

 

“Advance Rates” shall
mean the Receivables Advance Rate and the Inventory Advance Rate.

 

“Advances” shall mean
and include the Revolving Advances, Letters of Credit, and Air
Release/Steamship Guarantees.

 

“Affiliate” of any
Person shall mean (a) any Person (other than a Subsidiary) which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any Person who is a director or executive officer (i) of
such Person, (ii) of any Subsidiary of such Person or (iii) of any Person
described in clause (a) above.  For
purposes of this definition, control of a Person shall mean the power, direct
or indirect, (x) to vote 10% or more of the securities having ordinary voting
power for the election of directors of such Person, or (y) to direct or cause
the direction of the management and policies of such Person whether by contract
or otherwise.

 

“Agent” shall have
the meaning set forth in the preamble to this Agreement and shall include its
successors and assigns.

 

“Agreement” shall
mean this Financing Agreement, as amended, restated, modified or supplemented
from time to time.

 

“Air Release/Steamship
Guarantee” shall mean a guarantee issued by Agent, a Lender or any
Affiliate of Agent or a Lender to a steamship line or airway carrier for the
benefit of Borrower covering the absence for any reason of a steamship or
airway bill of lading applicable to goods shipped to Borrower to expedite
delivery of such goods and to facilitate Customs entry.

 

3

 

“Assignment of Factoring
Proceeds” shall mean, the Assignment of Factoring Proceeds among Agent,
Factor, and Borrower dated as of December 19, 2008, as such agreement may be
supplemented, modified, amended, amended and restated, or replaced from time to
time with the consent of Agent.

 

“Authority” shall
have the meaning set forth in Section 4.19(d).

 

“Availability Reserve”
shall mean (a) $10,000,000 from the Closing Date through December 15, 2010 and (b)
$0 on and after December 16, 2010.

 

“Bank Products” shall
mean each and any of the following types of services or facilities extended to
the Loan Parties by HSBC or any Affiliate of HSBC:  (a) commercial credit cards; (b) cash management
services (including controlled disbursement services, ACH Transactions, and
interstate depository network services); (c) return items; (d) Hedge
Agreements, and (e) foreign exchange.

 

“Base Rate” shall
mean, on any date, a variable rate of interest per annum equal to the greater
of (a) the highest of the “prime rate,” “reference rate,” “base rate” or other
similar rate as determined by Agent (or any successor to Agent) announced from
time to time by HSBC (or any successor to HSBC) (with the understanding that
any such rate may merely be a reference rate and may not necessarily represent
the lowest or best rate actually charged to any customer by such bank), (b) the
Federal Funds Rate plus 1⁄2 of 1% and (c) the equivalent of the Eurodollar Rate
for a one month period plus 100 basis points (1%) (for the avoidance of doubt,
with such Eurodollar Rate under this clause (c) being determined pursuant to
the definitions of “Eurodollar Rate” and “Adjusted LIBO Rate”, each as set
forth in this Agreement, with respect to a Eurodollar Rate Loan and an Interest
Period beginning on such date).

 

“Blocked Accounts”
shall have the meaning set forth in Section 4.15(h).

 

“Borrower’s Account”
shall have the meaning set forth in Section 2.8.

 

“Borrowing Base
Certificate” shall mean a certificate duly executed by an officer of
Borrower appropriately completed and in substantially the form of Exhibit A.

 

“Business Day” shall
mean, with respect to Eurodollar Rate Loans, any day on which commercial banks
are open for domestic and international business, including dealings in Dollar
deposits, in London, England and New York, New York, and with respect to all
other matters, any day other than a day on which commercial banks in New York
are authorized or required by law to close.

 

“Capital Lease” means
any lease of any property (whether real, personal or mixed) that, in conformity
with GAAP, should be accounted for as a capital lease.

 

“Cash Collateral”
shall have the meaning set forth in Section 6.8(c).

 

“Cash Equivalents”
shall mean: (a) marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case maturing
within 1 year 

 

4

 

from the date of acquisition
thereof; (b) commercial paper maturing no more than 1 year from the date issued
and, at the time of acquisition, having one of the two highest ratings
obtainable from Standard & Poor’s Corporation or Moody’s Investment Service
when acquired; (c) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or
public instrumentality thereof, in each case, maturing within one year after
such date and having, at the time of the acquisition thereof, one of two
highest ratings from Standard & Poor’s Corporation or Moody’s Investors
Service, (d) certificates of deposit or bankers’ acceptances maturing within 1
year from the date of issuance thereof issued by, or overnight reverse
repurchase agreements from, any commercial bank organized under the laws of the
United States of America or any state thereof or the District of Columbia
having combined capital and surplus of not less than $250,000,000 and whose
debt obligations, or those of a holding company of which it is a Subsidiary,
are rated not less than A (or the equivalent rating) by a nationally recognized
investment rating agency when acquired and not subject to setoff rights in
favor of such bank and (e) shares of any money market mutual fund that (i) has
substantially all of its assets invested continuously in the types of
investments referred to in clauses (a) through (d) above, (ii) has net assets
of not less than $250,000,000, and (iii) has one of the two highest ratings
obtainable from Standard & Poor’s Corporation or Moody’s Investors Service
when acquired.

 

“CCM” shall mean
Cerberus Capital Management L.P., a Delaware limited partnership.

 

“CERCLA” shall mean
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. §§9601 et seq.

 

“Change of Control”
shall mean (a) the occurrence of any event (whether in one or more
transactions) which results in a transfer of control of any Loan Party to a
Person who is not a Permitted Holder; (b) more than 50% of the equity interests
in any Loan Party (including for the purposes of the calculation of percentage
ownership, any equity interests into which any equity interests in any Loan
Party held by any of the Permitted Holders is convertible or for which any such
equity interests in any Loan Party or of any other Person may be exchanged and
any equity interests issuable to such Permitted Holders upon exercise of any
warrants, options or similar rights which may at the time of calculation be
held by such Permitted Holders) (with full power to elect directors) is no
longer owned or controlled by a Person who is a Permitted Holder or (c) any
merger or consolidation of or with any Loan Party or sale of all or
substantially all of the property or assets of any Loan Party.  For purposes of this definition, “control” of
a Person shall mean (x) ownership of, or the right to vote, more than 50% of
the securities having ordinary voting power for the election of directors or
managers of such Person or (y) the power, direct or indirect, to direct or
cause the direction of the management and policies of such Person by contract
or otherwise.

 

“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 

 

5

 

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, Loan
Parties or any of their Affiliates.

 

“Closing Date” shall
mean the date that all conditions precedent to the effectiveness of the
amendment and restatement set forth in Section 8.1 of this Agreement shall have
been satisfied.

 

“Code” shall mean the
Internal Revenue Code of 1986, as amended from time to time and the regulations
promulgated thereunder.

 

“Collateral” shall
mean and include:

 

(a)                                  all
Receivables;

 

(b)                                 all Equipment;

 

(c)                                  all General
Intangibles;

 

(d)                                 all Inventory;

 

(e)                                  all Investment
Property;

 

(f)                                    all Real
Property;

 

(g)                                 all of each
Loan Party’s right, title and interest in and to (i) its goods and other
property including, but not limited to, all merchandise returned or rejected by
Customers, relating to or securing any of the Receivables; (ii) all of each
Loan Party’s rights as a consignor, a consignee, an unpaid vendor, mechanic,
artisan, or other lienor, including stoppage in-transit, setoff, detinue,
replevin, reclamation and repurchase; (iii) all supporting obligations and all
additional amounts due to any Loan Party from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to any
goods securing this Agreement; (v) all of each Loan Party’s contract rights,
rights of payment which have been earned under a contract right, letter of
credit rights (whether or not the letter of credit is evidenced by a writing),
instruments (including promissory notes), documents, chattel paper (whether
tangible or electronic), warehouse receipts, deposit accounts, money and
securities; (vi) if and when obtained by any Loan Party, all real and personal
property of third parties in which such Loan Party has been granted a lien or
security interest as security for the payment or enforcement of Receivables;
and (vii) any other goods, personal property or real property now owned or hereafter
acquired in which any Loan Party has expressly granted a security interest or
may in the future grant a security interest to Agent hereunder, or in any
amendment or supplement hereto or thereto, or under any other agreement between
Agent and any Loan Party;

 

(h)                                 all of each
Loan Party’s ledger sheets, ledger cards, files, correspondence, records, books
of account, business papers, computers, computer software (owned by any Loan
Party or in which it has an interest), computer programs, tapes, disks and
documents relating to clauses (a), (b), (c), (d), (e), (f) or (g) of this
definition; and

 

6

 

(i)                                     all proceeds
and products of clauses (a), (b), (c), (d), (e), (f), (g) and (h) of this
definition in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of
deposit, insurance proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements, documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds; provided, however, that the Collateral shall
not in any event include (1) any interest of any Loan Party in any premises
leased by any Loan Party at any time or (2) any interest in the capital stock
of any Subsidiary organized in a jurisdiction other than a State of the United
States or the District of Columbia in excess of 65% of the voting power of all
classes, series or designations of equity interests of such Subsidiaries
entitled to vote.

 

“Commitment Percentage”
of Term Lender shall mean, as of the Closing Date, 100% with respect to the
Term Loans and of any Lender shall mean, (a) as of the Closing Date and
continuing through December 15, 2010, 100% with respect to HSBC and (b) as of December
16, 2010 and continuing thereafter, 80% with respect to HSBC and 20% with
respect to CCM; provided, however, that on and after December 16,
2010 (x) for purposes of determining the Commitment Percentages of the Lenders
with respect to Revolving Advances, HSBC’s Commitment Percentage shall be 0%
and CCM’s Commitment Percentage shall be 100%, and (y) for purposes of
determining the Commitment Percentages of the Lenders with respect to Letters
of Credit and/or Air Releases/Steamship Guarantees, HSBC’s Commitment
Percentage shall be 100% and CCM’s Commitment Percentage shall be 0%, as each
may be adjusted upon any assignment by a Lender or Term Lender pursuant to Section
16.3.

 

“Commitment Transfer
Supplement” shall mean a document in the form of Exhibit
16.3, properly completed and otherwise in form and substance
satisfactory to Agent by which the Purchasing Lender purchases and assumes (x) a
portion of the outstanding Advances and the obligation of Lenders to make
Advances under this Agreement and/or (y) a portion of the obligation of Term
Lender to make the Term Loans under this Agreement, or after the Term Loans has
been made, a portion of the outstanding Term Loans.

 

“Commitments” shall
mean, as to any Lender, its obligation to make Advances (including
participating in Letters of Credit) in an aggregate amount not to exceed at any
one time outstanding the amount set forth below such Lender’s name on the
signature page hereof under the heading “Commitment”, as same may be adjusted
in accordance with this Agreement.

 

“Consents” shall mean
all filings and all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties,
domestic or foreign, necessary to carry on any Loan Party’s business,
including, without limitation, any Consents required under all applicable
federal, state or other applicable law.

 

“Controlled Group”
shall mean all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control which, together
with any Loan Party, are treated as a single employer under Section 414 of the
Code.

 

“Currency Agreement”
means any foreign exchange contract, currency swap agreement, futures contract,
option contract, synthetic cap or other similar agreement or 

 

7

 

arrangement, each of which
is for the purpose of hedging the foreign currency risk associated with Borrower’s
and its Subsidiaries’ operations and not for speculative purposes.

 

“Current Assets” at a
particular date, shall mean all (a) cash and cash equivalents, (b) Receivables,
and (c) Inventory, in each case of Loan Parties on a Consolidated Basis; provided,
however, that such amounts shall not include amounts owing by
contractors to Borrower with respect to Inventory of Borrower which is located
at such contractors.

 

“Current Liabilities”
at a particular date, shall mean, without duplication, all amounts which would,
in conformity with GAAP, be included under current liabilities on a balance
sheet of Loan Parties on a Consolidated Basis, as at such date, but in any
event including, without limitation, the amounts of (a) all Indebtedness of
Loan Parties on a Consolidated Basis payable on demand, or, at the option of
the Person to whom such Indebtedness is owed, not more than twelve (12) months
after such date, (b) any payments in respect of any Indebtedness of any Loan
Party (whether installment, serial maturity, sinking fund payment or otherwise)
required to be made not more than twelve (12) months after such date, (c) all
reserves in respect of liabilities or Indebtedness payable on demand or, at the
option of the Person to whom such Indebtedness is owed, not more than twelve
(12) months after such date, the validity of which is not contested at such
date, and (d) all accruals for federal or other taxes measured by income
payable within a twelve (12) month period; provided, however,
that for purposes of determining Working Capital, notwithstanding the fact that
such Indebtedness may then be due and payable within twelve (12) months,
Current Liabilities shall be deemed at all times to exclude the Senior Note
Debt and the Term Loans.

 

“Customer” shall mean
and include the account debtor with respect to any Receivable and/or the
prospective purchaser of goods, services or both with respect to any contract
or contract right, and/or any party who enters into or proposes to enter into
any contract or other arrangement with any Loan Party, pursuant to which any
Loan Party is to deliver any personal property or perform any services.

 

“Customs” shall mean
the U.S. Customs Service and any successor thereto.

 

“Default” shall mean
an event which, with the giving of notice or passage of time or both, would
constitute an Event of Default.

 

“Default Rate” shall
have the meaning set forth in Section 3.1.

 

“Defaulting Lender”
shall have the meaning set forth in Section 2.16(a).

 

“Depository Accounts”
shall have the meaning set forth in Section 4.15(h).

 

“Documentary Letters of
Credit” shall mean all Letters of Credit issued in connection with this
Agreement to pay the purchase price for Inventory purchased by Borrower.

 

“Dollar” and the sign
“$” shall mean lawful money of the United States of America.

 

8

 

“Domestic Rate Loan”
shall mean any Advance, or portion of the Term Loans, that bears interest based
upon the Base Rate.

 

“Eligible Factored
Receivables” shall mean Receivables that have been credit approved by the
Factor pursuant to the Factoring Agreement and the proceeds of which will
constitute part of the credit balance in favor of the Borrower thereunder and
which have been assigned to Agent pursuant to an Assignment of Factoring
Proceeds.

 

“Eligible Inventory”
shall mean and include Inventory consisting of finished goods, owned by and in
the possession of Borrower and located at premises of Borrower listed on Schedule 4.5, valued at the lower of
cost or market value, determined on a first-in-first-out basis, which is not,
in Agent’s opinion, obsolete, slow moving or unmerchantable and which Agent, in
its reasonable discretion, shall deem to be eligible Inventory, based on such
considerations as Agent may from time to time deem appropriate in its
reasonable discretion including, without limitation, whether such Inventory is
subject to a perfected, first priority security interest in favor of Agent and
no other Lien (other than Permitted Encumbrances) and whether such Inventory conforms
to all standards imposed by any governmental agency, division or department
thereof which has regulatory authority over such goods or the use or sale
thereof.  Eligible Inventory shall not
include licensed or private-label Inventory, unless (i) Borrower is the owner
of such license or private-label, or (ii) a consent, in form and substance
satisfactory to Agent, has been obtained from the owner of such license or
private-label with respect to Agent’s security interest in such Inventory.  Eligible Inventory shall include all
Inventory in-transit for which title has passed to Borrower, which is insured
to the full value thereof, and for which Agent has in its possession (a) all
negotiable bills of lading, properly endorsed, and (b) all non-negotiable bills
of lading issued in Agent’s name.

 

“Eligible Receivables”
shall mean and include each Receivable of Borrower arising in the ordinary
course of Borrower’s business which is not an Eligible Factored Receivable and
which Agent, in its reasonable credit judgment, shall deem to be an Eligible
Receivable, based on such considerations as Agent may from time to time deem
appropriate in its reasonable discretion. 
A Receivable shall not be deemed eligible unless such Receivable is
subject to Agent’s first priority perfected security interest and no other Lien
(other than Permitted Encumbrances described in clauses (a), (b), (c) and (f) of
the definition thereof), and is evidenced by an invoice or other documentary
evidence satisfactory to Agent.  In
addition, no Receivable shall be an Eligible Receivable if:

 

(a)                                  it arises out
of a sale made by Borrower to an Affiliate of Borrower or to a Person
controlled by an Affiliate of Borrower; provided that Portfolio Company
Receivables shall be Eligible Receivables to the extent they otherwise meet the
eligibility criteria;

 

(b)                                 it is due or
unpaid more than ninety (90) days after the original due date;

 

(c)                                  more than 50%
of the Receivables from such Customer are not deemed Eligible Receivables
hereunder;

 

(d)                                 any covenant,
representation or warranty contained in this Agreement with respect to such
Receivable has been breached;

 

9

 

(e)                                  the Customer
shall (i) apply for, suffer, or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property or call a meeting of its creditors, (ii) admit
in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business, (iii) make a general
assignment for the benefit of creditors, (iv) commence a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in effect), (v) be
adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii) acquiesce
to, or fail to have dismissed, any petition which is filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;

 

(f)                                    the sale is to
a Customer outside the United States of America or Canada, unless the sale is
on letter of credit, guaranty or acceptance terms, in each case acceptable to
Agent in its sole discretion;

 

(g)                                 the sale to the
Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment or any other repurchase or return basis or is evidenced
by chattel paper;

 

(h)                                 Agent believes,
in its reasonable credit judgment, that collection of such Receivable is
insecure or that such Receivable may not be paid by reason of the Customer’s
financial inability to pay;

 

(i)                                     the Customer is
the United States of America, any state or any department, agency or
instrumentality of any of them, unless Borrower assigns its right to payment of
such Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15
et  seq.) or has otherwise complied with other applicable statutes
or ordinances;

 

(j)                                     the goods
giving rise to such Receivable have not been shipped and delivered to and
accepted by the Customer or the services giving rise to such Receivable have
not been performed by Borrower and accepted by the Customer or the Receivable
otherwise does not represent a final sale, except for customary rights of
return in accordance with practices disclosed in writing to Agent;

 

(k)                                  the Receivables
of the Customer exceed a credit limit determined by Agent, in its reasonable
credit judgment, to the extent such Receivable exceeds such limit;

 

(l)                                     the Receivable
is subject to any offset, deduction, defense, dispute, or counterclaim, (except
that the amount of the Receivable in excess of such offset, deduction, defense,
dispute or counterclaim shall not be ineligible due to the operation this
clause (l)) or the Receivable is contingent in any respect or for any reason;

 

(m)                               the Borrower
has made any agreement with any Customer for any deduction therefrom, except
for discounts or allowances made in the ordinary course of business for prompt
payment, all of which discounts or allowances are reflected in the calculation
of the face value of each respective invoice related thereto;

 

10

 

(n)           any return, rejection or repossession of the merchandise
has occurred;

 

(o)           such Receivable is not payable to Borrower;

 

(p)           Receivables with respect to which the Customer is located
in New Jersey, Minnesota, or any other state denying creditors access to its
courts in the absence of a Notice of Business Activities Report or other
similar filing, unless Borrower is incorporated under the laws of such state or
has either qualified as a foreign corporation authorized to transact business
in such state or has filed a Notice of Business Activities Report or similar
filing with the applicable state agency for the then current year; or

 

(q)           such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.

 

“Environmental Complaint”
shall have the meaning set forth in Section 4.19(d).

 

“Environmental Laws”
shall mean all federal, state and local environmental, land use, zoning,
health, chemical use, and occupational safety laws, statutes, ordinances and
codes relating to the protection of the environment and/or governing the use,
storage, treatment, generation, transportation, processing, handling,
production or disposal of Hazardous Substances and the rules, regulations,
policies, guidelines, interpretations, decisions, orders and directives of
federal, state and local governmental agencies and authorities with respect
thereto.

 

“Equipment” shall
mean and include as to each Loan Party, all of such Loan Party’s goods (other
than Inventory) whether now owned or hereafter acquired and wherever located
including, without limitation, all equipment, machinery, apparatus, motor
vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and
all replacements and substitutions therefor or accessions thereto.

 

“ERISA” shall mean
the Employee Retirement Income Security Act of 1974, as amended from time to
time and the rules and regulations promulgated thereunder.

 

“Eurodollar Rate”
shall mean for any Eurodollar Rate Loan for the then current Interest Period
relating thereto the rate per annum (such Eurodollar Rate to be adjusted to the
next higher 1/100 of one percent (1%)) equal to the Adjusted LIBO Rate.

 

“Eurodollar Rate Loan”
shall mean an Advance, or a portion of the Term Loans, at any time that bears
interest based on the Adjusted LIBO Rate.

 

“Event of Default”
shall mean the occurrence of any of the events set forth in Article X.

 

“Existing Air
Release/Steamship Guarantee” shall have the meaning provided in Section 2.10(g).

 

“Existing Letter of
Credit” shall have the meaning provided in Section 2.10(g).

 

11

 

“Factor” shall mean
Wells Fargo Trade Capital, LLC and any other factor that is acceptable to Agent
in its sole judgment.

 

“Factoring Agreement”
shall mean (a) the Factoring Agreement (Collections) dated December 19, 2008
between Borrower and Factor, as such agreement may be supplemented, modified,
amended, amended and restated, or replaced from time to time with the consent
of Agent, (b) the Factoring Agreement (Collections) dated December 19, 2008
between Verrazano and Factor, as such agreement may be supplemented, modified,
amended, amended and restated, or replaced from time to time with the consent
of Agent, and (c) on and after the date, if any, Borrower enters into a
Factoring Agreement in form and substance satisfactory to Agent in all respects
with a Factor other than Wells Fargo Trade Capital, LLC, such Factoring
Agreement, as it may be supplemented, modified, amended, amended and restated,
or replaced from time to time with the consent of Agent.

 

“Federal Funds Rate”
shall mean, for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or if such rate is not so published for any day which is a
Business Day, the average of quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by Agent.

 

“Formula Amount”
shall have the meaning set forth in Section 2.1(b).

 

“GAAP” shall mean
generally accepted accounting principles in the United States of America in
effect from time to time.

 

“General Intangibles”
shall mean and include as to each Loan Party, all of such Loan Party’s general
intangibles, whether now owned or hereafter acquired including, without limitation,
all payment intangibles, choses in action, commercial tort claims, causes of
action, corporate or other business records, inventions, designs, patents,
patent applications, equipment formulations, manufacturing procedures, quality
control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs and computer software, all
claims under guaranties, security interests or other security held by or
granted to such Loan Party to secure payment of any of the Receivables by a
Customer, all rights of indemnification and all other intangible property of
every kind and nature (other than Receivables).

 

“Governmental Body”
shall mean any nation or government, any state or other political subdivision
thereof or any entity exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.

 

“Guarantor” or “Guarantors”
shall have the meaning set forth in the preamble to this Agreement and shall
extend to all permitted successors and assigns of such Persons.

 

“Guaranty” shall mean
the guaranty set forth in Article XV of this Agreement and any other guaranty
of the obligations of Borrower executed by a Guarantor in favor of Agent for
its benefit and for the ratable benefit of Lenders and Term Lender.

 

12

 

“Hazardous Discharge”
shall have the meaning set forth in Section 4.19(d).

 

“Hazardous Substance”
shall mean, without limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
Hazardous Wastes, hazardous or Toxic Substances or related materials as defined
in CERCLA, the Hazardous Materials Transportation Act, as amended (49 U.S.C.
Sections 1801, et seq.), RCRA, Articles 15 and 27 of the New York State
Environmental Conservation Law or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.

 

“Hazardous Wastes”
shall mean all waste materials subject to regulation under CERCLA, RCRA or
applicable state law, and any other applicable Federal and state laws now in
force or hereafter enacted relating to hazardous waste disposal.

 

“Hedge Agreement”
shall mean an Interest Rate Agreement or a Currency Agreement.

 

“HSBC” shall have the
meaning set forth in the preamble to this Agreement and shall include its
successors and assigns.

 

“HSBC L/C Program”
shall mean the HSBC Supply Chain Solutions program, as in effect from time to
time.

 

“Indebtedness” of a
Person at a particular date shall mean all obligations of such Person which in
accordance with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise) and in any event,
without limitation by reason of enumeration, shall include (a) all
indebtedness, debt and similar monetary obligations of such Person whether
direct or guaranteed; (b) all indebtedness for borrowed money; (c) that portion
of obligations with respect to capital leases that is properly classified as a
liability on a balance sheet in conformity with GAAP; (d) notes payable and
drafts accepted representing extensions of credit whether or not representing
obligations for borrowed money; (e) any obligation owed for all or any part of
the deferred purchase price of property or services if the purchase price is
due more than six (6) months from the date the obligation is incurred or is
evidenced by a note or similar written instrument; and (f) all indebtedness
secured by any Lien on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed
by that Person or is nonrecourse to the credit of that Person.

 

“Intercreditor Agreement”
shall mean the Intercreditor Agreement dated as of the Original Closing Date
among Agent, Borrower and Senior Note Agent, as amended, restated, supplemented
or otherwise modified from time to time.

 

“Interest Period”
shall mean the period provided for any Eurodollar Rate Loan pursuant to Section
2.2(b).

 

“Interest Rate Agreement”
means any interest rate swap agreement (whether from fixed to floating or from
floating to fixed), interest rate cap agreement, interest rate collar
agreement, interest rate hedging agreement or other similar agreement or
arrangement, each of 

 

13

 

which is for the purpose of
hedging the interest rate exposure associated with Borrower’s and its
Subsidiaries’ operations and not for speculative purposes.

 

“Inventory” shall
mean and include, as to each Loan Party, all of such Loan Party’s now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in such Loan Party’s business or used in selling or furnishing such
goods, merchandise and other personal property, all other inventory of such
Loan Party, and all documents of title or other documents representing them.

 

“Inventory Advance Cap”
shall mean (a) $10,000,000 from the Closing Date through and including September
30, 2010, (b) $5,000,000 from October 1, 2010 through and including December 15,
2010 and (c) $0 from and after December 16, 2010.

 

“Inventory Advance Rate”
shall have the meaning set forth in Section 2.1(b)(y)(ii).

 

“Investment Property”
shall mean and include as to each Loan Party, all of such Loan Party’s now
owned or hereafter acquired securities (whether certificated or
uncertificated), securities entitlements, securities accounts, commodities contracts,
commodities accounts, stocks, mutual fund shares, money market shares and U.S.
Government securities.

 

“Issuer” shall mean
any Person who issues a Letter of Credit and/or accepts a draft pursuant to the
terms thereof, it being agreed that so long as HSBC shall be Agent or a Lender,
then the Issuer shall be HSBC (or any corporation that directly or indirectly
controls or is controlled by or it under common control with HSBC); provided,
however, that in the event that HSBC is neither Agent nor a Lender, the “Issuer”
with respect to all subsequently issued Letters of Credit shall be any other
Lender selected by Loan Parties.

 

“Lender” and “Lenders”
shall have the meaning ascribed to such term in the preamble to this Agreement
and shall include each Person which becomes a transferee, successor or assign
of any Lender.  For purposes of
clarification, the term “Lender” or “Lenders” shall not include Term Lender,
except as specifically set forth herein.

 

“Lender Default”
shall have the meaning set forth in Section 2.16(a).

 

“Letter of Credit
Application” shall have the meaning set forth in Section 2.10.

 

“Letter of Credit and
Guarantee Fees” shall have the meaning set forth in Section 3.2.

 

“Letters of Credit”
shall have the meaning set forth in Section 2.9.

 

“Lien” shall mean any
mortgage, deed of trust, pledge, hypothecation, assignment, security interest,
lien (whether statutory or otherwise), claim or encumbrance, or preference,
priority or other security agreement or preferential arrangement held or asserted
in respect of any asset of any kind or nature whatsoever including, without
limitation, any 

 

14

 

conditional sale or other
title retention agreement, any lease having substantially the same economic effect
as any of the foregoing, and the filing of, or agreement to give, any financing
statement under the UCC or comparable law of any jurisdiction.

 

“Loan Party” shall
mean, individually, the Borrower and each Guarantor, and “Loan Parties”
shall mean, collectively, the Borrower and the Guarantors.

 

“Loan Parties on a
Consolidated Basis” shall mean the consolidation in accordance with GAAP of
the accounts or other items of Loan Parties and their respective Subsidiaries.

 

“Material Adverse Effect”
shall mean a material adverse effect on (a) the business, operations, assets or
financial condition of the Loan Parties, taken as a whole, (b) any Loan Party’s
ability to pay the Obligations in accordance with the terms thereof, (c) the
value of the Collateral, taken as a whole, or Agent’s Liens on any material
amount of the Collateral or the priority of any such Lien or (d) the practical
realization of the benefits of Agent’s and each Lender’s and Term Lender’s
rights and remedies under this Agreement and the Other Documents.

 

“Maximum Direct Debt
Sublimit” shall mean (a) from the Closing Date through December 15, 2010,
$0 and (b) from and after December 16, 2010, $5,000,000.

 

“Maximum Loan Amount”
shall mean $30,000,000.

 

“Maximum Undrawn Amount”
shall mean with respect to any outstanding Letter of Credit, the amount of such
Letter of Credit that is or may become available to be drawn, including all
automatic increases provided for in such Letter of Credit, whether or not any
such automatic increase has become effective.

 

“Multiemployer Plan”
shall mean a “multiemployer plan” as defined in Sections 3(37) and 4001(a)(3) of
ERISA.

 

“Net Income” shall
mean, for any period, the aggregate income (or loss) of Loan Parties on a
Consolidated Basis for such period, all computed and calculated in accordance
with GAAP.

 

“Non-Defaulting Lenders”
shall have the meaning set forth in Section 2.16(b).

 

“Notes” shall mean,
collectively, the Revolving Credit Notes and the Term Note.

 

“Obligations” shall
mean and include any and all of each Loan Party’s Indebtedness and/or
liabilities to Agent, Term Lender, Lenders or any Issuer, or any Person that
directly or indirectly controls or is controlled by or is under common control
with Agent, Term Lender, any Lender or any Issuer, under this Agreement and the
Other Documents, of every kind, nature and description, direct or indirect,
secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising,
contractual or tortious, liquidated or unliquidated, regardless of how such
indebtedness or liabilities arise or by what agreement or instrument they may
be evidenced or whether evidenced 

 

15

 

by any agreement or
instrument (including all interest accruing after the commencement of any
bankruptcy or similar proceeding whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) including, without
limitation, Bank Products and all obligations of any Loan Party under this
Agreement and the Other Documents to Agent, Term Lender, Lenders or any Issuer
to perform acts or refrain from taking any action.

 

“Original Closing Date”
shall mean June 20, 2005.

 

“Original Term” shall
have the meaning set forth in Section 13.1.

 

“Other Documents”
shall mean the Notes, the Assignment of Factoring Proceeds and any and all
other agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by any Person and/or delivered to Agent
or any Lender or Term Lender in respect of the transactions contemplated by
this Agreement.

 

“Parent” of any
Person shall mean a corporation or other entity owning, directly or indirectly,
more than 50% of the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the directors of the Person, or
other Persons performing similar functions for any such Person.

 

“Participant” shall
mean each Person who shall be granted the right by any Lender or Term Lender to
participate in any of the Advances or the Term Loans and who shall have entered
into a participation agreement in form and substance satisfactory to such
Lender or Term Lender.

 

“Payment Office”
shall mean initially 452 Fifth Avenue, New York, New York 10018; thereafter,
such other office of Agent, if any, which it may designate by notice to the
Borrower and to each Lender and Term Lender to be the Payment Office.

 

“PBGC” shall mean the
Pension Benefit Guaranty Corporation.

 

“Permitted Disposition”
means (a) sales or other dispositions of equipment that is substantially worn,
damaged, or obsolete in the ordinary course of business, (b) sales and leases
of inventory to buyers in the ordinary course of business, (c) the use or
transfer of money or Cash Equivalents in a manner that is not prohibited by the
terms of the Agreement or the Other Documents, (d) the licensing, on a
non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business, including without
limitation, non-exclusive licenses of such Person’s company name to resellers
pursuant to reseller agreements, and (e) dispositions permitted by Section 4.3.

 

“Permitted Encumbrances”
shall mean (a) Liens in favor of Agent for the benefit of Agent, Term Lender,
Lenders and/or any Issuer, which, in each case, secure Obligations; (b) Liens
for taxes, assessments or other governmental charges not delinquent or being
contested in good faith and by appropriate proceedings and with respect to
which proper reserves have been taken by Loan Parties; provided, that,
a stay of enforcement of any such Lien shall be in effect; (c) Liens disclosed
in the financial statements referred to in Section 5.5, the existence of which
Agent has consented to in writing; (d) deposits or pledges to secure
obligations under worker’s 

 

16

 

compensation, social
security or similar laws, or under unemployment insurance; (e) deposits or
pledges to secure bids, tenders, contracts (other than contracts for the
payment of money), leases, statutory obligations, surety and appeal bonds and
other obligations of like nature arising in the ordinary course of any Loan Party’s
business; (f) judgment Liens that have been stayed or bonded and mechanics’,
landlords’, carriers’, warehousemens’, workers’, materialmen’s or other like
Liens arising in the ordinary course of any Loan Party’s business with respect
to obligations which are not due or which are being contested in good faith by
the applicable Loan Party; (g) Liens placed upon fixed assets hereafter
acquired to secure a portion of the purchase price thereof, provided that (x) any
such lien shall not encumber any other property of Loan Parties and (y) the
aggregate amount of Indebtedness secured by such Liens incurred as a result of
such purchases during any fiscal year shall not exceed the amount provided for
in Section 7.8(v); (h) Liens disclosed on Schedule 7.2, or
on a title report delivered with respect to any real estate subject to a
mortgage in favor of Agent; (i) easements, rights-of-way, restrictions,
encroachments, and other minor defects or irregularities in title, in each case
which do not and will not interfere in any material respect with the ordinary
conduct of the business of Borrower or any of its Subsidiaries; (j) any
interest or title of a lessor or sublessor under any lease of real or personal
property which is not a Capital Lease; (k) purported Liens evidenced by the
filing of precautionary UCC financing statements relating solely to operating
leases of personal property entered into in the ordinary course of business; (l)
Liens in favor of Customs and revenue authorities or freight handlers or
forwarders to secure payment of Customs duties in connection with the
importation of goods; (m) any zoning or similar law or right reserved to or
vested in any Governmental Body; (n) Liens securing Indebtedness permitted
pursuant to Section 7.8(v); provided, any such Lien shall encumber only
the asset acquired, constructed or improved with the proceeds of such
Indebtedness and substitutions and replacements thereof and accessions and
attachments thereto, and extensions, renewals and replacements of such Liens; provided,
that any extension, renewal or replacement is no more restrictive in any
material respect than the Liens so extended, renewed or replaced and does not
extend to any additional property or assets; (o) customary security deposits under operating leases in the ordinary course
of business; (p) customary rights of set off, bankers’ lien, refund or charge
back under deposit agreements, the Uniform Commercial Code or common law of
banks or other financial institutions where Borrower or any of its Subsidiaries
maintains deposits (other than deposits intended as cash collateral) in the
ordinary course of business; (q) Liens in connection with permitted repurchase
obligations; (r) Liens in favor of any Loan Party; (s) (i) Liens on property, plant and equipment of a Person
existing at the time such Person is merged with or into or consolidated with,
or the assets of such Person are acquired by, Borrower or a Subsidiary thereof;
provided, that such Liens were in existence prior to and were not
incurred in connection with or in contemplation of such merger or consolidation
or acquisition and do not extend to any assets other than those of the Person
merged into or consolidated with or acquired by Borrower or such Subsidiary and
(ii) extensions, renewals and replacements of any Liens set forth in clause (i)
of this subsection (s) provided, that any such extension, renewal or
replacement is no more restrictive in any material respect than the Lien so
extended, renewed or replaced and does not extend to any additional property or
assets; and (t) Liens in favor of the holders of Senior Secured Notes under the
Senior Note Documentation.

 

“Permitted Holders”
means (a) CCM and (b) any investment funds and managed accounts which are
managed or advised by CCM or an Affiliate of CCM.

 

17

 

“Permitted Investments”
means:

 

(a)           Investments in cash and Cash Equivalents;

 

(b)           obligations, stock or other ownership interests owned as
of the Closing Date in any Subsidiary;

 

(c)           Investments (i) received in satisfaction or partial
satisfaction of delinquent accounts and disputes with customers or suppliers of
such Person in the ordinary course of business; or (ii) acquired as a result of
foreclosure of a Lien securing an investment or the transfer of the assets
subject to such Lien in lieu of foreclosure;

 

(d)           loans to the extent permitted under Section 7.5;

 

(e)           Investments described in Schedule
7.4;

 

(f)            extensions of credit to customers or advances, deposits
and payment to or with suppliers, lessors or utilities or for workers’
compensation, in each case, in the ordinary course of business that are
recorded as accounts receivable, prepaid expenses or deposits on the balance
sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP;

 

(g)           Investments constituting non-cash consideration received
by Borrower or any of its Subsidiaries in connection with Permitted
Dispositions and other sales and dispositions permitted under Section 7.1(a);
and

 

(h)           Investments under Hedge Agreements to the extent permitted
under Section 7.8;

 

(i)            Investments in joint ventures with any buying agent of
Borrower to facilitate the purchase of Inventory so long as Borrower shall not
become liable in respect of any Indebtedness of such joint ventures in excess
of $5,000,000 at any time outstanding; and

 

(j)            Investments in connection with the purchase or redemption
of Senior Secured Notes made in accordance with Section 7.18.

 

“Person” shall mean
any individual, sole proprietorship, partnership, corporation, business trust,
joint stock company, trust, unincorporated organization, association, limited
liability company, institution, public benefit corporation, joint venture,
entity or government (whether Federal, state, county, city, municipal or
otherwise, including any instrumentality, division, agency, body or department
thereof).

 

“Plan” shall mean any
employee benefit plan within the meaning of Section 3(3) of ERISA, maintained
for employees of any Loan Party or any member of the Controlled Group or any such
Plan to which any Loan Party or any member of the Controlled Group is required
to contribute on behalf of any of its employees.

 

“Portfolio Company
Receivable” means a Receivable of Borrower owing by an Affiliate of
Borrower (i) that contains arms-length terms and arises in the ordinary course
of 

 

18

 

business of Borrower and
such Affiliate and (ii) the Customer with respect thereto is an Affiliate of
Borrower solely as a result of common ownership by Permitted Holders or the
existence of common directors with Borrower and such Customer.

 

“Purchaser” shall
mean RA Cerberus Acquisition, LLC, a Delaware limited liability company.

 

“Purchasing Lender”
shall have the meaning set forth in Section 16.3(c).

 

“Rafaella Inc.” shall
mean Rafaella Sportswear, Inc., a Delaware corporation.

 

“RCRA” shall mean the
Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as
same may be amended from time to time.

 

“Real Property” shall
have the meaning set forth in Section 4.19(i).

 

“Recapitalization”
shall mean, collectively, (i) the contribution of the assets of Rafaella Inc.
to Borrower and the assumption of the liabilities of Rafaella Inc. by Borrower,
pursuant to the Contribution Agreement by and among Rafaella Inc., Borrower,
Verrazano and RA Cerberus Acquisition, LLC, (ii) the issuance of the Senior
Secured Notes, (iii) the acquisition of 100% of the preferred capital stock
(which is convertible into 75% of the common capital stock) in Borrower by CCM
pursuant to the Securities Purchase Agreement dated April 15, 2004 by and among
RA Cerberus Acquisition, LLC, Borrower, Rafaella Inc., Verrazano and Ronald
Frankel, and (iv) the redemption of the 75% of the common in Borrower owned by
Rafaella Sportswear, Inc.

 

“Receivables” shall
mean and include as to each Loan Party, all of such Loan Party’s accounts
(including, without limitation, all health-care insurance receivables),
contract rights, instruments (including promissory notes and other instruments
evidencing Indebtedness owed to such Loan Party by their Affiliates), chattel
paper (whether tangible or electronic), General Intangibles relating to
accounts, drafts and acceptances, and all other forms of obligations owing to
such Loan Party arising out of or in connection with the sale, lease or other
disposition of Inventory or the rendition of services, all guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Agent hereunder.

 

“Receivables Advance Rate”
shall have the meaning set forth in Section 2.1(a).

 

“Release” shall have
the meaning set forth in Section 5.7(c).

 

“Reportable Event”
shall mean a reportable event described in Section 4043(b) of ERISA or the regulations
promulgated thereunder.

 

“Required Lenders”
shall mean Lenders holding at least sixty six and two-thirds percent (66 2/3%)
of the Advances and, if no Advances are outstanding, shall mean Lenders holding
sixty six and two-thirds percent (66 2/3%) of the Commitment Percentages with
respect to the Advances; provided, however, that (a) at all times when HSBC is
a Lender, Required Lenders shall include HSBC, and (b) after the Commitments of
the Lenders to make Advances 

 

19

 

have been terminated and all
of the Obligations described in “FIRST” through “SEVENTH” of Section 11.2 have
been satisfied in full, then “Required Lenders” shall mean Term Lenders holding
at least sixty six and two-thirds percent (66 2/3%) of the outstanding Term
Loans.

 

“Reserves” shall mean
such reserves as Agent may reasonably deem proper and necessary from time to
time, (a) to reflect events, conditions, contingencies or risks which, as
determined by Agent in good faith, adversely affect, or would have a reasonable
likelihood of adversely affecting, either (i) the Collateral or any other
property which is security for the Obligations, its value or the amount that
might be received by Agent from the sale or other disposition or realization
upon such Collateral, or (ii) the security interests and other rights of Agent
or any Lender or Term Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Agent’s good faith belief
that any collateral report or financial information furnished by or on behalf
of any Borrower to Agent is or may have been incomplete, inaccurate or
misleading in any material respect, or (c) to reflect outstanding Letters of
Credit and any cash collateralization thereof, or (d) in respect of any state
of facts which Agent determines in good faith constitutes a Default or an Event
of Default; and also including the Availability Reserve.

 

“Revolving Advances”
shall mean Advances made other than Letters of Credit, and Air Release/Steamship
Guarantees.

 

“Revolving Credit Note”
shall mean, collectively, the promissory notes referred to in Section 2.1(a).

 

“Revolving Formula Amount”
shall have the meaning set forth in Section 2.1(a).

 

“Revolving Interest Rate”
shall mean an interest rate per annum equal to (a) the Base Rate with respect
to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus two and
three quarters percent (2.75%) per annum with respect to Eurodollar Rate Loans.

 

“Securities Purchase
Agreement” shall mean the Securities Purchase Agreement, dated as of April 15,
2004, by and among Purchaser, Borrower, Rafaella Inc., Verrazano, and Ronald
Frankel.

 

“Senior Note Agent”
shall mean The Bank of New York, as Trustee, and its successors and assigns.

 

“Senior Note Debt”
shall mean all Indebtedness of Borrower under or in connection with the Senior
Note Documentation.

 

“Senior Note
Documentation” shall mean the Senior Note Indenture, the Senior Secured
Notes and any agreements, documents and instruments relating thereto.

 

“Senior Note Indenture”
shall mean that certain Indenture dated as of June 20, 2005 among Borrower, the
Guarantors and The Bank of New York, as Trustee and Collateral Agent as amended
by that certain First Supplemental Indenture dated as of July 12, 2006.

 

20

 

“Senior
Secured Notes” shall mean the 11.25% Senior Secured Notes due 2011 issued
by Borrower.

 

“Standby
Letters of Credit” shall mean all Letters of Credit issued in connection
with this Agreement as a credit enhancement for certain Indebtedness of Loan Parties.

 

“Standby
Letter of Credit Sublimit” shall mean $4,011,000.

 

“Subsidiary”
shall mean, with respect to any Person, a corporation or other entity of whose
shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.

 

“Term”
shall mean the period commencing on the Original Closing Date and ending on the
Termination Date.

 

“Term
Lender” shall have the meaning ascribed to such term in the preamble to
this Agreement and shall include each Person which becomes a transferee,
successor or assign of Term Lender.

 

“Term
Loans” shall mean the loans made by Term Lender pursuant to Section 2.17.

 

“Term
Loan Commitment” shall mean the obligation of Term Lender to make Term
Loans in an aggregate amount up to $5,000,000 on the terms and subject to the
conditions of this Agreement.

 

“Term
Note” shall mean the Term Note referred to in Section 2.17.

 

“Termination
Date” shall have the meaning set forth in Section 13.1.

 

“Termination
Event” shall mean (i) a Reportable Event with respect to any Plan or
Multiemployer Plan; (ii) the withdrawal of any Loan Party or any member of
the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a “substantial employer” as defined in Section 4001(a)(2) of
ERISA; (iii) the providing of notice of intent to terminate a Plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the
institution by the PBGC of proceedings to terminate a Plan or Multiemployer
Plan; (v) any event or condition (a) which might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any Plan or Multiemployer Plan, or (b) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (vi) the partial or complete withdrawal within the meaning of
Sections 4203 and 4205 of ERISA, of any Loan Party or any member of the
Controlled Group from a Multiemployer Plan.

 

“Toxic
Substance” shall mean and include any material present on the Real Property
or the Leasehold Interests which has been shown to have significant adverse
effect on human health or which is subject to regulation under the Toxic
Substances Control Act (TSCA), 15 U.S.C. §§ 2601 et seq., applicable
state law, or any other applicable Federal or state laws now 

 

21

 

in force or hereafter enacted relating to toxic substances.  “Toxic Substance” includes but is not limited
to asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.

 

“Transferee”
shall have the meaning set forth in Section 16.3.

 

“UCC”
shall mean the Uniform Commercial Code as in effect in the State of New York
from time to time.

 

“Week”
shall mean the time period commencing with the opening of business on a Monday
and ending on the end of business the following Sunday.

 

“Working
Capital” shall mean as of any date of determination, the excess, if any, of
Current Assets over Current Liabilities at such date.

 

1.3.          UCC Terms.

 

All
terms used herein and defined in the UCC shall have the meaning given therein
unless otherwise defined herein.

 

1.4.          Certain Matters of
Construction.

 

The
terms “herein”, “hereof” and “hereunder” and other words of similar import
refer to this Agreement as a whole and not to any particular section, paragraph
or subdivision. Each reference to a Section, an Exhibit or a Schedule
shall be deemed to refer to a Section, an Exhibit or a Schedule, as
applicable, of this Agreement, as modified or supplemented with the consent of
Agent unless otherwise specified.  Any
pronoun used shall be deemed to cover all genders.  Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice  versa.  All references to statutes (including the
UCC) and related regulations shall include any amendments of same and any
successor statutes and regulations. 
Unless otherwise provided, all references to any instruments or
agreements to which Agent is a party, including, without limitation, references
to any of the Other Documents, shall include any and all modifications,
restatements, supplements or amendments thereto and any and all extensions or
renewals thereof.

 

II.            ADVANCES, PAYMENTS.

 

2.1.          Maximum Advances.

 

(a)           Direct Debt
Advances. Subject to the terms and conditions set forth in
this Agreement (including, without limitation, Sections 2.1(b) and (c)),
commencing December 16, 2010, each Lender, severally and not jointly, will
make Revolving Advances to Borrower in aggregate amounts outstanding at any
time not to exceed such Lender’s Commitment Percentage with respect to
Revolving Advances of an amount equal to the lesser of (x) the Maximum
Direct Debt Sublimit and (y) an amount equal to the sum, subject to the
provisions of Section 2.1(c), of (A) (i) from the Closing Date
through December 15, 2010, 70% and (ii) from and after December 16,
2010, 65% (as applicable, the “Receivables Advance Rate”) of Eligible
Receivables plus (B) the Receivables Advance Rate of Eligible
Factored Receivables minus (C) Reserves (the “Revolving Formula Amount”).  The Revolving Advances shall be evidenced by 

 

22

 

one
or more secured promissory notes (each, a “Revolving Credit Note”)
substantially in the form attached hereto as Exhibit 2.1(a).

 

(b)           All Letters of
Credit and Air Releases/Steamship Guarantees.  The aggregate amount of Letters of Credit and
Air Releases/Steamship Guarantees outstanding at any time shall not exceed (x) prior
to December 16, 2010, the lesser of (i) $20,000,000 and (ii) an
amount equal to the sum of:

 

A.            the sum subject to the
provisions of Section 2.1(c), of (I) the Receivables Advance Rate of
Eligible Receivables plus (II) the Receivables Advance Rate of
Eligible Factored Receivables, plus

 

B.            the lesser of (I) the
sum of (a) subject to the provisions of Section 2.1(c), 50% (the “Inventory
Advance Rate”) of Eligible Inventory (including up to $10,000,000 of
Eligible Inventory consisting of in-transit Inventory), plus (b) the
Inventory Advance Rate of outstanding Documentary Letters of Credit, provided
that the foregoing shall include only Documentary Letters of Credit utilized to
purchase finished goods Inventory, or (II) the Inventory Advance Cap; plus

 

C.            the amount of Cash
Collateral then on deposit with Agent; minus

 

D.            Reserves:

 

and (y) on and after December 16, 2010, the lesser of (i) $20,000,000
and (ii) the amount of cash deposited with Agent pursuant to Section 3.2(b).

 

The amount derived from (A) the
sum of Sections 2.1(b)(x)(ii)(A) plus 2.1(b)(x)(ii)(B) plus
2.1(b)(x)(ii)(C) minus Section 2.1(b)(x)(ii)(D) or (B) Section 2.1(b)(y)(ii),
as applicable, at any time and from time to time shall be referred to as the “Formula
Amount”.

 

(c)           Discretionary
Rights.  The Receivables Advance Rate
may be increased or decreased by Agent at any time and from time to time, upon
five (5) Business Days notice to Borrower, based upon dilution, as set
forth on the most recent field examination conducted in accordance with this
Agreement, it being specifically understood that the 65% Receivables Advance
Rate scheduled to be in effect as of December 16, 2010 assumes a dilution
rate of no more than ten percent (10%). 
In addition, the Advance Rates may be increased or decreased by Agent at
any time and from time to time, upon five (5) Business Days notice to
Borrower, based upon other material changes in Borrower’s financial
circumstances, to be done in the exercise of its good faith business judgment
based upon the lending practices of Agent, consistent with criteria customary
in the commercial finance industry generally. 
Borrower consents to any such increases or decreases and acknowledge
that decreasing the Advance Rates or increasing the Reserves may limit or
restrict Advances requested by the Borrower.

 

2.2.          Procedure for Borrowing.

 

(a)           Borrower may
notify Agent prior to 12:00 noon (New York City time) on a Business Day of
Borrower’s request to incur, on the immediately succeeding Business Day, a
Revolving Advance hereunder.  On and
after December 16, 2010, any amount required to be 

 

23

 

paid
as interest hereunder, or as fees or other charges under this Agreement or any
other agreement with Agent, Lenders, Term Lender and/or any Issuer, or with
respect to any other Obligation, which shall become due (other than interest,
fees or other charges with respect to Letters of Credit and/or Air
Releases/Steamship Guarantees, which shall be payable upon demand), shall be
deemed a request for a Revolving Advance as of the date such payment is due, in
the amount required to pay in full such interest, fee, charge or Obligation
under this Agreement, or any Other Documents with Agent, Lenders, Term Lender
and/or any Issuer and such request shall be irrevocable.

 

(b)           Notwithstanding
the provisions of (a) above, in the event Borrower desires to obtain a
Eurodollar Rate Loan, Borrower shall give Agent at least three (3) Business
Days’ prior written notice (or such shorter period as Agent, in its sole
discretion, is willing to accommodate), specifying (i) the date of the
proposed borrowing (which shall be a Business Day), (ii) the type of
borrowing and the amount on the date of such Advance to be borrowed, which
amount shall be in a minimum amount of $1,000,000 and in integral multiples of
$250,000 in excess thereof, and (iii) the duration of the first Interest
Period therefor.  Borrower may also
elect, subject to the same criteria set forth in the preceding sentence, to
designate portions of the Term Loans as Eurodollar Rate Loans, from time to
time.  Interest Periods for Eurodollar
Rate Loans shall be for one, two, three, four, five, six, nine or twelve
months.  No Eurodollar Rate Loan shall be
made available to Borrower during the continuance of a Default or an Event of
Default.  After giving effect to each
such borrowing, there shall not be outstanding more than ten (10) Eurodollar
Rate Loans, in the aggregate at any time.

 

(c)           Each Interest
Period of a Eurodollar Rate Loan shall commence on the date such Eurodollar
Rate Loan is made and shall end on such date as Borrower may elect as set forth
in (b)(iii) above provided that the exact length of each Interest Period
shall be determined in accordance with the practice of the London interbank
market for Dollar deposits and no Interest Period shall end after the
Termination Date.

 

(d)           Borrower shall
elect the initial Interest Period applicable to a Eurodollar Rate Loan by its
notice of borrowing given to Agent pursuant to Section 2.2(b) or Section 2.17
or by its notice of conversion given to Agent pursuant to Section 2.2(e),
as the case may be.  Borrower shall elect
the duration of each succeeding Interest Period by giving irrevocable written
notice to Agent of such duration not less than three (3) Business Days
prior to the last day of the then current Interest Period applicable to such
Eurodollar Rate Loan.  If Agent does not
receive timely notice of the Interest Period elected by Borrower, Borrower
shall be deemed to have elected an Interest Period of one month.

 

(e)           Provided that
no Event of Default shall have occurred and be continuing, Borrower may, on the
last Business Day of the then current Interest Period applicable to any
outstanding Eurodollar Rate Loan (including any applicable portion of the Term
Loans), or on any Business Day with respect to Domestic Rate Loans (including
any applicable portion of the Term Loans), convert any such loan into a loan of
another type in the same aggregate principal amount provided that any
conversion of a Eurodollar Rate Loan shall be made only on the last Business
Day of the then current Interest Period applicable to such Eurodollar Rate
Loan.  If Borrower desires to convert a
loan, Borrower shall give Agent not less than three (3) Business Days’
prior written notice to convert from a Domestic Rate Loan to a Eurodollar Rate
Loan or 

 

24

 

one
(1) Business Day’s prior written notice to convert from a Eurodollar Rate
Loan to a Domestic Rate Loan, specifying the date of such conversion, the loans
to be converted and if the conversion is from a Domestic Rate Loan to any other
type of loan, the duration of the first Interest Period therefor.  After giving effect to each such conversion,
there shall not be outstanding more than ten (10) Eurodollar Rate Loans,
in the aggregate.

 

(f)            Subject to Section 13.1,

 

(i)            At its option and upon three
(3) Business Days’ prior written notice, Borrower may prepay the
Eurodollar Rate Loans in whole at any time or in part from time to time,
without premium or penalty, but with accrued interest on the principal being
prepaid to the date of such repayment. 
Borrower shall specify the date of prepayment of Advances which are
Eurodollar Rate Loans and the amount of such prepayment.  In the event that any prepayment of a
Eurodollar Rate Loan is required or permitted on a date other than the last
Business Day of the then current Interest Period with respect thereto, Borrower
shall indemnify Agent and Lenders therefor in accordance with Section 2.2(g).

 

(ii)           At its option and upon one (1) Business
Days’ prior written notice, Borrower may prepay the Domestic Rate Loans in
whole at any time or in part from time to time, without premium or penalty, but
with accrued interest on the principal being prepaid to the date of such
repayment.  Borrower shall specify the
date of prepayment of Advances which are Domestic Rate Loans and the amount of
such prepayment.

 

(g)           Borrower shall indemnify Agent, Term Lender and Lenders and hold Agent,
Lenders and Term Lender harmless from and against any and
all losses or expenses that Agent, Lenders and Term Lender may sustain or incur
as a consequence of any prepayment, conversion of or any default by Borrower in
the payment of the principal of or interest on any Eurodollar Rate Loan or
failure by Borrower to complete a borrowing of, a prepayment of or conversion
of or to a Eurodollar Rate Loan after notice thereof has been given, including,
but not limited to, any interest payable by Agent, Lenders or Term Lender to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Rate Loans hereunder.  A certificate as
to any additional amounts payable pursuant to the foregoing sentence submitted
by Agent, any Lender or Term Lender to Borrower shall be conclusive absent
manifest error.

 

(h)           Notwithstanding
any other provision hereof, if any applicable law, treaty, regulation or
directive, or any change therein or in the interpretation or application
thereof, shall make it unlawful for any Lender (for purposes of this Section 2.2(h),
the term “Lender” shall include any Lender or Term Lender and the office or
branch where any Lender or Term Lender or any corporation or bank controlling
such Lender or Term Lender makes or maintains any Eurodollar Rate Loans) to
make or maintain its Eurodollar Rate Loans, the obligation of Lenders and Term
Lender to make Eurodollar Rate Loans hereunder shall forthwith be cancelled and
Borrower shall, if any affected Eurodollar Rate Loans are then outstanding,
promptly upon request from Agent, either pay all such affected Eurodollar Rate
Loans or convert such affected Eurodollar Rate Loans into loans of another
type, either at the end of the applicable Interest Periods if the affected
Lenders and Term Lender may maintain the affected Eurodollar Rate Loans until
such dates, or otherwise immediately upon such request.  If any such payment or conversion of any
Eurodollar Rate Loan is made on a day that is not the last day of the Interest 

 

25

 

Period
applicable to such Eurodollar Rate Loan, Borrower shall pay Agent, upon Agent’s
request, such amount or amounts as may be necessary to compensate Lenders and
Term Lender for any loss or expense sustained or incurred by Lenders and Term
Lender in respect of such Eurodollar Rate Loan as a result of such payment or
conversion, including (but not limited to) any interest or other amounts
payable by Lenders or Term Lender to lenders of funds obtained by Lenders or
Term Lender in order to make or maintain such Eurodollar Rate Loan.  A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Lenders or Term Lender
to Borrower shall be conclusive absent manifest error.

 

2.3.          Disbursement of Advance
Proceeds.

 

All
Advances shall be disbursed from whichever office or other place Agent may
designate from time to time and, together with any and all other Obligations of
Borrower to Agent or Lenders, shall be charged to Borrower’s Account on Agent’s
books.  During the Term, Borrower may use
the Advances by borrowing, prepaying and reborrowing, all in accordance with
the terms and conditions hereof.  The
proceeds of each Advance requested by Borrower or deemed to have been requested
by Borrower under Section 2.2(a) (which deemed requests shall not
apply to interest, fees or other charges with respect to Letters of Credit
and/or Air Releases/Steamship Guarantees) shall, with respect to requested
Advances to the extent Lenders make such Advances, be made available to
Borrower on the Business Day immediately succeeding the day so requested by way
of credit to Borrower’s operating account maintained with Agent or such other
bank as Borrower may designate following notification to Agent, in immediately
available federal funds or other immediately available funds or, with respect
to Advances deemed to have been requested by Borrower (which deemed requests
shall not apply to interest, fees or other charges with respect to Letters of
Credit and/or Air Releases/Steamship Guarantees), be disbursed to Agent to be
applied to the outstanding Obligations giving rise to such deemed request.  Notwithstanding anything to the contrary
contained in this Agreement, Agent shall only disburse to Borrower the proceeds
of a requested Revolving Advance on the Business Day after the Business Day on
which an amount equal to such sum has been received by Agent, in good funds,
from the applicable Lender.

 

2.4.          Intentionally Omitted.

 

2.5.          Intentionally Omitted.

 

2.6.          Repayment of Advances.

 

(a)           The Revolving
Advances shall be due and payable in full on the Termination Date subject to
earlier prepayment as herein provided.

 

(b)           All payments of
principal, interest and other amounts payable hereunder, or under any of the
related agreements (including with respect to the Term Loans) shall be made to
Agent at the Payment Office not later than 1:00 p.m. (New York time) on
the due date therefor in lawful money of the United States of America in
federal funds or other funds immediately available to Agent.  Agent shall have the right to effectuate
payment on any and all Obligations due and owing hereunder by charging Borrower’s
Account or by making Revolving Advances as provided in Section 2.2.

 

26

 

(c)           Borrower shall
pay principal, interest, and all other amounts payable hereunder, or under any
related agreement, (including with respect to the Term Loans), without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.

 

2.7.          Repayment of Excess
Revolving Advances.

 

The
aggregate balance of Revolving Advances outstanding at any time in excess of
the maximum amount of Revolving Advances permitted hereunder shall be
immediately due and payable without the necessity of any demand, at the Payment
Office, whether or not a Default or Event of Default has occurred.

 

2.8.          Statement of Account.

 

Agent
shall maintain, in accordance with its customary procedures, a loan account
(the “Borrower’s Account”) in the name of Borrower in which shall be
recorded the date and amount of each Advance made by Lenders and of each of the
Term Loans made by Term Lender, and the date and amount of each payment in
respect thereof; provided, however, the failure by Agent to
record the date and amount of any Advance shall not adversely affect Agent or
any Lender or Term Lender.  Each month,
Agent shall send to Borrower a statement showing the accounting for the
Advances made, payments made or credited in respect thereof, and other
transactions between Lenders and Borrower, during such month.  The monthly statements shall be deemed
correct and binding upon Borrower in the absence of manifest error and shall
constitute an account stated between Lenders and Borrower unless Agent receives
a written statement of Borrower’s specific exceptions thereto within thirty
(30) days after such statement is received by Borrower.  The records of Agent with respect to the loan
account shall be conclusive evidence absent manifest error of the amounts of
Advances, the Term Loans and other charges thereto and of payments applicable
thereto.

 

2.9.          Letters of Credit and Air
Releases/Steamship Guarantees.

 

Subject
to the terms and conditions hereof, Agent shall (a) issue or cause the
issuance of Documentary Letters of Credit and Standby Letters of Credit
(collectively, “Letters of Credit”) by the Issuer on behalf of Borrower,
and (c) issue or cause the issuance of Air Release/Steamship Guarantees, provided,
however, that Agent will not be required to issue or cause to be issued
any Letter of Credit or Air Release/Steamship Guarantee to the extent that the
face amount of such Letter of Credit or Air Release/Steamship Guarantee would
then cause the outstanding Letters of Credit and Air Release/Steamship
Guarantees to exceed the lesser of (x) $20,000,000 or (y) the Formula
Amount.  The Maximum Undrawn Amount of
outstanding Standby Letters of Credit shall not exceed in the aggregate at any
time the Standby Letter of Credit Sublimit. All disbursements or payments
related to Letters of Credit and Air Release/Steamship Guarantees shall be
deemed to be Domestic Rate Loans consisting of Revolving Advances and shall
bear interest at the Revolving Interest Rate for Domestic Rate Loans; Letters
of Credit and Air Releases/Steamship Guarantees that have not been drawn upon
shall not bear interest.

 

27

 

2.10.        Issuance of Letters of
Credit and Air Releases/Steamship Guarantees.

 

(a)           Borrower may
request Agent to issue or cause the issuance of a Letter of Credit by
delivering to Agent at the Payment Office, Issuer’s standard form of letter of
credit and security agreement and standard form of letter of credit application
(collectively, the “Letter of Credit Application”) and any draft if
applicable, completed to the satisfaction of Agent; and such other
certificates, documents and other papers and information as Agent or Issuer may
reasonably request.  HSBC shall have the
right to decline to issue a Letter of Credit or Air Release/Steamship Guarantee
hereunder if, after giving effect to the issuance thereof, the aggregate balance
of Advances outstanding due to such Lender would exceed its Commitment
Percentage of the lesser of $20,000,000 or the Formula Amount.

 

(b)           Each Letter of
Credit shall, among other things, (i) provide for the payment of sight
drafts or acceptances of issuance drafts when presented for honor thereunder in
accordance with the terms thereof and when accompanied by the documents
described therein and (ii) (a) with respect to Documentary Letters of
Credit, have an expiry date not later than two hundred and forty (240) days
after such Documentary Letter of Credit’s date of issuance or (b) with
respect to Standby Letters of Credit, have an expiry date not later than twelve
(12) months after such Standby Letter of Credit’s date of issuance, and (with
respect to clauses (ii) (a) and (ii) (b) above) in no event
having an expiry date later than the Termination Date unless Borrower provides
cash collateral equal to not less than one hundred five percent (105%) of the
face amount thereof to be held by Agent pursuant to a cash collateral agreement
in form and substance satisfactory to Agent. 
Each Documentary Letter of Credit shall be subject to the Uniform
Customs and Practice for Documentary Credits as most recently published by the
International Chamber of Commerce at the time a Letter of Credit is Issued, and
any amendments or revision thereof adhered to by the Issuer and, to the extent
not inconsistent therewith, the laws of the State of New York.  All Standby Letters of Credit shall be
subject to the laws or rules designated in such Standby Letter of Credit,
or if no laws or rules are designated, the International Standby Practices
(ISP98 — International Chamber of Commerce Publication Number 590) (the “ISP98
Rules”) and, as to matters not governed by the ISP98 Rules, the laws of the
State of New York.

 

(c)           Subject to the
Borrower’s acceptance into the HSBC L/C Program, all Documentary Letters of
Credit to be issued by HSBC shall be issued in Hong Kong.

 

(d)           Agent shall use
its reasonable efforts to notify Lenders of the request by Borrower for
issuance of a Letter of Credit or Air Release/Steamship Guarantee.

 

(e)           Subject to
terms set by Agent from time to time in its discretion with respect to the
issuance of air releases and steamship guarantees generally, Borrower may
request Air Release/Steamship Guarantees on any Business Day by delivering to
Agent a request therefor in form reasonably acceptable to Agent and, upon
demand, copies of all invoices, delivery receipts and related documents
relating to that request that Agent might require.  Provided that the request for an Air
Release/Steamship Guaranty is received prior to 10:30 a.m. on a Business
Day and approved by Agent, Agent shall issue, or cause to be issued, an Air
Release/Steamship Guarantee on the same Business Day.

 

(f)            To the extent
each Air Release/Steamship Guarantee has not been terminated or been returned
to Agent on the day preceding the expiration of the Term, Borrower 

 

28

 

shall
provide cash collateral equal to not less than one hundred five percent (105%)
of the face amount thereof plus any variances allowed thereunder to be held by
Agent pursuant to a cash collateral agreement in form and substance
satisfactory to Agent.

 

(g)           Schedule
2.10(g) hereto contains a description of each letter of
credit and air release/steamship guarantee issued by HSBC for the account of
Borrower, and outstanding as of the Business Day immediately preceding the date
hereof (and setting forth, with respect to each such letter of credit and air
release/steamship guaranty (if applicable), (i) the name of the issuing
lender, (ii) the letter of credit number, (iii) the name(s) of
the account party or account parties, (iv) the stated amount, (v) the
name of the beneficiary, (vi) the expiry date, and (vii) whether such
letter of credit constitutes a standby letter of credit or a documentary letter
of credit).  Each such letter or credit
and/or air release/steamship guarantee, including any extension or renewal
thereof (each, an “Existing Letter of Credit”, or an “Existing Air
Release/Steamship Guarantee”, as the case may be), (x) in the case of
each Existing Letter of Credit shall be deemed a “Letter of Credit” for
all purposes under this Agreement, and (y) in the case of each Existing
Air Release/Steamship Guarantee shall be deemed an “Air Release/Steamship
Guarantee” for all purposes under this Agreement, in each case as if originally
issued hereunder for the account of Borrower.

 

2.11.        Requirements For Issuance of
Letters of Credit and Air Releases/Steamship Guarantees.

 

(a)           In connection
with the issuance of any Letter of Credit or Air Release/Steamship Guarantee,
Borrower shall indemnify, save and hold Agent, each Lender and each Issuer
harmless from any loss, cost, expense or liability, including, without
limitation, payments made by Agent, any Lender or any Issuer and expenses and
reasonable attorneys’ fees incurred by Agent, any Lender or any Issuer arising
out of, or in connection with, any Letter of Credit or Air Release/Steamship
Guarantee to be issued.  Borrower shall
be bound by Agent’s or Issuer’s regulations and good faith interpretations of
any Letter of Credit or Air Release/Steamship Guarantee issued, although this
interpretation may be different from its own; and neither Agent, nor any
Lender, nor any Issuer nor any of their correspondents shall be liable for any
error, negligence, or mistakes, whether of omission or commission, in following
Borrower’s instructions or those contained in any Letter of Credit, Air
Release/Steamship Guarantee or of any modifications, amendments or supplements
thereto or in issuing or paying any Letter of Credit or Air Release/Steamship
Guaranty, except for its own gross negligence or willful misconduct.

 

(b)           Borrower shall
authorize and direct any Issuer of a Letter of Credit and Air
Releases/Steamship Guarantees to deliver to Agent all related
payment/acceptance advices, to deliver to Agent all instruments, documents, and
other writings and property received by the Issuer pursuant to the Letter of
Credit or Air Release/Steamship Guarantee and to accept and rely upon Agent’s
instructions and agreements with respect to all matters arising in connection
with any Letter of Credit or Air Release/Steamship Guarantee or any application
therefor.

 

(c)           In connection
with all Letters of Credit and Air Releases/Steamship Guarantees issued or
caused to be issued by Agent under this Agreement, Borrower hereby appoints
Agent, or its designee, as its attorney, with full power and authority (i) to
sign and/or 

 

29

 

endorse
Borrower’s name upon any warehouse or other receipts, Letter of Credit
Applications; (ii) to sign Borrower’s name on bills of lading; (iii) to
clear Inventory through Customs in the name of Borrower or Agent or Agent’s
designee, and to sign and deliver to Customs officials powers of attorney in
the name of Borrower for such purpose; and (iv) to complete in Borrower’s
name or Agent’s, or in the name of Agent’s designee, any order, sale or
transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof.  Neither
Agent nor its attorneys will be liable for any acts or omissions nor for any
error of judgment or mistakes of fact or law, except for its own gross negligence
or willful misconduct.  This power, being
coupled with an interest, is irrevocable as long as any Letters of Credit or
Air Releases/Steamship Guarantees remain outstanding.

 

(d)           Each Lender
shall to the extent of the amount equal to the product of such Lender’s
Commitment Percentage with respect to Letters of Credit and Air
Releases/Steamship Guarantees times the aggregate amount of all unreimbursed
reimbursement obligations arising from disbursements made or obligations
incurred with respect to the Letters of Credit or Air Releases/Steamship
Guarantees be deemed to have irrevocably purchased an undivided participation
in (i) each such unreimbursed reimbursement obligation and (ii) Agent’s
credit support enhancement provided to the Issuer of any Letter of Credit or
Air Release/Steamship Guarantee, in each case in an amount equal to such Lender’s
applicable Commitment Percentage with respect to Letters of Credit and Air
Releases/Steamship Guarantees times the outstanding amount of the Letters of
Credit and Air Releases/Steamship Guarantees and disbursements thereunder.  If a disbursement is made with respect to a
Letter of Credit or Air Release/Steamship Guarantee, and such disbursement is
not reimbursed by Loan Parties within two (2) Business Days, Agent shall
promptly notify each Lender whose Commitment Percentage with respect to Letters
of Credit and Air Releases/Steamship Guarantees is greater than zero, and upon
Agent’s demand each such Lender shall pay to Agent such Lender’s proportionate
share of such unreimbursed disbursement together with such Lender’s
proportionate share of Agent’s unreimbursed costs and expenses relating to such
unreimbursed disbursement.  Upon receipt
by Agent of a repayment from Borrower of any amount disbursed by Agent for which
Agent had already been reimbursed by Lenders, Agent shall deliver to each
Lender that Lender’s pro rata share of such repayment.  Each Lender’s participation commitment shall
continue until the last to occur of any of the following events: (A) Agent
ceases to be obligated to issue or cause to be issued Letters of Credit or Air
Releases/Steamship Guarantees hereunder, (B) no Letter of Credit or Air
Release/Steamship Guarantee issued hereunder remains outstanding and
uncancelled, or (C) all Persons (other than Borrower) have been fully
reimbursed for all payments made under or relating to Letters of Credit and Air
Releases/Steamship Guarantees.

 

2.12.        Additional Payments.

 

On
and after December 16, 2010, any sums expended by Agent or any Lender or
Term Lender due to any Loan Party’s failure to perform or comply with its
obligations under this Agreement or any Other Document including, without
limitation, Loan Parties’ obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14
and 6.1, may be charged to Borrower’s Account as a Revolving Advance and added
to the Obligations.

 

30

 

2.13.                        Manner of Borrowing and Payment.

 

(a)                                  Each borrowing
of Revolving Advances shall be advanced according to the applicable Commitment
Percentages of Lenders.

 

(b)                                 On and after December 16,
2010, each payment (including each prepayment) by Borrower on account of the
principal of the Revolving Advances, shall be applied to the Revolving Advances
pro rata according to the applicable Commitment Percentages of Lenders.  Except as expressly provided herein, all
payments (including prepayments) to be made by Borrower on account of
principal, interest and fees (including with respect to the Term Loans) shall
be made without set off or counterclaim and shall be made to Agent on behalf of
the Lenders or Term Lender, as the case may be, to the Payment Office, in each
case on or prior to 2:00 p.m. (New York City time), in Dollars and in
immediately available funds.  Payments
(including prepayments) by Borrower shall be applied first to Domestic Rate
Loans and then to Eurodollar Rate Loans in such order as to eliminate or
minimize breakage costs to be paid by Borrower to Lenders or Term Lender
pursuant to Section 2.2(g).

 

(c)                                  If any Lender
or Participant (a “benefited Lender”) shall at any time receive any
payment of all or part of its Advances, or interest thereon, or receive any
Collateral in respect thereof (whether voluntarily or involuntarily or by
set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender’s
Advances, or interest thereon, and such greater proportionate payment or
receipt of Collateral is not expressly permitted hereunder, such benefited
Lender shall purchase for cash from the other Lenders a participation in such
portion of each such other Lender’s Advances, or shall provide such other
Lender with the benefits of any such Collateral, or the proceeds thereof, as
shall be necessary to cause such benefited Lender to share the excess payment
or benefits of such Collateral or proceeds ratably with each of Lenders; provided,
however, that (i) if all or any portion of such excess payment or
benefits is thereafter recovered from such benefited Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest and (ii) HSBC shall not be deemed
to be a benefited Lender with respect to any Cash Collateral provided to it to
secure the Obligations relating to Letters of Credit and Air Release/Steamship
Guarantees.  Each Lender so purchasing a
portion of another Lender’s Advances may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion.

 

2.14.                        Mandatory
Prepayments.

 

(a)                                  When Borrower
sells or otherwise disposes of any Collateral, other than Inventory in the
ordinary course of business (which shall be governed by the provisions of Section 4.15(h)),
Borrower shall repay, first, the Advances and, second, subject to Section 2.17,
the Term Loans in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions and
taxes on the sales proceeds), such repayments to be made promptly but in no
event more than one (1) Business Day following receipt of such net
proceeds, and until the date of payment, such proceeds shall be held in trust
for Agent.  The foregoing shall not be
deemed to be implied consent to any such sale otherwise prohibited by the terms
and conditions hereof.  Such repayments
shall be applied to the outstanding Advances in such order as Agent may
determine, subject to Borrower’s ability to reborrow Revolving Advances in
accordance with the terms hereof.

 

31

 

(b)                                 Subject to the
provisions of Section 4.11, Agent shall apply the proceeds of any
insurance settlements from casualty losses which are received by Agent, first,
to the outstanding Advances in such order as Agent may determine, subject to
Borrower’s ability to reborrow Revolving Advances in accordance with the terms
hereof and second, subject to Section 2.17, to the Term Loans.

 

2.15.                        Use of
Proceeds.

 

Borrower shall apply the
proceeds of (i) the Term Loans, if any, made from time to time, to prepay,
redeem or purchase Senior Secured Notes and (ii) Advances made on and
after the Closing Date to provide for its working capital needs in the ordinary
course of business.

 

2.16.                        Defaulting
Lender.

 

(a)                                  Notwithstanding
anything to the contrary contained herein, in the event any Lender (x) has
refused (which refusal constitutes a breach by such Lender of its obligations
under this Agreement) to make available its portion of any Advance or (y) notifies
either Agent or Borrower that it does not intend to make available its portion
of any Advance (if the actual refusal would constitute a breach by such Lender
of its obligations under this Agreement) (each, a “Lender Default”), all
rights and obligations hereunder of such Lender (a “Defaulting Lender”)
as to which a Lender Default is in effect and of the other parties hereto shall
be modified to the extent of the express provisions of this Section 2.16
while such Lender Default remains in effect.

 

(b)                                 Advances shall
be incurred pro rata from Lenders (the “Non-Defaulting Lenders”) which
are not Defaulting Lenders based on their respective Commitment Percentages,
and no Commitment Percentage of any Lender or any pro rata share of any
Advances required to be advanced by any Lender shall be increased as a result
of such Lender Default.  Amounts received
in respect of principal of any type of Advances shall be applied to reduce the
applicable Advances of each Lender pro rata based on the aggregate of the
outstanding Advances of that type of all Lenders at the time of such
application; provided, that, such amount shall not be applied to any Advances
of a Defaulting Lender at any time when, and to the extent that, the aggregate
amount of Advances of any Non-Defaulting Lender exceeds such Non-Defaulting
Lender’s Commitment Percentage of all Advances then outstanding.

 

(c)                                  A Defaulting
Lender shall not be entitled to give instructions to Agent or to approve,
disapprove, consent to or vote on any matters relating to this Agreement and
the Other Documents.  All amendments,
waivers and other modifications of this Agreement and the Other Documents may
be made without regard to a Defaulting Lender and, for purposes of the
definition of “Required Lenders”, a Defaulting Lender shall be deemed not to be
a Lender and not to have either Advances outstanding or a Commitment
Percentage.

 

(d)                                 Other than as
expressly set forth in this Section 2.16, the rights and obligations of a
Defaulting Lender (including the obligation to indemnify Agent) and the other
parties hereto shall remain unchanged. 
Nothing in this Section 2.16 shall be deemed to release any
Defaulting Lender from its obligations under this Agreement and the Other
Documents, shall alter such obligations, shall operate as a waiver of any
default by such Defaulting Lender 

 

32

 

hereunder,
or shall prejudice any rights which Loan Parties, Agent or any Lender may have
against any Defaulting Lender as a result of any default by such Defaulting
Lender hereunder.

 

(e)                                  In the event a
Defaulting Lender retroactively cures to the satisfaction of Agent the breach
which caused a Lender to become a Defaulting Lender, such Defaulting Lender
shall no longer be a Defaulting Lender and shall be treated as a Lender under
this Agreement.

 

2.17.                        Term Loans.

 

Subject to the terms and
conditions of this Agreement, including, without limitation, Section 8.1,
Term Lender will make Term Loans to Borrower, from time to time, in the
aggregate sum of up to $5,000,000. 
Borrower may notify Agent prior to 12:00 noon (New York City time) on a
Business Day of Borrower’s request to incur, on the immediately succeeding
Business Day, any Term Loans.  Agent
shall promptly provide to Term Lender a copy of each such notice as and when
received.  Agent shall disburse to
Borrower the proceeds of requested Term Loans on the Business Day after the
Business Day on which an amount equal to such sum has been received by Agent,
in good funds, from Term Lender.  The
Term Loan Commitment shall terminate on the Termination Date.  The Term Loans, once repaid, cannot be
reborrowed.  The aggregate amount of the
Term Loans shall be, with respect to principal, payable on the last day of the
Term when the entire then unpaid principal sum of the Term Loans shall be payable
in full, subject to acceleration upon the occurrence of an Event of Default
under this Agreement or termination of this Agreement.  Notwithstanding any provision of this
Agreement to the contrary, the Term Loans may not be prepaid, in whole or in
part, unless and until all other Obligations described in “FIRST through “SEVENTH”
of Section 11.2 have been satisfied in full and the Commitments of Lenders
herein to make Advances shall have terminated. 
The Term Loans shall be evidenced by one or more promissory notes
substantially in the form of Exhibit 2.17.

 

III.                                 INTEREST AND
FEES.

 

3.1.                              Interest.

 

Interest on Advances and on
the Term Loans shall be payable to Agent for the benefit of Lenders, or Term
Lender, as applicable, in arrears on the first day of each month with respect
to Domestic Rate Loans and, with respect to Eurodollar Rate Loans, at the end
of each Interest Period or, for Eurodollar Rate Loans with an Interest Period
in excess of three months, at the earlier of (a) each three months on the
anniversary date of the commencement of such Eurodollar Rate Loan or (b) the
end of the Interest Period.  Interest
charges shall be computed on the actual principal amount of Advances and Term
Loans outstanding during the month at a rate per annum equal to the applicable
Revolving Interest Rate.  Whenever,
subsequent to the date of this Agreement, the Base Rate is increased or
decreased, the Revolving Interest Rate for Domestic Rate Loans shall be
similarly changed without notice or demand of any kind by an amount equal to
the amount of such change in the Base Rate during the time such change or
changes remain in effect.  Upon and after
the occurrence of an Event of Default, and during the continuation thereof, at
Agent’s option or at the request of Required Lenders, the Obligations shall
bear interest at the Revolving Interest Rate plus two percent (2.0%) per
annum (the “Default Rate”).

 

33

 

3.2.                              Letter of
Credit and Air Release/Steamship Guarantee Fees; Cash Collateral.

 

(a)                                  Borrower shall
pay (w) to Agent, for the benefit of Lenders with a Commitment Percentage
with respect to Letters of Credit and Air Releases/Steamship Guarantees that is
greater than zero, fees for each Standby Letter of Credit for the period from
and excluding the date of issuance of same to and including the date of
expiration or termination, equal to the average daily face amount of each
outstanding Standby Letter of Credit multiplied by two and three-quarters
percent (2.75%) per annum, the fees under this Section 3.2(a)(w) to
be calculated on the basis of a 360-day year for the actual number of days
elapsed and to be payable monthly in arrears on the first day of each month and
on the last day of the Term, (x) to Agent for the benefit of the Issuer,
any and all fees and expenses as agreed upon by the Issuer and the Borrower in
connection with any Documentary Letter of Credit, including, without
limitation, in connection with the issuance, amendment or renewal of any such
Documentary Letter of Credit (provided that Documentary Letters of
Credit issued under the HSBC L/C Program shall not incur any issuance fee), (y) to
Agent for the benefit of Lenders with a Commitment Percentage with respect to
Letters of Credit and Air Releases/Steamship Guarantees that is greater than
zero, a fee equal to one-quarter of one percent (0.25%) of the face amount of
each Documentary Letter of Credit upon any payment, each extension of the
expiry date beyond 120 days from issuance, or cancellation thereof, and (z) to
Agent, solely for its benefit as the issuer of any Air Release/Steamship
Guarantee, a fee of $95 for each Air Release/Steamship Guarantee issued or
cancelled, and shall reimburse Agent for any and all fees and expenses, if any,
paid by Agent to the Issuer (all of the foregoing fees, the “Letter of
Credit and Guarantee Fees”).  All
such charges shall be deemed earned in full on the date when the same are due
and payable hereunder and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason. 
Any such charge in effect at the time of a particular transaction shall
be the charge for that transaction, notwithstanding any subsequent change in
the Issuer’s prevailing charges for that type of transaction.  Upon and after the occurrence of an Event of
Default, and during the continuation thereof, Agent may, and at the direction
of the Required Lenders Agent shall, increase the Letter of Credit and
Guarantee Fees by two percent (2.0%) per annum. 
All Letter of Credit and Guarantee Fees payable hereunder shall be deemed
earned in full on the date when the same are due and payable hereunder and
shall not be subject to rebate or proration upon the termination of this
Agreement for any reason.

 

(b)                                 On demand by
Agent following the occurrence and during the continuance of an Event of
Default, and at all times on and after December 15, 2010, Borrower will
cause cash to be deposited and maintained in an account with Agent, as cash
collateral, in an amount equal to one hundred and five percent (105%) of the
outstanding Letters of Credit and Air Releases/Steamship Guarantees, and
Borrower hereby irrevocably authorizes Agent, in its discretion, on Borrower’s
behalf and in Borrower’s name, to open such an account and to make and maintain
deposits therein, or in an account opened by Borrower, in the amounts required
to be made by Borrower, out of the proceeds of Receivables or other Collateral
or out of any other funds of Borrower coming into any Lender’s possession at
any time.  Agent will invest such cash
collateral (less applicable reserves) in such short-term money-market items as
to which Agent and Borrower mutually agree and the net return on such
investments shall be credited to such account and constitute additional cash
collateral.  Such cash collateral shall
only secure Obligations relating to Letters of Credit and Air
Releases/Steamship Guarantees and fees, costs and expenses owed to Agent.
Borrower may not withdraw amounts credited to any such account 

 

34

 

except
to pay Obligations in respect of Letters of Credit and Air Releases/Steamship
Guarantees or upon payment and performance in full of all Obligations and
termination of this Agreement; provided, however, that Borrower shall be
permitted to withdraw funds in an amount equal to one hundred and five percent
(105%) of any Letter of Credit or Air Release/Steamship Guarantee that expires
or is paid in full.

 

3.3.                              Loan Fees.

 

(a)                                  Facility Fee.  If, for any month during the Term, the
average daily unpaid balance of the Advances (including the average daily
undrawn amount of Letters of Credit and Air Releases/Steamship Guarantees) for
each day of such month does not equal (x) prior to December 16, 2010,
$20,000,000, and (y) thereafter, $25,000,000, then Borrower shall pay to
Agent for the ratable benefit of Lenders (it being understood and agreed that
prior to December 16, 2010 only HSBC shall be entitled to received the fee
payable hereunder) a fee at a rate equal to one-quarter of one percent (0.25%)
per annum on the amount by which the applicable amount under clause (x) or
(y) above exceeds such sum of the average daily unpaid balance and average
daily undrawn amount; provided, however, that on and after December 16,
2010, each Lender’s ratable share of such fee shall be allocated based upon the
relative unused portion of the Commitments with respect to which their
respective Commitment Percentages relate. 
Such fee shall be payable to Agent in arrears on the first day of each
month.

 

(b)                                 Extension Fee.  Upon the execution of this Agreement,
Borrower shall pay to Agent for its own account an extension closing fee in an
amount equal to $25,000.

 

(c)                                  Revolving
Commitment Closing Fee.  In
consideration of CCM’s agreement to provide a Commitment to make Revolving
Advances, Borrower shall pay to CCM for its own account a closing fee in the
amount of $125,000, which fee is fully earned as of the Closing Date and
payable upon the Termination Date.

 

(d)                                 Term Loan
Facility Fees.  In
consideration of CCM’s agreement to provide the Term Loan Commitment, Borrower
agrees to pay to Term Lender the following fees:  (i) a closing fee in the amount of
$125,000, which fee is fully earned as of the Closing Date and payable upon the
Termination Date; and (ii) a facility fee at a rate equal to one-quarter
of one percent (0.25%) per annum on the average daily unused portion of the
Term Loan Commitment, which shall be calculated in arrears and fully earned on
a monthly basis and payable upon the Termination Date.

 

3.4.                              Computation of
Interest and Fees.

 

Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed.  If any payment to be
made hereunder becomes due and payable on a day other than a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the Revolving Interest Rate during such
extension; provided, that with respect to Eurodollar Rate Loans, if
extending such payment would cause the last day of the applicable Interest
Period to be extended into the next calendar month, then the due date for such
payment shall be the immediately preceding Business Day.

 

35

 

3.5.                              Maximum
Charges.

 

In no event whatsoever shall
interest and other charges charged hereunder exceed the highest rate
permissible under law.  In the event
interest and other charges as computed hereunder would otherwise exceed the
highest rate permitted under law, such excess amount shall be first applied to
any unpaid principal balance of the Advances and thereafter, subject to Section 2.17,
to the unpaid principal balance of the Term Loans, and if the then remaining
excess amount is greater than the previously unpaid principal balances, Lenders
shall promptly refund such excess amount to Borrower and the provisions hereof
shall be deemed amended to provide for such permissible rate.

 

3.6.                              Increased
Costs.

 

In the event that any
applicable law, treaty or governmental regulation, or any change therein or in
the interpretation or application thereof, or compliance by any Lender (for
purposes of this Section 3.6, the term “Lender” shall include Agent or any
Lender or Term Lender and any corporation or bank controlling Agent or any
Lender or Term Lender) and the office or branch where Agent or any Lender (as
so defined) makes or maintains any Eurodollar Rate Loans with any request or
directive (whether or not having the force of law) from any central bank or
other financial, monetary or other authority, shall:

 

(a)                                  subject Agent
or any Lender to any tax of any kind whatsoever with respect to this Agreement
or any Other Document or change the basis of taxation of payments to Agent or
any Lender of principal, fees, interest or any other amount payable hereunder
or under any Other Documents (except for changes in the rate of tax on the
overall net income of Agent or any Lender by a jurisdiction with which Agent or
such Lender has a present or former connection);

 

(b)                                 impose, modify
or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by, any office of Agent or any
Lender, including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or

 

(c)                                  impose on Agent
or any Lender or the London interbank Eurodollar market any other condition
with respect to this Agreement or any Other Document;

 

and
the result of any of the foregoing is to increase the cost to Agent, Term
Lender or any Lender of making, renewing or maintaining its Advances or Term
Loans hereunder by an amount that Agent, Term Lender or such Lender deems to be
material or to reduce the amount of any payment (whether of principal, interest
or otherwise) in respect of any of the Advances or the Term Loans by an amount
that Agent, Term Lender or such Lender deems to be material, then, in any case
Borrower shall promptly pay Agent, Term Lender or such Lender, upon its demand,
such additional amount as will compensate Agent, Term Lender or such Lender for
such additional cost or such reduction, as the case may be, provided that the
foregoing shall not apply to increased costs which are reflected in the
Adjusted LIBO Rate.  Agent, Term Lender
or such Lender shall certify the amount of such additional cost or reduced
amount to Borrower, and such 

 

36

 

certification
shall be conclusive absent manifest error.

 

3.7.                              Basis For
Determining Interest Rate Inadequate or Unfair.

 

In the event that Agent or
any Lender or Term Lender shall have determined that:

 

(a)                                  reasonable
means do not exist for ascertaining the Adjusted LIBO Rate applicable pursuant
to Section 2.2 for any Interest Period; or

 

(b)                                 Dollar deposits
in the relevant amount and for the relevant maturity are not available in the
London interbank Eurodollar market, with respect to an outstanding Eurodollar
Rate Loan, a proposed Eurodollar Rate Loan, or a proposed conversion of a
Domestic Rate Loan into a Eurodollar Rate Loan,

 

then
Agent shall give Borrower prompt written, telephonic or telegraphic notice of
such determination.  If such notice is
given, then with respect to any Eurodollar Rate Loan requested on or after the
Business Day that Borrower receives Agent’s notice, (i) any such requested
Eurodollar Rate Loan shall be made as a Domestic Rate Loan, unless Borrower
shall notify Agent no later than 10:00 a.m. (New York City time) two (2) Business
Days prior to the date of such proposed borrowing, that its request for such
borrowing shall be cancelled or made as an unaffected type of Eurodollar Rate
Loan, (ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to
have been converted to an affected type of Eurodollar Rate Loan shall be continued
as or converted into a Domestic Rate Loan, or, if Borrower shall notify Agent,
no later than 10:00 a.m. (New York City time) two (2) Business Days
prior to the proposed conversion, shall be maintained as an unaffected type of
Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate
Loans shall be converted into a Domestic Rate Loan, or, if Borrower shall
notify Agent, no later than 10:00 a.m. (New York City time) two (2) Business
Days prior to the last Business Day of the then current Interest Period
applicable to such affected Eurodollar Rate Loan, shall be converted into an
unaffected type of Eurodollar Rate Loan, on the last Business Day of the then
current Interest Period for such affected Eurodollar Rate Loans.  Until such notice has been withdrawn, Lenders
and Term Lender shall have no obligation to make an affected type of Eurodollar
Rate Loan or maintain outstanding affected Eurodollar Rate Loans and Borrower
shall have no right to convert a Domestic Rate Loan or an unaffected type of
Eurodollar Rate Loan into an affected type of Eurodollar Rate Loan.

 

3.8.                              Capital
Adequacy.

 

(a)                                  In the event
that Agent or any Lender or Term Lender shall have determined that any
applicable law, rule, regulation or guideline regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by
Agent, Term Lender or any Lender (for purposes of this Section 3.8, the
term “Lender” shall include Agent or any Lender or Term Lender and any
corporation or bank controlling Agent or any Lender or Term Lender ) and the
office or branch where Agent or any Lender (as so defined) makes or maintains
any Eurodollar Rate Loans with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing 

 

37

 

the
rate of return on Agent, Term Lender or any Lender’s capital as a consequence
of its obligations hereunder to a level below that which Agent, Term Lender or
such Lender could have achieved but for such adoption, change or compliance
(taking into consideration Agent’s, Term Lender’s and each Lender’s policies
with respect to capital adequacy) by an amount deemed by Agent, Term Lender or
any Lender to be material, then, from time to time, Borrower shall pay upon
demand to Agent, Term Lender or such Lender such additional amount or amounts
as will compensate Agent, Term Lender or such Lender for such reduction.  In determining such amount or amounts, Agent,
Term Lender or such Lender may use any reasonable averaging or attribution
methods.  The protection of this Section 3.8
shall be available to Agent, Term Lender and each Lender regardless of any
possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition.

 

(b)                                 A certificate
of Agent, Term Lender or such Lender setting forth such amount or amounts as
shall be necessary to compensate Agent, Term Lender or such Lender with respect
to Section 3.8(a) when delivered to Borrower shall be conclusive
absent manifest error.

 

3.9.                              Gross-Up for
Taxes.

 

If Borrower shall be
required by applicable law to withhold or deduct any taxes (excluding taxes
imposed on or measured by Agent’s or any Lender’s or Term Lender’s income, and
franchise or similar taxes imposed on it, as a result of a present or former
connection between Agent or such Lender or Term Lender and the jurisdiction of
the taxing authority imposing such tax) from or in respect of any sum payable
under this Agreement or any of the Other Documents to Agent, or any Lender or
Term Lender, assignee of any Lender or Term Lender, or Participant (each,
individually, a “Payee” and collectively, the “Payees”), (a) the
sum payable to such Payee or Payees, as the case may be, shall be increased as
may be necessary so that, after making all required withholding or deductions,
the applicable Payee or Payees receives an amount equal to the sum it would
have received had no such withholding or deductions been made (the “Gross-Up
Payment”), (b) Borrower shall make such withholding or deductions, and
(c) Borrower shall pay the full amount withheld or deducted to the
relevant taxation authority or other authority in accordance with applicable
law.  Notwithstanding the foregoing,
Borrower shall not be obligated to make any portion of the Gross-Up Payment
that is attributable to any withholding or deductions that would not have been
paid or claimed had the applicable Payee or Payees properly claimed a complete
exemption with respect thereto pursuant to Section 16.3(f).

 

IV.                                 COLLATERAL:
GENERAL TERMS.

 

4.1.                              Security
Interest in the Collateral.

 

To secure the prompt payment
and performance to Agent, each Issuer, each Lender and Term Lender of the
Obligations under the Original Financing Agreement and under this Agreement,
each Loan Party hereby ratifies, confirms, and acknowledges its prior grant of
security interest to Agent (for its benefit and for the ratable benefit of each
Issuer and each Lender) in and to all of its Collateral, whether pursuant to
the Original Financing Agreement or the Other Documents, and each Loan Party
hereby further assigns, pledges, hypothecates and grants to Agent for its
benefit and for the ratable benefit of each Issuer, Lender and Term Lender 

 

38

 

a continuing security interest
in and to all of its Collateral, whether now owned or existing or hereafter
acquired or arising and wheresoever located, subject, however, to the
provisions of Section 11.2 hereof. 
Each Loan Party shall mark its books and records as may be necessary or
appropriate to evidence, protect and perfect Agent’s security interest and
shall cause its financial statements to reflect such security interest.

 

4.2.                              Perfection of
Security Interest.

 

(a)                                  Each Loan Party
shall take all action that may be necessary or desirable, or that Agent may
request, so as at all times to maintain the validity, perfection,
enforceability and priority of Agent’s security interest in the Collateral or
to enable Agent to protect, exercise or enforce its rights hereunder and in the
Collateral, including, but not limited to, (i) immediately discharging all
Liens other than Permitted Encumbrances, (ii) obtaining landlords’ or
mortgagees’ lien waivers, (iii) delivering to Agent, endorsed or
accompanied by such instruments of assignment as Agent may specify, and
stamping or marking, in such manner as Agent may specify, any and all chattel
paper, instruments, letters of credits and advices thereof and documents
evidencing or forming a part of the Collateral in excess of $500,000, (iv) entering
into lockbox arrangements satisfactory to Agent, and (v) executing and
delivering financing statements, instruments of pledge, mortgages, notices and
assignments, in each case in form and substance reasonably satisfactory to
Agent, relating to the creation, validity, perfection, maintenance or
continuation of Agent’s security interest under the UCC or other applicable
law.

 

(b)                                 Agent may at
any time and from time to time file, without the signature of any Loan Party in
accordance with Section 9-509 of the UCC, financing statements,
continuation statements and amendments thereto that describe the Collateral as “all
assets” of the applicable Loan Party and which contain any other information
required by the UCC for the sufficiency or filing office acceptance of any
financing statements, continuation statements or amendments.  Each Loan Party agrees to furnish any such
information to Agent promptly upon request.

 

(c)                                  Each Loan Party
shall, at any time and from time to time, take such steps as Agent may reasonably
request (i) to obtain an acknowledgment, in form and substance reasonably
satisfactory to Agent, of any bailee having possession of any of the
Collateral, stating that the bailee holds such Collateral for Agent, (ii) to
obtain “control” of any letter-of-credit rights, deposit accounts or electronic
chattel paper (as such terms are defined in the UCC with corresponding
provisions thereof defining what constitutes “control” for such items of
Collateral), with any agreements establishing control to be in form and
substance reasonably satisfactory to Agent, and (iii) otherwise to insure
the continued perfection and priority of Agent’s security interest in any of
the Collateral for the benefit of the Lenders and Term Lender and of its rights
therein.  If any Loan Party shall at any
time, acquire a “commercial tort claim” (as such term is defined in the UCC) in
excess of $100,000, such Loan Party shall promptly notify Agent thereof in
writing, therein providing a reasonable description and summary thereof, and
upon delivery thereof to Agent, such Loan Party shall be deemed to thereby
grant to Agent for the benefit of the Issuer, Lenders and Term Lender (and each
Loan Party hereby grants to Agent, for the benefit of each Issuer, Lender and
Term Lender) a security interest and lien in and to such commercial tort claim
and all proceeds thereof, all upon the terms of and governed by this Agreement.

 

39

 

(d)                                 Each Loan Party
hereby confirms and ratifies all UCC financing statements filed by Agent with
respect to such Loan Party on or prior to the date of the Agreement.

 

(e)                                  All charges,
expenses and fees Agent may incur in doing any of the foregoing, and any local
taxes relating thereto, shall be paid to Agent immediately upon demand.

 

4.3.                              Disposition of
Collateral.

 

Each Loan Party will
safeguard and protect all Collateral for Agent’s general account and make no
disposition thereof whether by sale, lease or otherwise except (a) the
sale of Inventory in the ordinary course of business and (b) the
disposition or transfer of obsolete and worn-out Equipment in the ordinary
course of business during any fiscal year having an aggregate fair market value
of not more than $500,000 and only to the extent that the proceeds of such
disposition of Equipment are remitted to Agent as a prepayment on the Advances
as required by Section 2.14.

 

4.4.                              Preservation of
Collateral.

 

In addition to the rights
and remedies set forth in Section 11.1, after the occurrence and during
the continuance of an Event of Default (but without limiting the rights of
Agent and Lenders and Term Lender under Section 4.10) Agent: (a) may
at any time take such steps as Agent in good faith deems necessary to protect
Agent’s interest in and to preserve the Collateral, including the hiring of
such security guards or the placing of other security protection measures as
Agent may deem appropriate; (b) may employ and maintain at each Loan Party’s
premises a custodian who shall have full authority to do all acts necessary to
protect Agent’s interests in the Collateral; (c) may lease warehouse
facilities to which Agent may move all or part of the Collateral; (d) may
use any Loan Party’s owned or leased lifts, hoists, trucks and other facilities
or equipment for handling or removing the Collateral; and (e) shall have,
and is hereby granted, a right of ingress and egress to the places where the
Collateral is located, and may proceed over and through any Loan Party’s owned
or leased property.  Loan Parties shall
cooperate fully with all of Agent’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may direct.  All of Agent’s expenses of preserving the
Collateral, including any expenses relating to the bonding of a custodian, shall
be charged to Borrower’s Account as a Revolving Advance and added to the
Obligations.

 

4.5.                              Ownership of
Collateral.

 

With respect to the
Collateral, at the time the Collateral becomes subject to Agent’s security
interest: (a) each Loan Party shall be the sole owner of and fully
authorized and able to sell, transfer, pledge and/or grant a first priority
security interest in each and every item of its respective Collateral to Agent;
and, except for Permitted Encumbrances the Collateral shall be free and clear
of all Liens and encumbrances whatsoever; (b) each document and agreement
executed by each Loan Party or delivered to Agent or any Lender or Term Lender
in connection with this Agreement shall be enforceable in all material
respects; (c) all signatures and endorsements of each Loan Party that
appear on such documents and agreements shall be genuine and each Loan Party
shall have full capacity to execute same; and (d) each Loan Party’s

 

40

 

Equipment and Inventory
shall be located as set forth on Schedule 4.5
and shall not be removed from such location(s) without the prior written
consent of Agent except with respect to the sale of Inventory in the ordinary
course of business and Equipment to the extent permitted in Section 4.3.

 

4.6.                              Defense of
Agent’s and Lenders’ Interests.

 

Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent’s security interests in and Liens upon the Collateral shall
continue in full force and effect. 
During such period no Loan Party shall, without Agent’s prior written
consent, pledge, sell (except Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral.  Each Loan Party shall defend
Agent’s security interests in and Liens upon the Collateral against any and all
Persons whatsoever.  At any time after an
Event of Default has occurred and is continuing, Agent shall have the right to
take possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation, labels, stationery,
documents, instruments and advertising materials.  If Agent exercises this right to take
possession of the Collateral, Loan Parties shall, upon demand, assemble it in
the best manner possible and make it available to Agent at a place reasonably
convenient to Agent.  In addition, with
respect to all Collateral, Agent shall be entitled to all of the rights and
remedies set forth herein and further provided by the UCC or other applicable
law.  Each Loan Party shall, and Agent
may, at its option, instruct all suppliers, carriers, forwarders, warehouses or
others receiving or holding cash, checks, documents or instruments and, when an
Event of Default has occurred which is then continuing Inventory, in which
Agent holds a security interest to deliver same to Agent and/or subject to
Agent’s order and if they shall come into any Loan Party’s possession, they,
and each of them, shall be held by such Loan Party in trust as Agent’s trustee,
and such Loan Party will immediately deliver them to Agent in their original
form together with any necessary endorsement.

 

4.7.                              Books and
Records.

 

Each Loan Party shall (a) keep
proper books of record and account in which full, true and correct entries will
be made of all dealings or transactions of or in relation to its business and
affairs; (b) set up on its books accruals with respect to all taxes,
assessments, charges, levies and claims; and (c) on a reasonably current
basis set up on its books, from its earnings, allowances against doubtful
Receivables, advances and investments and all other proper accruals (including
without limitation by reason of enumeration, accruals for premiums, if any, due
on required payments and accruals for depreciation, obsolescence, or
amortization of properties), which should be set aside from such earnings in
connection with its business.  All
determinations pursuant to this Section 4.7 shall be made in accordance
with, or as required by, GAAP consistently applied in the opinion of the
Accountants.

 

4.8.                              Financial
Disclosure.

 

Each Loan Party hereby
irrevocably authorizes and directs all accountants and auditors employed by
such Loan Party at any time during the Term to exhibit and deliver to 

 

41

 

Agent and each Lender and
Term Lender copies of any of Loan Parties’ financial statements, trial balances
or other accounting records of any sort in the accountant’s or auditor’s
possession, and to disclose to Agent and each Lender and Term Lender any
information such accountants may have concerning such Loan Party’s financial
status and business operations.  However,
Agent and each Lender and Term Lender will attempt to obtain such information
or materials directly from such Loan Party prior to obtaining such information
or materials from such accountants and auditors.

 

4.9.                              Compliance with
Laws.

 

Each Loan Party shall comply
with all acts, rules, regulations and orders of any legislative, administrative
or judicial body or official applicable to its respective Collateral or any
part thereof or to the operation of such Loan Party’s business the
non-compliance with which could reasonably be expected to have a Material
Adverse Effect.  The Collateral at all
times shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the Collateral so that such
insurance shall remain in full force and effect.

 

4.10.                        Inspection of
Premises.

 

At all reasonable times
following the occurrence and during the continuance of an Event of Default and
otherwise on reasonable prior written notice and during normal business hours,
Agent and each Lender and Term Lender shall have full access to and the right
to audit, check, inspect and make abstracts and copies from each Loan Party’s
books, records, audits, correspondence and all other papers relating to the
Collateral and the operation of each Loan Party’s business.  Agent, any Lender and Term Lender and their
agents may enter upon any of such Loan Party’s premises at any time during business
hours and at any other reasonable time, and from time to time, for the purpose
of inspecting the Collateral and any and all records pertaining thereto and the
operation of such Loan Party’s business.

 

4.11.                        Insurance.

 

Each Loan Party shall bear
the full risk of any loss of any nature whatsoever with respect to the
Collateral.  At each Loan Party’s own
cost and expense in amounts and with carriers reasonably acceptable to Agent,
each Loan Party shall (a) keep all its insurable properties insured against
the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to such Loan
Party’s including, without limitation, business interruption insurance; (b) maintain
a bond in such amounts as is customary in the case of companies engaged in
businesses similar to such Loan Party insuring against larceny, embezzlement or
other criminal misappropriation of insured’s officers and employees who may
either singly or jointly with others at any time have access to the assets or
funds of such Loan Party either directly or through authority to draw upon such
funds or to direct generally the disposition of such assets; (c) maintain
public and product liability insurance against claims for personal injury,
death or property damage suffered by others; (d) maintain all such worker’s
compensation or similar insurance as may be required under the laws of any
state or jurisdiction in which Loan Parties is engaged in business; (e) furnish
Agent with (i) copies of 

 

42

 

all policies and evidence of
the maintenance of such policies by the renewal thereof at least thirty (30)
days before any expiration date, and (ii) appropriate loss payable
endorsements in form and substance satisfactory to Agent, naming Agent as a
co-insured and loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a) and (c) above, and
providing (A) that all proceeds thereunder shall be payable to Agent, (B) no
such insurance shall be affected by any act or neglect of the insured or owner
of the property described in such policy, and (C) that such policy and
loss payable clauses may not be cancelled, amended or terminated unless at
least thirty (30) days’ prior written notice (or ten (10) days’ prior
written notice in the case of cancellation for non-payment of premiums) is
given to Agent.  In the event of any loss
thereunder, the carriers named therein hereby are directed by Agent and the
applicable Loan Party to make payment for such loss to Agent and not to such
Loan Party and Agent jointly.  If any
insurance losses are paid by check, draft or other instrument payable to any
Loan Party and Agent jointly, Agent may endorse such Loan Party’s name thereon
and do such other things as Agent may deem advisable to reduce the same to
cash.  Agent is hereby authorized during
the continuance of an Event of Default to adjust and compromise claims under
insurance coverage referred to in clauses (a) and (c) above.  All loss recoveries received by Agent upon
any such insurance may be applied to the Obligations, in such order as Agent in
its sole discretion shall determine.  Any
surplus shall be paid by Agent to Loan Parties or applied as may be otherwise
required by law.

 

4.12.                        Failure to Pay
Insurance.

 

If any Loan Party fails to
obtain insurance as hereinabove provided, or to keep the same in force, Agent,
if Agent so elects, may obtain such insurance and pay the premium therefor for
Borrower’s Account, and charge Borrower’s Account therefor and such expenses so
paid shall be part of the Obligations.

 

4.13.                        Payment of
Taxes.

 

Each Loan Party will pay,
when due, all material taxes, assessments and other Charges lawfully levied or
assessed upon such Loan Party or any of the Collateral including, without
limitation, real and personal property taxes, assessments and charges and all
franchise, income, employment, social security benefits, withholding, and sales
taxes other than those  taxes,
assessments or Charges that any Loan Party has contested or disputed in good
faith, by expeditious protest, administrative or judicial appeal or similar
proceeding provided that any related tax lien is stayed and sufficient
reserves are established to the reasonable satisfaction of Agent to protect
Agent’s security interest in or Lien on the Collateral.  If any tax by any governmental authority (i) is
or may be imposed on or as a result of any transaction between any Loan Party
and Agent or any Lender or Term Lender which Agent or any Lender or Term Lender
may be required to withhold or pay, or (ii) if any material taxes,
assessments, or other Charges remain unpaid after the date fixed for their
payment, or (iii) if any claim shall be made which, in Agent’s or any
Lender’s or Term Lender’s opinion, may possibly create a valid Lien on the
Collateral, Agent may, following written notice to Borrower and Borrower’s
failure to pay the same within ten (5) Business Days following receipt of
such notice (except no such notice is required for payments under clause (i)),
pay the taxes, assessments or other Charges and each Loan Party hereby
indemnifies and holds Agent and each Lender and Term Lender harmless in respect
thereof.  Agent will not pay any taxes,
assessments or Charges as provided above to the 

 

43

 

extent that any Loan Party
has contested or disputed those taxes, assessments or Charges in good faith, by
expeditious protest, administrative or judicial appeal or similar proceeding
provided that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect Agent’s security
interest in or Lien on the Collateral. 
The amount of any payment by Agent under this Section 4.13 shall be
paid to Agent immediately upon demand.

 

4.14.                        Payment of
Leasehold Obligations.

 

Each Loan Party shall at all
times pay, when and as due, its rental obligations under all leases under which
it is a tenant (unless contesting such payments in good faith), and shall
otherwise comply, in all material respects, with all other terms of such leases
and keep them in full force and effect and, at Agent’s request will provide
evidence of having done so.

 

4.15.                        Receivables.

 

(a)                                  Nature of
Receivables.  Each of the
Receivables shall be a bona fide and valid account representing a bona fide
indebtedness incurred by the Customer therein named, for a fixed sum as set
forth in the invoice relating thereto (provided immaterial or unintentional
invoice errors shall not be deemed to be a breach hereof) with respect to an
absolute sale or lease and delivery of goods upon stated terms of a Loan Party,
or work, labor or services theretofore rendered by a Loan Party as of the date
each Receivable is created.  Same shall
be due and owing in accordance with the applicable Loan Party’s standard terms
of sale without dispute, setoff or counterclaim except as may be stated on the
accounts receivable schedules delivered by Loan Parties to Agent.

 

(b)                                 Solvency of
Customers.  Each
Customer, to the best of each Loan Party’s knowledge, as of the date each
Receivable is created, is solvent and able to pay all Receivables on which the
Customer is obligated in full when due or with respect to such Customers of
Loan Parties who are not solvent such Loan Party has set up on its books and in
its financial records bad debt reserves adequate to cover such Receivables.

 

(c)                                  Locations of
Loan Parties.  Each Loan
Party’s chief executive office is located at the addresses set forth on Schedule 4.15(c).  Until written notice is given to Agent by
Borrower of any other office at which any Loan Party keeps its records
pertaining to Receivables, all such records shall be kept at such executive
office.

 

(d)                                 Collection of
Receivables.  Until any
Loan Party’s authority to do so is terminated by Agent (which notice Agent may
give at any time following the occurrence of an Event of Default or a Default),
each Loan Party will, at such Loan Party’s sole cost and expense, but on Agent’s
behalf and for Agent’s account, subject to the terms of the Factoring Agreement
(as applicable with respect to the Eligible Factored Receivables), collect or
cause Factor to collect as Agent’s property and in trust for Agent all amounts
received on Receivables, and shall not commingle such collections with any Loan
Party’s funds or use the same except to pay Obligations.  Each Loan Party shall, upon request, deliver
to Agent, or deposit in the Blocked Account, in original form and on the date
of receipt thereof, all checks, drafts, notes, money orders, acceptances, cash
and other evidences of Indebtedness.

 

44

 

(e)                                  Notification of
Assignment of Receivables. 
Subject to the terms of the Factoring Agreement (as applicable with
respect to the Eligible Factored Receivables) during the continuance of an
Event of Default, Agent shall have the right to send notice of the assignment
of, and Agent’s security interest in, the Receivables to any and all Customers
or any third party holding or otherwise concerned with any of the
Collateral.  Thereafter, Agent shall have
the sole right to collect the Receivables, take possession of the Collateral,
or both. Agent’s actual collection expenses, including, but not limited to,
stationery and postage, telephone and telecopy, secretarial and clerical
expenses and the salaries of any collection personnel used for collection shall
be added to the Obligations and payable upon demand.

 

(f)                                    Power of Agent
to Act on Loan Parties’ Behalf.  Subject to the terms of the Factoring
Agreement (as applicable with respect to the Eligible Factored Receivables),
Agent shall have the right to receive, endorse, assign and/or deliver in the
name of Agent or any Loan Party any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and each Loan
Party hereby waives notice of presentment, protest and non-payment of any
instrument so endorsed.  Subject to the
terms of the Factoring Agreement (as applicable with respect to the Eligible
Factored Receivables), each Loan Party hereby constitutes Agent or Agent’s
designee as such Loan Party’s attorney with power (i) to endorse such Loan
Party’s name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment or Collateral; (ii) to sign such Loan Party’s name on
any invoice or bill of lading relating to any of the Receivables, drafts
against Customers, assignments and verifications of Receivables; (iii) to
send verifications of Receivables to any Customer; (iv) to sign such Loan
Party’s name on all financing statements or any other documents or instruments
deemed necessary or appropriate by Agent to preserve, protect, or perfect Agent’s
interest in the Collateral and to file same; (v) to demand payment of the
Receivables; (vi) to enforce payment of the Receivables by legal
proceedings or otherwise; (vii) to exercise all of such Loan Party’s
rights and remedies with respect to the collection of the Receivables and any
other Collateral; (viii) to settle, adjust, compromise, extend or renew
the Receivables; (ix) to settle, adjust or compromise any legal
proceedings brought to collect Receivables; (x) to prepare, file and sign
such Loan Party’s name on a proof of claim in bankruptcy or similar document
against any Customer; (xi) to prepare, file and sign such Loan Party’s name on
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables; and (xii) to do all other acts and things
necessary to carry out this Agreement. 
Agent shall not exercise the power of attorney under clauses (v), (vi),
(vii), (viii), (ix) or (x) unless an Event of Default has occurred
and is continuing.  All acts of said
attorney or designee are hereby ratified and approved, and said attorney or
designee shall not be liable for any acts of omission or commission nor for any
error of judgment or mistake of fact or of law, unless done maliciously or with
gross (not mere) negligence; this power being coupled with an interest is
irrevocable while any of the Obligations remain unpaid.  Subject to the terms of the Factoring
Agreement (as applicable with respect to the Eligible Factored Receivables),
Agent shall have the right at any time when an Event of Default has occurred
which is then continuing, to change the address for delivery of mail addressed
to any Loan Party to such address as Agent may designate and to receive, open
and dispose of all mail addressed to any Loan Party.

 

(g)                                 No Liability.  Neither Agent nor any Lender or Term Lender
shall, under any circumstances or in any event whatsoever, have any liability
for any error or omission or delay of any kind occurring in the settlement,
collection or payment of any of the Receivables or 

 

45

 

any
instrument received in payment thereof, or for any damage resulting
therefrom.  Subject to the terms of the
Factoring Agreement (as applicable with respect to the Eligible Factored
Receivables), Agent may, during the continuance of an Event of Default, without
notice or consent from any Loan Party, sue upon or otherwise collect, extend
the time of payment of, compromise or settle for cash, credit or upon any terms
any of the Receivables or any other securities, instruments or insurance
applicable thereto and/or release any obligor thereof.  Agent is authorized and empowered to accept
the return of the goods represented by any of the Receivables, without notice
to or consent by any Loan Party, all without discharging or in any way
affecting any Loan Party’s liability hereunder.

 

(h)                                 Establishment
of a Lockbox Account, Dominion Account.  All proceeds of Collateral shall, at the
direction of Agent, be deposited by Loan Parties into a lockbox account,
dominion account or such other blocked account (collectively, the “Blocked
Accounts”) as Agent may require pursuant to an arrangement with such bank
as may be selected by Loan Parties and be reasonably acceptable to Agent.  Loan Parties shall issue to any such bank, an
irrevocable letter of instruction directing said bank to transfer such funds so
deposited to Agent, either to any account maintained by Agent at said bank or
by wire transfer to appropriate account(s) of Agent.  All funds deposited in a Blocked Account shall
immediately become the property of Agent and Loan Parties shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited (except with respect to its fees and charges for the Blocked Accounts
and for the chargeback of returned or dishonored items).  Neither Agent nor any Lender or Term Lender
assumes any responsibility for any Blocked Account arrangement, including
without limitation, any claim of accord and satisfaction or release with
respect to deposits accepted by any bank thereunder.  Alternatively, Agent may establish depository
accounts (collectively, the “Depository Accounts”) in the name of Agent
at a bank or banks for the deposit of such funds and Loan Parties shall deposit
all proceeds of Collateral or cause same to be deposited, in kind, in such
Depository Accounts of Agent in lieu of depositing same to the Blocked
Accounts.

 

(i)                                     Adjustments.  No Loan Party will, without Agent’s consent,
compromise or adjust any Receivables (or extend the time for payment thereof)
or accept any returns of merchandise or grant any additional discounts,
allowances or credits thereon except for those compromises, adjustments,
returns, discounts, credits and allowances as have been heretofore customary in
the business of such Loan Party.

 

4.16.                        Inventory.

 

To the extent Inventory held
for sale or lease has been produced by any Loan Party, it has been and will be
produced by such Loan Party in accordance with the Federal Fair Labor Standards
Act of 1938, as amended, and all rules, regulations and orders thereunder.

 

4.17.                        Maintenance of
Equipment.

 

The Equipment shall be
maintained in good operating condition and repair (reasonable wear and tear
excepted) and all necessary replacements of and repairs thereto shall be made
so that the value and operating efficiency of the Equipment, subject to
customary depreciation, shall be maintained and preserved.  No Loan Party shall use or operate the 

 

46

 

Equipment in violation of
any law, statute, ordinance, code, rule or regulation if such violation
could reasonably be expected to cause a Material Adverse Effect.  Each Loan Party shall have the right to sell
Equipment to the extent set forth in Section 4.3.

 

4.18.                        Exculpation of
Liability.

 

Nothing herein contained
shall be construed to constitute Agent or any Lender or Term Lender as any Loan
Party’s agent for any purpose whatsoever, nor shall Agent or any Lender or Term
Lender be responsible or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may be located and
regardless of the cause thereof.  Neither
Agent nor any Lender or Term Lender whether by anything herein or in any
assignment or otherwise, assume any of such Loan Party’s obligations under any
contract or agreement assigned to Agent or such Lender or Term Lender, and
neither Agent nor any Lender or Term Lender shall be responsible in any way for
the performance by any Loan Party of any of the terms and conditions thereof.

 

4.19.                        Environmental
Matters.

 

(a)                                  Loan Parties
shall ensure that the Real Property remains in compliance in all material
respects, with all Environmental Laws and they shall not place or permit to be
placed any Hazardous Substances on any Real Property except as not prohibited
by applicable law or appropriate governmental authorities.

 

(b)                                 Loan Parties
shall establish and maintain a system to assure and monitor continued
compliance with all applicable Environmental Laws which system shall include
periodic reviews of such compliance.

 

(c)                                  Loan Parties
shall dispose of any and all Hazardous Waste generated at the Real Property
only at facilities and with carriers that maintain valid permits under RCRA and
any other applicable Environmental Laws. 
Loan Parties shall use their best efforts to obtain certificates of
disposal, such as hazardous waste manifest receipts, from all treatment,
transport, storage or disposal facilities or operators employed by Loan Parties
in connection with the transport or disposal of any Hazardous Waste generated
at the Real Property.

 

(d)                                 In the event
any Loan Party obtains, gives or receives notice of any Release or threat of
Release of a reportable quantity of any Hazardous Substances at the Real
Property (any such event being hereinafter referred to as a “Hazardous
Discharge”) or receives any notice of violation, request for information or
notification that it is potentially responsible for investigation or cleanup of
environmental conditions at the Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any Hazardous Discharge
or violation of Environmental Laws affecting the Real Property or any Loan
Party’s interest therein (any of the foregoing is referred to herein as an “Environmental
Complaint”) from any Person, including any state agency responsible in
whole or in part for environmental matters in the state in which the Real
Property is located or the United States Environmental Protection Agency (any
such person or entity hereinafter the “Authority”), then Loan Parties
shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which any Loan Party is aware giving rise
to the Hazardous Discharge or Environmental Complaint.  

 

47

 

Such
information is to be provided to allow Agent to protect its security interest
in the Real Property and is not intended to create nor shall it create any
obligation upon Agent or any Lender or Term Lender with respect thereto.

 

(e)                                  Loan Parties
shall promptly forward to Agent copies of any request for information,
notification of potential liability, demand letter relating to potential
responsibility with respect to the investigation or cleanup of Hazardous Substances
at any other site owned, operated or used by any Loan Party to dispose of
Hazardous Substances and shall continue to forward copies of correspondence
between any Loan Party and the Authority regarding such claims to Agent until
the claim is settled.  Loan Parties shall
promptly forward to Agent copies of all documents and reports concerning a
Hazardous Discharge at the Real Property that any Loan Party is required to
file under any Environmental Laws.  Such
information is to be provided solely to allow Agent to protect Agent’s security
interest in the Real Property and the Collateral.

 

(f)                                    Loan Parties
shall respond promptly to any Hazardous Discharge or Environmental Complaint
and take all necessary action in order to avoid or mitigate any liability
therefrom that would have a Material Adverse Effect and to avoid subjecting the
Collateral or Real Property to any Lien. 
If any Loan Party shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint after demand from Agent or any Loan Party
shall fail to comply with any of the requirements of any Environmental Laws
after demand from Agent, and if such failure could reasonably be expected to
cause a Material Adverse Effect, Agent on behalf of Lenders and Term Lender
may, but without the obligation to do so, for the sole purpose of protecting
Agent’s interest in Collateral: (A) give such notices or (B) enter
onto the Real Property (or authorize third parties to enter onto the Real
Property) and take such actions as Agent 
and Term Lender (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint.  All reasonable costs and expenses incurred by
Agent and Lenders (or such third parties) in the exercise of any such rights,
including any sums paid in connection with any judicial or administrative
investigation or proceedings, fines and penalties, together with interest
thereon from the date expended at the Default Rate for Domestic Rate Loans
constituting Revolving Advances shall be paid upon demand by Loan Parties, and
until paid shall be added to and become a part of the Obligations secured by
the Liens created by the terms of this Agreement or any Other Documents between
Agent, any Lender or Term Lender and any Loan Party.

 

(g)                                 Promptly upon
the written request of Agent from time to time, Loan Parties shall provide
Agent, at Loan Parties’ expense, with an environmental site assessment or
environmental audit report prepared by an environmental engineering firm
acceptable in the reasonable opinion of Agent, to assess with a reasonable
degree of certainty the existence of a Hazardous Discharge and the potential
costs in connection with abatement, cleanup and removal of any Hazardous
Substances found on, under, at or within the Real Property, in either case that
could reasonably be expected to have a Material Adverse Effect.  Any report or investigation of such Hazardous
Discharge proposed and acceptable to an appropriate Authority that is charged
to oversee the clean-up of such Hazardous Discharge shall be acceptable to
Agent.  If such estimates, individually
or in the aggregate, exceed $500,000, Agent shall have the right to require
Loan Parties to post a bond, letter of credit or other security reasonably
satisfactory to Agent to secure payment of these costs and expenses.

 

48

 

(h)                                 Loan Parties
shall defend and indemnify Agent and Lenders and Term Lender and hold Agent,
Lenders and Term Lender and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney’s fees, suffered or
incurred by Agent or Lenders or Term Lender under or on account of any
Environmental Laws, including, without limitation, the assertion of any Lien
thereunder, with respect to any Hazardous Discharge, or the presence of any
Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of the foregoing
except to the extent such loss, liability, damage and expense is attributable to
any Hazardous Discharge resulting from actions on the part of Agent or any
Lender or Term Lender.  Loan Parties’
obligation and the indemnification hereunder shall survive the termination of
this Agreement.

 

(i)                                     For purposes of
Sections 4.19 and 5.7, all references to Real Property shall be deemed to
include all of Loan Parties’ right, title and interest in and to its owned and
leased premises.

 

4.20.                        Financing
Statements.

 

Except as respects the
financing statements filed by Agent and the financing statements described on Schedule 7.2, on the Closing Date no
financing statement covering any of the Collateral or any proceeds thereof is
on file in any public office.

 

4.21.                        Collateral
Audits.

 

At the request of Agent in
its sole discretion, but no less frequently than twice in each fiscal year,
Loan Parties shall permit Agent or one or more designees of Agent to perform,
at Loan Parties’ expense, such appraisals of Inventory or other Collateral,
field examinations, collateral analysis, monitoring, including, without
limitation, testing of Inventory orders against undrawn Documentary Letters of
Credit to confirm Loan Parties’ compliance with the covenant set forth in Section 6.8(c),
or other business analysis, as required by Agent and shall provide Agent with
access to all facilities and all book and records of Loan Parties reasonably
required by Agent to conduct such audits.

 

V.                                     REPRESENTATIONS
AND WARRANTIES.

 

Each
Loan Party represents and warrants as follows:

 

5.1.                              Authority.

 

Each Loan Party has full
power, authority and legal right to enter into this Agreement and the Other
Documents and to perform all its respective Obligations hereunder and
thereunder.  The execution, delivery and
performance of this Agreement and of the Other Documents (a) are within
such Loan Party’s limited liability company, partnership or corporate powers,
have been duly authorized, are not in contravention of (i) law or (ii) the
terms of such Loan Party’s certificate of formation, partnership agreement,
limited liability company agreement, by-laws, certificate of incorporation or
other applicable documents relating to such Loan Party’s formation or to the
conduct of such Loan Party’s business or (iii) of any material agreement
or undertaking to which such Loan Party is a party or by which such Loan Party
is 

 

49

 

bound except in the case of
clause (iii) for customary restrictions on the assignability thereof and
except in the case of clauses (i) and (ii) to the extent such
violation could not reasonably be expected to have a Material Adverse Effect,
and (b) will not conflict with nor result in any breach in any of the
provisions of or constitute a default under or result in the creation of any
Lien except Permitted Encumbrances upon any asset of such Loan Party under the
provisions of any agreement, charter document, by-law, or other instrument to
which such Loan Party or its property is a party or by which it may be
bound.  This Agreement and the Other
Documents, as applicable, constitute the legal, valid and binding obligation of
each Loan Party, enforceable in accordance with their respective terms, except
as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors’
rights generally or by equitable principles relating to enforceability.

 

5.2.                              Formation and
Qualification.

 

(a)                                  Each Loan Party
is duly formed or incorporated and in good standing under the laws of the state
listed on Schedule 5.2(a) and is
qualified to do business and is in good standing in the states listed on Schedule 5.2(a) which
constitute all states in which qualification and good standing are necessary
for such Loan Party to conduct its business and own its property and where the
failure to so qualify could reasonably be expected to have a Material Adverse
Effect.   The exact State organizational
number of Borrower is set forth on Schedule 5.2(a).  Each Loan Party has delivered to Agent true
and complete copies of its certificate of formation, certificate of limited
partnership, partnership agreement, limited liability company agreement, or
certificate of incorporation and by-laws, as the case may be and will promptly
notify Agent of any amendment or changes thereto that adversely affects Agent or
Lenders or Term Lender.

 

(b)                                 The only
Subsidiaries of and equityholders in each Loan Party are listed on Schedule 5.2(b).

 

5.3.                              Survival of
Representations and Warranties.

 

All representations and
warranties of such Loan Party contained in this Agreement and the Other
Documents shall be true at the time of such Loan Party’s execution of this
Agreement and the Other Documents, and shall survive the execution, delivery
and acceptance thereof by the parties thereto and the closing of the
transactions described therein or related thereto.

 

5.4.                              Tax Returns.

 

Each Loan Party’s federal
tax identification number is set forth on Schedule 5.4.  Each Loan Party has filed all material
federal, state and local tax returns and other reports each is required by law
to file and has paid all material taxes, assessments, fees and other
governmental charges that are due and payable (other than those taxes,
assessments, fees and other governmental charges that are currently being
contested in good faith and with respect to which reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have
been made or provided for).  The
provision for taxes on the books of Loan Parties are adequate for all years not
closed by applicable statutes, and for its current fiscal year, and no

 

50

 

Loan Party has any knowledge
of any deficiency or additional assessment in connection therewith not provided
for on its books.

 

5.5.                              Financial
Statements.

 

The audited balance sheet of
Loan Parties on a Consolidated Basis as of June 30, 2009, and the related
statements of income, changes in stockholder’s equity, and changes in cash flow
for the period ended on such date, all accompanied by reports thereon
containing opinions without qualification by independent certified public
accountants, copies of which have been delivered to Agent, have been prepared
in accordance with GAAP, consistently applied (except for changes in
application in which such accountants concur and present fairly the financial
position of Loan Parties on a Consolidated Basis at such date and the results
of its operations for such period). 
Since June 30, 2009, there has been no change in the condition,
financial or otherwise, of Loan Parties on a Consolidated Basis from that shown
on the balance sheet as of such date, the effect of which could reasonably be
expected to have a Material Adverse Effect individually or in the aggregate.

 

5.6.                              Organization
Name.

 

The exact name of each Loan
Party is set forth on the signature pages of this Agreement.  No Loan Party has been known by any other
corporate, limited liability company or partnership name in the past five years
and no Loan Party sells Inventory under any other name except as set forth on Schedule 5.6, nor has any Loan Party
been the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5) years
except for the recapitalization of Loan Parties as of the Original Closing
Date.

 

5.7.                              O.S.H.A. and
Environmental Compliance.

 

(a)                                  Each Loan Party
has duly complied in all material respects with, and its facilities, business,
assets, property, leaseholds and Equipment are in compliance in all material
respects with, the provisions of the Federal Occupational Safety and Health
Act, the Environmental Protection Act, RCRA and all other Environmental Laws;
there have been no outstanding citations, notices or orders of non-compliance
issued to any Loan Party or relating to its business, assets, property,
leaseholds or Equipment under any such laws, rules or regulations, in each
case except as set forth on Schedule 5.7.

 

(b)                                 Each Loan Party
has been issued all required federal, state and local licenses, certificates or
permits relating to all applicable Environmental Laws, except as set forth on Schedule 5.7.

 

(c)                                  (i) There
are no visible signs of releases, spills, discharges, leaks or disposal (each,
a “Release”) of Hazardous Substances at, upon, under or within any Real
Property; (ii) to the best knowledge of the Loan Parties, there are no
underground storage tanks or polychlorinated biphenyls on any Real Property; (iii) to
the best knowledge of the Loan Parties, the Real Property has never been used
as a treatment, storage or disposal facility of Hazardous Waste; and (iv) no
Hazardous Substances are present on any Real Property, excepting such
quantities as are handled in accordance with all applicable manufacturer’s
instructions and 

 

51

 

governmental
regulations and in proper storage containers and as are necessary for the
operation of the commercial business of any Loan Party or of its tenants, in
each case except as set forth on Schedule 5.7.

 

5.8.                              Solvency; No
Litigation, Violation, Indebtedness or Default.

 

(a)                                  Borrower and
Verrazano taken as a whole is solvent, able to pay its debts as they mature,
has capital sufficient to carry on its business and all businesses in which it
is about to engage, and (i) as of the Closing Date, the fair present
saleable value of the assets of Borrower and Verrazano taken as a whole,
calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the Closing Date, the fair saleable
value of the assets of Borrower and Verrazano taken as a whole (calculated on a
going concern basis) will be in excess of the amount of its liabilities.

 

(b)                                 Except as
disclosed in Schedule 5.8(b), no Loan
Party has (i) any pending or threatened litigation, arbitration, actions
or proceedings which could reasonably be expected to have a Material Adverse
Effect, and (ii) any Indebtedness for borrowed money other than the
Obligations.

 

(c)                                  No Loan Party
is in violation of any applicable statute, regulation or ordinance in any
respect which could reasonably be expected to have a Material Adverse Effect,
nor is any Loan Party in violation of any order of any court, governmental
authority or arbitration board or tribunal which could reasonably be expected
to have a Material Adverse Effect.

 

(d)                                 No Loan Party
nor any member of the Controlled Group maintains or contributes to any Plan
other than those listed on Schedule 5.8(d).  Except as set forth in Schedule
5.8(d), (i) no Plan has incurred any “accumulated funding
deficiency,” as defined in Section 302(a)(2) of ERISA and Section 412(a) of
the Code, whether or not waived, and each Loan Party and each member of the
Controlled Group have met all applicable minimum funding requirements under Section 302
of ERISA in respect of each Plan, (ii) each Plan which is intended to be a
qualified plan under Section 401(a) of the Code as currently in
effect has been determined by the Internal Revenue Service to be qualified
under Section 401(a) of the Code and the trust related thereto is
exempt from federal income tax under Section 501(a) of the Code, (iii) no
Loan Party nor any member of the Controlled Group has incurred any liability to
the PBGC other than for the payment of premiums, and there are no premium
payments which have become due which are unpaid, (iv) no Plan has been
terminated by the plan administrator thereof nor by the PBGC, and there is no
occurrence which would cause the PBGC to institute proceedings under Title IV
of ERISA to terminate any Plan, (v) at this time, the current value of the
assets of each Plan exceeds the present value of the accrued benefits and other
liabilities of such Plan and no Loan Party nor any member of the Controlled
Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities, (vi) no
Loan Party or any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan, except where any breach could not reasonably be expected to result in
a Material Adverse Effect, (vii) no Loan Party nor any member of a
Controlled Group has incurred any liability for any excise tax arising under Section 4972
or 4980B of the Code, and no fact exists which could give rise to 

 

52

 

any
such liability, except where any breach could not reasonably be expected to
result in a Material Adverse Effect, (viii) no Loan Party nor any member
of the Controlled Group nor any fiduciary of, nor any trustee to, any Plan, has
engaged in a “prohibited transaction” described in Section 406 of ERISA or
Section 4975 of the Code nor taken any action which would constitute or
result in a Termination Event with respect to any such Plan which is subject to
ERISA, (ix) each Loan Party and each member of the Controlled Group has
made all contributions due and payable with respect to each Plan, (x) there
exists no event described in Section 4043(b) of ERISA, for which the
thirty (30) day notice period contained in 29 CFR §2615.3 has not been waived,
(xi) no Loan Party nor any member of the Controlled Group has any fiduciary
responsibility for investments with respect to any plan existing for the
benefit of persons other than employees or former employees of any Loan Party
and any member of the Controlled Group, and (xii) no Loan Party nor any member
of the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension
Plan Amendments Act of 1980.

 

5.9.                              Patents,
Trademarks, Copyrights and Licenses.

 

All material patents, patent
applications, trademark registrations, trademark applications, service mark
registrations, service mark applications, copyright registrations, copyright
applications, trade names, assumed names, trade secrets, and licenses (except
for licenses to use computer software with a price or license fee of less than
$10,000) (the “Intellectual Property”) owned or used by any Loan Party are set
forth on Schedule 5.9.  To the knowledge of each Loan Party, all
registrations and applications for all Intellectual Property owned by a Loan
Party are valid and, as indicated on Schedule 5.9, have been duly registered or
applied for with appropriate governmental authorities.  The Intellectual Property set forth on Schedule 5.9
constitutes all material Intellectual Property rights which are necessary for
the operation of each Loan Party’s business; there are no claims or proceedings
pending against a Loan Party or threatened against a Loan Party in writing
challenging the validity of any such Intellectual Property owned by a Loan
Party and no Loan Party is aware of any valid grounds for any such challenge,
except as set forth in Schedule 5.9.  All material Intellectual Property used by
any Loan Party is owned by such Loan Party or is used by such Loan Party with
the permission of the owner thereof. 
Each Loan Party has taken reasonable measures to preserve the value of
each item of material Intellectual Property owned by such Loan Party from the
date of creation or acquisition thereof. 
With respect to all material software used by any Loan Party (other than
commercially available software with a price or license fee of less than
$10,000), such Loan Party is in possession of all source and object codes
related to each piece of software or is the beneficiary of a source code escrow
agreement, each such source code escrow agreement being listed on Schedule 5.9.

 

5.10.                        Licenses and
Permits.

 

Except as set forth in Schedule 5.10, each Loan Party (a) is
in compliance with and (b) has procured and is now in possession of, all
material licenses or permits required by any applicable federal, state or local
law or regulation for the operation of its business in each jurisdiction
wherein it is now conducting or proposes to conduct business and where the
failure to procure such licenses or permits could reasonably be expected to
have a Material Adverse Effect.

 

53

 

5.11.                        No Defaults.

 

(a)                                  No Loan Party
is in default in the payment of the principal of or interest on any material
Indebtedness or under any material instrument or agreement under or subject to
which any material Indebtedness has been issued and no event has occurred under
the provisions of any such instrument or agreement which with or without the
lapse of time or the giving of notice, or both, constitutes or would constitute
an event of default thereunder.

 

(b)                                 No Loan Party
is in default in the payment or performance of any other contractual
obligations except as could not reasonably be expected to have a Material
Adverse Effect and no Default has occurred.

 

5.12.                        No Burdensome
Restrictions.

 

No Loan Party is party to
any contract or agreement the performance of which could reasonably be expected
to have a Material Adverse Effect.  No
Loan Party has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien which is not a Permitted
Encumbrance.

 

5.13.                        No Labor
Disputes.

 

No Loan Party is involved in
any labor dispute; there are no strikes or walkouts or union organization of
any Loan Party’s employees threatened or in existence and no labor contract is
scheduled to expire during the Term other than as set forth on Schedule 5.13.

 

5.14.                        Margin
Regulations.

 

No Loan Party is engaged
principally or as one of its important activities, in the business of extending
credit for the purpose of “purchasing” or “carrying” any “margin stock” within
the meaning of the quoted term under Regulation U of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in
effect.  No part of the proceeds of any
Advance will be used for “purchasing” or “carrying” “margin stock” as defined
in Regulation U of such Board of Governors.

 

5.15.                        Investment
Company Act.

 

No Loan Party is an “investment
company” registered or required to be registered under the Investment Company
Act of 1940, as amended, nor is it controlled by such a company.

 

5.16.                        Disclosure.

 

No representation or
warranty made by any Loan Party in this Agreement or in any financial
statement, report, certificate or any other document furnished in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein, taken as a
whole, not misleading.  There is no fact
known to any Loan Party or which reasonably should be known to any Loan Party
which such Loan Party has not disclosed to Agent in writing with respect to the
transactions 

 

54

 

contemplated by this
Agreement which could reasonably be expected to have a Material Adverse Effect.

 

5.17.                        Delivery of
Senior Note Documentation and Factoring Agreement.

 

Agent has been provided with
complete copies of Senior Note Documentation and the Factoring Agreement
(including all exhibits, schedules and disclosure letters referred to therein
or delivered pursuant thereto, if any) and all amendments thereto, waivers
relating thereto and other side letters or agreements affecting the terms
thereof, all as in effect as of the Closing Date.  None of such documents and agreements has
been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been provided to Agent.

 

5.18.                        Swaps.

 

As of the Closing Date, no
Loan Party is a party to any swap agreement whereby such Loan Party has agreed
or will agree to swap interest rates or currencies.

 

5.19.                        Conflicts.

 

No provision of any mortgage,
indenture, contract, agreement, judgment, decree or order binding on any Loan
Party or affecting the Collateral or any provision of applicable law of any
Governmental Body conflicts with, or requires any Consent which has not already
been obtained to, or would in any way prevent the execution, delivery or
performance of, the terms of this Agreement or the Other Documents.

 

5.20.                        Application of
Certain Laws and Regulations.

 

No Loan Party nor any
Affiliate of any Loan Party is subject to any statute, rule or regulation
which regulates the incurrence of any Indebtedness, including without
limitation, statutes or regulations relative to common or interstate carriers
or to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.

 

5.21.                        Business and
Property of Loan Parties.

 

Upon and after the Closing
Date, Loan Parties do not propose to engage in any business other than
designing, sourcing and marketing one or more lines of women’s apparel.  On the Closing Date, each Loan Party will own
all the property and possess all of the rights and Consents necessary for the
conduct of the business of such Loan Party.

 

5.22.                        Material
Contracts.

 

Schedule 5.22 contains a
true, correct and complete list of all contracts the termination of which could
reasonably be expected to have a Material Adverse Effect.  Except as set forth on Schedule
5.22, each such contract is in full force and effect and no
material defaults enforceable against such Loan Party exist thereunder.  No Loan Party has received written notice
from any party to such contract stating that it intends to terminate or amend
such contract.

 

55

 

VI.                                 AFFIRMATIVE
COVENANTS.

 

Each Loan Party shall, until payment in full
of the Obligations and termination of this Agreement:

 

6.1.                              Payment of
Fees.

 

Pay to Agent on demand all
usual and customary fees and expenses which Agent incurs in connection with (a) the
forwarding of Advance proceeds and (b) the establishment and maintenance
of any Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).  Agent may, without making demand, charge
Borrower’s Account for all such fees and expenses.

 

6.2.                              Conduct of
Business and Maintenance of Existence and Assets.

 

Conduct continuously and
operate actively its business according to good business practices and maintain
all of its properties useful or necessary in its business in good working order
and condition (reasonable wear and tear excepted and except as may be disposed of
in accordance with the terms of this Agreement), including, without limitation,
all material Intellectual Property and take all commercially reasonable actions
necessary to enforce and protect the validity of any material Intellectual
Property right or other right included in the Collateral except where the
failure to do the foregoing could not reasonably be expected to have a Material
Adverse Effect; (ii) keep in full force and effect its existence and
comply in all material respects with the laws and regulations governing the
conduct of its business where the failure to do so could reasonably be expected
to have a Material Adverse Effect; and (iii) make all such reports and pay
all such franchise and other taxes and license fees and do all such other acts
and things as may be lawfully required to maintain its rights, licenses, powers
and franchises under the laws of the United States or any political subdivision
thereof, except where the failure to do the foregoing could not reasonably be
expected to have a Material Adverse Effect. 
Notwithstanding anything herein to the contrary, so long as no Event of
Default has occurred and is continuing, no Loan Party shall have an obligation
to use or to maintain any trademark, service mark, patent or copyright (A) that
relates solely to any product, brand or work that has been, or is in the
process of being, discontinued, abandoned or terminated, (B) that is being
replaced with a trademark, service mark, patent or copyright substantially
similar to the trademark, service mark, patent or copyright that may be
abandoned or otherwise become invalid, so long as the failure to use or
maintain such trademark, service mark, patent or copyright does not materially
adversely affect the validity of such replacement trademark, service mark,
patent or copyright, and so long as such replacement trademark, service mark,
patent or copyright is subject to the Lien and security interest created by
this Agreement, (C) that is substantially the same as another trademark,
service mark, patent or copyright that is in full force, so long as the failure
to use or maintain such trademark, service mark, patent or copyright does not
materially adversely affect the validity of such other trademark, service mark,
patent or copyright, and so long as such other trademark, service mark, patent
or copyright is subject to the Lien and security interest created by this
Agreement or (D) that is or becomes the subject of any formal or informal
dispute and/or any administrative or legal proceeding (whether ex parte or
inter partes) or other circumstances such that the Loan Party, using good faith
business judgment, reasonably determines it to be imprudent to maintain or
continue use of such trademark, service mark, patent or copyright.

 

56

 

6.3.                              Violations.

 

Promptly notify Agent in
writing of any violation of any law, statute, regulation or ordinance of any
Governmental Body, or of any agency thereof, applicable to any Loan Party which
could reasonably be expected to have a Material Adverse Effect.

 

6.4.                              Government
Receivables.

 

Take all steps necessary to
protect Agent’s interest in the Collateral under the Federal Assignment of
Claims Act or other applicable state or local statutes or ordinances and
deliver to Agent appropriately endorsed, any instrument or chattel paper
connected with any Receivable arising out of contracts between any Loan Party
and the United States, any state or any department, agency or instrumentality
of any of them.

 

6.5.                              Execution of Supplemental
Instruments.

 

Execute and deliver to Agent
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may reasonably request, in
order to maintain the validity, perfection and priority of Agent’s Liens and
security interests and the preservation of its rights and remedies hereunder.

 

6.6.                              Payment of
Indebtedness.

 

Subject at all times to any
applicable subordination arrangement in favor of Agent and/or Lenders or Term
Lender, pay, discharge or otherwise satisfy at or before maturity (subject,
where applicable, to specified grace periods and, in the case of the trade
payables, to normal payment practices) all its obligations and liabilities of
whatever nature, except when the failure to do so could not reasonably be
expected to have a Material Adverse Effect or when the amount or validity
thereof is currently being contested in good faith by appropriate proceedings and
each Loan Party shall have provided for reserves in accordance with GAAP.

 

6.7.                              Standards of
Financial Statements.

 

Cause all financial
statements referred to in Sections 9.7, 9.8, 9.9, 9.10 and 9.12 as to which
GAAP is applicable to be complete and correct in all material respects
(subject, in the case of interim financial statements, to normal year-end audit
adjustments and the absence of footnotes) and to be prepared in reasonable
detail and in accordance with GAAP applied consistently throughout the periods
reflected therein (except as concurred in by the reporting accountants or
officer, as the case may be, and disclosed therein).

 

6.8.                              Financial
Covenants.

 

(a)                                  Minimum Working
Capital.  Maintain as of the end of each
fiscal quarter set forth below Working Capital in an amount not less than the
amount set forth below as of the end of the applicable fiscal quarter
corresponding thereto:

 

57

 

	
  Period

  	
   

  	
  Minimum Working

  Capital Amount

  	
   

  
	
  Fiscal quarter ending June 30,
  2010

  	
   

  	
  $

  	
  25,000,000

  	
   

  
	
  Fiscal quarter ending
  September 30, 2010, and as of the end of each fiscal quarter ending
  thereafter

  	
   

  	
  $

  	
  27,000,000

  	
   

  

 

(b)                                 Net Income.  Maintain (x) Net Income in excess of $0
during each period of two consecutive fiscal quarters (on a rolling basis)
ending on December 31, 2009 and March 31, 2010, (y) negative Net
Income of not more than a loss of $1,300,000 during each period of two
consecutive fiscal quarters (on a rolling basis) ending on June 30, 2010
and September 30, 2010, and (z) Net Income in excess of $0 during
each period of two consecutive fiscal quarters (on a rolling basis) ending on December 31,
2010 and March 31, 2011; provided, further, for purposes of determining
compliance with this Section 6.8(b), Net Income shall be calculated so
that, to the extent in calculating Net Income for such period Net Income was
decreased by noncash expenses consisting of (i) amortization for customer
relationships and non-compete agreements, (ii) original issue discount on
the Senior Secured Notes, (iii) deferred financing costs, and (iv) reduction
in value of intangible assets, the amounts which were deducted in calculating
Net Income for such period for the items described in clauses (i) through (iv) above
shall be added back to Net Income as calculated in accordance with GAAP.

 

(c)                                  Cash Collateral.  Maintain on deposit with Agent, pursuant to
documentation in form and substance satisfactory to Agent in all respects, cash
collateral for the Obligations (“Cash Collateral”) in an amount not less than
the amount set forth below during the indicated periods (and which shall be in
addition to the cash collateral required pursuant to Section 3.2(b)); provided,
however, that to the extent necessary to prevent the occurrence of an
Event of Default, Cash Collateral deposited during the period between the end
of any calendar month and the date of submission of the Borrowing Base
Certificate for such month or between the date hereof and the date of
submission of the Borrowing Base Certificate delivered within 5 days of the
Closing Date (as required pursuant to Section 9.2(a)) shall be deemed to
have been deposited as Cash Collateral as of the last day of such immediately
preceding calendar month or the Closing Date, as applicable:

 

	
  Period

  	
   

  	
  Minimum Cash

  Collateral

  	
   

  
	
  July 1, 2010 through
  and including July 31, 2010

  	
   

  	
  $

  	
  5,500,000

  	
   

  
	
  October 1, 2010
  through and including October 31, 2010

  	
   

  	
  $

  	
  3,000,000

  	
   

  
	
  November 1, 2010
  through and including November 30, 2010

  	
   

  	
  $

  	
  2,000,000

  	
   

  

 

58

 

6.9.                              Subsidiaries.

 

In the event that any Person
becomes a Subsidiary of Borrower, Borrower shall promptly cause such
Subsidiary, if organized under the laws of any state of the United States of
America or the District of Columbia, to become a Guarantor hereunder by
executing and delivering to Agent a counterpart agreement in the form attached
as Exhibit 6.9 hereto.  With respect
to each such Subsidiary, Borrower shall promptly send to Agent written notice
setting forth with respect to such Person (i) the date on which such
Person became a Subsidiary of Borrower, and (ii) all of the data required
to be set forth in Schedules 4.5, 4.15(c), 5.2(a), 5.2(b), 5.4 and 5.6 and with
respect to Subsidiaries of Borrower; provided, such written notice shall
be deemed to supplement such Schedules for all purposes hereof.

 

VII.                             NEGATIVE
COVENANTS.

 

No
Loan Party shall, until satisfaction in full of the Obligations and termination
of this Agreement:

 

7.1.                              Merger,
Consolidation, Acquisition and Sale of Assets.

 

(a)                                  Enter into any
merger, consolidation or other reorganization with or into any other Person or
acquire all or a substantial portion of the assets or stock of any Person or
liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution)
or permit any other Person to consolidate with or merge with it other than a
merger or consolidation of a Subsidiary of any Loan Party into such Loan Party;
provided, however that any Subsidiary of any Loan party may merge with and into
any other Subsidiary of any Loan Party which is also a Loan Party.

 

(b)                                 Other than
Permitted Dispositions, sell, lease, transfer or otherwise dispose of any of
its properties or assets.

 

7.2.                              Creation of
Liens; Negative Pledges.

 

Create or suffer to exist
any Lien upon or against any of its property or assets now owned or hereafter
acquired, except Permitted Encumbrances, or enter into any agreement
prohibiting the creation or assumption of any Lien upon its properties or
assets now owned or hereafter acquired except for (a) restrictions on
Liens on specific property securing payment of other Indebtedness permitted
hereunder or to be sold pursuant to an executed agreement with respect to a
permitted sale or other disposition of assets or property, (b) the Senior
Note Documentation as in effect on the date hereof, and (c) restrictions
by reason of customary provisions restricting assignments, subletting or other
transfers contained in leases, licenses and similar agreements entered into in
the ordinary course of business (provided that such restrictions are limited to
the property or assets secured by such Liens or the property or assets subject
to such leases, licenses or similar agreements, as the case may be).

 

7.3.                              Guarantees.

 

Become liable upon the
obligations of any Person by assumption, endorsement or guaranty thereof or
otherwise (other than to Lenders under this Agreement or to the holders of the
Senior Secured Notes under the Senior Note Documentation) except the
endorsement of checks in the ordinary course of business and guarantees of
other Indebtedness permitted by Section 7.8.

 

59

 

7.4.                              Investments.

 

Purchase or acquire
obligations or stock of, or any other interest in, any Person, except Permitted
Investments.

 

7.5.                              Loans.

 

Make advances, loans or
extensions of credit to any Person, including without limitation, any Parent,
Subsidiary or Affiliate except with respect to (i) the extension of
commercial trade credit in connection with the sale of Inventory in the
ordinary course of its business, (ii) loans to employees on an arm’s-length
basis in the ordinary course of business consistent with past practices for
travel expenses, relocation costs and similar purposes up to a maximum of
$500,000 in the aggregate at any one time outstanding, (iii) so long as no
Default or Event of Default shall exist before and after giving effect thereto,
loans or extensions of credit to another Loan Party that are unsecured and
subordinated in right of payment to the payment in full of the Obligations
pursuant to terms reasonably satisfactory to Agent, (iv) so long as no
Default or Event of Default shall exist before and after giving effect thereto
and Borrower would be able to obtain Advances of at least $500,000 after giving
effect thereto, other advances, loans or extensions of credit not to exceed
$1,500,000 outstanding at any one time, and (v) loans, advances or
extensions of credit that constitute Permitted Investments.

 

7.6.                              Intentionally
Omitted.

 

7.7.                              Dividends and
Distributions.

 

Declare, pay or make any
dividend or distribution on any shares of the common stock, preferred stock or
other equity interests of any Loan Party (other than dividends or distributions
payable in its stock or other equity interests or split-ups or reclassifications
of its stock or other equity interests) or apply any of its funds, property or
assets to the purchase, redemption or other retirement of any common or
preferred stock, or of any options to purchase or acquire any such shares of
common or preferred stock or other equity interests of any Loan Party, provided,
however, that (a) any Loan Party which is a Subsidiary of Borrower
(or any Subsidiary of such Subsidiary) shall be permitted to pay dividends to
Borrower (or its parent which is a Subsidiary of Borrower) and (b) so long
as (i) a notice of termination with regard to this Agreement shall not be
outstanding (ii) no Event of Default or Default shall have occurred and be
continuing or would occur after giving effect to any dividend payment hereunder,
and (iii) the purpose for such purchase, redemption or dividend shall be
as set forth in writing to Agent at least ten (10) days prior to such
purchase, redemption or dividend and such purchase, redemption or dividend
shall in fact be used for such purpose: (A) Borrower shall be permitted to
pay dividends to its shareholders so long as after giving effect to such
dividend, Loan Parties shall be in compliance with the financial covenants set
forth in Section 6.8 hereof as of the most recently ended fiscal period
calculated assuming that the dividend had been paid during such fiscal period, (B) Borrower
shall be permitted to pay dividends to its Parent in an aggregate amount not to
exceed $500,000 in any Fiscal Year, to the extent necessary to permit its
Parent to pay general administrative costs and expenses and out-of-pocket
legal, accounting and filing and other general corporate overhead costs of
Parent actually incurred by Parent, and to the extent necessary to permit
Parent to pay franchise taxes and other fees required to maintain its

 

60

 

existence, in each case so
long as Parent applies the amount of any such distribution for such purpose,
and (C) the Borrower or any of its Subsidiaries may repurchase, redeem or
otherwise acquire or retire for value any capital stock of Borrower or any of
its Subsidiaries held by any current or former officer, director, consultant or
employee of Borrower or any of its Subsidiaries, or his or her estate, spouse,
former spouse, or family member (or pay principal or interest on any
Indebtedness issued in connection with such repurchase, redemption or other
acquisition) and may make distributions to the Borrower’s Parent utilized for
the repurchase, redemption or other acquisition or retirement for value of any
capital stock of Borrower’s Parent held by any current or former officer,
director, employee or consultant of the Borrower or any of its Subsidiaries, or
his or her estate, spouse, former spouse, or family member (or for the payment
of principal or interest on any Indebtedness issued in connection with such
repurchase, redemption or other acquisition) in each case, pursuant to any
equity subscription agreement, stock option agreement, shareholders’ agreement
or similar agreement or benefit plan of any kind; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired equity
interests may not exceed $2,000,000 in any calendar year period (with unused
amounts in any immediately preceding calendar year being carried over to the
succeeding calendar year subject to a maximum carry-over amount of $4,000,000
in any calendar year); provided further, that such amount in any calendar year
may be increased by an amount not to exceed: (I) to the extent of any such
proceeds that are not required to be applied to prepay Advances in accordance
with Section 2.14, the cash proceeds from the sale of capital stock of
Borrower and, to the extent contributed to Borrower as common equity capital,
capital stock of any of Borrower’s direct or indirect parent entities, in each
case to members of management, directors or consultants of Borrower, any of its
Subsidiaries or any of its direct or indirect parent entities that occurs after
the Original Closing Date, plus (II) the cash proceeds of key person life
insurance policies received by Borrower and its Subsidiaries after the Original
Closing Date, less (III) the amount of any payments previously made
pursuant to clauses (I) and (II) of this clause (C).

 

7.8.          Indebtedness.

 

Create, incur, assume or
suffer to exist any Indebtedness (exclusive of trade debt) except in respect of
(i) Indebtedness to the Lenders and Term Lender pursuant to this Agreement
and the Other Documents; (ii) Indebtedness to the Factors pursuant to the
Factoring Agreement as in effect on the date hereof; (iii) Indebtedness
under the Senior Secured Notes; (iv) Indebtedness existing as of the date
hereof as set forth on Schedule 7.8;  (v) Indebtedness with respect
to capital leases and purchase money Indebtedness in an aggregate amount not to
exceed at any time $5,000,000; provided, any such Indebtedness (A) shall
be secured only by the asset acquired in connection with the incurrence of such
Indebtedness; (vi) refinancings, renewals, or extensions of Indebtedness
permitted under clauses (iii), (iv), (v) and (ix) (and continuance or
renewal of any Permitted Encumbrances associated therewith) so long as: (A) such
refinancings, renewals, or extensions do not result in an increase in the
principal amount of the Indebtedness so refinanced, renewed, or extended (other
than principal increases attributable to the costs and expenses attributable
to, or any premium or penalty payable in connection with, such refinancing,
renewal or extension) , (B) such refinancings, renewals, or extensions do
not result in a shortening of the average weighted maturity of the Indebtedness
so refinanced, renewed, or extended, nor are they on terms or conditions that
are not at least as favorable to the Lenders and Term Lender as those that were
applicable to the refinanced, renewed, or extended Indebtedness, and (C) the
Indebtedness that is refinanced, renewed, or extended is not recourse to any
Person 

 

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that is liable on account of
the Obligations other than those Persons which were obligated with respect to
the Indebtedness that was refinanced, renewed, or extended; (vii) endorsement
of instruments or other payment items for deposit; (viii) Indebtedness
under Hedge Agreements entered into in the ordinary course of business; (ix) Indebtedness
of any Loan Party to any other Loan Party; (x) guaranties by a Loan Party
of Indebtedness of any other Loan Party with respect to Indebtedness otherwise
permitted to be incurred pursuant to this Section 7.8; (xi) Indebtedness
which may be deemed to exist pursuant to any guaranties, performance, surety,
statutory, appeal or similar obligations incurred in the ordinary course of
business; (xii) Indebtedness in respect of overdraft protections and otherwise
in connection with deposit accounts; (xiii) obligations on account of non-current
accounts payable which the applicable Loan Party is contesting in good faith
and by appropriate proceedings diligently conducted and with respect to which
adequate reserves have been established and are being maintained in accordance
with GAAP; and (xiv) other unsecured Indebtedness of any Loan Party not to
exceed $1,000,000 in the aggregate at any time.

 

7.9.          Nature of Business.

 

Without the consent of
Agent, engage in any business other than the business in which it is presently
engaged and businesses related or complimentary to the business now engaged in
by the Loan Parties.

 

7.10.        Transactions with
Affiliates.

 

Directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, any Affiliate, except transactions
disclosed in the ordinary course of business, on an arm’s-length basis on terms
no less favorable than terms which would have been obtainable from a Person
other than an Affiliate; provided, the foregoing restriction shall not
apply to (a) reimbursement of reasonable expenses actually incurred by (i) CCM
and its Affiliates or (ii) Ronald Frankel and Robert Newman, in their
capacity as directors of the Borrower, in each case in connection with the
negotiation, execution and delivery of this Agreement, the negotiation,
execution and delivery of the Originally Restated Agreement and the
Transactions as defined in the Originally Restated Agreement, (b) the
amounts payable to CCM or its Affiliates under this Agreement, (c) the
Recapitalization transactions, (d) the Transactions as defined in the
Originally Restated Agreement, (e) any transaction between and among Loan
Parties and their Subsidiaries which are also Loan Parties, (f) reasonable
fees paid to, reasonable compensation paid to, and reasonable indemnification
arrangements provided on behalf of (which shall in no event include
indemnification against gross negligence or willful misconduct), officers,
directors, employees and consultants of Borrower, its Parent and Borrower’s
Subsidiaries, and (f) any transaction otherwise permitted by Sections 7.1,
7.2, 7.4, 7.7 or 7.8.

 

7.11.        Intentionally Omitted.

 

7.12.        Subsidiaries.

 

(a)           Form any
Subsidiary unless such Subsidiary expressly joins in this Agreement as a
Guarantor pursuant to the provisions of Section 6.9 hereof.

 

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(b)           Enter into any
partnership, joint venture or similar arrangement.

 

7.13.        Fiscal Year and Accounting
Changes.

 

Without the consent of
Agent, change its fiscal year from June 30 of each calendar year or make
any material change (i) in accounting treatment and reporting practices
except as required by GAAP, or (ii) in tax reporting treatment except as
required by law.

 

7.14.        Pledge of Credit.

 

Other than in accordance
with Article II hereof, now or hereafter pledge Agent’s or any Lender’s or
Term Lender’s credit on any purchases or for any purpose whatsoever or use any
portion of any Advance or any Term Loans in or for any business other than the
applicable Loan Party’s business as conducted on the date of this Agreement or
as permitted under Section 7.9.

 

7.15.        Amendment of Organizational
Documents and Material Agreements.

 

Amend, modify or waive any
term or provision of (a) its certificate of incorporation or by-laws, or
any shareholders’ agreement in a manner adverse to Agent or Lenders or Term
Lender, unless required by law or (b) any of the agreements set forth on Schedule 5.22 in any material
respect without the consent of Agent.

 

7.16.        Compliance with ERISA.

 

(i) (x) Maintain,
or permit any member of the Controlled Group to maintain, or (y) become
obligated to contribute, or permit any member of the Controlled Group to become
obligated to contribute, to any Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage,
or permit any member of the Controlled Group to engage, in any non-exempt “prohibited
transaction”, as that term is defined in section 406 of ERISA and Section 4975
of the Code, (iii) incur, or permit any member of the Controlled Group to
incur, any “accumulated funding deficiency”, as that term is defined in Section 302
of ERISA or Section 412 of the Code, (iv) terminate, or permit any
member of the Controlled Group to terminate, any Plan where such event could
result in any liability of any Loan Party or any member of the Controlled Group
or the imposition of a lien on the property of any Loan Party or any member of
the Controlled Group pursuant to Section 4068 of ERISA, (v) assume,
or permit any member of the Controlled Group to assume, any obligation to
contribute to any Multiemployer Plan not disclosed on Schedule
5.8(d), (vi) incur, or permit any member of the Controlled
Group to incur, any withdrawal liability to any Multiemployer Plan; (vii) fail
promptly to notify Agent of the occurrence of any Termination Event, (viii) fail
to materially comply, or permit a member of the Controlled Group to fail to
materially comply, with the requirements of ERISA or the Code or other
applicable laws in respect of any Plan, (ix) fail to meet, or permit any
member of the Controlled Group to fail to meet, all minimum funding
requirements under ERISA or the Code or postpone or delay or allow any member
of the Controlled Group to postpone or delay any funding requirement with
respect of any Plan.

 

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7.17.        Prepayment of Indebtedness.

 

Except as permitted pursuant
to Section 7.18, at any time, directly or indirectly, prepay any
Indebtedness (other than to Lenders or, subject to Section 2.17, Term
Lender), or repurchase, redeem, retire or otherwise acquire any Indebtedness of
any Loan Party including, without limitation, except as otherwise provided in Section 2.17,
the Term Loans.

 

7.18.        Senior Secured Notes.

 

At any time, directly or
indirectly, pay, prepay, repurchase, redeem, retire or otherwise acquire, or
make any payment on account of any principal of, interest on or premium payable
in connection with the repayment or redemption of the Senior Secured Notes,
except as expressly required by the terms of the Senior Secured Notes as in
effect on the Original Closing Date. 
Notwithstanding the foregoing, Borrower may voluntarily prepay, redeem
or purchase Senior Secured Notes after the Closing Date utilizing the cash
proceeds of the Term Loans.

 

7.19.        State of Organization.

 

Change the State in which it
is incorporated or otherwise organized, unless it has given Agent not less than
thirty (30) days prior written notice thereof.

 

7.20.        Other Agreements.

 

Enter into any material
amendment, waiver or modification of the Factoring Agreement or any related
agreements.

 

VIII.        CONDITIONS PRECEDENT.

 

8.1.          Closing Conditions.

 

The amendment and restatement of the Original
Financing Agreement as set forth herein shall become effective only upon, and
the agreement of (i) CCM to make Revolving Advances and (ii) Term
Lender to extend the Term Loans is subject to the satisfaction, or waiver by
Lenders and the Term Lender, of the following conditions precedent:

 

(a)           Notes.  Agent shall have received the Notes duly
executed and delivered by an authorized officer of Borrower;

 

(b)           Searches.  Agent shall have received UCC, tax and
judgment lien searches with respect to each Loan Party in such jurisdictions as
Agent shall require, and the results of such searches shall be satisfactory to
Agent;

 

(c)           Corporate
Proceedings of Loan Parties.  Agent shall have received a copy of the
resolutions, in form and substance reasonably satisfactory to Agent, of the
Board of Directors (or equivalent authority) of each Loan Party authorizing (i) the
execution, delivery and performance of this Agreement and the Other Documents,
the Notes and any related agreements and (ii) the granting by each Loan
Party of the security interests in and liens upon the Collateral, in each case
certified by the Secretary or an Assistant Secretary of each Loan Party as of
the Closing Date; and, such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate;

 

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(d)           Incumbency
Certificates of Loan Parties.  Agent shall have received a certificate of
the Secretary or an Assistant Secretary of each Loan Party, dated the Closing
Date, as to the incumbency and signature of the officers of each Loan Party
executing this Agreement, any certificate or other documents to be delivered by
it pursuant hereto, together with evidence of the incumbency of such Secretary
or Assistant Secretary;

 

(e)           Organizational
Documents.  Agent shall
have received a copy of the organization documents of each Loan Party, and all
amendments thereto, certified by the Secretary of State or other appropriate
official of its jurisdiction of organization together with copies of the bylaws
or operating agreement, as applicable, of each Loan Party, certified as
accurate and complete by the Secretary of each Loan Party;

 

(f)            Good Standing
Certificates.  Agent shall
have received good standing certificates (or the equivalent thereof) for each
Loan Party dated not more than thirty (30) days prior to the Closing Date,
issued by the Secretary of State or other appropriate official of each Loan
Party’s jurisdiction of organization and each jurisdiction where the conduct of
each Loan Party’s business activities or the ownership of its properties
necessitates qualification, except where the failure to qualify could not
reasonably be expected to have a Material Adverse Effect;

 

(g)           Legal Opinion.  Agent shall have received the executed legal
opinion of Zukerman Gore Brandeis & Crossman, LLP, special counsel to
the Loan Parties, in form and substance reasonably satisfactory to Agent which
shall cover such matters incident to the transactions contemplated by this
Agreement and the Other Documents as Agent and Term Lender may reasonably
require and each Loan Party hereby authorizes and directs such counsel to
deliver such opinions to Agent and Lenders and Term Lender;

 

(h)           No Litigation.  No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened in writing against any Loan Party or against the officers or
directors of any Loan Party in connection with this Agreement and/or the Other
Documents or any of the transactions contemplated thereby and which could
reasonably be expected to have a Material Adverse Effect;

 

(i)            Fees and
Expenses.  Agent shall
have received all fees payable to Agent, Lenders or Term Lender on or prior to
the Closing Date pursuant to Article III and all other fees and expenses
incurred by Agent in connection with the transactions described in this
Agreement on or prior to the Closing Date;

 

(j)            Consents.  Agent shall have received any and all
Consents necessary to permit the effectuation of the transactions contemplated
by this Agreement and the Other Documents; and, Agent shall have received such
Consents and waivers of such third parties as might assert claims with respect
to the Collateral, as Agent and its counsel may reasonably request;

 

(k)           No Material
Adverse Change.  (i) Since
June 30, 2009, there shall not have occurred any event, condition or state
of facts, with respect to Borrower or any Loan Party, which could reasonably be
expected to have a Material Adverse Effect; and (ii) no 

 

65

 

representations
made or information supplied to Agent and Lenders or Term Lender shall have
been proven to be inaccurate or misleading in any material respect;

 

(l)            Closing
Certificate.  Agent shall
have received a closing certificate signed by the Chief Financial Officer of
Loan Parties dated as of the Closing Date, stating that (i) all
representations and warranties set forth in this Agreement and the Other
Documents are true and correct on and as of such date, and (ii) each Loan
Party is on such date in compliance with all the terms and provisions set forth
in this Agreement and the Other Documents and (iii) on such date no
Default or Event of Default has occurred or is continuing;

 

(m)          Intentionally Omitted.

 

(n)           Other.  All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions described in this Agreement shall be reasonably satisfactory in
form and substance to Agent, Lenders, Term Lender and their respective counsel.

 

Each Lender and Term Lender,
by delivering its signature page to this Agreement and funding a Loan on
the Closing Date, shall be deemed to have acknowledged receipt of, and
consented to and approved this Agreement and each Other Document and each other
document required to be approved by any Agent, the Required Lenders, Term
Lender or Lenders, as applicable on the Closing Date.

 

8.2.          Conditions to Each Advance
and Each of the Term Loans.

 

The agreement of Lenders to
make any Advance requested to be made on any date, and the agreement of Term
Lender to make any Term Loans, is subject to the satisfaction of the following
conditions precedent as of the date such Advance or Term Loans is made:

 

(a)           Representations
and Warranties.  Each of the
representations and warranties made by any Loan Party in or pursuant to this
Agreement and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date
(unless such representation or warranty is stated to be true as of an earlier
date, in which case it shall have been true as of such date);

 

(b)           No Default.  No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date; provided, however
that Lenders in their sole discretion, may continue to make Advances
notwithstanding the existence of an Event of Default or Default and that any
Advances so made shall not be deemed a waiver of any such Event of Default or
Default; and

 

(c)           Maximum Amounts.  In the case of any Revolving Advances
requested to be made, after giving effect thereto, the aggregate Revolving
Advances shall not exceed the maximum amount of Revolving Advances permitted
under Section 2.1  In the case of
any Term Loans requested to be made, after giving effect thereto, the aggregate
principal amount of the Term Loans at any time extended shall not exceed the
sum of $5,000,000.

 

66

 

Each
request for an Advance and/or any Term Loans by Borrower hereunder shall
constitute a representation and warranty by Loan Parties as of the date of such
Advance and/or Term Loans that the conditions contained in this subsection
shall have been satisfied.

 

8.3.          Conditions to Each Term
Loan.

 

The agreement or the Term
Lender to make any Term Loan requested to be made on any date is subject to the
satisfaction of the condition precedent, as of the date such Term Loan is made,
that the original principal amount of such Term Loan does not exceed the lesser
of:  (i) the unused portion of the
Term Loan Commitment at such time; and (ii) the aggregate purchase price
for the Senior Secured Notes to be purchased with the proceeds of such Term
Loan, plus accrued interest payable on such Senior Secured Notes, plus the fees
and expenses of such purchase.

 

IX.           INFORMATION AS TO BORROWER.

 

Each
Loan Party shall, until satisfaction in full of the Obligations and the
termination of this Agreement:

 

9.1.          Disclosure of Material
Matters.

 

Immediately upon learning
thereof, report to Agent all matters materially affecting the value,
enforceability or collectability of any material portion of the Collateral
including, without limitation, any Loan Party’s reclamation or repossession of,
or the return to any Loan Party of, a material amount of goods or claims or
disputes asserted by any Customer or other obligor with respect to any material
amount of Receivables.

 

9.2.          Schedules.

 

(a)           Deliver to
Agent, on or before the twentieth (20th) day of each month as and for the prior
month (or more frequently if required by Agent), (i) a Borrowing Base
Certificate (which shall be calculated as of the last day of the immediately
preceding month and which shall not be binding upon Agent or restrictive of
Agent’s rights under this Agreement), (ii) accounts receivable agings, (iii) accounts
payable agings, (iv) Inventory reports and (iv) management reports
setting forth the order, shipping and production position of Loan Parties.  In addition, each Loan Party shall deliver to
Agent at such intervals as Agent may require: 
(i) confirmatory assignment schedules, (ii) copies of Customer’s
invoices, (iii) evidence of shipment or delivery, and (iv) such
further schedules, documents and/or information regarding the Collateral as
Agent may require including, without limitation, trial balances and test
verifications.  In addition to the
foregoing, Loan Parties shall deliver a Borrowing Base Certificate to Agent
within five (5) days of the Closing Date. Agent shall have the right to
confirm and verify all Receivables by any manner and through any medium it
considers advisable and do whatever it may deem reasonably necessary to protect
its interests hereunder so long as it acts in good faith and otherwise
accordance with the terms of this Agreement. Agent shall provide copies of the
foregoing materials to each Lender with a Commitment Percentage 

 

67

 

with
respect to Revolving Advances that is greater than zero, promptly after receipt
from Borrower.

 

(b)           The items to be
provided under Section 9.2(a) are to be in form satisfactory to Agent
and executed by each Loan Party and delivered to Agent from time to time solely
for Agent’s convenience in maintaining records of the Collateral, and any Loan
Party’s failure to deliver any of such items to Agent shall not affect,
terminate, modify or otherwise limit Agent’s Lien with respect to the
Collateral.

 

9.3.          Environmental Reports.

 

Furnish Agent, concurrently
with the delivery of the financial statements referred to in Sections 9.7 and
9.8, with a certificate signed by the President of each Loan Party stating, to
the best of his knowledge, that each Loan Party is in compliance in all
material respects with all federal, state and local laws relating to
environmental protection and control and occupational safety and health.  To the extent any Loan Party is not in
compliance in all material respects with the foregoing laws, the certificate
shall set forth with specificity all areas of non-compliance and the proposed
action Loan Parties will implement in order to achieve full compliance.

 

9.4.          Litigation.

 

Promptly notify Agent in
writing of any litigation, suit or administrative proceeding affecting any Loan
Party, whether or not the claim is covered by insurance which in any such case
could reasonably be expected to have a Material Adverse Effect.

 

9.5.          Material Occurrences.

 

Promptly notify Agent in
writing upon the occurrence of (a) any Event of Default or Default; (b) any
event of default under the Senior Note Documentation; (c) any event which
with the giving of notice or lapse of time, or both, would constitute an event
of default under the Senior Note Documentation; (d) any event, development
or circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied, the financial condition or operating results of any Loan
Party as of the date of such statements; (e) any accumulated retirement
plan funding deficiency which, if such deficiency continued for two plan years
and was not corrected as provided in Section 4971 of the Code, could
subject any Loan Party to a tax imposed by Section 4971 of the Code; (f) each
and every default of which a Loan Party has received a default notice which
might result in the acceleration of the maturity of any Indebtedness in excess
of $1,000,000, including the names and addresses of the holders of such
Indebtedness with respect to which there is a default existing or with respect
to which the maturity has been or could be accelerated, and the amount of such
Indebtedness; and (g) any other development in the business or affairs of
any Loan Parties which could reasonably be expected to have a Material Adverse
Effect; in each case describing the nature thereof and the action Loan Parties
propose to take with respect thereto.

 

68

 

9.6.          Government Receivables.

 

Notify Agent immediately if
any of its Receivables in excess of $500,000 arise out of contracts between any
Loan Party and the United States, any state, or any department, agency or
instrumentality of any of them.

 

9.7.          Annual Audited Financial
Statements.

 

Furnish Agent and Lenders
and Term Lender within one hundred twenty (120) days after the end of each
fiscal year of Loan Parties annual information that would be required to be
contained in a filing with the SEC on Form 10-K if Borrower was required
to file such form, including a “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” that describes the financial
condition and results of the Loan Parties on a Consolidated Basis (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of Borrower and its Restricted Subsidiaries (as that term is defined
in the Senior Note Indenture) separate from the financial condition and results
of operations of the Unrestricted Subsidiaries (as that term is defined in the
Senior Note Indenture) of the Borrower, if any), audited by an independent
public accounting firm selected by Loan Parties and satisfactory to Agent (the “Accountants”).   The report of the Accountants shall be
accompanied by a statement of the Accountants certifying that (i) they
have caused the Agreement to be reviewed, and (ii) in making the
examination upon which such report was based either no information came to
their attention which to their knowledge constituted an Event of Default or a
Default under this Agreement or any related agreement or, if such information
came to their attention, specifying any such Default or Event of Default, its
nature, when it occurred and whether it is continuing, and such report shall
contain or have appended thereto calculations which set forth Loan Parties’
compliance with the requirements or restrictions imposed by Section 6.8.  In addition, the reports shall be accompanied
by a certificate of Borrower’s Chief Financial Officer which shall state that,
based on an examination sufficient to permit him to make an informed statement,
no Default or Event of Default exists, or, if such is not the case, specifying
such Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Loan Parties with respect to such
event, and such certificate shall have appended thereto calculations which set
forth Loan Parties’ compliance with the requirements or restrictions imposed by
Section 6.8.

 

9.8.          Semi-Annual Reviewed
Financial Statements.

 

Furnish to Agent and Lenders
and Term Lender within one hundred twenty (120) days after the end of the
second fiscal quarter of Loan Parties quarterly information that would be
required to be contained in a filing with the SEC on Form 10-Q if Borrower
were required to file such forms, including a “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” that describes the
financial condition and results of operations of Loan Parties on a Consolidated
Basis (showing in reasonable detail, either on the face of the financial
statements or in the footnotes thereto and in Management’s Discussion and
Analysis of Financial Condition and Results of Operations, the financial
condition and results of operations of Borrower and its Restricted Subsidiaries
(as that term is defined in the Senior Note Indenture) separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
(as that term is defined in the Senior Note Indenture) of the Borrower, if
any), reviewed by the Accountants.  In
addition to the financial information provided above, Borrower will provide a 

 

69

 

balance sheet, statement of
income and equityholders’ equity and statement of cash flow setting forth a
comparison of the figures for (x) the current year-to-date with the
figures for (y) the same year-to-date period of the immediately preceding
fiscal year, and (z) the projections for such year-to-date period
delivered pursuant to Section 9.12. 
The financial statements shall be accompanied by a certificate signed by
the Chief Financial Officer of Borrower, which shall state that, based on an
examination sufficient to permit him to make an informed statement, no Default
or Event of Default exists, or, if such is not the case, specifying such
Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Loan Parties with respect to such
default and, such certificate shall have appended thereto calculations which
set forth Loan Parties’ compliance with the requirements or restrictions
imposed by Section 6.8.

 

9.9.          Quarterly Internally
Prepared Financial Statements.

 

Furnish Agent and Lenders
and Term Lender within sixty (60) days after the end of each first and third
fiscal quarter of Loan Parties, an unaudited balance sheet of Loan Parties on a
Consolidated Basis and unaudited statements of income and equityholders’ equity
and cash flow of Loan Parties on a Consolidated Basis reflecting results of
operations from the beginning of the fiscal year to the end of such fiscal
quarter and for such fiscal quarter prepared on a basis consistent with prior
practices and complete and correct in all material respects, subject to normal
and recurring year end adjustments that individually and in the aggregate are
not material to the business of Loan Parties. 
Each such balance sheet, statement of income and stockholders’ equity
and statement of cash flow shall set forth a comparison of the figures for (w) the
current fiscal period and (x) the current year-to-date with the figures
for (y) the same fiscal period and year-to-date period of the immediately
preceding fiscal year and (z) the projections for such fiscal period and
year-to-date period delivered pursuant to Section or Section 9.12, as
applicable.  The financial statements
shall be accompanied by a certificate of Borrower’s Chief Financial Officer,
which shall state that, based on an examination sufficient to permit him to
make an informed statement, no Default or Event of Default exists, or, if such
is not the case, specifying such Default or Event of Default, its nature, when
it occurred, whether it is continuing and the steps being taken by Loan Parties
with respect to such event and, such certificate shall have appended thereto
calculations which set forth Loan Parties’ compliance with the requirements or
restrictions imposed by Section 6.8.

 

9.10.        Other Reports.

 

Furnish Agent as soon as
available, but in any event within ten (10) days after the issuance
thereof, with copies of (i) such financial statements, reports and returns
as Loan Parties shall send to their stockholders or members and (ii) all
notices sent pursuant to the Senior Note Documentation.

 

9.11.        Additional Information.

 

Furnish Agent with such
additional information as Agent shall reasonably request in order to enable
Agent to determine whether the terms, covenants, provisions and conditions of
this Agreement and the Notes have been complied with by Loan Parties including,
without limitation and without the necessity of any request by Agent, (a) copies
of all environmental

 

70

 

audits and reviews, (b) at
least thirty (30) days prior thereto, notice of any Loan Party’s opening of any
new office or place of business or any Loan Party’s closing of any existing
office or place of business, and (c) promptly upon any Loan Party’s learning
thereof, notice of any labor dispute to which any Loan Party may become a
party, any strikes or walkouts relating to any of its plants or other
facilities, or the expiration of any labor contract to which any Loan Party is
a party or by which any Loan Party is bound, in the case of this clause (c),
which could reasonably be expected to have a Material Adverse Effect.

 

9.12.        Projected Operating Budget.

 

Furnish Agent, no later
than May 31 of each year, a month by month projected operating budget and
cash flow of Loan Parties on a Consolidated Basis for the fiscal year to
commence on the succeeding July 1 (including an income statement for each
month and a balance sheet as at the end of the last month in each fiscal
quarter and proposed business plan for such fiscal year including, without
limitation, Letters of Credit anticipated to be required during each such
period), such projections to be accompanied by a certificate signed by the
President or Chief Financial Officer of each Loan Party to the effect that such
projections have been prepared on the basis of sound financial planning
practice consistent with past budgets and financial statements and that such
officer has no reason to question the reasonableness of any material
assumptions on which such projections were prepared.  In addition, Loan Parties will provide Agent
with such projections and business plans as and when requested by Agent in
connection with any request by Loan Parties to increase or permanently reduce
the amount of Advances available under this Agreement.  All such projections and business plans are
subject to the written approval of Agent in its sole discretion before such
projections and business plans shall be effective for purposes of this Agreement.

 

9.13.        Variances From Operating
Budget.

 

Furnish Agent,
concurrently with the delivery of the financial statements referred to in Section 9.7,
9.8 and 9.9, a written report summarizing all material variances from budgets
submitted by Loan Parties pursuant to Section 9.12, and a discussion and
analysis by management with respect to such variances.

 

9.14.        Notice of Suits, Adverse
Events.

 

Furnish Agent with prompt
notice of (i) any lapse or other termination of any Consent issued to any
Loan Party by any Governmental Body or any other Person that is material to the
operation of any Loan Party’s business, (ii) any refusal by any
Governmental Body or any other Person to renew or extend any such Consent; and (iii) copies
of any periodic or special reports filed by any Loan Party with any Governmental
Body or Person, if such reports indicate any material change in the business,
operations, affairs or condition of any Loan Party, or if copies thereof are
requested by Agent or any Lender or Term Lender, and (iv) copies of any
material notices and other communications from any Governmental Body or Person
which specifically relate to any Loan Parties.

 

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9.15.        ERISA Notices and Requests.

 

Furnish Agent with
immediate written notice in the event that (i) any Loan Party or any
member of the Controlled Group knows or has reason to know that a Termination
Event has occurred, together with a written statement describing such
Termination Event and the action, if any, which such Loan Party or member of the
Controlled Group has taken, is taking, or proposes to take with respect thereto
and, when known, any action taken or threatened by the Internal Revenue
Service, Department of Labor or PBGC with respect thereto, (ii) any Loan
Party or any member of the Controlled Group knows or has reason to know that a
prohibited transaction (as defined in Sections 406 of ERISA and 4975 of the
Code) has occurred together with a written statement describing such
transaction and the action which such Loan Party or any member of the
Controlled Group has taken, is taking or proposes to take with respect thereto,
(iii) a funding waiver request has been filed with respect to any Plan
together with all communications received by any Loan Party or any member of
the Controlled Group with respect to such request, (iv) any increase in
the benefits of any existing Plan or the establishment of any new Plan or the
commencement of contributions to any Plan to which any Loan Party or any member
of the Controlled Group was not previously contributing shall occur, (v) any
Loan Party or any member of the Controlled Group shall receive from the PBGC a
notice of intention to terminate a Plan or to have a trustee appointed to
administer a Plan, together with copies of each such notice, (vi) any Loan
Party or any member of the Controlled Group shall receive any favorable or
unfavorable determination letter from the Internal Revenue Service regarding
the qualification of a Plan under Section 401(a) of the Code,
together with copies of each such letter; (vii) any Loan Party or any
member of the Controlled Group shall receive a notice regarding the imposition
of withdrawal liability, together with copies of each such notice; (viii) any
Loan Party or any member of the Controlled Group shall fail to make a required
installment or any other required payment under Section 412 of the Code on
or before the due date for such installment or payment; (ix) any Loan
Party or any member of the Controlled Group knows that (a) a Multiemployer
Plan has been terminated, (b) the administrator or plan sponsor of a
Multiemployer Plan intends to terminate a Multiemployer Plan, or (c) the
PBGC has instituted or will institute proceedings under Section 4042 of
ERISA to terminate a Multiemployer Plan.

 

9.16.        Additional Documents.

 

Execute and deliver to
Agent, upon request, such documents and agreements as Agent may, from time to
time, reasonably request to carry out the purposes, terms or conditions of this
Agreement.

 

X.            EVENTS OF DEFAULT.

 

The occurrence of any one
or more of the following events shall constitute an “Event of Default”:

 

10.1         Failure by any Loan Party to pay any principal or
interest on the Obligations when due, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or by notice of intention
to prepay, or by required prepayment or failure to pay any other liabilities or
make any other payment, fee or charge provided for herein when due or in any
Other Document;

 

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10.2         (i) Failure by any Loan Party to perform, keep or
observe any provision of Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.9 (except with
respect to the (x) first sentence thereof if non-compliance has not, in
Agent’s reasonable credit judgment, resulted in a Material Adverse Effect, and (y) second
sentence thereof), 4.10, 4.11, 6.8, Article VII or (ii) any
representation or warranty made or deemed made by any Loan Party in this
Agreement or any related agreement or in any certificate, document or financial
or other statement furnished at any time in connection herewith or therewith
shall prove to have been misleading in any material respect on the date when
made or deemed to have been made;

 

10.3         Failure by any Loan Party to (i) furnish
financial information when due or when requested which is unremedied for a
period of fifteen (15) days, or (ii) permit the inspection of its books or
records;

 

10.4         Issuance of a notice of Lien, levy, assessment,
injunction or attachment (other than Permitted Encumbrances) against a material
portion of any Loan Party’s property which is not stayed or lifted within
thirty (30) days;

 

10.5         Failure or neglect of any Loan Party to perform, keep
or observe any term, provision, condition, covenant herein contained, or
contained in any Other Document, now or hereafter entered into between any Loan
Party, Agent and/or any Lender or Term Lender (to the extent such breach is not
otherwise embodied in any other provision of this Article X for which a
different grace or cure period is specified or which constitute an immediate
Event of Default under this Agreement or the Other Documents), which is not
cured within twenty (20) days after the occurrence of such Event of Default;

 

10.6         Any judgment or judgments are rendered or judgment
liens filed against one or more of Loan Parties for an aggregate amount in
excess of $1,000,000 which within thirty (30) days of such rendering or filing
is not either satisfied, stayed or discharged of record;

 

10.7         Any Loan Party shall (i) apply for, consent to or
suffer the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar fiduciary of itself or of all or a
substantial part of its property, (ii) make a general assignment for the
benefit of creditors, (iii) commence a voluntary case under any state or
federal bankruptcy laws (as now or hereafter in effect), (iv) be
adjudicated a bankrupt or insolvent, (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) acquiesce
to, or fail to have dismissed, within forty-five (45) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (vii) take
any action for the purpose of effecting any of the foregoing;

 

10.8         Any Loan Party shall admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business;

 

10.9         Intentionally Omitted;

 

10.10       Intentionally Omitted;

 

10.11       Any Lien created hereunder or provided for hereby or
under any Other Document for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest, except with respect to Liens
on Collateral subject to such Permitted Encumbrances which

 

73

 

pursuant to
provisions of this Agreement, may be senior to the Liens in favor of Agent for
the benefit of Issuers, Lenders and Term Lender;

 

10.12       An event of default has occurred and been declared
under the Senior Note Documentation or any Factoring Agreement which default shall
not have been cured or waived within any applicable grace period and for which
Senior Note Agent or the Factor, as applicable, is permitted to take action
pursuant to the terms of the Senior Secured Notes as in effect on the Closing
Date or any Factoring Agreement, as applicable;

 

10.13       A default of the obligations of any Loan Party under
any other agreement to which it is a party shall occur which could or does
result in at least $1,000,000 of Indebtedness becoming due and payable prior to
its scheduled maturity which default is not cured within any applicable grace
period;

 

10.14       Termination or breach of any Guaranty, or if any
Guarantor attempts to terminate, challenges the validity of, or its liability
under, any Guaranty;

 

10.15       Any Change of Control shall occur;

 

10.16       Any material provision of this Agreement shall, for
any reason, cease to be valid and binding on any Loan Party, or any Loan Party
shall so claim in writing to Agent;

 

10.17       (i) Any Governmental Body shall revoke,
terminate, suspend or adversely modify any license, permit, patent trademark or
tradename of any Loan Party (the continuation of which is material to the
continuation of any Loan Party’s business), (ii) any agreement which is
necessary or material to the operation of any Loan Party’s business shall be
revoked or terminated and not replaced by a substitute acceptable to Agent
within thirty (30) days after the date of such revocation or termination, and
such revocation or termination and non-replacement would reasonably be expected
to have a Material Adverse Effect;

 

10.18       Any portion of the Collateral having a value in excess
of $1,000,000 shall be seized or taken by a Governmental Body; or

 

10.19       An event or condition specified in Section 7.16
or Section 9.15 shall occur or exist with respect to any Plan and, as a
result of such event or condition, together with all other such events or
conditions, Loan Parties or any member of the Controlled Group shall incur, or
in the opinion of Agent be reasonably likely to incur, a liability to a Plan or
the PBGC (or both) which, in the reasonable judgment of Agent, would have a
Material Adverse Effect.

 

XI.           LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.

 

11.1.        Rights and Remedies.

 

Upon the occurrence of (i) an
Event of Default pursuant to Section X.10.7, all Obligations shall be
immediately due and payable and this Agreement and the obligation of Lenders to
make Advances and the Term Lender to make any Term Loans shall be deemed
terminated, (ii) any of the other Events of Default and at any time
thereafter (such default not having previously been cured), at the option of
Required Lenders all Obligations shall be

 

74

 

immediately due and
payable and Required Lenders shall have the right to terminate this Agreement
and to terminate the obligation of Lenders to make Advances and the Term Lender
to make any Term Loans, and (iii) a filing of a petition against any Loan
Party in any involuntary case under any state or federal bankruptcy laws, the
obligation of Lenders to make Advances and the Term Lender to make any Term
Loans hereunder shall be terminated other than as may be required by an
appropriate order of the bankruptcy court having jurisdiction over any Loan
Party.  Upon the occurrence of any Event
of Default, Agent shall have the right to exercise any and all other rights and
remedies provided for herein, under the UCC and at law or equity generally,
including, without limitation, the right to foreclose the security interests
granted herein and to realize upon any Collateral by any available judicial
procedure and/or to take possession of and sell any or all of the Collateral
with or without judicial process. 
Subject to Section 4.10, following the occurrence and during the
continuance of an Event of Default, Agent may enter any Loan Party’s premises
or other premises without legal process and, subject to applicable law, without
incurring liability to any Loan Party therefor, and Agent may thereupon, or at
any time thereafter, in its discretion without notice or demand, take the
Collateral and remove the same to such place as Agent may deem advisable and
Agent may require Loan Parties to make the Collateral available to Agent at a
convenient place.  With or without having
the Collateral at the time or place of sale, Agent may following the occurrence
and during the continuance of an Event of Default sell the Collateral, or any
part thereof, at public or private sale, at any time or place, in one or more
sales, at such price or prices, and upon such terms, either for cash, credit or
future delivery, as Agent may elect. 
Except as to that part of the Collateral which is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Agent shall give Loan Parties reasonable notification of
such sale or sales, it being agreed that in all events written notice mailed to
Loan Parties at least ten (10) days prior to such sale or sales is
reasonable notification.  At any public
sale Agent or any Lender or Term Lender may bid for and become the purchaser,
and Agent, any Lender, Term Lender, or any other purchaser at any such sale
thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and such right and
equity are hereby expressly waived and released by each Loan Party.  Agent may specifically disclaim any
warranties of title or the like at any sale of Collateral.  In connection with the exercise of the
foregoing remedies, Agent is granted permission to use all of each Loan Party’s
trademarks, trade styles, trade names, patents, patent applications, licenses,
franchises and other proprietary rights which are used in connection with (a) Inventory
for the purpose of disposing of such Inventory and (b) Equipment for the
purpose of completing the manufacture of unfinished goods.

 

11.2.        Allocation of Payments After
Event of Default.

 

Notwithstanding any other
provisions of this Agreement to the contrary, after the occurrence and during
the continuance of an Event of Default, all amounts collected or received by
Agent on account of the Obligations or any other amounts outstanding under any
of the Other Documents or in respect of the Collateral shall be paid over or
delivered by Agent as follows:

 

FIRST, to the payment of
all reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees) of Agent in connection with enforcing the rights of
Term Lender and the Lenders under this Agreement and the Other Documents and
any protective advances made by Agent with respect to the Collateral under or
pursuant to the terms of this Agreement until paid in full;

 

75

 

SECOND, to payment of any
fees owed to Agent until paid in full;

 

THIRD, to the payment of
all Obligations (calculated after taking into account the application of cash
collateral held by Agent pursuant to Section 3.2(b)) relating to accrued
fees and interest (including without limitation all interest accruing after the
commencement of any bankruptcy or similar proceeding whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) on
Advances other than Revolving Advances and the Term Loans until paid in full;

 

FOURTH, to the payment of
the outstanding principal amount of the Obligations (including the payment or
cash collateralization of any outstanding Letters of Credit in an amount not to
exceed 105% of the undrawn amount of such Letters of Credit and calculated
after taking into account the application of cash collateral held by Agent
pursuant to Section 3.2(b)), other than Revolving Advances and Bank
Products and the Term Loans, pro rata according to the applicable Lenders’
Commitment Percentages, until paid in full;

 

FIFTH, to the payment of
the outstanding amount of the Obligations consisting of Bank Products, until
paid in full;

 

SIXTH, to the payment of
all Obligations relating to accrued fees and interest (including without
limitation all interest accruing after the commencement of any bankruptcy or
similar proceeding whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding) on Revolving Advances until paid in
full;

 

SEVENTH, to the payment
of the outstanding principal amount of Revolving Advances, pro rata according
to the applicable Lenders’ Commitment Percentages, until paid in full;

 

EIGHTH, to the payment of
all accrued fees and interest on the Term Loans owed to Term Lender until paid
in full;

 

NINTH, to the outstanding
principal amount of the Term Loans owed to Term Lender until paid in full;

 

TENTH, to all other
Obligations and other obligations which shall have become due and payable under
the Other Documents or otherwise and not repaid pursuant to clauses “FIRST”
through “NINTH” above;

 

ELEVENTH, to the payment
of the surplus, if any, to Borrower or whoever else may be lawfully entitled to
receive such surplus.

 

In carrying out the
foregoing, (i) amounts received shall be applied in the numerical order
provided until exhausted prior to application to the next succeeding category; (ii) each
of the Lenders shall receive (so long as it is not a Defaulting Lender) an
amount equal to its pro rata share (based on the proportion that the then
outstanding Advances (excluding the Term Loan) held by such Lender bears to the
aggregate then outstanding Advances (excluding the Term Loan)) of amounts
available to be applied pursuant to clauses “THIRD”, “FOURTH”, “FIFTH”,
“SIXTH”, “SEVENTH” and “TENTH” above; (iii) Term Lender shall receive an

 

76

 

amount equal to its pro
rata share (based on the proportion that the then outstanding Term Loans held
by such Term Lender bears to the aggregate then outstanding Term Loans) of
amounts available to be applied pursuant to clauses “EIGHTH” and “NINTH” and (iv) to
the extent that any amounts available for distribution pursuant to clause
“FOURTH” above are attributable to the issued but undrawn amount of outstanding
Letters of Credit in an amount greater than the Cash Collateral previously
received pursuant to Section 3.2(b), such amounts shall be held by Agent
in a cash collateral account and applied (A) first, to reimburse the
Issuer from time to time for any drawings under such Letters of Credit and (B) then,
following the expiration of all Letters of Credit, to all other obligations of
the types described in clauses “FIFTH” through “TENTH” above in the manner
provided in this Section 11.2.

 

For purposes of the
foregoing, (other than clause “TENTH”), “paid in full” means payment in cash of
all amounts owing under this Agreement and the Other Documents according to the
terms thereof, including loan fees, service fees, professional fees, interest
(and specifically including interest accrued after the commencement of any
bankruptcy or similar proceeding), default interest, interest on interest, and
expense reimbursements, whether or not same would be or is allowed or
disallowed in whole or in part in any bankruptcy or similar proceeding, except
to the extent that default or overdue interest (but not any other interest) and
loan fees, each arising from or related to a default, are disallowed in any
bankruptcy or similar proceeding; provided, however, that for the
purposes of clause “ELEVENTH”, “paid in full” means payment in cash of all
amounts owing under this Agreement and the Other Documents according to the
terms thereof which are not covered by clauses “FIRST” through “TENTH”,
including, without duplication, loan fees, service fees, professional fees,
interest (and specifically including interest accrued after the commencement of
any bankruptcy or similar proceeding), default interest, interest on interest,
and expense reimbursements, whether or not the same would be or is allowed or
disallowed in whole or in part in any bankruptcy or similar proceeding.

 

Proceeds arising from the
sale or other disposition of any Collateral at a time when no Event of Default
exists shall only be applied to Obligations relating to Advances and not to
Obligations relating to the Term Loans unless Agent and Required Lenders, in
their sole and absolute discretion, otherwise consent to such application of
proceeds to Obligations relating to the Term Loans.

 

11.3.        Agent’s Discretion.

 

Agent shall have the
right in its sole discretion to determine which rights, Liens, security
interests or remedies Agent may at any time pursue, relinquish, subordinate, or
modify or to take any other action with respect thereto and such determination
will not in any way modify or affect any of Agent’s or Lenders’ or Term
Lender’s rights hereunder.

 

11.4.        Setoff.

 

In addition to any other
rights which Agent, any Lender, Term Lender or any Issuer may have under
applicable law, upon the occurrence of an Event of Default hereunder, Agent,
such Lender, such Term Lender  and such
Issuer shall have a right to apply any Loan Party’s property held by Agent,
such Lender, such Term Lender, or such Issuer to reduce the Obligations, in the
order and manner provided in this Agreement. 
Anything in this Agreement to

 

77

 

the contrary
notwithstanding, each of the Lenders and Term Lender agrees that (a) it
shall not, without the express consent of Agent, and that it shall, to the
extent it is lawfully entitled to do so, upon the request of Agent, set off
against the Obligations, any amounts owing by such Lender or Term Lender to any
Loan Party or any deposit accounts of any Loan Party now or hereafter
maintained with such Lender or Term Lender and (b) it shall not, unless
specifically requested to do so by Agent, take any action to protect or enforce
its rights arising out of this Agreement or the Other Documents, it being the
intent of Lenders and Term Lender that any such action to protect or enforce
rights under this Agreement and the Other Documents shall be taken in concert
and at the direction or with the consent of Agent or Required Lenders.

 

11.5.        Rights and Remedies not
Exclusive.

 

The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies provided for herein or otherwise provided by law, all of which shall
be cumulative and not alternative.

 

XII.         WAIVERS AND JUDICIAL PROCEEDINGS.

 

12.1.        Waiver of Notice.

 

Each Loan Party hereby
waives notice of non-payment of any of the Receivables, demand, presentment,
protest and notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of loans or advances made, credit extended, Collateral
received or delivered, or any other action taken in reliance hereon, and all
other demands and notices of any description, except such as are expressly
provided for herein or which cannot be waived under applicable law.

 

12.2.        Delay.

 

No delay or omission on
Agent’s or any Lender’s part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or of any
default.

 

12.3.        Jury Waiver.

 

EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL

 

78

 

WITHOUT A JURY, AND THAT
ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

XIII.        EFFECTIVE DATE AND TERMINATION.

 

13.1.        Term.

 

This Agreement, which
shall inure to the benefit of and shall be binding upon the respective
successors and permitted assigns of Loan Parties, Agent and each Lender and
Term Lender, shall become effective on the date hereof and shall continue in
full force and effect until the earliest of (x) June 10, 2011 (the “Original
Term”), (y) the acceleration of all Obligations pursuant to the terms
of this Agreement or (z) the date on which this Agreement shall be
terminated in accordance with the provisions hereof or by operation of law  (the “Termination Date”).  Loan Parties may terminate this Agreement at
any time upon ninety (90) days’ prior written notice upon payment in full of
the Obligations.

 

13.2.        Termination.

 

The termination of the
Agreement shall not affect any Loan Party’s, Agent’s or any Issuer’s or any
Lender’s or Term Lender’s rights, or any of the Obligations having their
inception prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered
into, rights or interests created or Obligations have been fully disposed of,
concluded or liquidated.  The security
interests, Liens and rights granted to Agent, Issuers, Lenders and Term Lender
hereunder and the financing statements filed hereunder shall continue in full
force and effect, notwithstanding the termination of this Agreement or the fact
that Borrower’s Account may from time to time be temporarily in a zero or
credit position, until all of the Obligations of each Loan Party have been paid
or performed in full after the termination of this Agreement or each Loan Party
has furnished Agent, Issuers, Lenders and Term Lender with an indemnification
satisfactory to Agent, Term Lender, Issuers, and Lenders with respect
thereto.  Accordingly, each Loan Party
waives any rights which it may have under Section 9-513(c) of the UCC
to demand the filing of termination statements with respect to the Collateral,
and Agent shall not be required to send such termination statements to each
Loan Parties, or to file them with any filing office, unless and until this
Agreement shall have been terminated in accordance with its terms and all
Obligations paid in full in immediately available funds.  All representations, warranties, covenants,
waivers and agreements contained herein shall survive termination hereof until
all Obligations are paid or performed in full.

 

XIV.        REGARDING AGENT.

 

14.1.        Appointment.

 

Each Lender and Term
Lender hereby designates HSBC to act as Agent for such Lender or Term Lender
under this Agreement and the Other Documents. 
Each Lender and Term Lender hereby irrevocably authorizes Agent to take
such action on its behalf under the provisions of this Agreement and the Other
Documents and to exercise such powers and to perform such duties hereunder and
thereunder as are specifically delegated to or required of Agent by the

 

79

 

terms hereof and thereof
and such other powers as are reasonably incidental thereto and Agent shall hold
all Collateral, payments of principal and interest, fees, charges and
collections received pursuant to this Agreement, for the ratable benefit of
Lenders, or for the benefit of Term Lender, as applicable.  Agent may perform any of its duties hereunder
by or through its agents or employees. 
As to any matters not expressly provided for by this Agreement
(including without limitation, collection of the Notes) Agent shall not be
required to exercise any discretion or take any action, but shall be required
to act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding; provided, however, that Agent
shall not be required to take any action which exposes Agent to liability or
which is contrary to this Agreement or the Other Documents or applicable law
unless Agent is furnished with an indemnification reasonably satisfactory to
Agent with respect thereto.

 

14.2.        Nature of Duties.

 

Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement
and the Other Documents.  None of Agent,
any Lender, Term Lender or any Issuer nor any of their respective officers, directors,
employees or agents shall be (i) liable for any action taken or omitted by
them as such hereunder or in connection herewith, unless caused by their gross
(not mere) negligence or willful misconduct, or (ii) responsible in any
manner for any recitals, statements, representations or warranties made by any
Loan Party or any officer thereof contained in this Agreement, or in any of the
Other Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement, or
any of the Other Documents or for any failure of Loan Parties to perform their
respective obligations hereunder.  Agent
shall not be under any obligation to any Lender or Term Lender to ascertain or
to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Agreement or any of the Other Documents,
or to inspect the properties, books or records of any Loan Party.  The duties of Agent as respects the Advances
and the Term Loans shall be mechanical and administrative in nature; Agent
shall not have by reason of this Agreement a fiduciary relationship in respect
of any Lender or Term Lender; and nothing in this Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon Agent any
obligations in respect of this Agreement except as expressly set forth herein.

 

14.3.        Lack of Reliance on Agent
and Resignation.

 

(a)           Independently and without reliance upon
Agent, any Issuer or any other Lender or Term Lender, each Lender and Term
Lender has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of each Loan Party in
connection with the making and the continuance of the Advances and Term Loans
hereunder and the taking or not taking of any action in connection herewith,
and (ii) its own appraisal of the creditworthiness of each Loan
Party.  Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Lender or Term Lender with any credit or other information with respect
thereto, whether coming into its possession before making of the Advances or
the Term Loans or at any time or times thereafter except as shall be provided
by any Loan Party pursuant to the terms hereof. 
Agent shall not be responsible to any Lender or Term

 

80

 

Lender
for any recitals, statements, information, representations or warranties herein
or in any agreement, document, certificate or a statement delivered in
connection with or for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or any Other
Document, or of the financial condition of any Loan Party, or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement, the Notes, the Other
Documents or the financial condition of any Loan Party, or the existence of any
Event of Default or any Default.

 

(b)                                 Agent may
resign on sixty (60) days’ written notice to each of the Lenders, Term Lender
and Borrower and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Loan Parties.  If no such successor Agent is appointed at
the end of such sixty (60) day period, Agent may designate one of the Lenders
as a successor Agent.

 

(c)                                  Any such
successor Agent shall succeed to the rights, powers and duties of Agent, and
the term “Agent” shall mean such successor agent effective upon its
appointment, and the former Agent’s rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent.  After any Agent’s resignation as
Agent, the provisions of this Article XIV shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement.

 

14.4.                        Certain Rights
of Agent.

 

If
Agent shall request instructions from Lenders and/or Term Lender with respect
to any act or action (including failure to act) in connection with this
Agreement or any Other Document, Agent shall be entitled to refrain from such
act or taking such action unless and until Agent shall have received
instructions from the Required Lenders; and Agent shall not incur liability to
any Person by reason of so refraining. 
Without limiting the foregoing, neither any of the Lenders nor Term
Lender shall have any right of action whatsoever against Agent as a result of
its acting or refraining from acting hereunder in accordance with the
instructions of the Required Lenders given in good faith.

 

14.5.                        Reliance.

 

Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, order or other document or telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person or entity, and, with respect to all legal matters
pertaining to this Agreement and the Other Documents and its duties hereunder,
upon advice of counsel selected by it. 
Agent may employ agents and attorneys-in-fact and shall not be liable
for the default or misconduct of any such agents or attorneys-in-fact selected
by Agent with reasonable care.

 

14.6.                        Notice of
Default.

 

Agent
shall not be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default hereunder or under the Other Documents, unless
Agent has received notice from a Lender, Term Lender or a Loan Party referring
to this Agreement or the Other 

 

81

 

Documents, describing such Default or Event of Default and stating that
such notice is a “notice of default”.  In
the event that Agent receives such a notice, Agent shall give notice thereof to
Lenders and Term Lender.  Agent shall
take such action with respect to such Default or Event of Default (including,
without limitation, the institution of the Default Rate pursuant to Section 3.1
hereof) as shall be reasonably directed by the Required Lenders; provided,
that, unless and until Agent shall have received such directions, Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default (including,
without limitation, the institution of the Default Rate pursuant to Section 3.1
hereof) as it shall deem advisable in the best interests of Lenders and Term
Lender.

 

14.7.                        Indemnification.

 

To
the extent Agent is not reimbursed and indemnified by Loan Parties, each Lender
and Term Lender will reimburse and indemnify Agent and each Issuer in
proportion to its Commitments as a percentage of the Maximum Loan Amount, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against
Agent and such Issuer in performing its duties hereunder, or in any way
relating to or arising out of this Agreement or any Other Document; provided
that, neither Lenders nor Term Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the indemnified party’s
gross (not mere) negligence or willful misconduct.

 

14.8.                        Agent in its
Individual Capacity.

 

With
respect to the obligation of Agent to lend under this Agreement, the Advances
made by it shall have the same rights and powers hereunder as any other Lender
and as if it were not performing the duties as Agent specified herein; and the
term “Lender” or any similar term shall, unless the context clearly otherwise
indicates, include Agent in its individual capacity as a Lender.  Agent may engage in business with any Loan
Party as if it were not performing the duties specified herein, and may accept
fees and other consideration from Borrower for services in connection with this
Agreement or otherwise without having to account for the same to Lenders or
Term Lender.

 

14.9.                        Delivery of
Documents.

 

To
the extent Agent receives documents and information from Loan Parties pursuant
to Sections 9.7, 9.8 and 9.9 and any Lender or Term Lender does not receive
such items, Agent will promptly upon request furnish such documents and
information to any Lender or Term Lender requesting same.

 

14.10.                  Intentionally Deleted.

 

14.11.                  Agent under Collateral
Documents and Guaranty.

 

Subject
to Section 16.2, without further written consent or authorization from
Lenders or Term Lender, Agent may execute any documents or instruments
necessary to (i) release any Lien encumbering any item of Collateral that
is the subject of a sale or other 

 

82

 

disposition of assets permitted hereby or to which Required Lenders (or
such other Lenders as may be required to give such consent under Section 16.2)
have otherwise consented or (ii) release any Guarantor from the Guaranty
pursuant to Section 15.14 or with respect to which Required Lenders (or
such other Lenders as may be required to give such consent under Section 16.2)
have otherwise consented.  Without
limiting the generality of the foregoing, upon the termination of the
Commitments and the Term Loan Commitment and the payment of all Obligations
then due and payable and the cancellation, expiration or cash collateralization
(in a manner reasonably acceptable to Agent, but in no event to exceed 105% of
the face amount thereof) of all Letters of Credit, (i) the Liens created
by the Collateral Documents shall terminate and all rights to the Collateral
shall revert to the applicable Loan Party, and (ii) Agent will, upon a
Loan Party’s request and at such Loan Party’s expense, (x) return to such
Loan Party such of the Collateral as shall not have been sold or otherwise
disposed of or applied pursuant to the terms of this Agreement and the Other
Documents and (y) at such Loan Party’s expense, execute and deliver to
such Loan Party such UCC termination statements, releases, mortgage releases,
discharges of security interests, reassignments of Intellectual Property,
terminations of control agreements and other similar discharge or release
documents (and, if applicable, in recordable form) as are necessary to release,
of record, the Liens and security interests granted pursuant to this Agreement
and any Other Documents as such Loan Party shall reasonably request to evidence
such termination, all without any representation, warranty or recourse
whatsoever.

 

XV.                            GUARANTEE.

 

15.1.                        Guaranty.

 

Each
Guarantor hereby unconditionally guarantees, as a primary obligor and not
merely as a surety, jointly and severally with each other Guarantor when and as
due, whether at maturity, by acceleration, by notice of prepayment or
otherwise, the due and punctual performance of all Obligations.  Each payment made by any Guarantor pursuant
to this Guarantee shall be made in lawful money of the United States in
immediately available funds.

 

15.2.                        Waivers.

 

Each
Guarantor hereby absolutely, unconditionally and irrevocably waives (i) promptness,
diligence, notice of acceptance, notice of presentment of payment and any other
notice hereunder, (ii) demand of payment, protest, notice of dishonor or
nonpayment, notice of the present and future amount of the Obligations and any
other notice with respect to the Obligations, (iii) any requirement that
Agent, any Lender or Term Lender protect, secure, perfect or insure any
security interest or Lien or any property subject thereto or exhaust any right
or take any action against any other Loan Party, or any Person or any
Collateral, (iv) any other action, event or precondition to the
enforcement hereof or the performance by each such Guarantor of the
Obligations, and (v) any defense arising by any lack of capacity or
authority or any other defense of any Loan Party or any notice, demand or
defense by reason of cessation from any cause of Obligations other than payment
and performance in full of the Obligations by the Loan Parties and any defense
that any other guarantee or security was or was to be obtained by Agent.

 

83

 

15.3.                        No Defense.

 

No
invalidity, irregularity, voidableness, voidness or unenforceability of this
Agreement or any Other Document or any other agreement or instrument relating
thereto, or of all or any part of the Obligations or of any collateral security
therefor shall affect, impair or be a defense hereunder.

 

15.4.                        Guaranty of
Payment.

 

The
Guaranty hereunder is one of payment and performance, not collection, and the
obligations of each Guarantor hereunder are independent of the Obligations of
the other Loan Parties, and a separate action or actions may be brought and
prosecuted against any Guarantor to enforce the terms and conditions of this Article XV,
irrespective of whether any action is brought against any other Loan Party or
other Persons or whether any other Loan Party or other Persons are joined in
any such action or actions.  Each
Guarantor waives any right to require that any resort be had by Agent, any
Lender or Term Lender to any security held for payment of the Obligations or to
any balance of any deposit account or credit on the books of Agent, any Lender
or Term Lender in favor of any Loan Party or any other Person.  No election to proceed in one form of action
or proceedings, or against any Person, or on any Obligations, shall constitute
a waiver of Agent’s right to proceed in any other form of action or proceeding
or against any other Person unless Agent has expressed any such right in
writing.  Without limiting the generality
of the foregoing, no action or proceeding by Agent against any Loan Party under
any document evidencing or securing indebtedness of any Loan Party to Agent
shall diminish the liability of any Guarantor hereunder, except to the extent
Agent receives actual payment on account of Obligations by such action or
proceeding, notwithstanding the effect of any such election, action or
proceeding upon the right of subrogation of any Guarantor in respect of any
Loan Party.

 

15.5.                        Liabilities
Absolute.

 

The
liability of each Guarantor hereunder shall be absolute, unlimited and unconditional
and shall not be subject to any reduction, limitation, impairment, discharge or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
claim, defense or setoff, counterclaim, recoupment or termination whatsoever by
reason of the invalidity, illegality or unenforceability of any other
Obligation or otherwise.  Without
limiting the generality of the foregoing, the obligations of each Guarantor shall
not be discharged or impaired, released, limited or otherwise affected by:

 

(i)                                     any change in
the manner, place or terms of payment or performance, and/or any change or
extension of the time of payment or performance of, release, renewal or
alteration of, or any new agreements relating to any Obligation, any security
therefor, or any liability incurred directly or indirectly in respect thereof,
or any rescission of, or amendment, waiver or other modification of, or any
consent to departure from, this Agreement or any Other Document, including any
increase in the Obligations resulting from the extension of additional credit
to the Borrower or otherwise;

 

(ii)                                  any sale,
exchange, release, surrender, loss, abandonment, realization upon any property
by whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, all or any of the Obligations, and/or any offset there against, or
failure to 

 

84

 

perfect, or continue the
perfection of, any Lien in any such property, or delay in the perfection of any
such Lien, or any amendment or waiver of or consent to departure from any other
guaranty for all or any of the Obligations;

 

(iii)                               the failure of
Agent, any Lender or Term Lender to assert any claim or demand or to enforce
any right or remedy against the Borrower or any other Loan Party or any other
Person under the provisions of this Agreement or any Other Document or any
other document or instrument executed and delivered in connection herewith or therewith;

 

(iv)                              any settlement
or compromise of any Obligation, any security therefor or any liability
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and any subordination of the payment of all or any part thereof
to the payment of any obligation (whether due or not) of any Loan Party to
creditors of any Loan Party other than any other Loan Party;

 

(v)                                 any manner of
application of Collateral, or proceeds thereof, to all or any of the
Obligations, or any manner of sale or other disposition of any Collateral for
all or any of the Obligations or any other assets of any Loan Party; and

 

(vi)                              any other
agreements or circumstance of any nature whatsoever that may or might in any
manner or to any extent vary the risk of any Guarantor, or that might otherwise
at law or in equity constitute a defense available to, or a discharge of, the
Guaranty hereunder and/or the obligations of any Guarantor, or a defense to, or
discharge of, any Loan Party or any other Person or party hereto or the
Obligations or otherwise with respect to the Advances or other financial
accommodations to the Borrower pursuant to this Agreement and/or the Other
Documents.

 

15.6.                        Waiver of
Notice.

 

Agent
shall have the right to do any of the above without notice to or the consent of
any Guarantor and each Guarantor expressly waives any right to notice of,
consent to, knowledge of and participation in any agreements relating to any of
the above or any other present or future event relating to Obligations whether
under this Agreement or otherwise or any right to challenge or question any of
the above and waives any defenses of such Guarantor which might arise as a
result of such actions.

 

15.7.                        Agent’s
Discretion.

 

Agent
may at any time and from time to time (whether prior to or after the revocation
or termination of this Agreement) without the consent of, or notice to, any
Guarantor, and without incurring responsibility to any Guarantor or impairing
or releasing the Obligations, apply any sums by whomsoever paid or howsoever
realized to any Obligations regardless of what Obligations remain unpaid.

 

15.8.                        Reinstatement.

 

(a)                                  The Guaranty
provisions herein contained shall continue to be effective or be reinstated, as
the case may be, if claim is ever made upon Agent or any Lender or Term 

 

85

 

Lender
for repayment or recovery of any amount or amounts received by such Person in
payment or on account of any of the Obligations and such Person repays all or
part of said amount for any reason whatsoever, including, without limitation,
by reason of any judgment, decree or order of any court or administrative body
having jurisdiction over such Person or the respective property of each, or any
settlement or compromise of any claim effected by such Person with any such
claimant (including any Loan Party); and in such event each Guarantor hereby
agrees that any such judgment, decree, order, settlement or compromise or other
circumstances shall be binding upon such Guarantor, notwithstanding any
revocation hereof or the cancellation of any note or other instrument
evidencing any Obligation, and each Guarantor shall be and remain liable to
Agent and/or Lenders and Term Lender for the amount so repaid or recovered to
the same extent as if such amount had never originally been received by such
Person(s).

 

(b)                                 Agent shall not
be required to marshal any assets in favor of any Guarantor, or against or in
payment of Obligations.

 

(c)                                  No Guarantor
shall be entitled to claim against any present or future security held by Agent
from any Person for Obligations in priority to or equally with any claim of
Agent, or assert any claim for any liability of any Loan Party to any Guarantor
in priority to or equally with claims of Agent for Obligations, and no
Guarantor shall be entitled to compete with Agent with respect to, or to
advance any equal or prior claim to any security held by Agent for Obligations.

 

(d)                                 If any Loan
Party makes any payment to Agent, which payment is wholly or partly subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to any Person under any federal or provincial statute or at common
law or under equitable principles, then to the extent of such payment, the
Obligation intended to be paid shall be revived and continued in full force and
effect as if the payment had not been made, and the resulting revived
Obligation shall continue to be guaranteed, uninterrupted, by each Guarantor
hereunder.

 

(e)                                  Excluding all
intercompany transfers permitted under this Agreement (except following the
occurrence and during the continuance of an Event of Default), all present and
future monies payable by any Loan Party to any Guarantor, whether arising out
of a right of subrogation or otherwise, are assigned to Agent for its benefit
and for the ratable benefit of Issuers, Lenders and Term Lender as security for
such Guarantor’s liability to Agent, Issuers, Lenders and Term Lender hereunder
and are postponed and subordinated to Agent’s prior right to payment in full of
Obligations.  Except to the extent
prohibited otherwise by this Agreement, all monies (but if no Event of Default
has occurred and is continuing, excluding those intercompany transfers permitted
under this Agreement) received by any Guarantor from any Loan Party shall be
held by such Guarantor as agent and trustee for Agent.  This assignment, postponement and
subordination shall only terminate when the Obligations are paid in full in
cash and this Agreement is irrevocably terminated.

 

(f)                                    Each Loan Party
acknowledges this assignment, postponement and subordination and, except as
otherwise set forth herein, agrees to make no payments to any Guarantor without
the prior written consent of Agent.  Each
Loan Party agrees to give full effect to the provisions hereof.

 

86

 

15.9.                        Action Upon
Event of Default.

 

Upon
the occurrence and during the continuance of any Event of Default, Agent may
and upon written request of the Required Lenders shall, without notice to or
demand upon any Loan Party or any other Person, declare any obligations of such
Guarantor hereunder immediately due and payable, and shall be entitled to
enforce the obligations of each Guarantor. 
Upon such declaration by Agent, Agent and Lenders are hereby authorized
at any time and from time to time to set off and apply any and all deposits
(general or special, time or demand, provisions or final) at any time held and
other indebtedness at any time owing by Agent or Lenders to or for the credit
or the account of any Guarantor against any and all of the obligations of each
Guarantor now or hereafter existing hereunder, whether or not Agent or Lenders
shall have made any demand hereunder against any other Loan Party and although
such obligations may be contingent and unmatured.  The rights of Agent and Lenders hereunder are
in addition to other rights and remedies (including other rights of set-off)
which Agent and Lenders may have.  Upon
such declaration by Agent, with respect to any claims (other than those claims
referred to in the immediately preceding paragraph) of any Guarantor against
any Loan Party (the “Claims”), Agent shall have the full right on the
part of Agent in its own name or in the name of such Guarantor to collect and enforce
such Claims by legal action, proof of debt in bankruptcy or other liquidation
proceedings, vote in any proceeding for the arrangement of debts at any time
proposed, or otherwise, Agent and each of its officers being hereby irrevocably
constituted attorneys-in-fact for each Guarantor for the purpose of such
enforcement and for the purpose of endorsing in the name of each Guarantor any
instrument for the payment of money. 
Each Guarantor will receive as trustee for Agent and will pay to Agent
forthwith upon receipt thereof any amounts which such Guarantor may receive
from any Loan Party on account of the Claims. 
Each Guarantor agrees that at no time hereafter will any of the Claims
be represented by any notes, other negotiable instruments or writings, except
and in such event they shall either be made payable to Agent, or if payable to
any Guarantor, shall forthwith be endorsed by such Guarantor to Agent.  Each Guarantor agrees that no payment on
account of the Claims or any security interest therein shall be created,
received, accepted or retained during the continuance of any Event of Default
nor shall any financing statement be filed with respect thereto by any
Guarantor.

 

15.10.                  Statute of Limitations.

 

Any
acknowledgment or new promise, whether by payment of principal or interest or
otherwise and whether by any Loan Party or others (including any Lenders or
Term Lender) with respect to any of the Obligations shall, if the statute of
limitations in favor of any Guarantor against Agent, Lenders or Term Lender
shall have commenced to run, toll the running of such statute of limitations
and, if the period of such statute of limitations shall have expired, prevent
the operation of such statute of limitations.

 

15.11.                  Interest.

 

All
amounts due, owing and unpaid from time to time by any Guarantor hereunder
shall bear interest at the interest rate per annum then chargeable with respect
to Domestic Rate Loans constituting Revolving Advances.

 

87

 

15.12.                  Guarantor’s Investigation.

 

Each
Guarantor acknowledges receipt of a copy of each of this Agreement and the
Other Documents.  Each Guarantor has made
an independent investigation of the Loan Parties and of the financial condition
of the Loan Parties.  Neither Agent nor
any Lender nor Term Lender has made and neither Agent nor any Lender nor Term
Lender does make any representations or warranties as to the income, expense,
operation, finances or any other matter or thing affecting any Loan Party nor
has Agent or any Lender or Term Lender made any representations or warranties
as to the amount or nature of the Obligations of any Loan Party to which this Article XV
applies as specifically herein set forth, nor has Agent, any Lender or Term
Lender, or any officer, agent or employee of Agent, any Lender or Term Lender,
or any representative thereof, made any other oral representations, agreements
or commitments of any kind or nature, and each Guarantor hereby expressly
acknowledges that no such representations or warranties have been made and such
Guarantor expressly disclaims reliance on any such representations or
warranties.

 

15.13.                  Termination.

 

The
provisions of this Article XV shall remain in effect until the
indefeasible payment in full in cash of all Obligations and irrevocable
termination of this Agreement.

 

15.14.                  Discharge of Guaranty Upon
Sale of Guarantor.

 

If
all of the stock (or other ownership interest) of any Guarantor or any of its
successors in interest hereunder shall be sold or otherwise disposed of (including
by merger or consolidation) in accordance with the terms and conditions hereof,
the Guaranty of such Guarantor or such successor in interest, as the case may
be, hereunder shall automatically be discharged and released without any
further action by any beneficiary or any other Person effective as of the time
of such sale.

 

XVI.                        MISCELLANEOUS.

 

16.1.                        Governing Law.

 

This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applied to contracts to be performed wholly within the State
of New York.  Any judicial proceeding
brought by or against any Loan Party with respect to any of the Obligations,
this Agreement or any related agreement may be brought in any court of competent
jurisdiction in New York County, State of New York, United States of America,
and, by execution and delivery of this Agreement, each Loan Party accepts for
itself and in connection with its properties, generally and unconditionally,
the non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees
to be bound by any judgment rendered thereby in connection with this
Agreement.  Each Loan Party hereby waives
personal service of any and all process upon it and consents that all such
service of process may be made by registered mail (return receipt requested)
directed to each Loan Party at its address set forth in Section 16.6 and
service so made shall be deemed completed five (5) days after the same
shall have been so deposited in the mails of the United States of America.  Nothing herein shall affect the right to
serve process in any manner permitted by law or shall limit the right of Agent
or any Lender or Term Lender to bring 

 

88

 

proceedings against any Loan Party in the courts of any other
jurisdiction.  Each Loan Party waives any
objection to jurisdiction and venue of any action instituted hereunder and
shall not assert any defense based on lack of jurisdiction or venue or based
upon forum non conveniens.  Any
judicial proceeding by any Loan Party against Agent or any Lender or Term
Lender involving, directly or indirectly, any matter or claim in any way
arising out of, related to or connected with this Agreement or any related
agreement, shall be brought only in a federal or state court located in the
City of New York, State of New York.

 

16.2.                        Entire
Understanding; Amendments.

 

(a)                                  This Agreement
and the documents executed concurrently herewith contain the entire
understanding between each Loan Party, Agent and each Lender and Term Lender
and supersedes all prior agreements and understandings, if any, relating to the
subject matter hereof.  Any promises,
representations, warranties or guarantees not herein contained and hereinafter
made shall have no force and effect unless in writing, signed by Loan Parties’,
Agent’s, each Lender’s and Term Lender’s respective officers.  Neither this Agreement nor any portion or
provisions hereof may be changed, modified, amended, waived, supplemented,
discharged, cancelled or terminated orally or by any course of dealing, or in
any manner other than by an agreement in writing, signed by the party to be
charged.  Each Loan Party acknowledges
that it has been advised by counsel in connection with the execution of this
Agreement and Other Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this Agreement.

 

(b)                                 The Required
Lenders, Agent with the consent in writing of the Required Lenders, and Loan
Parties may, subject to the provisions of this Section 16.2(b), from time
to time enter into written supplemental agreements to this Agreement or the
Other Documents executed by Loan Parties, for the purpose of adding or deleting
any provisions or otherwise changing, varying or waiving in any manner the
rights of Lenders, Agent or Loan Parties thereunder or the conditions,
provisions or terms thereof or waiving any Event of Default thereunder, but
only to the extent specified in such written agreements; provided, however,
that no such supplemental agreement shall, without the consent of all Lenders:

 

(i)                                     increase the
Commitment Percentage of any Lender;

 

(ii)                                  increase the
Inventory Advance Cap or the Maximum Loan Amount;

 

(iii)                               extend the Term
or the due date for any amount payable hereunder, or decrease the rate of
interest or reduce any scheduled principal payment or fee payable by Loan
Parties to Lenders pursuant to this Agreement;

 

(iv)                              alter the
definition of the term Required Lenders or alter, amend or modify this Section 16.2(b);

 

(v)                                 release any
Collateral during any calendar year (other than in accordance with the
provisions of this Agreement) having an aggregate value in excess of
$1,000,000;

 

89

 

(vi)                              change the
rights and duties of Agent;

 

(vii)                           permit any
Revolving Advance to be made if after giving effect thereto the total of
Revolving Advances outstanding hereunder would exceed the Revolving Formula
Amount for more than sixty (60) consecutive Business Days or exceed one hundred
and ten percent (110%) of the Revolving Formula Amount; or

 

(viii)                        increase the
Advance Rates above the Advance Rates in effect on the Closing Date.

 

and provided, further,
that without the consent of Term Lender, neither the Term nor the due date for
any amount payable hereunder with respect to the Term Loans may be extended,
nor the rate of interest applicable to the Term Loans or the principal amount
of the Term Loans may be reduced.

 

Any such supplemental
agreement shall apply equally to each Lender and Term Lender and shall be
binding upon Loan Parties, Lenders, Term Lender and Agent and all future
holders of the Obligations.  In the case
of any waiver, Loan Parties, Agent and Lenders and Term Lender shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or
not the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.

 

(c)                                  In the event
that Agent requests the consent of a Lender pursuant to this Section 16.2
and such Lender shall not respond or reply to Agent in writing within ten (10) days
of delivery of such report, such Lender shall be deemed to have consented to
the matter that was the subject of the request. 
In the event that Agent requests the consent of a Lender pursuant to
this Section 16.2 and such consent is denied, then HSBC may, at its
option, require such Lender to assign its interest in the Advances to HSBC or
to another Lender or to any other Person designated by Agent (the “Designated
Lender”), for a price equal to the then outstanding principal amount
thereof plus accrued and unpaid interest and fees due such Lender, which
interest and fees shall be paid when collected from Loan Parties.  In the event HSBC elects to require any
Lender to assign its interest to HSBC or to the Designated Lender, HSBC will so
notify such Lender in writing within forty five (45) days following such Lender’s
denial, and such Lender will assign its interest to HSBC or the Designated
Lender no later than five (5) days following receipt of such notice
pursuant to a Commitment Transfer Supplement executed by such Lender, HSBC or the
Designated Lender, as appropriate, and Agent.

 

(d)                                 Intentionally
Omitted.

 

(e)                                  Anything
contained herein to the contrary notwithstanding, in connection with any
proposed amendment, modification, termination, waiver or consent with respect
to any of the provisions hereof as contemplated by Section 16.2, the
consent of Required Lenders shall have been obtained but the consent of one or
more of such other Lenders (each a “Non-Consenting Lender”) whose
consent is required shall not have been obtained; then, with respect to each
such Non-Consenting Lender, Borrower may, by giving written notice to Agent and
any Non-Consenting Lender of its election to do so, elect to cause such
Non-Consenting Lender (and

 

90

 

such
Non-Consenting Lender irrevocably agrees) to assign its outstanding Advances
and its Commitments to a Transferee (each a “Replacement Lender”) in
accordance with the provisions of Section 16.3; provided, (1) on
the date of such assignment, the Replacement Lender shall pay to Non-Consenting
Lender an amount equal to the sum of (A) an amount equal to the principal
of, and all accrued interest on, all outstanding Advances of the Non-Consenting
Lender, (B) an amount equal to all unreimbursed drawings that have been
funded by such Non-Consenting Lender, together with all then unpaid interest
with respect thereto at such time and (C) an amount equal to all accrued,
but theretofore unpaid fees owing to such Non-Consenting Lender pursuant to Section 3.3;
(2) on the date of such assignment, Borrower shall pay any amounts payable
to such Non-Consenting Lender pursuant to Section 2.2(g), 3.6, 3.8 or
3.9.  Upon the prepayment of all amounts
owing to any Non-Consenting Lender and the termination of such Non-Consenting
Lender’s Commitments, if any, such Non-Consenting Lender shall no longer
constitute a “Lender” for purposes hereof; provided, any rights of such
Non-Consenting Lender to indemnification hereunder shall survive as to such
Non-Consenting Lender.

 

16.3.                        Successors and
Assigns; Participations; New Lenders.

 

(a)                                  This Agreement
shall be binding upon and inure to the benefit of Loan Parties, Agent, each
Lender, Term Lender, all future holders of the Obligations and their respective
successors and assigns, except that no Loan Party may assign or transfer any of
its rights or obligations under this Agreement without the prior written
consent of Agent and each Lender.

 

(b)                                 Each Loan Party
acknowledges that in the regular course of commercial banking business one or
more Lenders or Term Lender may at any time and from time to time sell
participating interests in the Advances or the Term Loans to other financial
institutions or entities regularly engaged in making or investing in loans or
debt securities (each such transferee or purchaser of a participating interest,
a “Transferee”).  Each Transferee
may exercise all rights of payment (including without limitation rights of
set-off) with respect to the portion of such Advances or the Term Loans held by
it or other Obligations payable hereunder as fully as if such Transferee were
the direct holder thereof provided that Loan Parties shall not be required to
pay to any Transferee more than the amount which it would have been required to
pay to Lender or Term Lender which granted an interest in its Advances or Term
Loans or other Obligations payable hereunder to such Transferee had such Lender
or Term Lender retained such interest in the Advances or Term Loans hereunder
or other Obligations payable hereunder and in no event shall Loan Parties be
required to pay any such amount arising from the same circumstances and with
respect to the same Advances, Term Loans or other Obligations payable hereunder
to both such Lender or Term Lender and such Transferee.  Loan Parties hereby grant to any Transferee a
continuing security interest in any deposits, moneys or other property actually
or constructively held by such Transferee as security for the Transferee’s
interest in the Advances.

 

(c)                                  Any Lender or
Term Lender may, with the consent of Agent and Loan Parties, which consent
shall not be unreasonably withheld or delayed, sell, assign or transfer all or
any part of its rights under this Agreement and the Other Documents to one or
more additional banks or financial institutions or other entities regularly
engaged in making or investing in loans or debt securities, and one or more
additional banks or financial institutions may commit to make Advances
hereunder, in minimum amounts of not less than $5,000,000, and prior to the
making 

 

91

 

the
Term Loans, the Term Lender may transfer its Term Loan Commitment to one or
more of its Affiliates (each of the foregoing assignees and transferees, a “Purchasing
Lender”), in each case pursuant to a Commitment Transfer Supplement, executed
by a Purchasing Lender, the transferor Lender or Term Lender, and Agent and
delivered to Agent for recording. 
Notwithstanding the foregoing, the consent of Agent and Loan Parties
shall not be required in the case of an assignment by a Lender or Term Lender
to another Lender or to an Affiliate of a Lender, or Term Lender, and the
consent of Loan Parties shall not be required at any time that an Event of
Default or a Default has occurred and is continuing hereunder.   Upon such execution, delivery, acceptance
and recording, from and after the transfer effective date determined pursuant
to such Commitment Transfer Supplement, (i) Purchasing Lender thereunder
shall be a party hereto and, to the extent provided in such Commitment Transfer
Supplement, have the rights and obligations of a Lender or Term Lender
thereunder with (if applicable) a Commitment Percentage as set forth therein,
and (ii) the transferor Lender or Term Lender thereunder shall, to the
extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement, the Commitment Transfer Supplement creating a
novation for that purpose.  Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
(if applicable) arising from the purchase by such Purchasing Lender of all or a
portion of the rights and obligations of such transferor Lender under this
Agreement and the Other Documents.  Loan
Parties hereby consent to the addition of such Purchasing Lender and the
resulting adjustment of the Commitment Percentages arising from the purchase by
such Purchasing Lender of all or a portion of the rights and obligations of
such transferor Lender or Term Lender under this Agreement and the Other
Documents in accordance with this subsection. 
Loan Parties shall execute and deliver such further documents and do
such further acts and things in order to effectuate the foregoing.

 

(d)                                 Agent shall
maintain at its address a copy of each Commitment Transfer Supplement delivered
to it and a register (the “Register”) for the recordation of the names
and addresses of the Advances and/or the Term Loans owing to each Lender and
Term Lender from time to time.  The
entries in the Register shall be conclusive, in the absence of manifest error,
and Loan Parties, Agent and Lenders and Term Lender may treat each Person whose
name is recorded in the Register as the owner of the Advance or Term Loans
recorded therein for the purposes of this Agreement.  The Register shall be available for
inspection by Loan Parties or any Lender or Term Lender at any reasonable time
and from time to time upon reasonable prior notice.  Agent shall receive a fee in the amount of
$3,500 payable by the applicable Purchasing Lender upon the effective date of
each transfer or assignment to such Purchasing Lender.

 

(e)                                  Subject to Section 16.15,
Loan Parties authorize each Lender and Term Lender to disclose to any
Transferee or Purchasing Lender and any prospective Transferee or Purchasing
Lender any and all financial information in such Lender’s or Term Lender’s
possession concerning Loan Parties which has been delivered to such Lender or
Term Lender by or on behalf of Loan Parties pursuant to this Agreement or in
connection with such Lender’s or Term Lender’s credit evaluation of Loan
Parties.

 

(f)                                    (i)                                     Each Lender and
Term Lender or Participant agrees that it will deliver to Borrower and Agent
two (2) duly completed appropriate valid Withholding Certificates (as
defined under §1.1441-1(c)(16) of the Income Tax Regulations (“Regulations”)) 

 

92

 

certifying its status (i.e.,
U.S. or foreign person) and, if a foreign person, making a claim of exemption
from, U.S. withholding tax on the basis of an income tax treaty or an exemption
provided by the Code.  Such delivery may
be made by electronic transmission as described in §1.1441-1(e)(4)(iv) of
the Regulations if Agent establishes an electronic delivery system.  The term “Withholding Certificate” means a Form W-9;
a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related
statements and certifications as required under §1.1441-1(e)(3) of the
Regulations; a statement described in §1.871-14(c)(2)(v) of the
Regulations; or any other certificates under the Code or Regulations that
certify or establish the status of a payee or beneficial owner as a U.S. or
foreign person.

 

(ii)                                  Each Lender and
Term Lender or Participant required to deliver to Borrower and Agent a valid
Withholding Certificate pursuant to Section 16.3(f)(i) hereof shall
deliver such valid Withholding Certificate as follows:  (A) each Lender and Term Lender which is
a party hereto on the Closing Date shall deliver such valid Withholding
Certificate at least five (5) Business Days prior to the first date on
which any interest or fees are payable by Loan Parties hereunder for the
account of such Lender or Term Lender ; (B) each Purchasing Lender or
Participant shall deliver such valid Withholding Certificate at least five (5) Business
Days before the effective date of any applicable assignment or
participation.  Each Lender and Term
Lender or Participant which so delivers a valid Withholding Certificate further
undertakes to deliver to Loan Parties and Agent two (2) additional copies
of such Withholding Certificate (or a successor form) on or before the date
that such Withholding Certificate expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent Withholding
Certificate so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by Loan Parties or Agent.

 

(iii)                               Notwithstanding
the submission of a Withholding Certificate claiming any exemption from U.S.
withholding tax required under Section 16.3(f)(ii) hereof, Agent
shall be entitled to withhold United States federal income taxes at the full
30% withholding rate if in its reasonable judgment it is required to do so
under the due diligence requirements imposed upon a withholding agent under
§1.1441-7(b) of the Regulations. 
Further, Agent is indemnified under §1.1461-1(e) of the Regulations
against any claims and demands of any Lender or Term Lender or Participant for
the amount of any tax it deducts and withholds in accordance with regulations
under §1441 of the Code.

 

(iv)                              No Purchasing
Lender, Participant or Transferee shall be entitled to receive any greater
amount pursuant to Section 3.9 than the transferor Lender or Term Lender
would have been entitled to receive in respect of the amount assigned or
transferred by such transferor Lender or Term Lender to such Purchasing Lender,
Participant or Transferee had no such assignment or transfer occurred.

 

16.4.                        Application of
Payments.

 

Agent
shall have the continuing and exclusive right to apply or reverse and re-apply
any payment and any and all proceeds of Collateral to any portion of the
Obligations.  To the extent that any Loan
Party makes a payment or Agent, any Lender or Term Lender receives any payment
or proceeds of the Collateral for any Loan Party’s benefit, which are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a 

 

93

 

trustee, debtor in possession, receiver, custodian or any other party
under any bankruptcy law, common law or equitable cause, then, to such extent,
the Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Agent or such
Lender or Term Lender .

 

16.5.                        Indemnity.

 

(a)                                  Each Loan Party
shall indemnify Agent, each Issuer, each Lender, Term Lender and each of their
respective officers, directors, Affiliates, employees and agents from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, and reasonable costs, expenses and disbursements of
any kind or nature whatsoever (including, without limitation, reasonable fees
and disbursements of counsel) which may be imposed on, incurred by, or asserted
against Agent, such Issuer or any Lender or Term Lender in any litigation,
proceeding or investigation instituted or conducted by any governmental agency
or instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement or the Other Documents, whether or not Agent, any Issuer, any Lender or
Term Lender is a party thereto, except to the extent that any of the foregoing
arises out of the gross negligence or willful misconduct of the party being
indemnified.

 

(b)                                 In connection
with the issuance of any Letter of Credit or Air Release/Steamship Guarantee,
each Loan Party shall indemnify, save and hold Agent, each Lender and each
Issuer harmless from any loss, reasonable cost, expense or liability,
including, without limitation, any claims, damages, costs and expenses, and
reimbursement obligations with respect to cargo value, incurred by the issuer
of any Air Release/Steamship Guarantee to the steamship line or airway carrier
to which such Air Release/Steamship Guarantee is issued, and other payments
made by Agent, any Lender or any Issuer and expenses and reasonable attorneys’
fees incurred by Agent, any Lender or any Issuer arising out of, or in
connection with, any Letter of Credit or Air Release/Steamship Guarantee to be
issued or created for the Borrower

 

(c)                                  Each Loan Party
shall defend and indemnify Agent, Lenders and Term Lender, and hold Agent,
Lenders, Term Lender and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including reasonable attorney’s fees,
suffered or incurred by Agent, Lenders or Term Lender (i) under or on
account of such Loan Party’s violation of any applicable Environmental Laws,
including, without limitation, the assertion of any Lien thereunder, and/or (ii) with
respect to any Hazardous Discharge, the presence of any Hazardous Substances
affecting the Real Property, whether or not the same originates or emerges from
the Real Property or any contiguous real estate, including any loss of value of
the Real Property as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge or
presence of Hazardous Substances resulting from actions on the part of Agent or
any Lender or Term Lender.

 

16.6.                        Notice.

 

Any
notice or request hereunder may be given to any Loan Party or to Agent, any
Lender or Term Lender at their respective addresses set forth below or at such
other address as 

 

94

 

may hereafter be specified in a notice designated as a notice of change
of address under this Section 16.6. 
Any notice or request hereunder shall be given by (a) hand
delivery, (b) overnight courier, (c) registered or certified mail,
return receipt requested, or (d) telecopy to the number set out below (or
such other number as may hereafter be specified in a notice designated as a
notice of change of address) with electronic confirmation of its receipt.  Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when
personally delivered to any officer of the party to whom it is addressed, (b) on
the earlier of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, or (c) upon
actual receipt thereof when sent by a recognized overnight delivery service or (d) upon
actual receipt thereof when sent by telecopier to the number set forth below
with electronic confirmation of its receipt, in each case addressed to each party
at its address set forth below or at such other address as has been furnished
in writing by a party to the other by like notice:

 

	
  (A)

  	
   

  	
  If to Agent or HSBC:

  	
   

  	
  HSBC Bank USA

  
	
   

  	
   

  	
   

  	
   

  	
  452 Fifth Avenue

  
	
   

  	
   

  	
   

  	
   

  	
  New York, New York 10018

  
	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Lisa H. Augustus

  
	
   

  	
   

  	
   

  	
   

  	
  Telephone:

  	
  212-525-5147

  
	
   

  	
   

  	
   

  	
   

  	
  Facsimile:

  	
  212-525-5257

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  	
   

  	
  Hahn & Hessen LLP

  
	
   

  	
   

  	
   

  	
   

  	
  488 Madison Avenue

  
	
   

  	
   

  	
   

  	
   

  	
  New York, New York 10022

  
	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Steven Seif, Esq.

  
	
   

  	
   

  	
   

  	
   

  	
  Telephone:

  	
  212-478-7200

  
	
   

  	
   

  	
   

  	
   

  	
  Telecopier:

  	
  212-478-7400

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (B)

  	
   

  	
  If to any other Lender or
  Term Lender, as specified on the signature pages hereof.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (C)

  	
   

  	
  If to Borrower

  	
   

  	
  Rafaella Apparel
  Group, Inc.

  
	
   

  	
   

  	
  or any Loan Party:

  	
   

  	
  1411 Broadway

  
	
   

  	
   

  	
   

  	
   

  	
  New York, NY 10018

  
	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Lance Arneson

  
	
   

  	
   

  	
   

  	
   

  	
  Telephone:

  	
  212-403-0300

  
	
   

  	
   

  	
   

  	
   

  	
  Facsimile:

  	
  212-764-9275

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  with a copy to:

  	
   

  	
  Zukerman Gore
  Brandeis &Crossman LLP

  
	
   

  	
   

  	
   

  	
   

  	
  875 Third Avenue

  
	
   

  	
   

  	
   

  	
   

  	
  New York, New York 10022

  
	
   

  	
   

  	
   

  	
   

  	
  Attention:

  	
  Clifford A.
  Brandeis, Esq.

  
	
   

  	
   

  	
   

  	
   

  	
  Telephone:

  	
  212-223-6700

  
	
   

  	
   

  	
   

  	
   

  	
  Facsimile:

  	
  212-223-6433

  

 

95

 

16.7.                        Survival.

 

The
obligations of Loan Parties under Sections 2.2(g), 3.6, 3.8, 4.19(h) and
16.5 and the obligations of Lenders and Term Lender under Section 14.7
shall survive termination of this Agreement and the Other Documents and payment
in full of the Obligations.

 

16.8.                        Severability.

 

If
any part of this Agreement is contrary to, prohibited by, or deemed invalid
under applicable laws or regulations, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given effect so
far as possible.

 

16.9.                        Expenses.

 

All
costs and expenses including, without limitation:

 

(a)                                  reasonable attorneys’
fees and disbursements incurred by Agent and, with respect to clause (iv) below,
the applicable Lenders or Term Lender, (i) in all efforts made to enforce
payment of any Obligation or effect collection of any Collateral, or (ii) in
connection with the entering into, modification, amendment, administration and
enforcement of this Agreement or any consents or waivers hereunder and all
related agreements, documents and instruments, or (iii) in instituting,
maintaining, preserving, enforcing and foreclosing on Agent’s security interest
in or Lien on any of the Collateral, whether through judicial proceedings or
otherwise, or (iv) in defending or prosecuting any actions or proceedings
arising out of or relating to Agent’s, any Lender’s or Term Lender’s transactions
with Loan Parties under this Agreement or the Other Documents, or (v) in
connection with any advice given to Agent with respect to its rights and
obligations under this Agreement and all related agreements; and

 

(b)                                 reasonable fees
and disbursements incurred by Agent or Agent on behalf of Lenders and of Term
Lender in connection with any appraisals of Inventory or other Collateral,
field examinations, collateral analysis or monitoring or other business
analysis conducted by outside Persons in connection with this Agreement and all
related agreements, provided that so long as no Default or Event of
Default has occurred and is continuing, the Loan Parties’ obligation with
respect to such fees and disbursements for field examinations shall be limited
to two (2) such field examinations in any calendar year;

 

may be charged to Borrower’s Account and
shall be part of the Obligations.

 

16.10.                  Injunctive Relief.

 

Each
Loan Party recognizes that, in the event any Loan Party fails to perform,
observe or discharge any of its obligations or liabilities under this
Agreement, any remedy at law may prove to be inadequate relief to Lenders and
Term Lender; therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the
necessity of proving that actual damages are not an adequate remedy.

 

96

 

16.11.                  Consequential Damages.

 

None
of Agent, any Issuer, any Lender, Term Lender, nor any agent or attorney for
any of them, shall be liable to any Loan Parties for consequential damages
arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.

 

16.12.                  Captions.

 

The
captions at various places in this Agreement are intended for convenience only
and do not constitute and shall not be interpreted as part of this Agreement.

 

16.13.                  Counterparts; Telecopied
Signatures.

 

This
Agreement may be executed in any number of and by different parties hereto on
separate counterparts, all of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same
agreement.  Any signature delivered by a
party by facsimile transmission or other electronic transmission (including via
“pdf” or similar format) shall be deemed to be an original signature hereto.

 

16.14.                  Construction.

 

The
parties acknowledge that each party and its counsel have reviewed this
Agreement and that the normal rule of construction to the effect that any
ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments, schedules or
exhibits thereto.

 

16.15.                  Confidentiality; Sharing
Information.

 

(a)                                  Agent, each
Lender, Term Lender and each Transferee shall hold all non-public information
obtained by Agent, such Lender, Term Lender or such Transferee pursuant to the
requirements of this Agreement in accordance with Agent’s, such Lender’s or
Term Lender’s and such Transferee’s customary procedures for handling
confidential information of this nature; provided, however,
Agent, each Lender, Term Lender and each Transferee may disclose such
confidential information (i) to its examiners, affiliates, outside
auditors, counsel and other professional advisors, (ii) to Agent, any
Lender, Term Lender, or to any prospective Transferees and Purchasing Lenders
which agree to hold such non-public information confidential in a manner
similar to the provisions of this Section 16.15, and (iii) as
required or requested by any Governmental Body or representative thereof or
pursuant to legal process; provided, further that (x) unless
specifically prohibited by applicable law or court order, Agent, each Lender,
Term Lender and each Transferee shall use reasonable efforts prior to
disclosure thereof, to notify Loan Parties of the applicable request for
disclosure of such non-public information (A) by a Governmental Body or
representative thereof (other than any such request in connection with an examination
of the financial condition of a Lender, Term Lender or a Transferee by such
Governmental Body) or (B) pursuant to legal process and (y) in no
event shall Agent, any Lender, Term Lender or any Transferee be obligated to
return any materials furnished by any Loan Party other than those documents and
instruments in possession of Agent or any Lender or Term Lender in order to
perfect its Lien on the Collateral once the Obligations have been paid in full
and this Agreement has been terminated.

 

97

 

(b)                                 Each Loan Party
acknowledges that from time to time financial advisory, investment banking and
other services may be offered or provided to such Loan Party or one or more of
its Affiliates (in connection with this Agreement or otherwise) by any Lender,
or by one or more Subsidiaries or Affiliates of such Lender, and each Loan
Party hereby authorizes each Lender to share any information delivered to such
Lender by such Loan Party and its Subsidiaries pursuant to this Agreement, or
in connection with the decision of such Lender to enter into this Agreement, to
any such Subsidiary or Affiliate of such Lender, it being understood that any
such Subsidiary or Affiliate of any Lender receiving such information shall be
bound by the provision of this Section 16.15 as if it were a Lender
hereunder.  Such authorization shall
survive the repayment of the Obligations and the termination of this Agreement.

 

16.16.                  Publicity.

 

Each
Loan Party hereby authorizes Agent, in consultation with the Borrower, to make
appropriate announcements of the financial arrangement entered into among Loan
Parties, Agent and Lenders, including, without limitation, announcements which
are commonly known as tombstones, in such publications and to such selected
parties as Agent shall in its sole and absolute discretion deem
appropriate.  In addition, each Loan
Party authorizes Agent to include such Loan Party’s name and logo in select
transaction profiles and client testimonials prepared by Agent for use in
publications, company brochures and other marketing materials of Agent.

 

98

 

Each of the parties has signed this Financing
Agreement as of the day and year first above written.

 

	
   

  	
  RAFAELLA APPAREL GROUP,
  INC.,

  
	
   

  	
  as Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lance D. Arneson

  
	
   

  	
  Name:

  	
  Lance D. Arneson

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VERRAZANO,
  INC.,

  
	
   

  	
  as
  Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lance D. Arneson

  
	
   

  	
  Name:

  	
  Lance D. Arneson

  
	
   

  	
  Title:

  	
  Vice
  President

  

 

Signature page to Amended and Restated
Financing Agreement

 

 

	
   

  	
  HSBC BANK USA, NATIONAL
  ASSOCIATION,

  
	
   

  	
  as Agent and as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lisa H. Augustus

  
	
   

  	
  Name:

  	
  Lisa H. Augustus

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Commitment
  with respect to Letters of Credit and/or Air Releases/Steamship Guarantees:
  $20,000,000

  

 

Signature page to Amended and Restated
Financing Agreement

 

 

	
   

  	
  CERBERUS CAPITAL
  MANAGEMENT, L.P.,

  
	
   

  	
  as a Lender and as Term
  Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jeff Lomasky

  
	
   

  	
  Name:

  	
  Jeff Lomasky

  
	
   

  	
  Title:

  	
  Senior Managing Director

  
	
   

  	
   

  
	
   

  	
  Commitment with respect to
  Revolving Advances: $5,000,000

  
	
   

  	
  Term Loan Commitment:
  $5,000,000

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  Cerberus Capital
  Management, L.P.

  
	
   

  	
  299 Park Avenue

  
	
   

  	
  New York, New York 10178

  
	
   

  	
  Attention:

  	
  Mark Neporent

  
	
   

  	
  Telephone:

  	
  (212) 891-2153

  
	
   

  	
  Facsimile:

  	
  (212)
  891-1540

  
				

 

Signature page to Amended and Restated
Financing Agreement

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