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EXHIBIT 10.49    
  

 
 

FIRST AMENDMENT
  TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT    
  

        This
First Amendment To Amended and Restated Loan And Security Agreement (the "First Amendment") dated as of February 25, 2003, is entered into by and among CONGRESS FINANCIAL
CORPORATION (WESTERN), a California corporation ("Lender"), WACHOVIA SECURITIES, INC., a Delaware corporation, as the arranger and administrative
agent, and GUESS ?, INC., a Delaware corporation, GUESS? RETAIL, INC., a Delaware corporation, and GUESS.COM, INC., a Delaware corporation, jointly and severally as
co-borrowers (each a "Borrower" and collectively, the "Borrowers"), with reference to the
following facts: 

RECITALS  

        A.    Lender
is extending various secured financial accommodations to Borrowers upon the terms of that certain Amended and Restated Loan and Security Agreement dated as of
December 20, 2002 (the "Loan Agreement"). 

        C.    Borrowers
and Lender desire to amend the Loan Agreement upon the terms and conditions set forth herein. 

AMENDMENT  

        NOW THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by each
party hereto, Borrowers and Lender hereby agree as follows: 

        1.    Conditions Subsequent.    Section 4.3(c) of the Loan Agreement is hereby amended and restated in entirety
as follows: 

"(c)
On or prior to April 30, 2003, Borrowers shall have extended the maturity date of the Subordinated Notes so that the maturity date of the Subordinated Notes shall be later than
September 27, 2006 or shall have refinanced the Subordinated Notes with debt that has a maturity date later than September 27, 2006, in any case on terms and conditions satisfactory to
Lender." 

        2.    Conditions to Effectiveness.    The effectiveness of this First Amendment is subject to the receipt by Lender or
the completion by Borrowers of the following: 

        (a)  Counterparts
of this First Amendment, executed by each of the parties hereto. 

        3.    Representations and Warranties.    Each Borrower reaffirms that the representations and warranties made to
Lender in the Loan Agreement and other Financing Agreements are true and correct in all material respects as of the date of this First Amendment as though made as of such date and after giving effect
to this First Amendment. In addition, each Borrower makes the following representations and warranties to Lender, which shall survive the execution of this First Amendment. 

        (a)  The
execution, delivery and performance of this First Amendment are within each Borrower's powers, have been duly authorized by all necessary actions, have received all
necessary governmental approvals, if any, and do not contravene any law or any contractual restrictions binding on each Borrower. 

        (b)  This
First Amendment is the legal, valid and binding obligation of each Borrower enforceable against each Borrower in accordance with its terms, except as enforcement
may be 

1

 

limited by bankruptcy, insolvency, moratorium and other similar laws affecting the rights of creditors generally. 

        (c)  No
event has occurred and is continuing, after giving effect to this First Amendment, which constitutes an Event of Default under the Loan Agreement or any other of the
Financing Agreements, or would constitute such an Event of Default but for the requirement that notice be given or time elapse or both. 

        4.    Continuing Effect of Financing Agreements.    To the extent of any inconsistencies between the terms of this
First Amendment and the Loan Agreement, this First Amendment shall govern. In all other respects, the Loan Agreement and other Financing Agreements shall remain in full force and effect and are hereby
ratified and confirmed. 

        5.    References.    Upon the effectiveness of this First Amendment, each reference in any Financing Agreements to
"the Agreement", "hereunder," "herein," "hereof," or of like import referring to the Loan Agreement shall mean and be a reference to the Loan Agreement as amended hereby. 

        6.    Governing Laws.    This First Amendment, upon becoming effective, shall be deemed to be a contract made under,
governed by, and subject to, and shall be construed in accordance with, the internal laws of the State of California. 

        [signature
pages to follow] 

2

 

        IN
WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have executed this Amendment as of the date first set forth above, to become effective in the manner set
forth above. 

	
"Borrowers"	
 	

"Lender"
	
GUESS ?, INC.	
 	

CONGRESS FINANCIAL CORPORATION (WESTERN)
	

By:	

 	
 	

By:	

 
	 	
	 	 	

	Name:	 	 	Name:	 
	 	
	 	 	

	Title:	 	 	Title:	 
	 	
	 	 	

	

GUESS? RETAIL, INC.	
 	

 	

 
	

By:	

 	
 	

 	

 
	 	
	 	 	 
	Name:	 	 	 	 
	 	
	 	 	 
	Title:	 	 	 	 
	 	
	 	 	 
	

GUESS.COM, INC.	
 	

 	

 
	

By:	

 	
 	

 	

 
	 	
	 	 	 
	Name:	 	 	 	 
	 	
	 	 	 
	Title:	 	 	 	 
	 	
	 	 	 

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EXHIBIT 10.49

FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENTQuickLinks
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Exhibit 10.50    
  

 
  CANADIAN LOAN AND SECURITY AGREEMENT    
    
    by and among    
    
    CONGRESS FINANCIAL CORPORATION (CANADA)    
    
    as Lender    
    
    and    
    

GUESS? CANADA CORPORATION    
    
    and    
    
    GUESS? CANADA RETAIL INC.    
    
    as Borrowers    
    
    with    
    
    WACHOVIA SECURITIES, INC.    
    
    acting as Global Arranger
  
    
    Dated: December 20, 2002    
  

TABLE OF CONTENTS  

	 
	 	 
	 	 
	Page

	SECTION 1	 	    DEFINITIONS	1
	SECTION 2	 	    CREDIT FACILITIES	21
	 	 	2.1	 	Loans	21
	 	 	2.2	 	Letter of Credit Accommodations	21
	SECTION 3	 	    INTEREST AND FEES	25
	 	 	3.1	 	Interest	25
	 	 	3.2	 	Intentionally Deleted	27
	 	 	3.3	 	Intentionally Deleted	27
	 	 	3.4	 	Intentionally Deleted	27
	 	 	3.5	 	Changes in Laws and Increased Costs of Loans	27
	SECTION 4	 	    CONDITIONS PRECEDENT	27
	 	 	4.1	 	Conditions Precedent to Initial Loans and Letter of Credit Accommodations	27
	 	 	4.2	 	Conditions Precedent to All Loans and Letter of Credit Accommodations	29
	 	 	4.3	 	Conditions Subsequent	30
	SECTION 5	 	    GRANT AND PERFECTION OF SECURITY INTEREST	30
	 	 	5.1	 	Grant of Security Interest	30
	 	 	5.2	 	Perfection of Security Interests	31
	 	 	5.3	 	Release of Security Interest in Connection with Securitization	35
	SECTION 6	 	    COLLECTION AND ADMINISTRATION	35
	 	 	6.1	 	Borrowers' Loan Account	35
	 	 	6.2	 	Statements	35
	 	 	6.3	 	Collection of Accounts	36
	 	 	6.4	 	Payments	37
	 	 	6.5	 	Authorization to Make Loans	38
	 	 	6.6	 	Use of Proceeds	38
	SECTION 7	 	    COLLATERAL REPORTING AND COLLATERAL COVENANTS	38
	 	 	7.1	 	Collateral Reporting	38
	 	 	7.2	 	Accounts Covenants	39
	 	 	7.3	 	Inventory Covenants	40
	 	 	7.4	 	Equipment Covenants	41
	 	 	7.5	 	Power of Attorney	41
	 	 	7.6	 	Right to Cure	42
	 	 	7.7	 	Access to Premises	42
	SECTION 8	 	    REPRESENTATIONS AND WARRANTIES	43
	 	 	8.1	 	Corporate Existence; Power and Authority	43
	 	 	8.2	 	Name; State of Organization; Chief Executive Office; Collateral Locations	43
	 	 	8.3	 	Financial Statements; No Material Adverse Change	43
	 	 	8.4	 	Priority of Liens; Title to Properties	44
	 	 	8.5	 	Tax Returns	44
	 	 	8.6	 	Litigation	44
	 	 	8.7	 	Compliance with Other Agreements and Applicable Laws	44
	 	 	8.8	 	Environmental Compliance	44
	 	 	8.9	 	Employee Benefits	45
	 	 	8.10	 	Intellectual Property	45
	 	 	8.11	 	Subsidiaries; Affiliates; Capitalization; Solvency	46
	 	 	8.12	 	Labor Disputes	46
	 	 	8.13	 	Restrictions on Subsidiaries	47
	 	 	8.14	 	Material Contracts	47
	 	 	8.15	 	Payable Practices	47
	 	 	8.16	 	Accuracy and Completeness of Information	47
	 	 	8.17	 	Securitizations	47
	 	 	8.18	 	Survival of Warranties; Cumulative	47
	SECTION 9	 	    AFFIRMATIVE AND NEGATIVE COVENANTS	48
	 	 	9.1	 	Maintenance of Existence	48
	 	 	9.2	 	New Collateral Locations	48

 

	 	 	9.3	 	Compliance with Laws, Regulations, Etc.	48
	 	 	9.4	 	Payment of Taxes and Claims	49
	 	 	9.5	 	Insurance	49
	 	 	9.6	 	Financial Statements and Other Information	50
	 	 	9.7	 	Sale of Assets, Consolidation, Merger, Dissolution, Etc.	51
	 	 	9.8	 	Encumbrances	52
	 	 	9.9	 	Indebtedness	53
	 	 	9.10	 	Loans, Investments, Etc.	55
	 	 	9.11	 	Dividends and Redemptions	57
	 	 	9.12	 	Further Restriction on Loans, Investments, Dividends and Redemptions	57
	 	 	9.13	 	Transactions with Affiliates	57
	 	 	9.14	 	Compliance Concerning Canadian Pension Plans	58
	 	 	9.15	 	End of Fiscal Years, Fiscal Quarters	58
	 	 	9.16	 	Change in Business	58
	 	 	9.17	 	Limitation of Restrictions Affecting Subsidiaries	58
	 	 	9.18	 	Net Worth	59
	 	 	9.19	 	License Agreements	59
	 	 	9.20	 	Costs and Expenses	60
	 	 	9.21	 	Further Assurances	60
	 	 	9.22	 	Applications under Insolvency Statutes	61
	SECTION 10	 	    EVENTS OF DEFAULT AND REMEDIES	61
	 	 	10.1	 	Events of Default	61
	 	 	10.2	 	Remedies	63
	SECTION 11	 	    JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW	66
	 	 	11.1	 	Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver	66
	 	 	11.2	 	Waiver of Notices	68
	 	 	11.3	 	Amendments and Waivers	68
	 	 	11.4	 	Waiver of Counterclaims	68
	 	 	11.5	 	Indemnification	68
	 	 	11.6	 	Currency Indemnity	68
	SECTION 12	 	    TERM OF AGREEMENT; MISCELLANEOUS	69
	 	 	12.1	 	Term	69
	 	 	12.2	 	Interpretive Provisions	70
	 	 	12.3	 	Notices	71
	 	 	12.4	 	Partial Invalidity	71
	 	 	12.5	 	Successors	72
	 	 	12.6	 	Entire Agreement	72
	 	 	12.7	 	Counterparts, Etc.	72
	 	 	12.8	 	Confidentiality	72
	 	 	12.9	 	Choice of Language	73
	SECTION 13	 	    JOINT AND SEVERAL LIABILITY AND SURETYSHIP WAIVERS	73
	 	 	13.1	 	Independent Obligations; Subrogation	73
	 	 	13.2	 	Authority to Modify Obligations and Security	73
	 	 	13.3	 	Waiver of Defenses	74
	 	 	13.4	 	Exercise of Lender's Rights	74
	 	 	13.5	 	Additional Waivers	74
	 	 	13.6	 	Additional Indebtedness	75
	 	 	13.7	 	Subordination	75
	 	 	13.8	 	Revival	75
	 	 	13.9	 	Understanding of Waivers	76

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INDEX TO

EXHIBITS AND SCHEDULES  

	Exhibit A	 	•	Information Certificates
	Schedule 4.1	 	•	Permitted Locations, etc.
	Schedule 5.2(b)	 	•	Chattel Paper and Instruments
	Schedule 5.2(f)	 	•	Letters of Credit, etc.
	Schedule 5.2(g)	 	•	Commercial Tort Claims
	Schedule 8.4	 	•	Liens
	Schedule 8.8	 	•	Environmental Disclosures
	Schedule 8.12	 	•	Labor Relations
	Schedule 8.14	 	•	Material Contracts
	Schedule 9.9	 	•	Indebtedness
	Schedule 9.10	 	•	Loans and Advances

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CANADIAN LOAN AND SECURITY AGREEMENT  

        This Canadian Loan and Security Agreement dated December 20, 2002 is entered into by and among CONGRESS FINANCIAL CORPORATION (CANADA), an Ontario
corporation ("Lender") and GUESS? CANADA CORPORATION, a Canadian corporation and GUESS? CANADA RETAIL INC., a Canadian corporation, jointly and severally as co-borrowers (each a
"Borrower" and collectively, the "Borrowers"). 

W I T N E S S E T H:  

        WHEREAS, Guess ?, Inc. owns, directly or indirectly, all of the issued and outstanding capital stock of the Borrowers and U.S. Borrowers (as defined
below); and 

        WHEREAS
U.S. Lender (as defined below) has previously entered into certain financing arrangements with Guess ? Inc. and the other U.S. Borrowers (as defined below) pursuant
to the U.S. Agreement; and 

        WHEREAS,
Borrowers have requested that Lender enter into certain financing arrangements in Canada with Borrowers as an integrated business unit pursuant to which Lender may make loans
and provide other financial accommodations to Borrowers as an integrated business unit; and 

        WHEREAS,
Lender is willing to make such loans and provide such financial accommodations on the terms and conditions set forth herein; 

        NOW,
THEREFORE, in consideration of the mutual conditions and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows: 

SECTION 1    DEFINITIONS    

        For
purposes of this Agreement, the following terms shall have the respective meanings given to them below: 

        1.1    "Accounts"  shall mean all present and future rights of Borrowers to payment of a monetary obligation,
whether or not earned by performance, which is not evidenced by chattel paper or an instrument, (a) for property that has been or is to be sold, leased, assigned, or otherwise disposed of,
(b) for services rendered or to be rendered, (c) for a secondary obligation incurred or to be incurred, or (d) arising out of the use of a credit, charge or debit card along with
all information contained on or for use with such card. 

        1.2    "Adjusted Eurodollar Rate"  shall mean, with respect to each Interest Period for any Eurodollar Rate Loan,
the rate per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one percent (1%)) determined by dividing (a) the Eurodollar Rate for such
Interest Period by (b) a percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes hereof, "Reserve
Percentage" shall mean the reserve percentage, expressed as a decimal, prescribed by any United States or foreign banking authority for determining the reserve requirement
which is or would be applicable to deposits of United States dollars in a non-United States or an international banking office of Reference Bank used to fund a Eurodollar Rate Loan or any
Eurodollar Rate Loan made with the proceeds of such deposit, whether or not the Reference Bank actually holds or has made any such deposits or loans. The Adjusted Eurodollar Rate shall be adjusted on
and as of the effective day of any change in the Reserve Percentage. 

        1.3    "Adjusted Tangible Net Worth"  shall mean as to any Person, at any time, in accordance with GAAP (except as
otherwise specifically set forth below), on a consolidated basis for such Person and its Subsidiaries (if any), the amount equal to the difference between: (a) the aggregate net book value of
all assets of such Person and its Subsidiaries (excluding the value of patents, trademarks, tradenames, copyrights, licenses, goodwill, prepaid assets and other intangible assets), calculating the
book value of inventory for this purpose on a first-in-first-out basis, after deducting from such book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, 

 

obsolescence, depreciation and amortization) and (b) the aggregate amount of the Indebtedness and other liabilities of such Person and its Subsidiaries (including tax and other proper
accruals). 

        1.4    "Affiliate"  shall mean, with respect to a specified Person, any other Person which directly or indirectly
through one or more intermediaries controls, or is controlled by, or is under common control with such Person, and without limiting the generality of the foregoing, includes (a) any Person
which beneficially owns or holds five percent (5%) or more of any class of Voting Stock of such Person or other equity interests in such Person, (b) any Person of which such Person beneficially
owns or holds five percent
(5%) or more of any class of Voting Stock or in which such Person beneficially owns or holds five percent (5%) or more of the equity interests and (c) any director or executive officer of such
Person. For purposes of this definition, the term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with"), as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by agreement or
otherwise. 

        1.5    "Availability Compliance Period"    shall mean the period of time beginning upon an Availability Triggering
Event or a Compliance Triggering Event, as applicable from time to time under this Agreement, and continuing through the Availability Compliance Reinstatement Date. 

        1.6    "Availability Compliance Reinstatement Date"  shall mean the 180thconsecutive day on which the
corresponding calculation of U.S. Excess Availability or Compliance Excess Availability is equal to at least the U.S. Dollar Equivalent of Twenty Million Dollars ($20,000,000) and the Canadian
Compliance Excess Availability is equal to at least the U.S. Dollar Equivalent of One Million Dollars ($1,000,000). 

        1.7    "Availability Compliance Report"  shall mean a compliance report delivered by Borrowers to Lender on a
monthly basis during the Availability Compliance Period, in form and substance satisfactory to Lender. 

        1.8    "Availability Triggering Event"  shall mean the occurrence of any event or events or the existence of any
circumstance or circumstances that cause (a) the aggregate of U.S. Excess Availability and Canadian Compliance Excess Availability to be less than the U.S. Dollar Equivalent of Twenty Million
Dollars ($20,000,000) or (b) Canadian Compliance Excess Availability to be less than the U.S. Dollar Equivalent of One Million Dollars ($1,000,000). 

        1.9    "Average Excess Availability"  shall mean the sum of the U.S. Average Excess Availability and the Canadian
Average Excess Availability. 

        1.10    "Blocked Accounts"  shall have the meaning set forth in Section 6.3 hereof. 

        1.11    "Borrowing Base"  shall mean, at any time, the amount equal to the U.S. Dollar Equivalent of:
(a) eighty-five percent (85%) of the Net Amount of Eligible Accounts, plus (b) the lowest of: (i) sixty-five percent (65%) (or seventy-two
percent (72%) for the period from August 1 to October 31 of each year) of the Value of Eligible Inventory consisting of finished goods or (ii) eighty-five percent
(85%) of the Net Recovery Value expressed as a percentage of cost of the Value of Eligible Inventory as reflected on the most recent appraisal of the Inventory received and accepted by Lender prior to
the date of the calculation, or (iii) the Inventory Sublimit, plus (c) the Canadian Permitted Overadvance, less (d) the Gift Certificate and Store Credit Reserve, less
(e) any Reserves. For purposes only of applying the sublimit on Loans based on Eligible Inventory set forth in clause (b)(iii) above, Lender may treat the then
undrawn amounts of outstanding Letter of Credit Accommodations for the purpose of purchasing Eligible Inventory as Loans to the extent Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being purchased with such Letter of Credit Accommodations. 

2

 

        1.12    "Business Day"  shall mean any day (i) other than a Saturday or Sunday or other day on which
commercial banks are authorized or required to close under the laws of the State of New York, the State of North Carolina, the State of California, the Province of Ontario or the Province of Quebec,
and (ii) on which Lender's offices and the Bank of Montreal are open for the transaction of business and (b) a day on which the Reference Bank and Lender are open for the transaction of
business, except that if a determination of a Business Day shall relate to any Eurodollar Rate Loans, the term Business Day shall also exclude any day on which banks are closed for dealings in dollar
deposits in the London interbank market or other applicable Eurodollar Rate market. 

        1.13    "Canadian Average Excess Availability"  shall mean an amount equal to the U.S. Dollar Equivalent of the
aggregate of the average daily amount, as determined by Lender, for each fiscal quarter of: (a) the aggregate of the Borrowing Base and the credit balance in each Blocked Account subject to a
Deposit Account Control Agreement on the date of calculation, minus (b) the amount of all then outstanding and unpaid Obligations. 

        1.14    "Canadian Compliance Excess Availability"  shall mean the amount, as determined by Lender, as of any time,
equal to the U.S. Dollar Equivalent of: (a) the Borrowing Base, minus (b) the amount of all then outstanding and unpaid Obligations. 

        1.15    "Canadian Dollar Equivalent"  shall mean at any time (a) as to any amount denominated in Canadian
Dollars, the amount thereof and (b) as to any amount denominated in U.S. Dollars or any other currency, the equivalent amount in Canadian Dollars calculated by Lender at such time using the
then applicable Exchange Rate in effect on the Business Day of determination. 

        1.16    "Canadian Dollar Loans"  shall mean any Loans or portion thereof which are denominated in Canadian Dollars. 

        1.17    "Canadian Dollars"  and "C$" shall each mean the lawful currency of Canada. 

        1.18    "Canadian Excess Availability"  shall mean the amount, as determined by Lender, calculated at any time,
equal to the U.S. Dollar Equivalent of: (a) the Borrowing Base, plus (b) Borrowers' unrestricted
cash and/or Cash Equivalents that are on deposit in a securities or deposit account subject to a control agreement, in form and substance satisfactory to Lender, minus (c) the book overdraft of
Borrowers, minus (d) the sum of: (i) the amount of all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of all then outstanding and unpaid trade payables
and other obligations of Borrowers, which are more than sixty (60) days past due as of the last day of the immediately preceding fiscal month, and plus (iii) the amount of cheques issued
by Borrowers to pay trade payables and other obligations which are more than sixty (60) days past due as of such time, but not yet sent (but without duplication of clause (d)(ii)), as of
the last day of the immediately preceding fiscal month. 

        1.19    "Canadian Facility"  shall mean the revolving line of credit made available to the Borrowers pursuant to
this Agreement which shall not permit overadvances in excess of the Canadian Permitted Overadvance, as such facility may be amended or replaced from time to time. 

        1.20    "Canadian Guarantee"  shall mean the guarantee by the U.S. Borrowers dated as of the date hereof, of any
amounts borrowed by the Borrowers under the Canadian Facility; provided that the rights of the Lender under the Canadian Facility with respect to such guarantee rank in priority to the rights of U.S.
Lender under the U.S. Agreement on terms and conditions satisfactory to Lender pursuant to an intercreditor agreement between the U.S. Lender and the Lender. 

        1.21    "Canadian Pension Plan"  shall mean any plan, program or arrangement (other than the Canada/Quebec Pension
Plan) that is a pension plan for the purposes of any applicable pension benefits legislation or any tax laws of Canada or a Province thereof, whether or not registered under any such laws, which is
maintained or contributed to by, or to which there is or may be an obligation to contribute by, any Borrower in respect of any Person's employment in Canada with such Borrower. 

3

 

        1.22    "Canadian Permitted Overadvance"  shall mean the maximum amount which may be borrowed by the Borrowers under
the Canadian Facility in excess of the amount otherwise permitted to be borrowed based on the Borrowing Base (calculated without reference to the amount of any Canadian Permitted Overadvance), up to a
maximum of Five Million Dollars ($5,000,000), provided that the maximum amount of such Canadian Permitted Overadvance may be changed only one time per calendar quarter on the first Business Day
following the end of each quarter, only in increments of One Million Dollars ($1,000,000), and only upon three (3) Business Days' prior written notice to Lender and U.S. Lender and subject to
U.S. Lender being satisfied at the time that such change is to take effect that there is sufficient U.S. Excess Availability to permit the establishment of the corresponding Canadian Permitted
Overadvance Reserve (as defined in the U.S. Agreement). 

        1.23    "Canadian Prime Rate"  shall mean, at any time, the greater of (i) the rate from time to time
publicly announced by Bank of Montreal as its prime rate in effect for determining interest rates on Canadian Dollar denominated commercial loans in Canada, whether or not such announced rate is the
best rate available at such bank and (ii) the CDOR Rate at such time plus one (1%) percent per annum. 

        1.24    "Canadian Prime Rate Loans"  shall mean any Canadian Dollar Loans or portion thereof on which interest is
payable based on the Canadian Prime Rate in accordance with the terms hereof. 

        1.25    "Canadian Security Laws"  shall mean the Civil Code of Quebec as in effect in the Province of Quebec, the
Personal Property Security Act as in effect in the Province of Ontario or any other Canadian Federal or Provincial statute pertaining to the granting, perfecting, priority or ranking of security
interests, liens, hypothecs on personal property, and any successor statutes, together with any regulations thereunder, in each case as in effect from time to time. References to sections of the
relevant statute shall be construed to also refer to any successor sections. 

        1.26    "Capital Leases"  shall mean, as applied to any Person, any lease of (or any agreement conveying the right
to use) any property (whether real, personal or mixed) by such Person as lessee which in accordance with GAAP, is required to be reflected as a liability on the balance sheet of such Person. 

        1.27    "Capital Stock"  shall mean, with respect to any Person, any and all shares, interests, participations or
other equivalents (however designated) of such Person's capital stock, partnership interests or limited liability company interests at any time outstanding, and any and all rights, warrants or options
exchangeable for or convertible into such capital stock or other interests (but excluding any debt security that is exchangeable for or convertible into such capital stock). 

        1.28    "Cash Equivalents"  shall mean, at any time, (a) any evidence of Indebtedness with a maturity date of
ninety (90) days or less issued or directly and fully guaranteed or insured by the United States of America, Canada or any agency or instrumentality thereof; provided, that the full faith and
credit of the United States of America or Canada, as applicable, is pledged in support thereof; (b) certificates of deposit or bankers' acceptances with a maturity of ninety (90) days or
less of any financial institution that is a member of the Federal Reserve System or a Schedule I Bank under the Bank Act (Canada) having combined capital and surplus and undivided profits of
not less than the U.S. Dollar Equivalent of Two Hundred Fifty Million Dollars ($250,000,000); (c) commercial paper (including variable rate demand notes) with a maturity of ninety
(90) days or less issued by a corporation (except an Affiliate of any Borrower) organized under the laws of any State of the United States of America or the District of Columbia or organized
under the law of any Province of Canada or the federal laws applicable therein and rated at least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (d) repurchase obligations with a term of not more than thirty (30) days for underlying
securities of the types described in clause (a) above entered into with any financial institution having combined capital and surplus and undivided profits of not less than the U.S. Dollar
Equivalent of Two Hundred Fifty 

4

 

Million Dollars ($250,000,000); (e) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States
of America, Canada or issued by any governmental agency thereof and backed by the full faith and credit of the United States of America or Canada, as applicable, in each case maturing within ninety
(90) days or less from the date of acquisition; provided, that the terms of such agreements comply with the guidelines
set forth in the Federal Financial Agreements of Depository Institutions with Securities Dealers and Others, as adopted by the Comptroller of the Currency on October 31, 1985; and
(f) investments in money market funds and mutual funds which invest substantially all of their assets in securities of the types described in clauses (a) through (e) above. 

        1.29    "CDOR Rate"  shall mean, on any day, the annual rate of interest which is the rate based on an average
30 day rate applicable to Canadian Dollar bankers' acceptances appearing on the "Reuters Screen CDOR Page" (as defined in the International Swap Dealer Association, Inc. definitions, as
modified and amended from time to time) as of 10:00 a.m. Toronto, Ontario time on such day; provided that if such rate does not appear on the Reuters Screen CDOR Page as contemplated, then the
CDOR Rate on any day shall be the 30 day rate applicable in Canadian Dollar bankers' acceptances quoted by the Bank of Montreal as of 10:00 a.m. Toronto, Ontario time on such day. 

        1.30    "Central Collection Deposit Account"  shall mean any deposit account established by either Borrower that is
used by such Borrower to receive deposits from local retail store deposit accounts or from sales of Inventory or other proceeds of Collateral arising from transactions other than sales at local retail
stores. 

        1.31    "Change of Control"  shall mean (a) the transfer (in one transaction or a series of transactions) of
all or substantially all of the assets of either Borrower to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of
either Borrower or the adoption of a plan by the stockholders of such Borrower relating to the dissolution or liquidation of such Borrower; (c) with respect to Parent, the acquisition by any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), except for one or more Permitted Holders, of beneficial ownership, directly or indirectly, of fifty percent (50%)
or more of the voting power of the total outstanding Voting Stock or the Board of Directors and with respect to either Borrower, the acquisition by any Person other than Parent or a wholly-owned,
direct or indirect, Subsidiary of Parent of any outstanding Voting Stock of any such Borrower; (d) with respect to Parent, during any period of two (2) consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (together with any new directors who have been appointed by any Permitted Holder, or whose nomination for election by the
stockholders of Parent, as the case may be, was approved by a vote of at least sixty-six and two-thirds percent (662/3%) of the directors then still in office
who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of
Directors then still in office, or in the case of either Borrower any director shall be elected or appointed to the Board of Directors by any Person other than Parent or a wholly-owned, direct or
indirect, Subsidiary of Parent; or (e) the failure of the Permitted Holders to hold at least fifty one percent (51%) of the voting power of the total outstanding Voting Stock of Parent, other
than as a result of a public offering of such Voting Stock, at which time the Permitted Holders shall hold at least thirty percent (30%) of the voting power of the total outstanding Voting Stock of
Parent, and the failure of Parent to own, directly or indirectly, one hundred percent (100%) of the voting power of the total outstanding Voting Stock of either Borrower; or (f) a "Change of
Control" as defined in the U.S. Agreement occurs with respect to any of the U.S. Borrowers. 

        1.32    "Code"  shall mean the Internal Revenue Code of 1986, as the same now exists or may from time to time
hereafter be amended, modified, recodified or supplemented, together with all rules, regulations and interpretations thereunder or related thereto. 

5

 

        1.33    "Collateral"  shall have the meaning set forth in Section 5 hereof. 

        1.34    "Collateral Access Agreement"  shall mean an agreement in writing, in form and substance satisfactory to
Lender, from any lessor of premises to either Borrower, or any other person to whom any Collateral (including Inventory, Equipment, bills of lading or other documents of title) is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner or operator of any premises on which any of such Collateral is located, pursuant to which such lessor, consignee or
other person, inter alia, acknowledges the first priority security interest of Lender in such Collateral, agrees to waive any and all claims such
lessor, consignee or other person may, at any time, have against such Collateral, whether for processing, storage or otherwise, and agrees to permit Lender access to, and the right to remain on, the
premises of such lessor, consignee or other person so as to exercise Lender's rights and remedies and otherwise deal with such Collateral and, in the case of any consignee or other person who at any
time has custody, control or possession of any Collateral, acknowledges that it holds and will hold possession of the Collateral for the benefit of Lender and agrees to follow all instructions of
Lender with respect thereto. 

        1.35    "Compliance Excess Availability"  shall mean the sum of U.S. Compliance Excess Availability and Canadian
Compliance Excess Availability. 

        1.36    "Compliance Triggering Event"  shall mean the occurrence of any event or events or the existence of any
circumstance or circumstances that cause (a) the U.S. Compliance Excess Availability to be less than Twenty Million Dollars ($20,000,000) or (b) the Canadian Compliance Excess
Availability to be less than the U.S. Dollar Equivalent of One Million Dollars ($1,000,000). 

        1.37    "Credit Facilities"  shall mean, collectively, the U.S. Facility and the Canadian Facility. 

        1.38    "Credit Parties"  means the U.S. Borrowers and the Borrowers collectively, and "Credit Party" means any one
of such Credit Parties. 

        1.39    "Deed of Hypothec"  means, collectively, (a) the Deed of Hypothec executed or to be executed by
Guess? Canada Corporation, pursuant to which it hypothecates its Collateral and other therein described property in favour of Lender pursuant to the provisions of the Civil
Code of Quebec, and
(b) the Deed of Hypothec executed or to be executed by Guess? Canada Retail, Inc., pursuant to which it hypothecates its Collateral and other therein described property in favour of
Lender pursuant to the provisions of the Civil Code of Quebec. 

        1.40    "Default"  shall mean an act, condition or event which with notice or passage of time or both would
constitute an Event of Default. 

        1.41    "Deposit Account Control Agreement"  shall mean an agreement in writing, in form and substance satisfactory
to Lender, by and among Lender, either Borrower and any bank at which any deposit account of such Borrower is at any time maintained which provides that such bank will comply with instructions
originated by Lender directing disposition of the funds in the deposit account without further consent by such Borrower and such other terms and conditions as Lender may require, including as to any
such agreement with respect to any Blocked Account, providing that all items received or deposited in the Blocked Accounts are the property of Lender, that the bank has no lien upon, hypothec over, or
right to setoff against, the Blocked Accounts, the items received for deposit therein, or the funds from time to time on deposit therein and that the bank will wire, or otherwise transfer, in
immediately available funds, on a daily basis to the Lender Payment Account all funds received or deposited into the Blocked Accounts, as provided in Sections 6.3 and 6.4. 

        1.42    "Dilution"  means, as of any date of determination, a percentage, based upon the experience of the
immediately prior 180 days, that is the result of dividing the Dollar (or Dollar equivalent) amount of (a) bad debt write-downs, discounts, advertising allowances, credits, or other
dilutive items 

6

 

with respect to the Accounts during such period, by (b) Borrowers' gross billings with respect to Accounts during such period. 

        1.43    "Dilution Reserve"  means, as of any date of determination, a Reserve sufficient to reduce the advance rate
against Eligible Accounts by one percentage point for each percentage point or fraction thereof by which Dilution is in excess of six percent (6%). 

        1.44    "Discount Reserve"  shall mean a Reserve equal to the discount reserve taken by Borrowers on their financial
statements prepared in accordance with GAAP of discounts on sales of Inventory allowed by Borrowers as reported by Borrowers in the financial statements delivered under Section 9.6. 

        1.45    "Dollars"  or "$" means United States dollars. 

        1.46    "Domestic Subsidiary"  shall mean a Subsidiary of a Borrower that is organized or incorporated under the
laws of Canada or any province or territory thereof. 

        1.47    "EBITDA"  shall mean, with respect to any fiscal period, Parent's and its Subsidiaries' consolidated net
earnings (or loss), minus extraordinary gains, plus interest expense, income taxes, and depreciation and
amortization, plus non-cash extraordinary losses for such period, as determined in accordance with GAAP. 

        1.48    "Eligible Accounts"  shall mean Accounts created by Borrowers which are and continue to be acceptable to
Lender based on the criteria set forth below. In general, Accounts shall be Eligible Accounts if: 

        (a)  such
Accounts arise from the actual and bona fide sale and delivery of goods by Borrowers or rendition of services by Borrowers in the ordinary course of their business
which transactions are completed in accordance with the terms and provisions contained in any documents related thereto; 

        (b)  such
Accounts do not permit payment more than ninety (90) days after the original invoice date, and are not unpaid more than sixty (60) days after their
original due date; 

        (c)  such
Accounts comply with the terms and conditions contained in Section 7.2 of this Agreement; 

        (d)  such
Accounts do not arise from sales on consignment, guaranteed sale, sale and return (excluding consumer returns in the ordinary course of business), sale on approval,
or other terms under which payment by the account debtor may be conditional or contingent; 

        (e)  such
Accounts do not arise from or are related to the Securitization Assets; 

        (f)    the
chief executive office of the account debtor with respect to such Accounts is located in the United States of America or Canada (provided, that, at any time promptly
upon Lender's request, Borrowers shall execute and deliver, or cause to be executed and delivered, such other agreements, documents and instruments as may be required by Lender to perfect the security
interests of Lender in those Accounts of an account debtor with its chief executive office or principal place of business in Canada in accordance with the applicable laws of the Province of Canada in
which such chief executive office or principal place of business is located and take or cause to be taken such other and further actions as Lender may request to enable Lender as secured party with
respect thereto to collect such Accounts under the applicable Federal or Provincial laws of Canada) or, at Lender's option, if the chief executive office and principal place of business of the account
debtor with respect to such Accounts is located other than in the United States of America or Canada, then if either: (i) the account debtor has delivered to Borrowers an irrevocable letter of
credit issued or confirmed by a bank satisfactory to Lender and payable only in Canada and in Dollars or Canadian Dollars, sufficient to cover such
Account, in form and substance satisfactory to Lender and if required by Lender, the original of such letter of 

7

   
credit has been delivered to Lender or Lender's agent and Borrowers have complied with the terms of Section 5.2(f) hereof with respect to the assignment of the proceeds of such letter of credit
to Lender or naming Lender as transferee beneficiary thereunder, as Lender may specify, or (ii) such Account is subject to credit insurance payable to Lender issued by an insurer and on terms
and in an amount acceptable to Lender, or (iii) such Account is otherwise acceptable in all respects to Lender (subject to such lending formula with respect thereto as Lender may determine); 

        (g)  such
Accounts do not consist of progress billings (such that the obligation of the account debtors with respect to such Accounts is conditioned upon Borrowers'
satisfactory completion of any further performance under the agreement giving rise thereto), bill and hold invoices or retainage invoices, except as to bill and hold invoices, if Lender shall have
received an agreement in writing from the account debtor, in form and substance satisfactory to Lender, confirming the unconditional obligation of the account debtor to take the goods related thereto
and pay such invoice; 

        (h)  the
account debtor with respect to such Accounts has not asserted a counterclaim, defense or dispute and does not have, and does not engage in transactions which may
give rise to any right of setoff or recoupment against such Accounts (but the portion of the Accounts of such account debtor in excess of the amount at any time and from time to time owed by any
Borrower to such account debtor or claimed owed by such account debtor may be deemed Eligible Accounts); 

        (i)    there
are no facts, events or occurrences which would impair the validity, enforceability or collectability of such Accounts or reduce the amount payable or delay
payment thereunder; 

        (j)    such
Accounts are subject to the first priority, valid and perfected security interest, lien or first ranking valid hypothec of Lender and any goods giving rise thereto
are not, and were not at the time of the sale thereof, subject to any claims, liens, security interest or hypothecs except those permitted in this Agreement; 

        (k)  neither
the account debtor nor any officer or employee of the account debtor with respect to such Accounts is an officer, employee, agent or other Affiliate of any
Borrower; 

        (l)    the
account debtors with respect to such Accounts are not any foreign government, the United States of America, Canada, any State, Province, political subdivision,
department, agency or instrumentality thereof, unless, if (i) the account debtor is the United States of America, any State, political subdivision,
department, agency or instrumentality thereof, upon Lender's request, the Federal Assignment of Claims Act of 1940, as amended or any similar State or local law, if applicable, has been complied with
in a manner satisfactory to Lender, or (ii) the Account Debtor is Her Majesty in the Right of Canada or any provincial or local governmental entity, or any ministry, upon Lender's request, the
applicable Borrower has assigned its rights to payment of such Account to Lender pursuant to and in accordance with the Financial Administration Act, R.S.C. 185, c. F-11, as amended, or
any similar applicable provincial or local law, regulation or requirement; 

        (m)  there
are no proceedings or actions which are threatened or pending against the account debtors with respect to such Accounts which might result in any material adverse
change in any such account debtor's financial condition (including, without limitation, any bankruptcy, dissolution, liquidation, reorganization or similar proceeding); 

        (n)  such
Accounts are not evidenced by or arising under any instrument or chattel paper; 

        (o)  such
Accounts of a single account debtor or its affiliates do not constitute more than twenty percent (20%) of all otherwise Eligible Accounts except that with respect
to the Accounts of Sears, the Bay and Winners and their respective affiliates (collectively, the "Specified Account 

8

 

Debtors"), such percentage for each of them shall be thirty percent (30%) subject to the limitation that the aggregate amount of the Accounts of such Specified Account Debtors shall not constitute
more than sixty percent (60%) of all otherwise Eligible Accounts (but in each case the portion of the Accounts not in excess of the relevant percentages may be deemed Eligible Accounts); 

        (p)  such
Accounts are not owed by an account debtor who has Accounts that permit payment more than ninety (90) days after their original invoice date or remain unpaid
more than sixty (60) days after their original due date which constitute more than fifty percent (50%) of the total Accounts of such account debtor; 

        (q)  the
account debtor is not located in a state requiring the filing of a Notice of Business Activities Report or similar report in order to permit Borrowers to seek
judicial enforcement in such State of payment of such Account, unless the relevant Borrower has qualified to do business in such state or has filed a Notice of Business Activities Report or equivalent
report for the then current year or such failure to file and inability to seek judicial enforcement is capable of being remedied without any material delay or material cost; 

        (r)  such
Accounts are owed by account debtors whose total indebtedness to Borrowers does not exceed the credit limit with respect to such account debtors as determined by
Borrowers from time to time in the ordinary course of business consistent with their current practices as of the date hereof and as is
reasonably acceptable to Lender (but the portion of the Accounts not in excess of such credit limit may be deemed Eligible Accounts); 

        (s)  such
Accounts do not arise from any licensing or royalty rights; and 

        (t)    such
Accounts are owed by account debtors deemed creditworthy at all times by Lender in good faith. 

The
criteria for Eligible Accounts set forth above may only be changed and any new criteria for Eligible Accounts may only be established by Lender in good faith based on either: (i) an event,
condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Lender has no written notice thereof
from Borrowers prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect the Accounts in the good
faith determination of Lender. Any Accounts which are not Eligible Accounts shall nevertheless be part of the Collateral. 

        1.49    "Eligible Inventory"  shall mean Inventory consisting of finished goods held for resale in the ordinary
course of the business of Borrowers which is acceptable to Lender based on the criteria set forth below. In general, Eligible Inventory shall not include: 

        (a)  raw
materials or work-in-process; 

        (b)  short
rolls; 

        (c)  trim;

        (d)  packaging
and shipping materials; 

        (e)  supplies
used or consumed in Borrowers' business; 

        (f)    Inventory
at premises other than those listed on Schedule 4.1 as permitted locations or at new store locations
opened in accordance with Section 9.2, except Inventory in transit from one permitted location within Canada to another, and except any Inventory which would otherwise be deemed Eligible
Inventory that is not located at a premises described above may nevertheless be considered Eligible Inventory: 

          (i)  as
to locations in which a landlord may have a lien, security interest or hypothec against assets of a tenant which are leased by any Borrower if Lender shall have
received a 

9

 

Collateral Access Agreement from the owner and lessor of such location, duly authorized, executed and delivered by such owner and lessor or if Lender shall not have received such Collateral Access
Agreement (or Lender shall determine to accept a Collateral Access Agreement which does not include all required provisions or provisions in the form otherwise required by Lender), Lender may, at is
option, nevertheless consider Inventory at such location to be Eligible Inventory to the extent Lender shall have established such Reserves in respect of amounts at any time payable by any Borrower to
the owner and lessor thereof as Lender shall determine, and 

        (ii)  as
to locations owned and operated by a third person, if Lender shall have received a Collateral Access Agreement from such owner and operator with respect to such
location, duly authorized, executed and delivered by such owner and operator or if Lender shall not have received such Collateral Access Agreement (or Lender shall determine to accept a Collateral
Access Agreement which does not include all required provisions or provisions in the form otherwise required by Lender), Lender may, at its option, nevertheless consider Inventory at such location to
be Eligible Inventory to the extent Lender shall have established such Reserves in respect of amounts at any time payable by any Borrower to the owner and operator thereof as Lender shall determine,
and, in addition, as to locations owned and operated by a third person, Lender shall have received, if required by Lender: (A) PPSA-financing statements between the owner and
operator, as consignee or bailee, and the relevant Borrower, as consignor or bailor, in form and substance satisfactory to Lender, which are duly assigned to Lender and (B) a written notice to
any lender to the owner and operator of the first priority security interest in such Inventory of Lender; 

        (g)  Inventory
subject to a security interest, lien and/or hypothec in favor of any person other than Lender except those permitted in this Agreement; 

        (h)  bill
and hold goods; 

        (i)    obsolete,
excess or slow moving Inventory; 

        (j)    Inventory
which is not subject to the first priority, valid and perfected security interest, lien and/or hypothec of Lender; 

        (k)  returned,
damaged and/or defective Inventory; 

        (l)    Inventory
purchased or sold on consignment; and 

        (m)  Inventory
located outside Canada (except for Inventory located at or destined for delivery to U.S. Borrowers' warehouse location at 5000 Crittenden Dr., Lousiville,
Kentucky, U.S.A. which was the subject of a Letter of Credit Accommodation hereunder and which Inventory is not co-mingled with the Inventory of the U.S. Borrowers or any other Person)
unless such Inventory is in transit to a permitted location within Canada and Lender has a perfected first priority security interest, lien and/or hypothec in such Inventory and has received
appropriate documentation to permit Lender to gain possession and control of such Inventory. 

The
criteria for Eligible Inventory set forth above may only be changed and any new criteria for Eligible Inventory may only be established by Lender in good faith based on either: (i) an
event, condition or other circumstance arising after the date hereof, or (ii) an event, condition or other circumstance existing on the date hereof to the extent Lender has no written notice
thereof from Borrowers prior to the date hereof, in either case under clause (i) or (ii) which adversely affects or could reasonably be expected to adversely affect the Inventory in the
good faith determination of Lender. Any Inventory which is not Eligible Inventory shall nevertheless be part of the Collateral. 

        1.50    "Environmental Laws"  shall mean all foreign, Federal, Provincial and local laws (including common law),
legislation, rules, codes, licenses, permits (including any conditions imposed therein), 

10

 

authorizations, judicial or administrative decisions, injunctions or agreements between any Borrower and any Governmental Authority, (a) relating to pollution and the protection, preservation
or restoration of the environment (including air, water vapor, surface water, ground water, drinking water, drinking water supply, surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety, (b) relating to the exposure to, or the use, storage, recycling, treatment, generation, manufacture, processing, distribution, transportation,
handling, labeling, production, release or disposal, or threatened release, of Hazardous Materials, or (c) relating to all laws with regard to recordkeeping, notification, disclosure and
reporting requirements respecting Hazardous Materials. The term "Environmental Laws" includes (i) the Canadian Environmental Assessment Act, the Canadian Environmental Protection Act, the
Environmental Assessment Act (Ontario), and the Environmental Protection Act (Ontario) and any similar or equivalent legislation in the Province of Quebec or any other province in which either or both
of the Borrowers operates or carries on business, (ii) applicable provincial or territorial counterparts to such laws, and (iii) any common law or equitable doctrine that may impose
liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Materials. 

        1.51    "Equipment"  shall mean all of Borrowers' now owned and hereafter acquired equipment, wherever located,
including machinery, data processing and computer equipment and computer hardware and software, whether owned or licensed, and including embedded software, vehicles, tools, furniture,
fixtures, all attachments, accessions and property now or hereafter affixed thereto or used in connection therewith, and substitutions and replacements thereof, wherever located. 

        1.52    "Eurodollar Rate"  shall mean with respect to the Interest Period for a Eurodollar Rate Loan, the interest
rate per annum equal to the arithmetic average of the rates of interest per annum (rounded upwards, if necessary, to the next one-sixteenth (1/16) of one percent (1%)) at
which Reference Bank is offered deposits of United States dollars in the London interbank market (or other Eurodollar Rate market selected by Borrowers and approved by Lender) on or about
9:00 a.m. (New York time) two (2) Business Days prior to the commencement of such Interest Period in amounts substantially equal to the principal amount of the Eurodollar Rate Loans
requested by and available to Borrowers in accordance with this Agreement, with a maturity of comparable duration to the Interest Period selected by Borrowers. 

        1.53    "Eurodollar Rate Loans"  shall mean any Loans or portion thereof on which interest is payable based on the
Adjusted Eurodollar Rate in accordance with the terms hereof. 

        1.54    "Event of Default"  shall mean the occurrence or existence of any event or condition described in
Section 10.1 hereof. 

        1.55    "Excess Availability"  shall mean the sum of the U.S. Excess Availability and the Canadian Excess
Availability. 

        1.56    "Exchange Act"  shall mean the Securities Exchange Act of 1934, together with all rules, regulations and
interpretations thereunder or related thereto. 

        1.57    "Exchange Rate"  shall mean (a) except as otherwise provided in paragraph (b) hereof, the
prevailing spot rate of exchange of Reference Bank or, if such rate is not available from Reference Bank such other bank as Lender may reasonably select for the purpose of conversion of one currency
to another, at or around 11:00 a.m. New York time, on the date on which any such conversion of currency is to be made under this Agreement; and (b) with respect to any calculation being
done by the Borrowers in respect of the Borrowing Base, the prevailing spot "buy" rate of exchange of Bank of Montreal or, if such rate is not available from Bank of Montreal such other bank as Lender
may reasonably select for the purpose of conversion of one currency to another, at or around 11:00 a.m. New York time, on the date on which any such conversion of currency is to be made under
this Agreement. 

11

 

        1.58    "Federal Funds Rate"    means, for any day, the rate per annum equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next
succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate
(rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Lender on such day. 

        1.59    "Financing Agreements"  shall mean, collectively, this Agreement and all notes, guaranties, security
agreements, hypothecs, mortgages, deeds of trust, deeds to secure debts, deposit account control agreements, intercreditor agreements and all other agreements, documents and instruments now or at any
time hereafter executed and/or delivered by Borrowers or any Obligor in connection with this Agreement. 

        1.60    "GAAP"  shall mean: (a) in respect of the U.S. Borrowers, generally accepted accounting principles in
the United States of America as in effect from time to time as set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public
Accountants and the statements and pronouncements of the Financial Accounting Standards Board which are applicable to the circumstances as of the date of determination consistently applied, except
that, for purposes of Section 9.18 hereof, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most
recent audited financial statements delivered to Lender prior to the date hereof; and (b) in respect of the Borrowers, generally accepted accounting principles in Canada as in effect from time
to time as set forth in the opinions and pronouncements of the relevant Canadian public and private accounting boards and institutes that are applicable to the circumstances as of the date of
determination consistently applied. 

        1.61    "Gift Certificate and Store Credit Reserve"  shall mean, as of any date of determination, a Reserve equal to
the amount of fifty percent (50%) of all (i) accrued and outstanding gift certificates issued by Borrowers in the ordinary course of business and (ii) the aggregate amount of outstanding
store credits given by Borrowers to their customers in the ordinary course of business. 

        1.62    "Governmental Authority"  shall mean any nation or government, any state, province, or other political
subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. 

        1.63    "Guess Licensing"  shall mean Guess Licensing, Inc., a Delaware corporation and a wholly-owned
Subsidiary of Parent. 

        1.64    "Hazardous Materials"  shall mean any hazardous, toxic or dangerous substances, materials and wastes,
including hydrocarbons (including naturally occurring or man-made petroleum and hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials,
biological substances, polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type of pollutants or contaminants (including materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances, materials, or wastes and including any other substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or toxic under any Environmental Law). 

        1.65    "Indebtedness"  shall mean, with respect to any Person, any liability, whether or not contingent,
(a) in respect of borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof) or evidenced by bonds, notes, debentures
or similar instruments; (b) representing the balance deferred and unpaid of the purchase 

12

 

price of any property or services (except any such balance that constitutes an account payable to a trade creditor (whether or not an Affiliate) created, incurred, assumed or guaranteed by such
Person in the ordinary course of business of such Person in connection with obtaining goods, materials or services that is not overdue by more than ninety (90) days, unless the trade payable is
being contested in good faith); (c) all obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any contractual
obligation, contingent or otherwise, of such Person to pay or be liable for the payment of any indebtedness described in this definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise acquire such indebtedness, obligation or liability or any security therefor, or to provide funds
for the payment or discharge thereof, or to maintain solvency, assets, level of income, or other financial condition; (e) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any Capital Stock or other equity securities issued by such Person; (f) all reimbursement obligations and other liabilities of such Person with respect to surety
bonds (whether bid, performance or otherwise), letters of credit, banker's acceptances, drafts or similar documents or instruments issued for such Person's account; (g) all indebtedness of such
Person in respect of indebtedness of another Person for borrowed money or indebtedness of another Person otherwise described in this definition which is secured by any consensual lien, security
interest, collateral assignment, conditional sale, mortgage, deed of trust, or other encumbrance on any asset of such Person, whether or not such obligations, liabilities or indebtedness are assumed
by or are a personal liability of such Person, all as of such time; (h) all obligations, liabilities and indebtedness of such Person (market to market) arising under swap agreements, cap
agreements and collar agreements and other agreements or arrangements designed to protect such Person against fluctuations in interest rates or currency or commodity values; and (i) all
obligations owed by such Person under License Agreements with respect to non-refundable, advance or minimum guaranty royalty payments. 

        1.66    "Information Certificate"  shall mean the Information Certificates of Borrowers constituting  Exhibit A hereto containing material
information with respect to Borrowers, their business and assets provided by or on behalf of Borrowers to
Lender in connection with the preparation of this Agreement and the other Financing Agreements and the financing arrangements provided for herein. 

        1.67    "Intellectual Property"  shall mean Borrowers' now owned and hereafter arising or acquired: patents, patent
rights, patent applications, copyrights, works which are the subject matter of copyrights,
copyright registrations, trademarks, trade names, trade styles, trademark and service mark applications, and licenses and rights to use any of the foregoing; all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing; all rights to sue for past, present and future infringement of any of the foregoing; inventions,
trade secrets, formulae, processes, compounds, drawings, designs, blueprints, surveys, reports, manuals, and operating standards; goodwill (including any goodwill associated with any trademark or the
license of any trademark); customer and other lists in whatever form maintained; and trade secret rights, copyright rights, rights in works of authorship, domain names and domain name registrations;
software and contract rights relating to software, in whatever form created or maintained. 

        1.68    "Interest Period"  shall mean for any Eurodollar Rate Loan, a period of approximately one (1), two (2), or
three (3) months duration as Borrowers may elect, the exact duration to be determined in accordance with the customary practice in the applicable Eurodollar Rate market; provided, that
Borrowers may not elect an Interest Period which will end after the last day of the then-current term of this Agreement. 

        1.69    "Interest Rate"  shall mean, as to U.S. Prime Rate Loans, a rate equal to the U.S. Prime Rate plus the Prime
Rate Margin shown below as in effect from time to time, as to Canadian Prime Rate Loans, a rate equal to the Canadian Prime Rate plus the Prime Rate Margin shown below as in effect from time to time,
and, as to Eurodollar Rate Loans, a rate equal to the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable for the Interest Period selected by Borrowers as in 

13

 

effect three (3) Business Days after the date of receipt by Lender of the request of Borrowers for such Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is higher
or lower than any rate previously quoted to Borrowers) plus the Eurodollar Rate Margin shown below as in effect from time to time: 

	 
	 	Trailing Four Quarters EBITDA
	 	 
	 	Average Excess Availability

for the immediately preceding

Fiscal Quarter
	 	Margin over

Prime Rate
	 	Margin over

Adjusted

Eurodollar Rate
	 
	•	 	Greater than or equal to $70,000,000	 	•	 	Greater than or equal to $40,000,000	 	0.00	%	1.75	%
	

•	
 	

Greater than or equal to $55,000,000 but less than $70,000,000	
 	

•	
 	

Greater than or equal to $30,000,000 but less than $40,000,000	
 	

0.25	
%	

2.00	
%
	

•	
 	

Greater than or equal to $40,000,000 but less than $55,000,000	
 	

•	
 	

Greater than or equal to $20,000,000 but less than $30,000,000	
 	

0.50	
%	

2.25	
%
	

•	
 	

Greater than or equal to $25,000,000 but less than $40,000,000	
 	

•	
 	

Less than $20,000,000	
 	

0.75	
%	

2.50	
%

If
Trailing Four Quarters EBITDA is less than Twenty Five Million Dollars ($25,000,000), the Interest Rate shall be calculated using the margins based on Average Excess Availability set forth above.
If Trailing Four Quarters EBITDA is Twenty Five Million Dollars ($25,000,000) or more, the Interest Rate shall be calculated using the lower of the margins applicable based on Trailing Four Quarters
EBITDA or Average Excess Availability. Notwithstanding the foregoing, the initial interest rate shall be the applicable Prime Rate plus one-half percent (0.50%) per annum with respect to
Prime Rate Loans and the Adjusted Eurodollar Rate plus two and one-fourth percent (2.25%) per annum with respect to Eurodollar Rate Loans, and such rates shall be in effect until financial
statements for the Parent for the period ending December 31, 2002 are delivered; thereafter, the Interest Rate will be adjusted quarterly based on the margins set forth above, such adjustments
to take effect concurrently with any corresponding adjustments to the Interest Rate under the U.S. Agreement on the first day of the month following the timely delivery of financial statements to
Lender under this Agreement. If financial statements are not timely delivered, the Interest Rate shall be set using the highest margins shown above and shall remain at that rate until the delivery of
financial statements that permit the setting of the Interest Rate in accordance with the table above. 

        1.70    "Inventory"  shall mean all of Borrowers' now owned and hereafter existing or acquired goods, wherever
located, which (a) are leased by any Borrower as lessor; (b) are held by any Borrower for sale or lease or to be furnished under a contract of service or in transit; (c) are
furnished by any Borrower under a contract of service; or (d) consist of raw materials, work in process, finished goods or materials used or consumed in Borrowers' business. 

14

   
        1.71    "Inventory Sublimit"  shall mean an amount equal to the lesser of (y) Ten Million Dollars
($10,000,000), increased or decreased by the amount of any Maximum Credit Adjustment in effect at such time, or (z) an amount equal to seventy-six percent (76%) of the Maximum
Credit. 

        1.72    "Investment Property Control Agreement"  shall mean an agreement in writing, in form and substance
satisfactory to Lender, by and among Lender, either Borrower and any securities intermediary, commodity intermediary or other person who has custody, control or possession of any investment property
of such Borrower acknowledging that such securities intermediary, commodity intermediary or other person has custody, control or possession of such investment property on behalf of Lender, that it
will comply with entitlement orders originated by Lender with respect to such investment property, or other instructions of Lender, or (as the case may be) apply any value distributed on account of
any commodity contract as directed by Lender, in each case, without the further consent of such Borrower and including such other terms and conditions as Lender may require. 

        1.73    "Lender Payment Account"  shall mean U.S. Dollar account no. 00002-4635-886
of Lender at Bank of Montreal for U.S. Dollars and Canadian Dollar account no. 00002-1258-246 of Lender at Bank of Montreal for Canadian Dollars or such other account of
Lender as Lender may from time to time designate to Borrowers or Parent as the Lender Payment Account for purposes of this Agreement and the other Financing Agreements. 

        1.74    "Letter of Credit Accommodations"  shall mean, collectively, the letters of credit, merchandise purchase or
other guaranties which are from time to time either (a) issued or opened by Lender for the account of any Borrower or (b) with respect to which Lender has agreed to indemnify the issuer
or guaranteed to the issuer the performance by any Borrower of its obligations to such issuer; sometimes being referred to herein individually as a "Letter of Credit Accommodation". 

        1.75    "License Agreements"  shall have the meaning set forth in Section 8.10 hereof. 

        1.76    "Loans"  shall mean the loans now or hereafter made by Lender to or for the benefit of Borrowers on a
revolving basis (involving advances, repayments and readvances) as set forth in Section 2.1 hereof. 

        1.77    "Material Adverse Change"  shall mean (a) a material adverse change in the business, prospects,
operations, results of operations, assets, liabilities or condition (financial or otherwise) of Borrowers taken as a whole, (b) a material impairment of Borrowers' ability to perform their
obligations under the Financing Agreements or of Lender's ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the enforceability or priority of
Lender's liens or security interests with respect to the Collateral as a result of an action or failure to act on the part of a Borrower. 

        1.78    "Material Contract"  shall mean (a) any contract or other agreement (other than the Financing
Agreements or agreements relating solely to the purchase by any Borrower of Inventory in the ordinary course of such Borrower's business), written or oral, of any Borrower or Borrowers involving
monetary liability of or to any Person in an amount in excess of the U.S. Dollar Equivalent of Three Million Dollars ($3,000,000) in any fiscal year and (b) any other contract or other
agreement (other than the Financing Agreements), whether written or oral, to which any Borrower is a party as to which the breach, non-performance, cancellation or failure to renew by any
party thereto would have a material adverse effect on the business, assets, condition (financial or otherwise) or results of operations or prospects of Borrowers or the validity or enforceability of
this Agreement, any of the other Financing Agreements, or any of the rights and remedies of Lender hereunder or thereunder. 

        1.79    "Maximum Credit"  shall mean Fifteen Million Dollars ($15,000,000), plus or minus the amount of any Maximum
Credit Adjustment in effect at such time. 

15

 

        1.80    "Maximum Credit Adjustment"  shall have the meaning set forth in Section 2.1(d). 

        1.81    "Movable Hypothec"  means, collectively, (a) the movable hypothecs granted by Guess? Canada
Corporation, a Canadian corporation, under the Deed of Hypothec executed or to be executed by it in favour of the Lender, and (b) the movable hypothecs granted by Guess? Canada
Retail, Inc. under the Deed of Hypothec executed or to be executed by it in favour of the Lender. 

        1.82    "Net Amount of Eligible Accounts"  shall mean the gross amount of Eligible Accounts less returns, claims,
credits and allowances of any nature at any time issued, owing, granted, outstanding, available or claimed with respect thereto. 

        1.83    "Net Recovery Value"  shall mean the net cash Value derived from the sale and disposition of the Eligible
Inventory after deduction of all liquidation costs and other fees and expenses associated therewith. 

        1.84    "Obligations"  shall mean any and all Loans, the Letter of Credit Accommodations and all other obligations,
liabilities and indebtedness of every kind, nature and description owing by Borrowers to Lender and/or its affiliates, including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise, whether arising under this Agreement or otherwise, whether now existing or hereafter arising, whether arising before, during
or after the initial or any renewal term of this Agreement or after the commencement of any case with respect to any Borrower under the United States Bankruptcy Code, the Bankruptcy and Insolvency Act
(Canada), the Companies' Creditors Arrangement Act (Canada) or any similar statute (including the payment of interest and other amounts which would accrue and become due but for the commencement of
such case, whether or not such amounts are allowed or allowable in whole or in part in such case), whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or unsecured, and however acquired by Lender. 

        1.85    "Obligor"  shall mean each U.S. Borrower and any other guarantor, endorser, acceptor, surety or other person
liable on or with respect to the Obligations or who is the owner of any property which is security for the Obligations, other than Borrowers. 

        1.86    "Parent"  shall mean Guess ?, Inc. 

        1.87    "Permitted Amalgamation"  shall mean the amalgamation of Guess? Canada Corporation and Guess? Canada
Retail Inc. subject to satisfaction of the following conditions: (a) Borrower shall have given Lender at least 20 days' notice of the proposed amalgamation; (b) Lender
shall have received such Financing Agreements, confirmations, legal opinions and other documentation as it may reasonably require in connection with such proposed amalgamation. 

        1.88    "Permitted Holders"  shall mean collectively Maurice Marciano, Paul Marciano and Armand Marciano, the
members of their families, their respective estates, spouses, heirs, ancestors, lineal descendants, spouses of lineal descendants, legatees and legal representatives of any of the foregoing and any
trust of which one or more of the foregoing are the trustors, the trustees and/or the beneficiaries. 

        1.89    "Person"  or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects subchapter S status under the Code), limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or other entity or any government or any agency or instrumentality or political subdivision thereof. 

        1.90    "Prime Rate"  shall mean, the Canadian Prime Rate with respect to Canadian Prime Rate Loans, and the U.S.
Prime Rate with respect to U.S. Prime Rate Loans. 

16

 

        1.91    "Prime Rate Loans"  shall mean U.S. Prime Rate Loans and Canadian Prime Rate Loans. 

        1.92    "Priority Payables"  shall mean, as to either Borrower at any time, (a) the full amount of the
liabilities of such Borrower at such time which (i) have a trust imposed to provide for payment or a security interest, pledge, lien, hypothec or charge ranking or capable of ranking senior to
or pari passu with security interests, liens or charges securing the Obligations on any of the Accounts or Inventory of such Borrower under Federal, Provincial, State, county, district, municipal, or
local law or (ii) have a right imposed to provide for payment ranking or capable of ranking senior to or pari passu with the Obligations under
local or national law, regulation or directive, including, but not limited to, claims for unremitted and/or accelerated rents, taxes, wages, withholding taxes, VAT and other amounts payable to an
insolvency administrator, employee withholdings or deductions and vacation pay, workers' compensation obligations, government royalties or pension fund obligations in each case to the extent such
trust, or security interest, lien or charge has been or may be imposed. 

        1.93    "Receivables"  shall mean all of the following now owned or hereafter arising or acquired property of
Borrowers: (a) all Accounts; (b) all interest, fees, late charges, penalties, collection fees and other amounts due or to become due or otherwise payable in connection with any Account;
and (c) all payment intangibles of any Borrower and other contract rights, chattel paper, instruments, notes, and other forms of obligations owing to any Borrower, whether from the sale and
lease of goods or other property, licensing of any property (including Intellectual Property or other general intangibles), rendition of services or from loans or advances by any Borrower or to or for
the benefit of any third person (including loans or advances to any Affiliates or Subsidiaries of any Borrower) or otherwise associated with any Accounts, Inventory or general intangibles of any
Borrower (including, without limitation, choses in action, causes of action, tax refunds, tax refund claims, any funds which may become payable to any Borrower in connection with the termination of
any Canadian Pension Plan or other employee benefit plan and any other amounts payable to any Borrower from any Canadian Pension Plan or other employee benefit plan, rights and claims against carriers
and shippers, rights to indemnification, business interruption insurance and proceeds thereof, casualty or any similar types of insurance and any proceeds thereof and proceeds of insurance covering
the lives of employees on which any Borrower is a beneficiary). 

        1.94    "Records"  shall mean all of Borrowers' present and future books of account of every kind or nature,
purchase and sale agreements, invoices, ledger cards, bills of lading and other shipping evidence, statements, correspondence, memoranda, credit files and other data relating to the Collateral or any
account debtor, together with the tapes, disks, diskettes and other data and software storage media and devices, file cabinets or containers in or on which the foregoing are stored (including any
rights of Borrowers with respect to the foregoing maintained with or by any other person). 

        1.95    "Reference Bank"  shall mean Wachovia Bank, National Association, its successor or such other bank as U.S.
Lender may from time to time designate. 

        1.96    "Renewal Date"  shall the meaning set forth in Section 12.1 hereof. 

        1.97    "Reserves"  shall mean as of any date of determination, such amounts as Lender may from time to time
establish and revise in good faith reducing the amount of Loans and Letter of Credit Accommodations which would otherwise be available to Borrowers under the lending formula(s) provided for herein:
(a) to reflect events, conditions, contingencies or risks which, as determined by Lender 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 or its value, (ii) the assets, business or prospects of Borrowers or any Obligor or (iii) the
security interests and other rights of Lender in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Lender's good faith belief that any collateral
report or financial information furnished by or on behalf of Borrowers or any Obligor to Lender is or may have been incomplete, inaccurate or misleading in any material respect or (c) to
reflect outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) in respect of any state of facts which Lender determines in good faith constitutes a Default
or an Event of Default, or (e) to reflect the amounts of the Priority Payables 

17

 

or (f) to reflect Lender's good faith estimate of the amount necessary to reflect changes in applicable currency exchange rates or currency exchange markets. To the extent Lender may revise
the lending formulas used to determine the Borrowing Base or establish new criteria or revise existing criteria for Eligible Accounts or Eligible Inventory so as to address any circumstances,
condition, event or contingency in a manner satisfactory to Lender, Lender shall not establish a Reserve for the same purpose. The amount of any Reserve established by Lender shall have a reasonable
relationship to the event, condition or other matter which is the basis for such reserve as determined by Lender in good faith. Without limiting the generality of the foregoing, Reserves shall include
the Dilution Reserve, the Shrinkage Reserve and the Discount Reserve and may at Lender's discretion include a reserve for sales tax liability. 

        1.98    "Securitization"  shall mean the series of related transactions by which (i) Parent and Guess
Licensing may transfer to a SPE all or any part of the Securitization Assets, (ii) the SPE will transfer and/or pledge all or certain of such Securitization Assets to another Subsidiary (which
may be a corporation, partnership, limited liability company, trust or other legal entity) which will be wholly-owned by the SPE that will issue securities or debt instruments evidencing interests in
or secured by such assets and/or the proceeds thereof, (iii) all accounts and other Securitization Assets of the SPE and the proceeds thereof are segregated from and not commingled with the
Accounts, the other items of Collateral and the proceeds thereof. 

        1.99    "Securitization Assets"  shall mean (i) all or any part of the Intellectual Property that includes
and is related to the registered and unregistered trademarks and tradenames currently utilized in the business operations of Parent and its Subsidiaries and Affiliates, including those that are
licensed to third parties in and outside of the United States by Parent and Guess Licensing, (ii) all of their respective rights under all or specific licenses granted by Parent and Guess
Licensing and (iii) all proceeds from the
exploitation thereof or arising with respect thereto, including without limitation all amounts payable by licensees under such licenses and all proceeds of the enforcement of rights with respect to
such Intellectual Property. 

        1.100    "Securitization Closing Date"  shall mean the closing date of a Securitization. 

        1.101    "Securitization Documents"  shall mean the organizational documents of a SPE and any documents entered into
by either Borrower, any U.S. Borrower, Parent, any direct or indirect Subsidiary or Affiliate of Parent or of a Borrower, and/or a SPE in connection with a Securitization. 

        1.102    "SPE"  shall mean a direct or indirect Subsidiary of Parent, which may be a corporation, partnership,
limited liability company, trust or other legal entity, formed solely for the purposes of effectuating a Securitization. 

        1.103    "Shrinkage Reserve"  shall mean a Reserve for reductions in Inventory equal to the shrinkage reserve taken
by Borrowers on their financial statements prepared in accordance with GAAP. 

        1.104    "Solvent"  shall mean, at any time with respect to any Person, that at such time such Person (a) is
able to pay its debts as they mature and has (and has a reasonable basis to believe it will continue to have) sufficient capital (and not unreasonably small capital) to carry on its business
consistent with its practices as of the date hereof, and (b) the assets and properties of such Person at a fair valuation (and including as assets for this purpose at a fair valuation all
rights of subrogation, contribution or indemnification arising pursuant to any guaranties given by such Person) are greater than the Indebtedness of such Person, and including subordinated and
contingent liabilities computed at the amount which, such person has a reasonable basis to believe, represents an amount which can reasonably be expected to become an actual or matured liability (and
including as to contingent liabilities arising pursuant to any guaranty the face amount of such liability as reduced to reflect the probability of it becoming a matured liability). 

        1.105    "Subordinated Notes"  shall mean the 9.50% Senior Subordinated Notes due 2003 and 9.50% Series B
Senior Subordinated Notes due 2003 of Parent issued pursuant to an Indenture dated August 23, 1993 with First Trust National Association as Trustee. 

18

 

        1.106    "Subsidiary"  or "subsidiary" shall mean, with respect to
any Person, any corporation, limited liability company, limited liability partnership or other limited or general partnership, trust, association or other business entity of which an aggregate of at
least a majority of the outstanding Capital Stock or
other interests entitled to vote in the election of the board of directors of such corporation (irrespective of whether, at the time, Capital Stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any contingency), managers, trustees or other controlling persons, or an equivalent controlling interest therein, of such Person is,
at the time, directly or indirectly, owned by such Person and/or one or more subsidiaries of such Person. 

        1.107    "Trailing Four Quarters EBITDA"  shall mean, with respect to any fiscal period, the sum of Parent's and its
Subsidiaries' consolidated EBITDA for each of the four (4) fiscal quarters ending at the end of the fiscal period for which the calculation is made. 

        1.108    "UCC"  shall mean the Uniform Commercial Code as in effect in the State of California, and any successor
statute, as in effect from time to time (except that terms used herein which are defined in the Uniform Commercial Code as in effect in the State of California on the date hereof shall continue to
have the same meaning notwithstanding any replacement or amendment of such statute except as Lender may otherwise determine. 

        1.109    "U.S. Agreement"  shall mean the loan and security agreement dated September 27, 2002 by and among
Wachovia Securities, Inc., Parent and certain of its Subsidiaries, as borrowers, and the U.S. Lender, as lender. 

        1.110    "U.S. Average Excess Availability"  shall mean the average daily amount, as determined by U.S. Lender, for
the immediately preceding fiscal quarter, equal to: (a) the U.S. Borrowing Base, plus (b) U.S. Borrowers' unrestricted cash and/or Cash Equivalents that are on deposit in a securities or
deposit account subject to a control agreement, in form and substance satisfactory to U.S. Lender, minus (c) the book overdraft of U.S. Borrowers, minus (d) the amount of all then
outstanding and unpaid U.S. Obligations, provided, however, that such definition may be amended from time to time pursuant to the corresponding calculation of "U.S. Average Excess Availability" as
defined in the U.S. Agreement. 

        1.111    "U.S. Borrowers"  shall mean the borrowers under the U.S. Agreement. 

        1.112    "U.S. Borrowing Base"  shall mean the "Borrowing Base" as defined in the U.S. Agreement. 

        1.113    "U.S. Compliance Excess Availability"  shall mean the amount, as determined by U.S. Lender, as of any time,
equal to: (a) the U.S. Borrowing Base, plus (b) the lesser of (i) Five Million Dollars ($5,000,000) and (ii) the result of (A) U.S. Borrowers' unrestricted cash
and/or Cash Equivalents that are on deposit in a securities or deposit account subject to a control agreement, in form and substance satisfactory to U.S. Lender, minus (B) the book overdraft of
U.S. Borrowers, minus (C) the amount of all then outstanding and unpaid U.S. Obligations, provided, however, that such definition may be
amended from time to time pursuant to the corresponding calculation of "U.S. Compliance Excess Availability" as defined in the U.S. Agreement. 

        1.114    "U.S. Dollar Equivalent"  shall mean at any time (a) as to any amount denominated in U.S. Dollars,
the amount thereof at such time, and (b) as to any amount denominated in any other currency, the equivalent amount in U.S. Dollars calculated by Lender, or Borrower, as applicable, in good
faith at such time using the Exchange Rate in effect on the Business Day of determination. 

        1.115    "U.S. Dollar Loans"  shall mean any Loans or portion thereof which are denominated in U.S. Dollars. 

        1.116    "U.S. Domestic Subsidiary"  shall mean a Subsidiary of a U.S. Borrower that is organized or incorporated
under the laws of the United States of America, any state thereof or the District of Columbia. 

19

 

        1.117    "U.S. Excess Availability"  shall mean the amount, as determined by U.S. Lender, calculated at any time,
equal to: (a) the U.S. Borrowing Base, plus (b) U.S. Borrowers' unrestricted cash and/or Cash Equivalents that are on deposit in a securities or deposit account subject to a control
agreement, in form and substance satisfactory to U.S. Lender, minus (c) the book overdraft of U.S. Borrowers, minus (d) the sum of: (i) the amount of all then outstanding and
unpaid U.S. Obligations, plus (ii) the aggregate amount of all then outstanding and unpaid trade payables and other obligations of U.S. Borrowers which are more than sixty (60) days past
due as of the last day of the immediately preceding fiscal month, and plus (iii) the amount of cheques issued by U.S. Borrowers to pay trade payables and other obligations which are more than
sixty (60) days past due as of such time, but not yet sent (but without duplication of clause (b)(ii)), as of the last day of the immediately preceding fiscal month, provided, however,
that such definition may be amended from time to time pursuant to the corresponding calculation of "U.S. Excess Availability" as defined in the U.S. Agreement. 

        1.118    "U.S. Facility"  shall mean the revolving line of credit made available to or for the benefit of U.S.
Borrowers pursuant to the U.S. Agreement, as such facility may be amended or replaced from time to time. 

        1.119    "U.S. Lender"  means Congress Financial Corporation (Western), the lender under the U.S. Agreement. 

        1.120    "U.S. Net Amount of Eligible Accounts"  means the "Net Amount of Eligible Accounts" as defined in the U.S.
Agreement. 

        1.121    "U.S. Obligations"  shall mean the "Obligations" as defined in the U.S. Agreement. 

        1.122    "U.S. Prime Rate"  shall mean the rate from time to time publicly announced by Reference Bank, or its
successors, as its prime rate, whether or not such announced rate is the best available rate at such bank. 

        1.123    "U.S. Prime Rate Loans"  shall mean any U.S. Dollar Loans or portion thereof on which interest is payable
based on the U.S. Prime Rate in accordance with the terms hereof. 

        1.124    "U.S. Maximum Credit"  shall mean at any time the amount of Eighty-Five Million Dollars
($85,000,000) (subject to U.S. Borrowers' right to reduce such amount under Section 12.1(d) of the U.S. Agreement) minus the Maximum Credit. 

        1.125    "Value"  shall mean, as determined by Lender in good faith, with respect to Inventory, the lower of the
U.S. Dollar Equivalent of (a) cost computed on a first-in-first-out basis in accordance with GAAP or (b) market value provided, that, for purposes of
the calculation of the Borrowing Base, (i) the Value of the Inventory shall not include: (A) the portion of the value of Inventory equal to the profit earned by any Affiliate on the sale
thereof to any Borrower (known as "intercompany profit") or (B) write-ups or write-downs in value with respect to currency exchange rates and (ii) notwithstanding anything to
the contrary contained herein, the cost of the Inventory shall be computed in the same manner and consistent with the most recent appraisal of the Inventory received and accepted by Lender prior to
the date hereof, if any. 

        1.126    "Voting Stock"  shall mean with respect to any Person, (a) one (1) or more classes of Capital
Stock of such Person having general voting power to elect at least a majority of the board of directors, managers or trustees of such Person, irrespective of whether at the time Capital Stock of any
other class or classes have or might have voting power by reason of the happening of any contingency, and (b) any Capital Stock of such Person convertible or exchangeable without restriction at
the option of the holder thereof into Capital Stock of such Person described in clause (a) of this definition. 

SECTION 2    CREDIT FACILITIES    

        2.1    Loans.    

        (a)  Subject
to and upon the terms and conditions contained herein, Lender agrees to make Loans by way of Canadian Prime Loans, U.S. Prime Loans and Eurodollar Rate Loans to 

20

 

Borrowers from time to time in amounts requested by either Borrower or Borrowers up to the U.S. Dollar Equivalent of the amount equal to the lesser of: (i) the Borrowing Base, or
(ii) the Maximum Credit. 

        (b)  Lender
may, in its discretion, from time to time, upon not less than five (5) days prior written notice to Borrowers, (i) reduce the lending formula with
respect to Eligible Accounts to the extent that Lender determines in good faith that: (A) the dilution with respect to the Accounts for any period (based on the ratio of (1) the
aggregate amount of reductions in Accounts other than as a result of payments in cash to (2) the aggregate amount of total sales) has increased or may be reasonably anticipated to increase
above historical levels, or (B) the general creditworthiness of account debtors has declined, or (ii) reduce the lending formula(s) with respect to Eligible Inventory to the extent that
Lender determines that: (A) the number of days of the turnover of the Inventory for any period has changed or (B) the liquidation value of the Eligible Inventory, or any category
thereof, has decreased, including any such decrease attributable to any change in the nature, quality or mix of the Inventory; provided that Borrowers may respond in writing to such reductions
proposed by Lender within two (2) days of Lender's giving notice thereof, and Lender will consider Borrowers' response in determining whether to make the proposed reductions; provided, further,
that such reductions will in every case be made by Lender and in Lender's sole discretion. The amount of any decrease in the lending formulas shall have a reasonable relationship to the event,
condition or circumstance that is the basis for such decrease as determined by Lender in good faith. In determining whether to reduce the lending formula(s), Lender may consider events, conditions,
contingencies or risks which are also considered in determining Eligible Accounts, Eligible Inventory or in establishing Reserves. 

        (c)  Except
in Lender's discretion, the aggregate amount of the Loans and the Letter of Credit Accommodations outstanding at any time shall not exceed the Maximum Credit and
the amount of Loans and the Letter of Credit Accommodations outstanding at any time with respect to Eligible Inventory that is in transit shall not exceed the U.S. Dollar Equivalent of Three Million
Dollars ($3,000,000) in the aggregate. In the event that the outstanding amount of any component of the Loans, or the aggregate amount of the outstanding Loans and Letter of Credit Accommodations,
exceeds the amounts available pursuant to this Agreement, such event shall not limit, waive or otherwise affect any rights of Lender in that circumstance or on any future occasions and Borrowers
shall, upon demand by Lender, which may be made at any time or from time to time, immediately repay to Lender the entire amount of any such excess(es) for which payment is demanded. 

        (d)  The
Borrowers will, provided there is no Default or Event of Default, be permitted upon thirty (30) days' prior written notice to Lender and U.S. Lender to
increase or decrease the Maximum Credit one time per year beginning on October 1, 2003, effective on October 1 of each year, in an amount (the "Maximum Credit Adjustment") not to exceed
Five Million Dollars ($5,000,000) in the aggregate and only in increments of One Million Dollars ($1,000,000), provided that the aggregate effect of such elections may not increase the Maximum Credit
above Fifteen Million Dollars ($15,000,000) or decrease it below Ten Million Dollars ($10,000,000). 

        2.2    Letter of Credit Accommodations.    

        (a)  Subject
to and upon the terms and conditions contained herein, at the request of a Borrower, Lender agrees to provide or arrange for Letter of Credit Accommodations for
the account of such Borrower containing terms and conditions acceptable to Lender and the issuer thereof. Any payments made by Lender to any issuer thereof and/or related parties in connection with
the Letter of Credit Accommodations shall constitute additional Loans to such Borrower pursuant to this Section 2. 

        (b)  In
addition to any charges, fees or expenses charged by any bank or issuer in connection with the Letter of Credit Accommodations, the applicable Borrower shall pay to
Lender a letter of credit fee equal to 1.75% per annum on the daily outstanding balance of the Letter of Credit 

21

 

Accommodations for the immediately preceding month (or part thereof) until the delivery of financial statements for the period ending December 31, 2002. Thereafter, the applicable Borrower
shall pay to Lender a letter of credit fee on the daily outstanding balance of the Letter of Credit Accommodations for the immediately preceding month (or part thereof), payable in arrears as of the
first day of the month following the timely delivery of financial statements to Lender pursuant to this Agreement based on Trailing Four Quarters EBITDA or Average Excess Availability as set forth
below: 

	Trailing Four Quarters EBITDA
	 	Average Excess Availability for the immediately

preceding fiscal quarter
	 	L/C Fee
	 
	•	 	Greater than or equal to $70,000,000	 	•	 	Greater than or equal to $40,000,000	 	1.50	%
	

•	
 	

Greater than or equal to $55,000,000 but less than $70,000,000	
 	

•	
 	

Greater than or equal to $30,000,000 but less than $40,000,000	
 	

1.75	
%
	

•	
 	

Greater than or equal to $40,000,000 but less than $55,000,000	
 	

•	
 	

Greater than or equal to $20,000,000 but less than $30,000,000	
 	

1.75	
%
	

•	
 	

Greater than or equal to $25,000,000 but less than $40,000,000	
 	

•	
 	

Less than $20,000,000	
 	

2.00	
 

If
Trailing Four Quarters EBITDA is less than Twenty Five Million Dollars ($25,000,000), the letter of credit fee shall be calculated using the margin based on Average Excess Availability set forth
above. If Trailing Four Quarters EBITDA is Twenty Five Million Dollars ($25,000,000) or more, the letter of credit fee shall be calculated using the lower of the margins applicable based on Trailing
Four Quarters EBITDA or Average Excess Availability. The letter of credit fee will be adjusted quarterly based on the margins set forth the above, such adjustments to take effect concurrently with any
corresponding adjustment for the letter of credit fee under the U.S. Agreement on the first day of the month following the timely delivery of financial statements under this Agreement. If financial
statements are not timely delivered, the letter of credit fee shall be set using the highest margin shown above and shall remain at that rate until the delivery of financial statements that permit the
setting of the letter of credit fee in accordance with the table above. Notwithstanding the foregoing, the applicable Borrower shall pay to Lender such letter of credit fee, at Lender's option,
without notice, at a rate equal to two percent (2%) per annum higher than the highest rate set forth above on such daily outstanding balance for: (i) the period from and after the date of
termination or non-renewal hereof until Lender has received full and final payment of all Obligations (notwithstanding entry of a judgment against either Borrower) and (ii) the
period from and after the date of the occurrence of an Event of Default for so long as such Event of Default is continuing as determined by Lender. Such letter of credit fee shall be calculated on the
basis of a three hundred sixty (360) day year in the case of Letter of Credit Accommodations denominated in Dollars, or on the basis of a three hundred sixty-five (365) day
year in the case of Letter of Credit Accommodations denominated in Canadian Dollars, and in each case actual days elapsed and the obligation of Borrowers to pay such fee shall survive the termination
or non-renewal of this Agreement. 

22

  

        (c)  Borrower
shall give Lender two (2) Business Days' prior written notice of such Borrower's request for the issuance of a Letter of Credit Accommodation. Such
notice shall be irrevocable and shall specify the original face amount and currency of the Letter of Credit Accommodation requested, the effective date (which date shall be a Business Day) of issuance
of such requested Letter of Credit Accommodation, whether such Letter of Credit Accommodations may be drawn in a single or in partial draws, the date on which such requested Letter of Credit
Accommodation is to expire (which date shall be a Business Day), the purpose for which such Letter of Credit Accommodation is to be issued, and the beneficiary of the requested Letter of Credit
Accommodation. The proposed form of the Letter of Credit Accommodation shall be attached to such notice. 

        (d)  In
addition to being subject to the satisfaction of the applicable conditions precedent contained in Section 4 hereof and the other terms and conditions contained
herein, no Letter of Credit Accommodations shall be available unless each of the following conditions precedent have been satisfied in a manner satisfactory to Lender: (i) the applicable
Borrower shall have delivered to the proposed issuer of such Letter of Credit Accommodation at such times and in such manner as such proposed issuer may require, an application in form and substance
satisfactory to such proposed issuer and Lender for the issuance of the Letter of Credit Accommodation and such other documents as may be required pursuant to the terms thereof, and the form and terms
of the proposed Letter of Credit Accommodation shall be satisfactory to Lender and such proposed issuer, (ii) as of the date of issuance, no order of any court, arbitrator or other Governmental
Authority shall purport by its terms to enjoin or restrain money center banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit Accommodation, and
no law, rule or regulation applicable to money center banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over money
center banks generally shall prohibit, or request that the proposed issuer of such Letter of Credit Accommodation refrain from, the issuance of letters of credit generally or the issuance of such
Letters of Credit Accommodation; and (iii) availability under the Borrowing Base, prior to giving effect to any Reserves with respect to such Letter of Credit Accommodations, on the date of the
proposed issuance of any Letter of Credit Accommodations, shall be equal to or greater than: (A) if the proposed Letter of Credit Accommodation is for the purpose of purchasing Eligible
Inventory and the documents of title with respect thereto are consigned to the issuer or such Inventory is the subject of a Collateral Access Agreement, the sum of (1) the percentage equal to
one hundred percent (100%) minus the then applicable percentage with respect to Eligible Inventory set forth in the definition of the term Borrowing Base multiplied by the Value of such Eligible
Inventory, plus (2) freight, taxes, duty and other amounts which Lender estimates must be paid in connection with such Inventory upon arrival and for delivery to one of Borrowers' permitted
locations for Eligible Inventory within Canada or U.S. Borrowers' warehouse location at 5000 Crittenden Dr., Louisville, Kentucky, U.S.A., or (B) if the proposed Letter of Credit Accommodation
is for any other purpose, or the documents of title are either (y) not consigned to the issuer in connection with a Letter of Credit Accommodation for the purpose of purchasing Inventory, or
(z) not in the possession of Lender or its bailees or for which Lender has not received Collateral Access Agreements or other documentation satisfactory to Lender, an amount equal to one
hundred percent (100%) of the face amount thereof and all other commitments and obligations made or incurred by Lender with
respect thereto. Effective on the issuance of each Letter of Credit Accommodation, a Reserve shall be established in the applicable amount set forth in Section 2.2(d)(iii)(A) or
Section 2.2(d)(iii)(B) above. 

        (e)  Except
in Lender's discretion, the U.S. Dollar Equivalent of all outstanding Letter of Credit Accommodations and all other commitments and obligations made or incurred
by Lender in connection therewith shall not at any time exceed Seven Million Five Hundred Thousand Dollars ($7,500,000) plus or minus the amount of any Maximum Credit Adjustment in effect at such
time. 

23

 

        (f)    Borrowers
shall indemnify and hold Lender harmless from and against any and all losses, claims, damages, liabilities, costs and expenses which Lender may suffer or incur
in connection with any Letter of Credit Accommodations and any documents, drafts or acceptances relating thereto, including any losses, claims, damages, liabilities, costs and expenses due to any
action taken by any issuer or correspondent with respect to any Letter of Credit Accommodation except for losses, claim, damages, liabilities, costs and expenses arising from the gross negligence or
willful misconduct of Lender as determined pursuant to a final non-appealable order of a court of competent jurisdiction. Borrowers assume all risks with respect to the acts or omissions
of the drawer under or beneficiary of any Letter of Credit Accommodation and for such purposes the drawer or beneficiary shall be deemed Borrowers' agent. Borrowers assume all risks for, and agrees to
pay, all foreign, Federal, State, Provincial and local taxes, duties and levies relating to any goods subject to any Letter of Credit Accommodations or any documents, drafts or acceptances thereunder.
Borrowers hereby release and hold Lender harmless from and against any acts, waivers, errors, delays or omissions, whether caused by any Borrower, by any issuer or correspondent or otherwise with
respect to or relating to any Letter of Credit Accommodation, except for the gross negligence or willful misconduct of Lender as determined pursuant to a final, non-appealable order of a
court of competent jurisdiction. The provisions of this Section 2.2(f) shall survive the payment of Obligations and the termination of this Agreement. 

        (g)  In
connection with Inventory purchased pursuant to Letter of Credit Accommodations, Borrowers shall, at Lender's request, instruct all suppliers, carriers, forwarders,
customs brokers, warehouses or others receiving or holding cash, checks, Inventory, documents or instruments in which Lender holds a security interest to deliver them to Lender and/or subject to
Lender's order, and if they shall come into any Borrower's possession, to deliver them, upon Lender's request, to Lender in their original form. 

        (h)  Borrowers
hereby irrevocably authorize and direct any issuer of a Letter of Credit Accommodation to name any Borrower as the account party therein and to deliver to
Lender all instruments, documents and other writings and property received by issuer pursuant to the Letter of Credit Accommodations and to accept and rely upon Lender's instructions and agreements
with respect to all matters arising in connection with the Letter of Credit Accommodations or the applications therefor. Nothing contained herein shall be deemed or construed to grant any Borrower any
right or authority to pledge the credit of Lender in any manner. Lender shall have no liability of any kind with respect to any Letter of Credit Accommodation provided by an issuer other than Lender
unless Lender has duly executed and delivered to such issuer the application or a guaranty or indemnification in writing with respect to such Letter of Credit Accommodation. Borrowers shall be bound
by any interpretation made in good faith
by Lender or any other issuer or correspondent under or in connection with any Letter of Credit Accommodation or any documents, drafts or acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any instructions of any Borrower. Lender shall have the sole and exclusive right and authority to, and Borrowers shall not: (i) at any time an Event of
Default exists or has occurred and is continuing, (A) approve or resolve any questions of non-compliance of documents, (B) give any instructions as to acceptance or rejection
of any documents or goods or (C) execute any and all applications for steamship or airway guaranties, indemnities or delivery orders, and (ii) at all times, (A) grant any
extensions of the maturity of, time of payment for, or time of presentation of, any drafts, acceptances, or documents, and (B) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the applications, Letter of Credit Accommodations, or documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. 

        (i)    Any
rights, remedies, duties or obligations granted or undertaken by any Borrower to any issuer or correspondent in any application for any Letter of Credit
Accommodation, or any other 

24

 

agreement in favor of any issuer or correspondent relating to any Letter of Credit Accommodation, shall be deemed to have been granted or undertaken by Borrowers to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any Letter of Credit Accommodation, or any other agreement by Lender in favor of any issuer or correspondent relating to any
Letter of Credit Accommodation, shall be deemed to have been undertaken by Borrowers to Lender and to apply in all respects to Borrowers. 

SECTION 3    INTEREST AND FEES    

        3.1    Interest.    

        (a)  Borrowers
shall pay to Lender interest on the outstanding principal amount of the Loans at the applicable Interest Rate. All interest accruing hereunder on and after the
date of any Event of Default or termination or non-renewal hereof shall be payable on demand. 

        (b)  Borrowers
may from time to time request Eurodollar Rate Loans or may request that Prime Rate Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar
Rate Loans continue for an additional Interest Period. Such request from Borrowers shall specify the amount of the Eurodollar Rate Loans or the amount of the Prime Rate Loans to be converted to
Eurodollar Rate Loans or the amount of the Eurodollar Rate Loans to be continued (subject to the limits set forth below) and the Interest Period to be applicable to such Eurodollar Rate Loans. Subject
to the terms and conditions contained herein, three (3) Business Days after receipt by Lender of such a request from Borrowers, such Prime Rate Loans shall be converted to Eurodollar Rate Loans
or such Eurodollar Rate Loans shall continue, as the case may be, provided, that (i) no Default or Event of Default shall exist or have occurred and be continuing, (ii) no party hereto
shall have sent any notice of termination or non-renewal of this Agreement, (iii) Borrowers shall have complied with such customary procedures as are
established by Lender and specified by Lender to Borrowers from time to time for requests by Borrowers for Eurodollar Rate Loans, (iv) no more than six (6) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans must be in an amount not less than Five Million Dollars ($5,000,000) or an integral multiple of One Million Dollars
($1,000,000) in excess thereof, (vi) Borrowers shall exercise reasonable efforts to assure that the maximum amount of the Eurodollar Rate Loans at any time requested by Borrowers shall not
exceed the amount equal to ninety percent (90%) of the lowest principal amount of the Loans which it is anticipated will be outstanding during the applicable Interest Period, and (vii) Lender
shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to Lender through the Reference Bank and can be readily determined as of the date of the request for such
Eurodollar Rate Loan by Borrowers. Any request by Borrowers for Eurodollar Rate Loans or to convert Prime Rate Loans to Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender and Reference Bank shall not be required to purchase United States Dollar deposits in the London interbank market or
other applicable Eurodollar Rate market to fund any Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if Lender and Reference Bank had purchased such deposits to fund the
Eurodollar Rate Loans. 

        (c)  Any
Eurodollar Rate Loans shall automatically convert to U.S. Prime Rate Loans upon the last day of the applicable Interest Period, unless Lender has received and
approved a request to continue such Eurodollar Rate Loan at least three (3) Business Days prior to such last day in accordance with the terms hereof. Borrowers shall pay to Lender, upon demand
by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss
of anticipated profits), cost or expense incurred by such person, as a result of the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of the foregoing. 

25

 

        (d)  Interest
shall be payable by Borrowers to Lender monthly in arrears not later than the first day of each calendar month and shall be calculated on the basis of
(i) a three hundred sixty five (365) day year in the case of Canadian Dollar Loans and (ii) a three hundred sixty (360) day year in the case of U.S. Dollar Loans, and in
each case based on actual days elapsed. The interest rate on non-contingent Obligations (other than Eurodollar Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any change in such Prime Rate is announced based on the Prime Rate in effect on the last day of the month in which any such
change occurs. In no event shall charges constituting interest payable by Borrowers to Lender exceed the maximum amount or the rate permitted under any applicable law or regulation, and if any such
part or provision of this Agreement is in contravention of any such law or regulation, such part or provision shall be deemed amended to conform thereto. 

        (e)  For
purposes of disclosure under the Interest Act (Canada), where interest is calculated pursuant thereto at a rate based upon a three hundred sixty (360) day
year or three hundred sixty-five (365) day year (the "First Rate"), the rate or percentage of interest on a yearly basis is equivalent to such First Rate multiplied by the actual
number of days in the year divided by three hundred sixty (360) or three hundred sixty-five (365), as applicable. 

        (f)    Notwithstanding
the provisions of this Section 3 or any other provision of this Agreement, in no event shall the aggregate "interest" (as that term is defined in
Section 347 of the Criminal Code (Canada)) with respect to any Loans by or on behalf of Lender exceed the effective annual rate of interest on the "credit advanced" (as defined therein)
lawfully permitted under Section 347 of the Criminal Code (Canada). The effective annual rate of interest for such purpose shall be determined in accordance with generally accepted actuarial
practices and principles over the term of the applicable Loan by or on behalf of Lender, and in the event of a dispute, a certificate of a Fellow of the Canadian Institute of Actuaries appointed by
Lender will be conclusive for the purposes of such determination. 

        (g)  A
certificate of an authorized signing officer of Lender as to each rate of interest payable hereunder from time to time absent manifest error shall be conclusive
evidence of such rate. 

        (h)  For
greater certainty, unless otherwise specified in this Agreement or any of the other Financing Agreements, as applicable, whenever any amount is payable under this
Agreement or any of the other Financing Agreements by Borrowers as interest or as a fee which requires the calculation of an amount using a percentage per annum, each party to this Agreement
acknowledges and agrees that such amount shall be calculated as of the date payment is due without application of the "deemed reinvestment principle" or the "effective yield method." As an example,
when interest is calculated and payable monthly, the rate of interest payable per month is one twelfth (1/12) of the stated rate of interest per annum. 

        (i)    Notwithstanding
the foregoing provisions of this Section 3, Borrowers shall pay to Lender interest, at Lender's option, without notice, at a rate of two (2.0%)
percent per annum greater than the highest rates otherwise set forth in the definition of "Interest Rate" as follows: 

          (i)  on
the non-contingent Obligations for the period from and after the date of termination hereof, or the date of the occurrence of an Event of Default, and
for so long as such Event of Default is continuing as determined by Lender and until such time as Lender has received full and final payment of all such Obligations (notwithstanding entry of any
judgment against Borrowers); and 

        (ii)  on
the Loans at any time outstanding in excess of the amounts available to Borrowers under Section 2 (whether or not such excess(es) arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event of Default). 

26

 

        All
interest accruing hereunder on and after the occurrence of any of the events referred to in this Section 3.1(i) shall be payable on demand. 

        3.2    Intentionally Deleted.    

        3.3    Intentionally Deleted.    

        3.4    Intentionally Deleted.    

        3.5    Changes in Laws and Increased Costs of Loans.    

        (a)  Notwithstanding
anything to the contrary contained herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrowers, convert to Prime Rate Loans in the event
that (i) any change in applicable law or regulation (or the interpretation or administration thereof) shall either (A) make it unlawful for Lender, Reference Bank or any participant with
Lender to make or maintain Eurodollar Rate Loans or to comply with the terms hereof in connection with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs to Lender,
Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C) reduce the amounts received or receivable by Lender in
respect thereof, by an amount deemed by Lender to be material or (ii) the cost to Lender, Reference Bank or any participant of making or maintaining any Eurodollar Rate Loans shall otherwise
increase by an amount deemed by Lender to be material. Borrowers shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any loss (including loss of anticipated profits), cost or expense incurred by such person as a result of the foregoing,
including, without limitation, any such loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof; provided that no such person shall be entitled to compensation for any such loss, cost or expense with respect to any period prior to six months prior to
the date of the demand delivered to Borrowers. 

        (b)  If
any payments or prepayments in respect of the Eurodollar Rate Loans are received by Lender other than on the last day of the applicable Interest Period (whether
pursuant to acceleration, upon maturity or otherwise), including any payments pursuant to the application of collections under Section 6.3 or any other payments made with the proceeds of
Collateral, Borrowers shall pay to Lender upon demand by Lender (or Lender may, at its option, charge any loan account of Borrowers) any amounts required to compensate Lender, the Reference Bank or
any participant with Lender for any additional loss (including loss of anticipated profits), cost or expense incurred by such person as a result of such prepayment or payment, including, without
limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such person to make or maintain such Eurodollar Rate Loans or any
portion thereof. 

        (c)  A
certificate of Lender setting forth the basis for the determination of the amount necessary to compensate Lender or any participant under this Section 3.5 shall
be delivered to Borrowers and shall be conclusive, absent manifest error. 

SECTION 4    CONDITIONS PRECEDENT    

        4.1    Conditions Precedent to Initial Loans and Letter of Credit Accommodations.    

        Each
of the following is a condition precedent to Lender making the initial Loans and providing the initial Letter of Credit Accommodations hereunder: 

        (a)  Lender
shall have received, in form and substance satisfactory to Lender, all releases, terminations and such other documents as Lender may request to evidence and
effectuate the 

27

 

termination by the existing lenders to Borrowers of their respective financing arrangements with Borrowers and the termination and release by it or them, as the case may be, of any interest in and to
any assets and properties of any Borrower and each Obligor, duly authorized, executed and delivered by it or each of them, including, but not limited to, (i) UCC termination statements for all
UCC financing statements previously filed by it or any of them or their predecessors, as secured party and any Borrower or any Obligor, as debtor, (ii) terminations or hypothec discharges under
Canadian Security Laws for all financing statements or hypothecs previously filed or registered by it or any of them or their predecessors, as secured party and any Borrower or any Obligor, as debtor
and (iii) satisfactions and discharges of any mortgages, deeds of trust or deeds to secure debt by any Borrower or any Obligor in favour of such existing lender or lenders, in form acceptable
for recording with the appropriate Governmental Authority; 

        (b)  all
requisite corporate action and proceedings in connection with this Agreement and the other Financing Agreements shall be satisfactory in form and substance to
Lender, and Lender shall have received all information and copies of all documents, including records of requisite corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be certified by appropriate corporate officers or Governmental Authority (and including a copy of the certificate of incorporation
of each Borrower certified by the Secretary of State (or equivalent Governmental Authority) which shall set forth the same complete corporate name of such Borrower as is set forth herein and such
document as shall set forth the organizational identification number of such Borrower, if one is issued in its jurisdiction of incorporation); 

        (c)  no
Material Adverse Change shall have occurred since the date of Lender's latest field examination; 

        (d)  Lender
shall have completed a field review of the Records and such other information with respect to the Collateral as Lender may require to determine the amount of
Loans available to Borrowers (including, without limitation, current perpetual inventory records and/or roll-forwards of Accounts and Inventory through the date of closing and test counts
of the Inventory in a manner satisfactory to Lender, together with such supporting documentation as may be necessary or appropriate, and other documents and information that will enable Lender to
accurately identify and verify the Collateral), the results of which each case shall be satisfactory to Lender, not more than five (5) Business Days prior to the date hereof; 

        (e)  Lender
shall have received, in form and substance satisfactory to Lender, all consents, waivers, acknowledgments and other agreements from third persons which Lender may
deem necessary or desirable in order to permit, protect and perfect its security interests, hypothecs in and liens upon the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, agreements with Customs Brokers and the Collateral Access Agreements listed on  Schedule 4.1 by owners and lessors of leased premises
of Borrowers and by warehouses at which Collateral is located; 

        (f)    the
Canadian Compliance Excess Availability as determined by Lender, as of the date hereof shall be not less than One Million Dollars ($1,000,000) after giving effect to
the initial Loans made or to be made and Letter of Credit Accommodations issued or to be issued in connection with the transactions hereunder and the U.S. Excess Availability as of the date hereof
shall not be less than Twenty Million Dollars ($20,000,000); 

        (g)  Lender
shall have received, in form and substance satisfactory to Lender, Deposit Account Control Agreements by and among Lender, Borrowers and each bank where any
Borrower has the Central Collection Deposit Accounts set forth on Schedule 4.1, in each case, duly authorized, executed and delivered by such
bank and the relevant Borrower (or Lender shall be the bank's customer with respect to such deposit account as Lender may specify); 

28

 

        (h)  Lender
shall have received evidence, in form and substance satisfactory to Lender, that Lender has a valid perfected first priority security interest in, and first
ranking valid hypothec on, all of the Collateral, subject to the liens permitted pursuant to Section 9.8; 

        (i)    Lender
shall have received and reviewed lien and judgment search results for the jurisdictions of incorporation or organization of Borrowers, the jurisdictions of the
chief executive offices of Borrowers and all jurisdictions listed on Schedule 4.1 in which assets of Borrowers are located, which search results
shall be in form and substance satisfactory to Lender; 

        (j)    Lender
shall have received evidence of insurance and loss payee endorsements required hereunder and under the other Financing Agreements, in form and substance
satisfactory to Lender, and certificates of insurance policies and/or endorsements naming Lender as loss payee; 

        (k)  Lender
shall have received, in form and substance satisfactory to Lender, such opinion letters of counsel to Borrowers with respect to the Financing Agreements and such
other matters as Lender may request; 

        (l)    the
other Financing Agreements and all instruments and documents hereunder and thereunder shall have been duly executed and delivered to Lender, in form and substance
satisfactory to Lender; and 

        (m)  the
U.S. Agreement and all other documents and instruments contemplated thereby shall have been executed and delivered to the U.S. Lender. 

        4.2    Conditions Precedent to All Loans and Letter of Credit Accommodations.    

        Each
of the following is an additional condition precedent to Lender making Loans and/or providing Letter of Credit Accommodations to Borrowers, including the initial Loans and Letter of
Credit Accommodations and any future Loans and Letter of Credit Accommodations: 

        (a)  all
representations and warranties contained herein and in the other Financing Agreements shall be true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of the date of the making of each such Loan or providing each such Letter of Credit Accommodation and after giving effect thereto,
except to the extent that such representations and warranties expressly relate solely to an earlier date (in which case such representations and warranties shall have been true and accurate on and as
of such earlier date); 

        (b)  no
law, regulation, order, judgment or decree of any Governmental Authority shall exist, and no action, suit, investigation, litigation or proceeding shall be pending or
threatened in any court or before any arbitrator or Governmental Authority, which (i) purports to enjoin, prohibit, restrain or otherwise affect (A) the making of the Loans or providing
the Letter of Credit Accommodations, or (B) the consummation of the transactions contemplated pursuant to the terms hereof or the other Financing Agreements or (ii) has or could
reasonably be expected to have a Material Adverse Change. 

        (c)  no
Default or Event of Default shall exist or have occurred and be continuing on and as of the date of the making of such Loan or providing each such Letter of Credit
Accommodation and after giving effect thereto; and 

        (d)  no
requirement of the Minister of National Revenue for payment pursuant to Section 224, or any successor section, of the Income Tax Act (Canada) or
Section 317, or any successor section of the Excise Act (Canada) or any comparable provision of similar legislation shall have been received by Lender or any other Person in respect of a
Borrower or otherwise issued in respect of a Borrower. 

29

   
        4.3    Conditions Subsequent.    

        The
following conditions subsequent must be performed within the time frames specified. The failure of these conditions, or any of them, shall constitute an Event of Default under this
Agreement. 

        (a)  The
Lender shall have entered into an intercreditor agreement with U.S. Lender on terms and conditions satisfactory to U.S. Lender. U.S. Borrowers shall deliver the
Canadian Guarantee in connection with the Canadian Facility. U.S. Lender shall have received an updated collateral audit of the Borrowers in form and substance reasonably satisfactory to U.S. Lender. 

        (b)  On
or prior to February 28, 2003, U.S. Borrowers shall have extended the maturity date of the Subordinated Notes so that the maturity date of the Subordinated
Notes shall be later than September 27, 2006 or shall have refinanced the Subordinated Notes with debt that has a maturity date later than September 27, 2006, in any case on terms and
conditions satisfactory to Lender. 

SECTION 5    GRANT AND PERFECTION OF SECURITY INTEREST    

        5.1    Grant of Security Interest.    

        (a)  To
secure payment and performance of all Obligations, each Borrower hereby grants to Lender a continuing security interest in, a lien upon, and a right of set off
against, and hereby assigns to Lender as security, all personal property and trade fixtures and interests in property and fixtures of such Borrower, whether now owned or hereafter acquired or
existing, and wherever located (together with all other collateral security for the Obligations at any time granted to or held or acquired by Lender, collectively, the "Collateral"), including: 

          (i)  all
Accounts; 

        (ii)  all
general intangibles, including, without limitation, all Intellectual Property; 

        (iii)  all
goods, including, without limitation, Inventory and Equipment; 

        (iv)  all
fixtures; 

        (v)  all
chattel paper (including all tangible and electronic chattel paper); 

        (vi)  all
instruments (including all promissory notes); 

      (vii)  all
documents; 

      (viii)  all
deposit accounts; 

        (ix)  all
letters of credit, banker's acceptances and similar instruments and including all letter-of-credit rights; 

        (x)  all
supporting obligations and all present and future liens, security interests, rights, remedies, title and interest in, to and in respect of Receivables and other
Collateral, including (i) rights and remedies under or relating to guaranties, contracts of suretyship, letters of credit and credit and other insurance related to the Collateral,
(ii) rights of stoppage in transit, replevin, repossession, reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing or evidencing, Receivables or other Collateral, including returned, repossessed and reclaimed goods, and
(iv) deposits by and property of account debtors or other persons securing the obligations of account debtors; 

        (xi)  all
(i) investment property (including securities, whether certificated or uncertificated, securities accounts, security entitlements, commodity contracts or
commodity accounts) other than securities issued by the SPE or any Subsidiary that is not a Domestic Subsidiary and (ii) monies, credit balances, deposits and other property of such Borrower
now or hereafter 

30

 

held or received by or in transit to Lender or its Affiliates or at any other depository or other institution from or for the account of such Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise; 

      (xii)  all
commercial tort claims, including, without limitation, those identified in on Schedule 5.2(g) hereto; 

      (xiii)  to
the extent not otherwise described above, all Receivables; 

      (xiv)  all
Records; and 

      (xv)  all
products and proceeds of the foregoing, in any form, including insurance proceeds and all claims against third parties for loss or damage to or destruction of or
other involuntary conversion of any kind or nature of any or all of the other Collateral. 

        (b)  Notwithstanding
anything to the contrary set forth in 5.1(a) above, the types of collateral described in such Section shall not include the last day of the term of any
lease or agreement to which any Borrower is a party therefor; but upon enforcement of the security interest, the applicable Borrower shall stand possessed of such last day in trust to assign the same
to any person acquiring the term of the lease or agreement therefor. 

        (c)  To
the extent that the creation of the security interest would constitute a breach or permit the acceleration or termination of any agreement, right, licence or permit
of a Borrower (each, a "Restricted Asset"), the security interest created hereunder will constitute a trust created in favour of the Lender pursuant to
which the relevant Borrower shall hold as trustee its interest in all proceeds arising under or in connection with the Restricted Asset in trust for the Lender on the following basis: 

          (i)  until
the security interest has become enforceable, such Borrower shall be entitled to receive all such proceeds; and 

        (ii)  whenever
the security interest has become enforceable, all rights of such Borrower to receive such proceeds shall cease, such Borrower shall at the request of the
Lender take all such actions to collect and enforce payment and other rights arising under the Restricted Asset in accordance with the instructions of the Lender and all such proceeds arising under or
in connection with the Restricted Asset shall be immediately paid over to the Lender. 

The
Borrowers shall not exercise any rights of set-off with respect to amounts payable under or in connection with any Restricted Asset and shall use best efforts to ensure that no other
party to the Restricted Asset shall exercise any rights or set-off against any amounts payable thereunder. The Borrowers shall use best efforts to obtain the consent of each other party to
the Restricted Asset to the
creation of a security interest in the Restricted Asset in favour of the Lender in accordance with this Agreement and shall use best efforts to ensure that all agreements entered into on and after the
date hereof expressly permit the creation of a security interest to the Lender in accordance with the terms of this Agreement. 

        5.2    Perfection of Security Interests.    

        (a)  Each
Borrower irrevocably and unconditionally authorizes Lender (or its agent) to file at any time and from time to time such financing statements with respect to the
Collateral naming Lender or its designee as the secured party and any Borrower as debtor, as Lender may require, and including any other information with respect to either Borrower or otherwise
required by part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction or under Canadian Security Laws as Lender may determine, together with any amendment and continuations
with respect thereto, which authorization shall apply to all financing statements filed on, prior to or after the date hereof. Borrowers hereby ratify and approve all financing statements naming
Lender 

31

 

or its designee as secured party and any Borrower as debtor with respect to the Collateral (and any amendments with respect to such financing statements) filed by or on behalf of Lender prior to the
date hereof and ratify and confirm the authorization of Lender to file such financing statements (and amendments, if any). Borrowers hereby authorize Lender to adopt on behalf of any Borrower any
symbol required for authenticating any electronic filing. In the event that the description of the collateral in any financing statement naming Lender or its designee as the secured party and any
Borrower as debtor includes assets and properties of such Borrower that do not at any time constitute Collateral, whether hereunder, under any of the Financing Agreements or otherwise, the filing of
such financing statement shall nonetheless be deemed authorized by Borrowers to the extent of the Collateral included in such description and it shall not render the financing statement ineffective as
to any of the Collateral or otherwise affect the financing statement as it applies to any of the Collateral. In no event shall any Borrower without Lender's prior written consent, at any time file, or
permit or cause to be filed, any correction statement or termination statement with respect to any financing statement (or amendment or continuation with respect thereto) naming Lender or its designee
as secured party and any Borrower as debtor so long as any Obligations (including any Letter of Credit Accommodations) have not been paid and satisfied in full in cash or Lender is obligated to
provide Loans or Letter of Credit Accommodations to any Borrower pursuant to the Financing Agreements. 

        (b)  Borrowers
do not have any chattel paper (whether tangible or electronic) or instruments as of the date hereof, except as set forth on  Schedule 5.2(b) hereto. In the event that any Borrower shall be entitled
to or shall receive any chattel paper or instrument after the date
hereof, Borrowers shall promptly notify Lender thereof in writing. Promptly upon the receipt thereof by or on behalf of any Borrower (including by any agent or representative), Borrowers shall
deliver, or cause to be delivered to Lender, all tangible chattel paper and instruments that any Borrower may at any time acquire, accompanied by such instruments of transfer or assignment duly
executed in blank as Lender may from time to time specify, in each case except as Lender may otherwise agree. At Lender's option, Borrowers shall, or Lender may at any time on behalf of any Borrower,
cause the original of any such instrument or chattel paper to be conspicuously marked in a form and manner acceptable to Lender with the following legend referring to chattel paper or instruments as
applicable: "This chattel paper/instrument is subject to the security interest of Congress Financial Corporation (Canada) and any
sale, transfer, assignment or encumbrance of this chattel paper/instrument violates the rights of such secured party." 

        (c)  In
the event that any Borrower shall at any time hold or acquire an interest in any electronic chattel paper or any "transferable record" (as such term is defined in
Section 201 of the Federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction), Borrowers shall promptly notify Lender thereof in writing. Promptly upon Lender's request, Borrowers shall take, or cause to be taken, such actions as Lender may reasonably request to
give Lender control of such electronic chattel paper under Section 9-105 of the UCC and control of such transferable record under Section 201 of the Federal Electronic
Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as in effect in such jurisdiction. 

        (d)  No
Borrower has any deposit accounts as of the date hereof, except as set forth in the Information Certificate. No Borrower shall, directly or indirectly, after the date
hereof open, establish or maintain any Central Collection Deposit Account unless each of the following conditions is satisfied: (i) Lender shall have received not less than five
(5) Business Days prior written notice of the intention of such Borrower to open or establish such Central Collection Deposit Account which notice shall specify in reasonable detail and
specificity acceptable to Lender the name of the Central Collection Deposit Account, the owner of the Central Collection 

32

 

Deposit Account, the name and address of the bank at which such Central Collection Deposit Account is to be opened or established, the individual at such bank with whom such Borrower is dealing and
the purpose of the Central Collection Deposit Account, (ii) the bank where such Central Collection Deposit Account is opened or maintained shall be acceptable to Lender, and (iii) on or
before the opening of such Central Collection Deposit Account, such Borrower shall as Lender may specify either (A) deliver to Lender a Deposit Account Control Agreement with respect to such
Central Collection Deposit Account duly authorized, executed and delivered by such Borrower and the bank at which such Central Collection Deposit Account is opened and maintained or (B) arrange
for Lender to become the customer of the bank with respect to the Central Collection Deposit Account on terms and conditions acceptable to Lender. The terms of this Section 5.2(d) shall not
apply to deposit accounts specifically and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of such Borrower's salaried employees. 

        (e)  No
Borrower owns or holds, directly or indirectly, beneficially or as record owner or both, any investment property, as of the date hereof, or has any investment
account, securities account, commodity account or other similar account with any bank or other financial institution or other securities intermediary or commodity intermediary as of the date hereof,
in each case except as set forth in the Information Certificate. 

          (i)  In
the event that any Borrower shall be entitled to or shall at any time after the date hereof hold or acquire any certificated securities, such Borrower shall promptly
endorse, assign and deliver the same to Lender, accompanied by such instruments of transfer or assignment duly executed in blank as Lender may from time to time specify. If any securities, now or
hereafter acquired by any Borrower are
uncertificated and are issued to such Borrower or its nominee directly by the issuer thereof, Borrowers shall immediately notify Lender thereof and such Borrower shall as Lender may specify, either
(A) cause the issuer to agree to comply with instructions from Lender as to such securities, without further consent of such Borrower or such nominee, or (B) arrange for Lender to become
the registered owner of the securities. 

        (ii)  No
Borrower shall, directly or indirectly, after the date hereof open, establish or maintain any investment account, securities account, commodity account or any other
similar account (other than a deposit account or an account that relates solely to a 401(k), pension plan or other similar employee benefit program) with any securities intermediary or commodity
intermediary unless each of the following conditions is satisfied: (A) Lender shall have received not less than five (5) Business Days prior written notice of the intention of such
Borrower to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Lender the name of the account, the owner of the account, the name and address
of the securities intermediary or commodity intermediary at which such account is to be opened or established, the individual at such intermediary with whom such Borrower is dealing and the purpose of
the account, (B) the securities intermediary or commodity intermediary (as the case may be) where such account is opened or maintained shall be acceptable to Lender, and (C) on or before
the opening of such investment account, securities account or other similar account with a securities intermediary or commodity intermediary, such Borrower shall as Lender may specify either
(1) execute and deliver, and cause to be executed and delivered to Lender, an Investment Property Control Agreement with respect thereto duly authorized, executed and delivered by such Borrower
and such securities intermediary or commodity intermediary or (2) arrange for Lender to become the entitlement holder with respect to such investment property on terms and conditions acceptable
to Lender. 

33

 

        (f)    No
Borrower is the beneficiary or otherwise entitled to any right to payment under any letter of credit, banker's acceptance or similar instrument as of the date hereof,
except as set forth on Schedule 5.2(f). If an Event of Default has occurred and is continuing and in the event that any Borrower shall be
entitled to or shall receive any right to payment under any letter of credit, banker's acceptance or any similar instrument, whether as beneficiary thereof or otherwise after the date hereof, such
Borrower shall promptly notify Lender thereof in writing. If an Event of Default has occurred and is continuing, such Borrower shall immediately, as Lender may specify, either (i) deliver, or
cause to be delivered to Lender, with respect to any such letter of credit, banker's acceptance or similar instrument, the written agreement of the issuer and any other nominated person obligated to
make any payment in respect thereof (including any confirming or negotiating bank), in form and substance satisfactory to Lender, consenting to the assignment of the proceeds of the letter of credit
to Lender by such Borrower and agreeing to make all payments thereon directly to Lender or as Lender may otherwise direct or (ii) cause Lender to become, at such Borrower's expense, the
transferee beneficiary of the letter of credit, banker's acceptance or similar instrument (as the case may be). 

        (g)  Borrowers
have no commercial tort claims as of the date hereof, except as set forth on Schedule 5.2(g). In the
event that any Borrower shall at any time after the date hereof have any commercial tort claims in excess of the U.S. Dollar Equivalent of One Million Dollars ($1,000,000) in any one case, Borrowers
shall promptly notify Lender thereof in writing, which notice shall (i) set forth
in reasonable detail the basis for and nature of such commercial tort claim and (ii) include the express grant by such Borrower to Lender of a security interest in such commercial tort claim
(and the proceeds thereof). In the event that such notice does not include such grant of a security interest, the sending thereof by Borrowers to Lender shall be deemed to constitute such grant to
Lender. Upon the sending of such notice, any commercial tort claim described therein shall constitute part of the Collateral and shall be deemed included therein. Without limiting the authorization of
Lender provided in Section 5.2(a) hereof or otherwise arising by the execution by Borrowers of this Agreement or any of the other Financing Agreements, Lender is hereby irrevocably authorized
from time to time and at any time to file such financing statements naming Lender or its designee as secured party and any Borrower as debtor, or any amendments to any financing statements, covering
any such commercial tort claim as Collateral. In addition, Borrowers shall promptly upon Lender's request, execute and deliver, or cause to be executed and delivered, to Lender such other agreements,
documents and instruments as Lender may require in connection with such commercial tort claim. 

        (h)  No
Borrower has any goods, documents of title or other Collateral in the custody, control or possession of a third party as of the date hereof, except as set forth in
the Information Certificate and except for goods in transit to a location of Borrowers permitted herein in the ordinary course of business of Borrowers in the possession of the carrier transporting
such goods and except for goods being manufactured in Canada. In the event that any goods, documents of title or other Collateral are at any time after the date hereof in the custody, control or
possession of any other person not referred to in the Information Certificate, Borrowers shall promptly notify Lender thereof in writing. Promptly upon Lender's request, any Borrower shall deliver to
Lender a Collateral Access Agreement duly authorized, executed and delivered by such person and such Borrower. 

        (i)    Borrowers
shall take any other actions reasonably requested by Lender from time to time to cause the attachment, perfection and first priority of, and the ability of
Lender to enforce, the security interest of Lender in any and all of the Collateral, including, without limitation, (i) executing, delivering and, where appropriate, filing financing statements
and amendments relating thereto under the UCC, the PPSA or other applicable law, to the extent, if any, that any Borrower's signature thereon is required therefor, (ii) causing Lender's name to
be noted as 

34

 

secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of Lender to enforce, the security interest of Lender
in such Collateral, (iii) complying with any provision of any statute, regulation or treaty of Canada as to any Collateral if compliance with such provision is a condition to attachment,
perfection or priority of, or ability of Lender to enforce, the security interest of Lender in such Collateral, (iv) obtaining the consents and approvals of any Governmental Authority or third
party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, and taking all actions required by any earlier versions of the UCC, the PPSA or by
other law, as applicable in any relevant jurisdiction. 

        5.3    Release of Security Interest in Connection with Securitization.    

        On
any Securitization Closing Date and, so long as no Availability Triggering Event and/or an Event of Default has occurred, is continuing or would result therefrom and an Availability
Compliance Period
(related to an Availability Triggering Event) is not in effect, Parent shall deliver an officer's certificate to Lender stating that such Securitization will close in accordance with the terms of the
Securitization Documents where upon the security interest of Lender in the Securitization Assets will be released. Upon the receipt of such officer's certificate, the security interest of Lender in
the Securitization Assets associated with such Securitization shall be released without further action by any party, including Lender or any assignee or participant, and Lender, as requested by, and
at the expense of, Parent, shall without the necessity of obtaining consent from any assignee or any participant, execute any documents or instruments necessary, in the reasonable judgment of Parent,
to evidence such release; provided, in each case, that (i) Lender has received an irrevocable license, in form and substance satisfactory to Lender, from the SPE to use the Intellectual
Property included in the Securitization Assets to dispose of or otherwise exercise its rights with respect to any Inventory, (ii) Borrowers have received an irrevocable license, in form and
substance satisfactory to Lender, from the SPE to use the Intellectual Property included in the Securitization Assets to conduct their business, (iii) Lender has received from Borrowers a
sublicense, in form and substance satisfactory to Lender, extending Borrowers' licensed rights in the Intellectual Property included in the Securitization Assets to Lender, and (iv) receipt by
Lender of an opinion of counsel to Borrowers to the effect that the Securitization Documents do not violate, breach or result in a Default under the Financing Agreements, in form and substance
reasonably satisfactory to Lender. 

SECTION 6    COLLECTION AND ADMINISTRATION    

        6.1    Borrowers' Loan Account.    

        Lender
shall maintain one or more loan account(s) on its books in which shall be recorded (a) all Loans, Letter of Credit Accommodations and other Obligations and the Collateral,
(b) all payments made by or on behalf of Borrowers and (c) all other appropriate debits and credits as provided in this Agreement, including fees, charges, costs, expenses and interest.
All entries in the loan account(s) shall be made in accordance with Lender's customary practices as in effect from time to time. 

        6.2    Statements.    

        Lender
shall render to Borrowers each month a statement setting forth the balance in the Borrowers' loan account(s) maintained by Lender for Borrowers pursuant to the provisions of this
Agreement, including principal, interest, fees, costs and expenses. Each such statement shall be subject to subsequent adjustment by Lender but shall, absent manifest errors or omissions, be
considered correct and deemed accepted by Borrowers and conclusively binding upon Borrowers as an account stated except to the extent that Lender receives a written notice from Borrowers of any
specific exceptions of Borrowers thereto within thirty (30) days after the date such statement has been mailed by Lender. Until such time as Lender shall have rendered to Borrowers a written
statement as 

35

 

provided above, the balance in Borrowers' loan account(s) shall be presumptive evidence of the amounts due and owing to Lender by Borrowers. 

        6.3    Collection of Accounts.    

        (a)  Prior
to the occurrence of an Compliance Triggering Event or Event of Default, Borrowers shall retain control of their cash, including payments and proceeds of
Collateral. Concurrently with this Agreement, Borrowers shall establish and maintain, at their expense, blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to Lender. Such Blocked Accounts may be Central Collection Deposit
Accounts, and the term Blocked Accounts shall mean and include the Central Collection Deposit Accounts. Upon an Event of Default or an Compliance Triggering Event, and during any Availability
Compliance Period (related to a Compliance Triggering Event), and upon Lender's request, Borrowers shall promptly deposit into one or more Blocked Accounts and direct their account debtors to directly
remit into such Blocked Accounts all payments on Receivables and all payments constituting proceeds of Inventory or other Collateral in the identical form in which such payments are made, whether by
cash, check or other manner. Concurrently with this Agreement, Borrowers shall deliver, or cause to be delivered to Lender, a Deposit Account Control Agreement duly authorized, executed and delivered
by each bank where a Blocked Account is maintained which agreement shall provide that upon notice from Lender (which shall be given upon an Event of Default or an Compliance Triggering Event and
revoked promptly after the related Availability Compliance Reinstatement Date), such bank will send funds on a daily basis to the Lender Payment Account and otherwise take instruction with respect to
such Blocked Account only from Lender. Promptly upon Lender's request, Borrowers shall execute and deliver such agreements or documents as Lender may require in connection therewith. Borrowers agree
that after notice by Lender to the bank under the Deposit Account Control Agreement, all payments made to such Blocked Accounts or other funds received and collected by Lender, whether in respect of
the Receivables, as proceeds of Inventory or other Collateral or otherwise shall be treated as payments to Lender in respect of the Obligations and therefore shall constitute the property of Lender to
the extent of the then outstanding Obligations. 

        (b)  For
purposes of calculating the amount of the Loans available to Borrowers, such payments will be applied (conditional upon final collection) to the Obligations on the
Business Day of receipt by Lender of immediately available funds in the Lender Payment Account provided such payments and notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit Borrowers' loan account on such day, and if not, then on the next Business Day. In the event an Event of Default has
occurred and is continuing or during any Availability Compliance Period (related to a Compliance Triggering event) for the purposes of calculating interest on the Obligations, such payments or other
funds received will be applied (conditional upon final collection) to the Obligations one (1) Business Day after receipt of immediately available funds by Lender in the Lender Payment Account,
provided such payments or other funds and notice thereof are received in accordance with Lender's usual and customary practices as in effect from time to time and within sufficient time to credit
Borrowers' loan account on such day, and if not, then on the next Business Day. In the event that at any time or from time to time upon or after Event of Default or during any Availability Compliance
Period (related to a Compliance Triggering Event) there are no Loans outstanding, Lender shall be entitled to an administrative charge in an amount equivalent to the interest Lender would have
received for such Business Day had there been Loans outstanding on such day. 

        (c)  Upon
an Event of Default or any Compliance Triggering Event and during any Availability Compliance Period (related to a Compliance Triggering Event), Borrowers and their
respective shareholders, directors, employees, agents, Subsidiaries or other Affiliates shall, acting as 

36

 

trustee for Lender, receive, as the property of Lender, any monies, checks, notes, drafts or any other payment relating to and/or proceeds of Accounts or other Collateral which come into their
possession or under their control and immediately upon receipt thereof, shall deposit or cause the same to be deposited in the Blocked Accounts, or remit the same or cause the same to be remitted, in
kind, to Lender. In no event shall the same be commingled with any Borrower's funds. Borrowers agree to reimburse Lender on demand for any amounts owed or paid to any bank at which a Blocked Account
is established or any other bank or person involved in the transfer of funds to or from the Blocked Accounts arising out of Lender's payments to or indemnification of such bank or person. The
obligation of Borrowers to reimburse Lender for such amounts pursuant to this Section 6.3 shall survive the termination or non-renewal of this Agreement. 

        6.4    Payments.    

        (a)  Borrowers
shall pay all Obligations when due. Payments on Obligations shall be made by Borrowers' remitting funds to the Lender Payment Account or, at any time when an
Event of Default or Availability Compliance Period (related to a Compliance Triggering Event) exists by payments and proceeds of Collateral being directly remitted to the Lender Payment Account as
provided in Section 6.3 or such other place as Lender may designate from time to time. Lender shall apply payments received or collected from Borrowers or for the account of Borrowers
(including the monetary proceeds of collections or of realization upon any Collateral) as follows: first, to pay any fees, indemnities or expense reimbursements then due to Lender from Borrowers;
second, to pay interest due in respect of any Loans; third, to pay principal due in respect of the Loans; fourth, to pay or prepay any other Obligations whether or not then due, in such order and
manner as Lender determines. Notwithstanding anything to the contrary contained in this Agreement, (i) unless so directed by Borrowers, Lender shall not apply any payments which it receives to
any Eurodollar Rate Loans except on the expiration date of the Interest Period applicable to any such Eurodollar Rate Loans, if payments are received or collected from Borrowers that otherwise would
be applied to Eurodollar Rate Loans. Provided no Event of Default or Availability Compliance Period (related to a Compliance Triggering Event) exists, Borrowers may instruct Lender to remit such funds
to Borrowers. Otherwise, such payments shall be held by Lender and shall bear interest at the Federal Funds Rate minus 0.25% per annum commencing on the second Business Day following the date such
payments are received or collected from Borrowers and continuing through the date such payments are applied to the Obligations, which shall be upon the expiration of the first Interest Period after
receipt or collection of such payments, to the extent of the principal amount of the applicable Eurodollar Rate Loan or otherwise, in Lender's sole discretion, remitted to Borrowers, and
(ii) to the extent Borrowers use any proceeds of the Loans or Letter of Credit Accommodations to acquire rights in or the use of any Collateral or to repay any Indebtedness used to acquire
rights in or the use of any Collateral, payments in respect of the obligations shall be deemed applied first to the Obligations arising from Loans and Letter of Credit Accommodations that were not
used for such purposes and second to the Obligations arising from Loans and Letter of Credit Accommodations the proceeds of which were used to acquire rights in or the use of any Collateral in the
chronological order in which Borrowers acquired such rights or use. 

        (b)  At
Lender's option, all principal, interest, fees, costs, expenses and other charges provided for in this Agreement or the other Financing Agreements may be charged
directly to the loan account(s) of Borrowers. Borrowers shall make all payments to Lender on the Obligations free and clear of, and without deduction or withholding for or on account of, any setoff,
counterclaim, defense, duties, taxes, levies, imposts, fees, deductions, withholding, restrictions or conditions of any kind. If after receipt of any payment of, or proceeds of Collateral applied to
the payment of, any of the Obligations, Lender is required to surrender or return such payment or proceeds to any Person for any reason, then the Obligations intended to be satisfied by such payment
or proceeds 

37

 

shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or proceeds had not been received by Lender. Borrowers shall be liable to pay to Lender,
and do hereby indemnify and hold Lender harmless for the amount of any payments or proceeds surrendered or returned. This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds. This Section 6.4 shall survive the payment of the Obligations and the termination or non-renewal of this
Agreement. 

        6.5    Authorization to Make Loans.    

        (a)  Lender
is authorized to make the Loans and provide the Letter of Credit Accommodations based upon telephonic or other instructions received from anyone purporting to be
an officer of any Borrower or other authorized person or, at the discretion of Lender, if such Loans are necessary to satisfy any Obligations. All requests for Loans or Letter of Credit Accommodations
hereunder shall specify the date on which the requested advance is to be made or Letter of Credit Accommodations established (which day shall be a Business Day) and the amount of the requested Loan.
Requests received after 9:30 a.m. Los Angeles, California time on any day shall be deemed to have been made as of the opening of business on the immediately following Business Day. All Loans
and Letter of Credit Accommodations under this Agreement shall be conclusively presumed to have been made to, and at the request of and for the benefit of, Borrowers when deposited to the credit of
any Borrower or otherwise disbursed or established in accordance with the instructions of Borrowers or in accordance with the terms and conditions of this Agreement. 

        (b)  All
Loans provided to Borrowers shall be in or denominated in either Canadian Dollars or U.S. Dollars as Borrowers may specify, except as Lender may otherwise
specifically agree in writing and shall be disbursed only to bank accounts in Canada. Set forth on Schedule 8.10 to the Information Certificates are the bank accounts of each Borrower used by
such Borrower for making payments of its Indebtedness and other obligations to which, as of the date hereof, proceeds of Loans may be disbursed. 

        6.6    Use of Proceeds.    

        Borrowers
shall use the initial proceeds of the Loans provided by Lender to Borrowers hereunder only for: (a) payments to each of the persons listed in the disbursement direction
letter furnished by Borrowers to Lender on or about the date hereof and (b) costs, expenses and fees in connection with the preparation, negotiation, execution and delivery of this Agreement
and the other Financing Agreements. All other Loans made or Letter of Credit Accommodations provided by Lender to Borrowers pursuant to the provisions hereof shall be used by Borrowers only for
general operating, working capital and other proper corporate purposes of Borrowers not otherwise prohibited by the terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any
other purpose which might cause any of the Loans to be considered a "purpose credit" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended. 

SECTION 7    COLLATERAL REPORTING AND COLLATERAL COVENANTS    

        7.1    Collateral Reporting.    

        (a)  Borrowers
shall provide each of Lender and U.S. Lender with the following documents in a form satisfactory to Lender: 

          (i)  on
a regular basis as required by Lender, a schedule of sales made, credits issued and cash received; 

38

  

        (ii)  as
soon as possible after the end of each month (but in any event within ten (10) Business Days after the end thereof), on a monthly basis or more frequently as
Lender may request, (A) perpetual inventory reports, (B) inventory reports by location and category (including identifying Inventory at locations owned and operated by third parties or
on consignment), (C) listings of Borrowers' accounts payable until ten (10) Business Days after December 31, 2002, and thereafter, agings of accounts payable (and including
information indicating the status of payments to owners and lessors of the leased premises of Borrowers), and (D) agings of accounts receivable (together with a reconciliation to the previous
month's aging and general ledger); 

        (iii)  as
soon as possible after the end of calendar quarter (but in any event within ten (10) Business Days after the end thereof) in each case in form and substance
satisfactory to Lender and on a quarterly basis or more frequently as Lender may request, (A) for the last calendar quarter of 2002 and each calendar quarter of 2003, reports on
slow-moving and obsolete inventory and such other information as Lender may require to support any Reserves established therefor and (B) thereafter for each calendar quarter
inventory aging reports or comparable reports containing such information as Lender may require; 

        (iv)  upon
Lender's request, (A) copies of customer statements and credit memos, remittance advices and reports, and copies of deposit slips and bank statements,
(B) copies of shipping and delivery documents, and (C) copies of purchase orders, invoices and delivery documents for Inventory and Equipment acquired by Borrowers; 

        (v)  monthly,
in form and substance satisfactory to Lender, a calculation of the Borrowing Base in Dollars, certified by the chief financial officer of Borrowers and such
Borrowing Base calculation shall include (A) quarterly confirmations of the daily credit balances in the Blocked Accounts and (B) the calculation of Net Amount of Eligible Accounts,
after giving effect to the assertion of any claims, offsets, defenses or counterclaims by any account debtor, or any disputes with account debtors, or any settlement, adjustment or compromise
thereof); provided, that such certified calculation of the Borrowing Base shall be delivered weekly upon the occurrence of a Compliance Triggering Event and during any Availability Compliance Period
(related to a Compliance Triggering Event); 

        (vi)  as
soon as possible after the end of each month (but in any event within ten (10) Business Days after the end thereof), on a monthly basis, a certificate from
the chief financial officer of Borrowers certifying that Borrowers and their Subsidiaries (if any) are in compliance with the rental and other payment provisions and the other material terms and
provisions of all leases for retail store locations
within Canada to which Borrowers (or either of them) or their respective Subsidiaries (if any) are party, including compliance with all rent and other payment obligations under such leases; 

      (vii)  such
other reports as to the Collateral as Lender shall request from time to time; and 

        (b)  If
any of Borrowers' records or reports of the Collateral are prepared or maintained by an accounting service, contractor, shipper or other agent, Borrowers hereby
irrevocably authorize such service, contractor, shipper or agent to deliver such records, reports, and related documents to Lender and to follow Lender's instructions with respect to further services
at any time that an Event of Default exists or has occurred and is continuing. 

        7.2    Accounts Covenants.    

        (a)  Borrowers
shall notify Lender promptly of: (i) any material delay in Borrowers' performance of any of its obligations to any account debtor, (ii) all
material adverse information relating to the financial condition of any account debtor and (iii) any event or circumstance which, 

39

 

to Borrowers' knowledge would cause Lender to consider any then existing Accounts as no longer constituting Eligible Accounts. No credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor without Lender's consent, except in the ordinary course of Borrowers' business in accordance with practices and policies previously disclosed in
writing to Lender and except as set forth in the schedules delivered to Lender pursuant to Section 7.1(a) above. So long as no Event of Default exists or has occurred and is continuing,
Borrowers shall settle, adjust or compromise any claim, offset, counterclaim or dispute with any account debtor. At any time that an Event of Default exists or has occurred and is continuing, Lender
shall, at its option, have the exclusive right to settle, adjust or compromise any claim, offset, counterclaim or dispute with account debtors or grant any credits, discounts or allowances. 

        (b)  With
respect to each Account: (i) the amounts shown on any invoice delivered to Lender or schedule thereof delivered to Lender shall be true and complete,
(ii) no payments shall be made thereon except payments immediately delivered to Lender pursuant to the terms of this Agreement, (iii) no credit, discount, allowance or extension or
agreement for any of the foregoing shall be granted to any account debtor except as reported to Lender in accordance with this Agreement and except for credits, discounts, allowances or extensions
made or given in the ordinary course of Borrowers' business in accordance with practices and policies previously disclosed to Lender, (iv) there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with respect thereto except as reported to Lender in accordance with the terms of this Agreement, (v) none of the transactions giving
rise thereto will violate any applicable foreign, Federal, State, Provincial or local laws or regulations, all documentation relating thereto will be legally sufficient under such laws and regulations
and all such documentation will be legally enforceable in accordance with its terms. 

        (c)  Lender
shall have the right at any time or times, in Lender's name or in the name of a nominee of Lender, to verify the validity, amount or any other matter relating to
any Account or other Collateral, by mail, telephone, facsimile transmission or otherwise. 

        7.3    Inventory Covenants.    

        With
respect to the Inventory: (a) Borrowers shall at all times maintain inventory records reasonably satisfactory to Lender, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, Borrowers' cost therefor and daily withdrawals therefrom and additions thereto; (b) Borrowers shall conduct a physical count of the
Inventory at least once each year, but at any time or times as Lender may request on or after an Event of Default, and promptly following such physical inventory shall supply Lender with a report in
the form and with such specificity as may be reasonably satisfactory to Lender concerning such physical count; (c) Borrowers shall not remove any Inventory from the locations set forth or
permitted herein, without the prior written consent of Lender, except for sales of Inventory in the ordinary course of Borrowers' business and except to move Inventory directly from one location set
forth or permitted herein to another such location and except for Inventory shipped from the manufacturer thereof to any Borrower which is in transit to the locations set forth or permitted herein;
(d) upon Lender's request, Borrowers shall, at their expense, no more than once in any twelve (12) month period in which no Availability Triggering Event occurs or twice in any twelve
(12) month period during which an Availability Triggering Event occurs or an Availability Compliance Period (related to an Availability Triggering Event or Compliance Triggering Event) exists,
but at any time or times as Lender may request on or after an Event of Default, deliver or cause to be delivered to Lender written appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to Lender and upon which Lender is expressly permitted to rely; (e) Borrowers shall produce, use, store and maintain the
Inventory with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with applicable laws (including the requirements of the 

40

 

Federal Fair Labor Standards Act of 1938, as amended and all rules, regulations and orders related thereto, or any similar legislation applicable in Canada or any province or territory thereof);
(f) none of the Inventory or other Collateral constitutes farm products or the proceeds thereof; (g) Borrowers assume all responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory; (h) Borrowers shall not sell Inventory to any customer on approval, or any other basis which entitles the customer to return or may
obligate any Borrower to repurchase such Inventory; (i) Borrowers shall keep the Inventory in good and marketable condition; and (j) Borrowers shall not, without prior written notice to
Lender or the specific identification of such Inventory with respect thereto provided by Borrowers to Lender pursuant to Section 7.1(a) hereof, acquire or accept any Inventory on consignment or
approval. 

        7.4    Equipment Covenants.    

        With
respect to the Equipment: (a) Borrowers shall keep the Equipment in good order, repair, running and marketable condition (ordinary wear and tear excepted);
(b) Borrowers shall use the Equipment
with all reasonable care and caution and in accordance with applicable standards of any insurance and in conformity with all applicable laws; (c) the Equipment is and shall be used in
Borrowers' business and not for personal, family, household or farming use; (d) Borrowers shall not remove any Equipment from the locations set forth or permitted herein, except (i) to
the extent necessary to have any Equipment repaired or maintained in the ordinary course of the business of Borrowers, (ii) to move Equipment directly from one location set forth or permitted
herein to another such location, (iii) motor vehicles used by or for the benefit of Borrowers in the ordinary course of business; and (iv) to move Equipment between Borrowers' store
locations in the United States and Canada or to "shop-in-shop" locations operated by Borrowers' customers in the United States and Canada, (e) the Equipment is now and
shall remain personal property and Borrowers shall not permit any of the Equipment to be or become a part of or affixed to real property; and (f) Borrowers assume all responsibility and
liability arising from the use of the Equipment. 

        7.5    Power of Attorney.    

        Borrowers
hereby irrevocably designate and appoint Lender (and all persons designated by Lender) as each Borrower's true and lawful attorney-in-fact, and
authorizes Lender, in such Borrower's or Lender's name, to: (a) at any time an Event of Default exists or has occurred and is continuing (i) demand payment on Receivables or other
Collateral, (ii) enforce payment of Receivables by legal proceedings or otherwise, (iii) exercise all of Borrowers' rights and remedies to collect any Receivable or other Collateral,
(iv) sell or assign any Receivable upon such terms, for such amount and at such time or times as the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an Account,
(vi) discharge and release any Receivable, (vii) prepare, file and sign any Borrower's name on any proof of claim in bankruptcy or other similar document against an account debtor or
other obligor in respect of any Receivables or other Collateral, (viii) notify the post office authorities to change the address for delivery of remittances from account debtors or other
obligors in respect of Receivables or other proceeds of Collateral to an address designated by Lender, and open and dispose of all mail addressed to any Borrower and handle and store all mail relating
to the Collateral, (ix) do all acts and things which are necessary, in Lender's determination, to fulfill Borrowers' obligations under this Agreement and the other Financing Agreements,
(x) endorse any Borrower's name upon any warehouse or other receipts, or bills of lading and other negotiable or non-negotiable documents or other chattel paper, document,
instrument, invoice and similar document or agreement relating to any Inventory or Equipment or any goods pertaining thereto or any other Collateral, and (xi) clear Inventory the purchase of
which was financed with Letter of Credit Accommodations through U.S. Customs or foreign export control authorities in any Borrower's name, Lender's name or the name of Lender's designee, and to sign
and deliver to customs officials powers of attorney in any Borrower's name for such purpose, and to complete in any Borrower's or Lender's name, any order, sale or transaction, obtain the necessary
documents in connection therewith and collect the proceeds thereof, 

41

 

(b) at any time an Event of Default exists or has occurred and is continuing or during an Availability Compliance Period (related to an Availability Triggering Event or Compliance Triggering
Event), (i) take control in any manner of any item of payment in respect of Receivables or constituting Collateral or otherwise received in or for deposit in the Blocked Accounts or otherwise
received by Lender, (ii) have access to any lockbox or postal box into which remittances from account debtors or other obligors in respect of Receivables or other proceeds of Collateral are
sent or received, (iii) endorse any Borrower's name upon any items of payment in respect of Receivables or constituting Collateral or otherwise received by Lender and deposit the same in
Lender's account for application to the Obligations, and (iv) endorse any Borrower's name upon any chattel paper, instrument, invoice, or
similar document or agreement relating to any Receivable, and (c) at any time to sign any Borrower's name on any verification of Receivables and notices thereof to account debtors or any
secondary obligors or other obligors in respect thereof. Borrowers hereby release Lender and its officers, employees and designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except as a result of Lender's own gross negligence or willful misconduct as determined pursuant to a final
non-appealable order of a court of competent jurisdiction. 

        7.6    Right to Cure.    

        Lender
may, at its option, (a) upon notice to Borrowers, cure any default by Borrowers under any material agreement with a third party that affects the Collateral, its value or
the ability of Lender to collect, sell or otherwise dispose of the Collateral or the rights and remedies of Lender therein or the ability of Borrowers to perform its obligations hereunder or under the
other Financing Agreements, (b) pay or bond on appeal any judgment entered against any Borrower, (c) discharge taxes, liens, security interests or other encumbrances at any time levied
on or existing with respect to the Collateral and (d) pay any amount, incur any expense or perform any act which, in Lender's judgment, is necessary or appropriate to preserve, protect, insure
or maintain the Collateral and the rights of Lender with respect thereto. Lender may add any amounts so expended to the Obligations and charge Borrowers' account therefor, such amounts to be repayable
by Borrowers on demand. Lender shall be under no obligation to effect such cure, payment or bonding and shall not, by doing so, be deemed to have assumed any obligation or liability of Borrowers. Any
payment made or other action taken by Lender under this Section shall be without prejudice to any right to assert an Event of Default hereunder and to proceed accordingly. 

        7.7    Access to Premises.    

        From
time to time as requested by Lender, at the cost and expense of Borrowers, (a) Lender or its designee shall have complete access to all of Borrowers' premises during normal
business hours and after notice to Borrowers, or at any time and without notice to Borrowers if an Event of Default exists or has occurred and is continuing, for the purposes of inspecting, verifying
and auditing the Collateral and all of Borrowers' books and records, including the Records, and (b) Borrowers shall promptly furnish to Lender such copies of such books and records or extracts
therefrom as Lender may request, and (c) Lender or its designee may use during normal business hours such of Borrowers' personnel, equipment, supplies and premises as may be reasonably
necessary for the foregoing and if an Event of Default exists or has occurred and is continuing for the collection of Receivables and realization of other Collateral. 

42

 

SECTION 8    REPRESENTATIONS AND WARRANTIES    

        Borrowers
hereby represents and warrants to Lender the following (which shall survive the execution and delivery of this Agreement), the truth and accuracy of which are a continuing
condition of the making of Loans and providing Letter of Credit Accommodations by Lender to Borrowers: 

        8.1    Corporate Existence; Power and Authority.    

        Each
Borrower is a corporation duly organized and in good standing under the laws of its jurisdiction of incorporation and is duly qualified as a foreign or extra-provincial corporation
and in good standing in all states, provinces or other jurisdictions where the nature and extent of the business transacted by it or the ownership of assets makes such qualification necessary, except
for those jurisdictions in which the failure to so qualify would not have a material adverse effect on Borrowers' financial condition, results of operation or business or the rights of Lender in or to
any of the Collateral. The execution, delivery and performance of this Agreement, the other Financing Agreements and the transactions contemplated hereunder and thereunder (a) are all within
each Borrower's corporate powers, (b) have been duly authorized, (c) are not in contravention of law or the terms of any Borrower's certificate of incorporation, by-laws, or
other organizational documentation, or any indenture, agreement or undertaking to which any Borrower is a party or by which any Borrower or its property are bound and (d) will not result in the
creation or imposition of, or require or give rise to any obligation to grant, any lien, security interest, charge or other encumbrance upon any property of any Borrower. This Agreement and the other
Financing Agreements constitute legal, valid and binding obligations of Borrowers enforceable in accordance with their respective terms. 

        8.2    Name; State of Organization; Chief Executive Office; Collateral Locations.    

        (a)  The
exact legal name of each Borrower is as set forth on the signature page of this Agreement and in the Information Certificate. Borrowers have not, during the past
five years, been known by or used by any other corporate or fictitious name or been a party to any merger or consolidation, or acquired all or substantially all of the assets of any Person, or
acquired any of their property or assets out of the ordinary course of business, except as set forth in the Information Certificate. 

        (b)  Each
Borrower is an organization of the type and organized in the jurisdiction set forth in the Information Certificate. The Information Certificate accurately sets
forth the organizational identification number of each Borrower or accurately states that such Borrower has none and accurately sets forth the federal business identification number of each Borrower. 

        (c)  The
chief executive office and mailing address of Borrowers and Borrowers' Records concerning Accounts are located only at the address identified as such in the
Information Certificate and its only other places of business and the only other locations of Collateral, if any, are the addresses set forth in
the Information Certificate, subject to the right of Borrowers to establish new locations in accordance with Section 9.2 below. The Information Certificate correctly identifies any of such
locations which are not owned by Borrowers and sets forth the owners and/or operators thereof. 

        8.3    Financial Statements; No Material Adverse Change.    

        All
financial statements relating to Borrowers which have been or may hereafter be delivered by Borrowers to Lender have been prepared in accordance with GAAP (except as to any interim
financial statements, to the extent such statements are subject to normal year-end adjustments and do not include any notes) and fairly present the financial condition and the results of
operation of Borrowers as at the dates and for the periods set forth therein. Except as disclosed in any interim financial statements furnished by Borrowers to Lender prior to the date of this
Agreement, there has been no 

43

 

Material Adverse Change since the date of the most recent audited financial statements furnished by Borrowers to Lender prior to the date of this Agreement. 

        8.4    Priority of Liens; Title to Properties.    

        The
security interests, hypothecs and liens granted to Lender under this Agreement and the other Financing Agreements constitute valid and perfected first priority liens and security
interests and first ranking hypothecs in and upon the Collateral subject only to the liens indicated on Schedule 8.4 hereto and the other liens
permitted under Section 9.8 hereof. Each Borrower has good, valid and merchantable title to all of its other properties and assets subject to no liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those granted to Lender and such others as are specifically listed on Schedule 8.4 hereto or permitted under Section 9.8 hereof. 

        8.5    Tax Returns.    

        Borrowers
have filed, or caused to be filed, in a timely manner all tax returns, reports and declarations which are required to be filed by them or any of them. All information in such
tax returns, reports and declarations is complete and accurate in all material respects. Borrowers have paid or caused to be paid all taxes due and payable or claimed due and payable in any assessment
received by any of them, except taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrowers and with respect to which
adequate reserves have been set aside on their books. Adequate provision has been made for the payment of all accrued and unpaid Federal, State, Provincial, county, local, foreign and other taxes
whether or not yet due and payable and whether or not disputed. 

        8.6    Litigation.    

        Except
as set forth in the Information Certificate, there is no present investigation by any Governmental Authority pending, or to the best of Borrowers' knowledge threatened, against or
affecting any Borrower, its assets or business and there is no action, suit, proceeding or claim by any Person pending, or to the best of Borrowers' knowledge threatened, against any Borrower or its
assets or goodwill, or against or affecting any transactions contemplated by this Agreement, which if adversely determined against any Borrower would result in any Material Adverse Change. 

        8.7    Compliance with Other Agreements and Applicable Laws.    

        No
Borrower is, in any material respect, in default under, or in violation of any of the terms of, any agreement, contract, instrument, lease or other commitment to which it is a party
or by which it or any of its assets are bound and each Borrower is in compliance in all material respects with all applicable provisions of laws, rules, regulations, licenses, permits, approvals and
orders of any foreign, Federal, State, Provincial or local Governmental Authority. 

        8.8    Environmental Compliance.    

        (a)  Except
as set forth on Schedule 8.8 hereto, no Borrower and no Subsidiary has generated, used, stored, treated,
transported, manufactured, handled, produced or disposed of any Hazardous Materials, on or off its premises (whether or not owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or similar authorization thereunder and the operations of Borrowers and any Subsidiaries comply in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals and similar authorizations thereunder. 

        (b)  Except
as set forth on Schedule 8.8 hereto, there has been no investigation, proceeding, complaint, order,
directive, claim, citation or notice by any Governmental Authority or any other person nor is any pending or to the best of Borrowers' knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by any Borrower 

44

 

and any Subsidiary or the release, spill or discharge, threatened or actual, of any Hazardous Material or the generation, use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety matter, which affects Borrowers or their business, operations or assets or any properties at which any Borrower has
transported, stored or disposed of any Hazardous Materials. 

        (c)  Borrowers
and their Subsidiaries have no material liability (contingent or otherwise) in connection with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation, manufacture, handling, production or disposal of any Hazardous Materials. 

        (d)  Borrowers
and their Subsidiaries have all licenses, permits, certificates, approvals or similar authorizations required to be obtained or filed in connection with the
operations of Borrowers under any Environmental Law and all of such licenses, permits, certificates, approvals or similar authorizations are valid and in full force and effect. 

        8.9    Employee Benefits.    

        (a)  There
are no pending, or to the best of Borrowers' knowledge, threatened, claims, actions or lawsuits, or action by any Governmental Authority, with respect to any
Canadian Pension Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Canadian Pension Plan. 

        (b)  With
respect to any Canadian Pension Plan, if and to the extent that any such Canadian Pension Plan exists or has not been terminated, (i) the Canadian Pension
Plans are duly registered under all applicable Federal and Provincial pension benefits legislation, (ii) all obligations of any Borrower (including fiduciary, funding, investment and
administration obligations) required to be performed in connection with the Canadian Pension Plans or the funding agreements therefor have been performed in a timely fashion and there are no
outstanding disputes concerning the assets held pursuant to any such funding agreement, (iii) all contributions or premiums required to be made by any Borrower to the Canadian Pension Plans
have been made in a timely fashion in accordance with the terms of the Canadian Pension Plans and applicable laws and regulations, (iv) all employee contributions to the Canadian Pension Plans
required to be made by way of authorized payroll deduction have been properly withheld by any Borrower and fully paid into the Canadian Pension Plans in a timely fashion, (v) all reports and
disclosures relating to the Canadian Pension Plans required by any applicable laws or regulations have been filed or distributed in a timely fashion, (vi) there have been no withdrawals, or
applications of, the assets of any of the Pension Plans other than as permitted by the terms thereof, (vii) no amount is owing by any of the Canadian Pension Plans under the Income Tax Act
(Canada) or any provincial taxation statute, (viii) the Canadian Pension Plans are fully funded both on an ongoing basis and on a solvency basis (using actuarial assumptions and methods which
are consistent with the valuations last filed with the applicable governmental authorities and which are consistent with generally accepted actuarial principles), and (ix) to the best of the
knowledge of each Borrower none of the Canadian Pension Plans is the subject of an investigation, any other proceeding, an action or a claim and there exists no state of facts which after notice or
lapse of time or both could reasonably be expected to give rise to any such proceeding, action or claim. 

        8.10    Intellectual Property.    

        Each
Borrower owns or licenses or otherwise has the right to use all Intellectual Property necessary for the operation of its business as presently conducted or proposed to be conducted.
As of the date hereof, Borrowers do not have any Intellectual Property registered, or subject to pending applications, in the United States Patent and Trademark Office, Canadian Intellectual Property
Office or any similar office or agency in the United States, Canada any State or Province thereof, any political 

45

 

subdivision thereof or in any other country. No event has occurred which permits or would permit after notice or passage of time or both, the revocation, suspension or termination of such rights. To
the best of Borrowers' knowledge, no slogan or other advertising device, product, process, method, substance or other Intellectual Property or goods bearing or using any Intellectual Property
presently contemplated to be sold by or employed by any Borrower infringes any patent, trademark, servicemark, tradename, copyright, license or other Intellectual Property owned by any other Person
presently and no claim or litigation is pending or threatened against or affecting any Borrower contesting its right to sell or use any such Intellectual Property. The Information Certificate sets
forth all of the agreements or other arrangements of Borrowers pursuant to which any Borrower has a license or other right to use any trademarks, logos, designs, representations or other Intellectual
Property owned by another person as in effect on the date hereof and the dates of the expiration of such agreements or other arrangements of Borrowers as in effect on the date hereof (collectively,
together with such agreements or other arrangements as may be entered into by Borrowers after the date hereof, collectively, the "License Agreements"
and individually, a "License Agreement"). No trademark, servicemark or other Intellectual Property at any time used by any Borrower which is owned by
another person, or owned by any Borrower subject to any security interest, lien, collateral assignment, pledge or other encumbrance in favor of any person other than Lender, is affixed to any Eligible
Inventory, except pursuant to a Securitization as permitted in this Agreement. 

        8.11    Subsidiaries; Affiliates; Capitalization; Solvency.    

        (a)  No
Borrower has any direct or indirect Subsidiaries or Affiliates and no Borrower is engaged in any joint venture or partnership except as set forth in the Information
Certificate, subject to the right of Borrowers to form or acquire Subsidiaries in accordance with Section 9.10 hereof. 

        (b)  Each
Borrower is the record and beneficial owner of all of the issued and outstanding shares of Capital Stock of each of the Subsidiaries listed in the Information
Certificate as being owned by such Borrower and there are no proxies, irrevocable or otherwise, with respect to such shares and no equity securities of any of the Subsidiaries are or may become
required to be issued by reason of any options, warrants, rights to subscribe to, calls or commitments of any kind or nature and there are no contracts, commitments, understandings or arrangements by
which any Subsidiary is or may become bound to issue additional shares of it Capital Stock or securities convertible into or exchangeable for such shares. 

        (c)  The
issued and outstanding shares of Capital Stock of each Borrower are directly and beneficially owned and held by the persons indicated in the Information Certificate,
and in each case all of such shares have been duly authorized and are fully paid and non-assessable, free and clear of all claims, liens, pledges and encumbrances of any kind, except as
disclosed in writing to Lender prior to the date hereof. 

        (d)  Each
Borrower is Solvent and will continue to be Solvent after the creation of the Obligations, the security interests of Lender and the other transaction contemplated
hereunder. 

        8.12    Labor Disputes.    

        (a)  Set
forth on Schedule 8.12 hereto is a list (including dates of termination) of all collective bargaining or
similar agreements between or applicable to either Borrower and any union, labor organization or other bargaining agent in respect of the employees of such Borrower on the date hereof. 

        (b)  There
is (i) no significant unfair labor practice complaint pending against any Borrower or, to the best of Borrowers' knowledge, threatened against it, before
the National Labor Relations Board, and no significant grievance or significant arbitration proceeding arising out of or under any collective bargaining agreement is pending on the date hereof against
any Borrower or, to best 

46

 

of Borrowers' knowledge, threatened against it, and (ii) no significant strike, labor dispute, slowdown or stoppage is pending against any Borrower or, to the best of Borrowers' knowledge,
threatened against any Borrower. 

        8.13    Restrictions on Subsidiaries.    

        Except
for restrictions contained in this Agreement, the Securitization Documents or any other agreement with respect to Indebtedness of Borrowers permitted hereunder as in effect on the
date hereof, there are no contractual or consensual restrictions on any Borrower or any of its Subsidiaries which prohibit or otherwise restrict (a) the transfer of cash or other assets
(i) between such Borrower and any of its Subsidiaries or (ii) between any Subsidiaries of such Borrower or (b) the ability of such Borrower or any of its Subsidiaries to incur
Indebtedness or grant security interests to Lender in the Collateral. 

        8.14    Material Contracts.    

        Schedule 8.14 hereto sets forth all Material Contracts to which any Borrower is a party or is bound as of the date hereof.
Borrowers have delivered true, correct and complete copies of such Material Contracts to Lender on or before the date hereof. No Borrower is in breach of or in default under any Material Contract and
no Borrower has received any notice of the intention of any other party thereto to terminate any Material Contract. 

        8.15    Payable Practices.    

        No
Borrower has made any material change in the historical accounts payable practices from those in effect immediately prior to the date hereof. 

        8.16    Accuracy and Completeness of Information.    

        All
information furnished by or on behalf of Borrowers in writing to Lender in connection with this Agreement or any of the other Financing Agreements or any transaction contemplated
hereby or thereby, including all information on the Information Certificate, is true and correct in all material respects on the date as of which such information is dated or certified and does not
omit any material fact necessary in order to make such information not misleading. No event or circumstance has occurred which has had or could reasonably be expected to have a material adverse effect
on the business, assets or prospects of Borrowers, which has not been fully and accurately disclosed to Lender in writing. 

        8.17    Securitizations.    

        None
of the property or assets of either Borrower, including any and all Intellectual Property (a) constitutes Securitization Assets, or (b) are the subject matter of any
Securitization. 

        8.18    Survival of Warranties; Cumulative.    

        All
representations and warranties contained in this Agreement or any of the other Financing Agreements shall survive the execution and delivery of this Agreement and shall be deemed to
have been made again to Lender on the date of each additional borrowing or other credit accommodation hereunder and shall be conclusively presumed to have been relied on by Lender regardless of any
investigation made or information possessed by Lender. The representations and warranties set forth herein shall be cumulative and in addition to any other representations or warranties which
Borrowers shall now or hereafter give, or cause to be given, to Lender. 

47

 

SECTION 9    AFFIRMATIVE AND NEGATIVE COVENANTS    

        9.1    Maintenance of Existence.    

        (a)  Borrowers
shall at all times preserve, renew and keep in full, force and effect each Borrower's corporate existence and rights and franchises with respect thereto and
maintain in full force and effect all permits, licenses, trademarks, tradenames, approvals, authorizations, leases and contracts necessary to carry on the business of Borrowers as presently or
proposed to be conducted. 

        (b)  No
Borrower shall change its name unless each of the following conditions is satisfied: (i) Lender shall have received not less than thirty (30) days prior
written notice from Borrowers of such proposed change in its corporate name, which notice shall accurately set forth the new name; and (ii) Lender shall have received a copy of the amendment to
the Certificate of Incorporation of such Borrower providing for the name change certified by the Secretary of State of the jurisdiction of incorporation or organization of such Borrower as soon as it
is available. 

        (c)  No
Borrower shall change its chief executive office or its mailing address or organizational identification number (or if it does not have one, shall not acquire one)
unless Lender shall have received not less than thirty (30) days' prior written notice from Borrowers of such proposed change, which notice shall set forth such information with respect thereto
as Lender may require and Lender shall have received such agreements as Lender may reasonably require in connection therewith. No Borrower shall change its type of organization, jurisdiction of
organization or other legal structure. 

        9.2    New Collateral Locations.    

        (a)  Borrowers
may open any new retail store locations within Canada upon ten (10) days prior written notice to Lender provided Borrowers execute and deliver, or cause
to be executed and delivered to Lender such agreements, documents and instruments as Lender may deem necessary or desirable to protect its interests in the Collateral at such location. 

        (b)  Borrowers
may open new Inventory warehouse locations within Canada provided Borrowers: 

          (i)  give
Lender sixty (60) days prior written notice of the intended opening of any such new location, and 

        (ii)  execute
and deliver, or cause to be executed and delivered, to Lender such agreements, documents, and instruments as Lender may deem necessary or desirable to provide
Lender with a first priority
security interest or hypothec under Canadian law subject to the liens permitted pursuant to Section 9.8 and the relevant law of the provinces of Canada in the Inventory located there and to
protect Lender's interests in the Collateral at such location, including but not limited to lien searches, financing statements and Collateral Access Agreements. In addition, Lender may establish
Reserves relating to Eligible Inventory located in Canada in its reasonable discretion. 

        9.3    Compliance with Laws, Regulations, Etc.    

        (a)  Each
Borrower shall, and shall cause any Subsidiary to, at all times, comply in all material respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any foreign, Federal, State, Provincial or local Governmental Authority, including all statutes, rules, regulations, orders, permits and
stipulations relating to environmental pollution and employee health and safety, including all of the Environmental Laws. 

48

  

        (b)  Borrowers
shall give written notice to Lender immediately upon Borrowers' receipt of any notice of, or Borrowers' otherwise obtaining knowledge of, (i) the
occurrence of any event involving the release, spill or discharge, threatened or actual, of any Hazardous Material or (ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of any applicable Environmental Law by any Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material other than in the ordinary course of business and other than as permitted under any applicable Environmental Law. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations shall be promptly furnished, or caused to be furnished, by Borrowers to Lender. Borrowers shall take prompt and
appropriate action to respond to any non-compliance with any of the Environmental Laws and shall regularly report to Lender on such response. 

        (c)  Without
limiting the generality of the foregoing, whenever Lender reasonably determines that there is non-compliance, or any condition which requires any
action by or on behalf of Borrowers in order to avoid any material non-compliance, with any Environmental Law, Borrowers shall, at Lender's request and Borrowers' expense: (i) cause
an independent environmental engineer acceptable to Lender to conduct such tests of the site where Borrowers' non-compliance or alleged non-compliance with such Environmental
Laws has occurred as to such non-compliance and prepare and deliver to Lender a report as to such non-compliance setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of the costs thereof and (ii) provide to Lender a supplemental report of such engineer whenever the scope of such
non-compliance, or Borrowers' response thereto or the estimated costs thereof, shall change in any material respect. 

        (d)  Borrowers
shall indemnify and hold harmless Lender, its directors, officers, employees, agents, invitees, representatives, successors and assigns, from and against any
and all losses, claims, damages, liabilities, costs, and expenses (including attorneys' fees and legal expenses) directly or indirectly arising out of or attributable to the use, generation,
manufacture, reproduction, storage, release, threatened release, spill, discharge, disposal or presence of a Hazardous Material, including the costs of any required or necessary repair, cleanup or
other remedial work with respect to any property of any Borrower and the preparation and implementation of any closure, remedial or other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 

        9.4    Payment of Taxes and Claims.    

        Borrowers
shall, and shall cause any Subsidiary to, duly pay and discharge all taxes, assessments, contributions and governmental charges upon or against it or its properties or assets,
except for taxes the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to Borrowers or such Subsidiary, as the case may be, and with
respect to which adequate reserves have been set aside on its books. Borrowers shall be liable for any tax or penalties imposed on Lender as a result of the financing arrangements provided for herein
and Borrowers agree to indemnify and hold Lender harmless with respect to the foregoing, and to repay to Lender on demand the amount thereof, and until paid by Borrowers such amount shall be added and
deemed part of the Loans, provided, that nothing contained herein shall be construed to require Borrowers to pay any income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the payment of the Obligations and the termination or non-renewal of this Agreement. 

        9.5    Insurance.    

        Borrowers
shall, and shall cause any Subsidiary to, at all times, maintain with financially sound and reputable insurers insurance with respect to the Collateral against loss or damage
and all other 

49

 

insurance of the kinds and in the amounts customarily insured against or carried by corporations of established reputation engaged in the same or similar businesses and similarly situated. Said
policies of insurance shall be satisfactory to Lender as to form, amount and insurer. Borrowers shall furnish certificates, policies or endorsements to Lender as Lender shall require as proof of such
insurance, and, if Borrowers fail to do so, Lender is authorized, but not required, to obtain such insurance at the expense of Borrowers. All policies shall provide for at least thirty
(30) days (ten (10) days for nonpayment of premium) prior written notice to Lender of any cancellation or reduction of coverage and that Lender may act as attorney for any Borrower at
any time an Event of Default exists or has occurred and is continuing, in obtaining, adjusting, settling, amending and cancelling such insurance. Borrowers shall cause Lender to be named as a loss
payee and an additional insured (but without any liability for any premiums) under such insurance policies and Borrowers shall obtain non-contributory lender's loss payable endorsements to
all insurance policies in form and substance satisfactory to Lender. Such lender's loss payable endorsements shall specify that the proceeds of such insurance shall be payable to Lender and the named
insured as their interests may appear and further specify that Lender shall be paid regardless of any act or omission by any Borrower or any of its Affiliates. At its option, Lender may apply any
insurance proceeds received by Lender at any time to the cost of repairs or replacement of Collateral and/or to payment of the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or hold such proceeds as cash collateral for the Obligations. 

        9.6    Financial Statements and Other Information.    

        (a)  Borrowers
shall, and shall cause any Subsidiary to, keep proper books and records in which true and complete entries shall be made of all dealings or transactions of or
in relation to the Collateral and the business of Borrowers and their Subsidiaries in accordance with GAAP. Borrowers shall promptly furnish to Lender any financial or and all other information as
Lender may reasonably request relating
to the Collateral and the assets, business and operations of Borrowers, and to notify the auditors and accountants of Borrowers that Lender is authorized to obtain such information directly from them.
Without limiting the foregoing, Borrowers shall furnish or cause to be furnished to Lender, the following: (i) within forty-five (45) days after the end of each of the first
three (3) fiscal quarters in each fiscal year and within ninety (90) days after the end of the fourth fiscal quarter in each fiscal year, quarterly unaudited consolidated financial
statements (including balance sheets, statements of income and loss, statements of cash flow, and statements of shareholders' equity), and unaudited non-consolidating financial statements
(including balance sheets and statements of income and loss), all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrowers and their Subsidiaries
as of the end of and through such fiscal quarter, certified to be correct by the chief financial officer of Parent, subject to normal year-end adjustments and accompanied by a compliance
certificate substantially in the form of Exhibit B hereto, along with a schedule in form reasonably satisfactory to Lender during any
Availability Compliance Period (related to an Availability Triggering Event or Compliance Triggering Event) of the calculations used in determining, as of the end of such month, whether Borrowers were
in compliance with the covenant set forth in Sections 9.18 of this Agreement for such quarter, (ii) during any Availability Compliance Period (related to an Availability Triggering Event or
Compliance Triggering Event), on the last Business Day of any month therein and at any other date as determined by Borrowers in their sole discretion, Borrowers will deliver to Lender an Availability
Compliance Report, along with a schedule in form and substance reasonably satisfactory to Lender, of the calculations used in determining, as of the end of such month and such other date determined by
Borrowers in their sole discretion, whether U.S. Excess Availability is at least Twenty Million Dollars ($20,000,000) and Canadian Compliance Excess Availability is at least One Million Dollars
($1,000,000), and (iii) within ninety (90) days after the end of each fiscal year, audited consolidated financial statements (including balance sheets, statements of income and loss,
statements of cash flow and 

50

 

statements of shareholders' equity) and unaudited consolidating financial statements of Borrowers and its Subsidiaries (including balance sheets and statements of income and loss), and the
accompanying notes thereto, all in reasonable detail, fairly presenting the financial position and the results of the operations of Borrowers and their Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified public accountants, which accountants shall be an independent accounting firm selected by Borrowers and reasonably
acceptable to Lender, that such financial statements have been prepared in accordance with GAAP, and present fairly the results of operations and financial condition of Borrowers and their
Subsidiaries as of the end of and for the fiscal year then ended. 

        (b)  Borrowers
shall promptly notify Lender in writing of the details of (i) any material loss, damage, investigation, action, suit, proceeding or claim relating to
the Collateral or any other property which is security for the Obligations or which would result in any Material Adverse Change, (ii) any Material Contract of any Borrower being terminated or
amended or any new Material Contract being entered into (in which event Borrowers shall provide Lender with a copy of such Material Contract), (iii) any order, judgment or decree in excess of
the U.S. Dollar Equivalent of One Million Dollars ($1,000,000) having been entered against any Borrower or any of its properties or assets, (iv) any notification of the violation of any law or
regulation received by any Borrower, and (v) the occurrence of any Default or Event of Default. 

        (c)  Borrowers
shall promptly after the sending or filing thereof furnish or cause to be furnished to Lender copies of all reports, if any, which any Borrower sends to its
stockholders generally and copies
of all reports and registration statements which any Borrower files with the Securities and Exchange Commission, any national or provincial securities exchange or securities commission or the National
Association of Securities Dealers, Inc. 

        (d)  Borrowers
shall furnish or cause to be furnished to Lender such budgets, forecasts, projections and other information in respect of the Collateral and the business of
Borrowers, as Lender may, from time to time, reasonably request. Lender is hereby authorized to deliver a copy of any financial statement or any other information relating to the business of Borrowers
to any court or other Governmental Authority or to any participant or assignee or prospective participant or assignee. Borrowers hereby irrevocably authorize and direct all accountants or auditors to
deliver to Lender, at Borrowers' expense, copies of the financial statements of Borrowers and any reports or management letters prepared by such accountants or auditors on behalf of Borrowers and to
disclose to Lender such information as they may have regarding the business of Borrowers. Any documents, schedules, invoices or other papers delivered to Lender may be destroyed or otherwise disposed
of by Lender one (1) year after the same are delivered to Lender, except as otherwise designated by Borrowers to Lender in writing. 

        (e)  Concurrently
with the quarterly financial statements required under Section 9.6(a)(ii), Borrowers shall furnish or cause to be furnished to Lender individual
store summary profit and loss statements. 

        9.7    Sale of Assets, Consolidation, Merger, Dissolution, Etc.    

        No
Borrower shall, and no Borrower shall permit any Domestic Subsidiary to (and Lender does not authorize any Borrower to), directly or indirectly, 

        (a)  merge
into or consolidate or amalgamate with any other Person or permit any other Person to merge into or consolidate with it other than in connection with the Permitted
Amalgamation; or 

        (b)  sell,
assign, lease, transfer, abandon or otherwise dispose of any Capital Stock or Indebtedness to any other Person or any of its assets to any other Person (other than
a Borrower or a Domestic Subsidiary that has executed in favor of Lender a guaranty of the Obligations and a 

51

 

security agreement granting Lender a first priority security interest and hypothec in all of its assets, each in form and substance satisfactory to Lender), except for (i) sales of Inventory
in the ordinary course of business, (ii) the disposition of Equipment so long as (A) after any Event of Default or during any Availability Compliance Period (related to an Availability
Triggering Event), any proceeds are paid to Lender and (B) such sales do not involve Equipment having an aggregate fair market value, when taken together with sales of Equipment by all other
Credit Parties, in excess of the U.S. Dollar Equivalent of Ten Million Dollars ($10,000,000) for all such Equipment disposed of in any fiscal year of the relevant Borrower, (iii) transfers of
Securitization Assets to a SPE in connection with a Securitization so long as (A) Lender has received an irrevocable license, in form and substance
satisfactory to Lender, from the SPE to use the Intellectual Property included in the Securitization Assets to dispose of or otherwise exercise its rights with respect to any Inventory,
(B) Borrowers have received an irrevocable license, in form and substance satisfactory to Lender, from the SPE to use the Intellectual Property included in the Securitization Assets to conduct
their business, and (C) Lender has received from Borrowers a sublicense, in form and substance satisfactory to Lender, extending Borrowers' licensed rights in the Intellectual Property included
in the Securitization Assets to Lender, (D) receipt by Lender of an opinion of counsel to Borrowers to the effect that the Securitization Documents do not violate, breach or result in a Default
under the Financing Agreements, in form and substance reasonably satisfactory to Lender, (iv) the issuance and sale by a Borrower of Capital Stock of such Borrower after the date hereof;
provided, that such sale of Capital Stock does not result in any Change in Control and as of the date of such issuance and sale and after giving effect thereto, no Default or Event of Default shall
exist or have occurred, (v) licensing by any Borrower of any of its Intellectual Property, in the ordinary course of its business, (vi) disposition by any Borrower of any of its
warehouse space not necessary to such Borrower's business, in the ordinary course of such Borrower's business, (vii) sales of Cash Equivalents, as provided under Section 9.10(b), and
(viii) sales of any publicly traded securities owned by any Borrower, as provided under Section 9.10(c). 

        (c)  wind
up, liquidate or dissolve; or 

        (d)  agree
to do any of the foregoing. 

        9.8    Encumbrances.    

        No
Borrower shall, and no Borrower shall permit any Domestic Subsidiary to, create, incur, assume, suffer or permit to exist any security interest, hypothec, mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on any of its assets or properties, including the Collateral, except: (a) the security interests, hypothecs and liens of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity of which are being contested in good faith by appropriate proceedings diligently pursued and available to
Borrowers or such Subsidiary, as the case may be, and with respect to which adequate reserves have been set aside on its books; (c) non-consensual statutory liens (other than liens
securing the payment of taxes) arising in the ordinary course of such Borrower's or such Subsidiary's business to the extent: (i) such liens secure Indebtedness or other obligations of such
Borrower which is not overdue or (ii) such liens secure Indebtedness relating to claims or liabilities which are fully insured and being defended at the sole cost and expense and at the sole
risk of the insurer or being contested in good faith by appropriate proceedings diligently pursued and available to such Borrowers or such Subsidiary, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate reserves have been set aside on its books; (d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any material respect with the use of such real property or ordinary conduct of the business of such Borrower or such
Subsidiary as presently conducted thereon; (e) purchase money security interests in Equipment (including Capital Leases) to secure Indebtedness permitted under Section 9.9(b) hereof;
(f) mortgages on real property, (g) the security interests, hypothecs and liens set forth on Schedule 8.4 hereto,
(h) pledges or deposits in connection with 

52

 

workers' compensation, unemployment insurance and other social security legislation, (i) any interest or title of a licensee or licensor under any license entered into by a Borrower in the
ordinary course of business, (j) liens or hypothecs on property acquired after the date hereof (including liens on property of a Subsidiary acquired after the date hereof) securing Indebtedness
permitted under Section 9.9 but only if such lien was not created in contemplation of such acquisition and is limited in scope to the property so acquired, (k) deposits to secure the
performance of bids, trade contracts (other than for borrowed money), leases, customer, appeal and performance bonds and other like obligations incurred in the ordinary course of business;
(l) security interests, liens and hypothecs of Guess ?, Inc. in existence on the date hereof but only to the extent that such liens have subordinated in a manner satisfactory to the
Lender in all respects to the security interests, hypothecs and liens granted by Borrowers to Lender; and (m) the security interests, hypothecs and liens in favour of GMAC Commercial Credit
Corporation—Canada, such security interests, hypothecs and liens to be discharged forthwith after the initial Loan is made hereunder. 

        9.9    Indebtedness.    

        No
Borrower shall, and no Borrower shall permit any Domestic Subsidiary to, incur, create, assume, become or be liable in any manner with respect to, suffer or permit to exist, any
Indebtedness or guarantee, assume, endorse, or otherwise become responsible for (directly or indirectly) the performance, dividends or other obligations of any Person, except: 

        (a)  the
Obligations; 

        (b)  purchase
money Indebtedness (including Capital Leases) arising after the date hereof to the extent secured by purchase money security interests in Equipment (including
Capital Leases), real property and insurance policies other than any policy insuring any Collateral; provided, that the amount of all such Indebtedness shall not, together with all such Indebtedness
incurred by all other Credit Parties, exceed the U.S. Dollar Equivalent of Twelve Million Five Hundred Thousand Dollars ($12,500,000) in any fiscal year (provided that any of such amount that is not
expended in a fiscal year may be carried forward to subsequent fiscal years for purposes of calculating the restriction under this section) so long as such security interests do not apply to any
property of such Borrower other than the Equipment, real property and insurance so acquired, and the Indebtedness secured thereby does not exceed the cost of the Equipment, real property and insurance
so acquired; 

        (c)  Indebtedness
in respect of appeal bonds, surety bonds, performance bonds and similar obligations incurred in the ordinary course of business; 

        (d)  unsecured
Indebtedness of a Domestic Subsidiary acquired after the date hereof if such Indebtedness exists at the time of such acquisition and was not incurred in
contemplation of such acquisition and does not, when taken together with unsecured Indebtedness of other Domestic Subsidiaries and U.S. Domestic Subsidiaries of the Credit Parties acquired after the
date hereof, exceed the U.S. Dollar Equivalent of Ten Million Dollars ($10,000,000) in the aggregate; 

        (e)  guaranties
of operating leases by either Borrower to, or for the benefit of, its Domestic Subsidiaries in the ordinary course of such Borrower's business; 

        (f)    intercompany
advances made by either Borrower to the other Borrower or a Domestic Subsidiary; so long as such Domestic Subsidiary executes for the benefit of Lender and
delivers to Lender a continuing guaranty guaranteeing the payment and satisfaction in full in cash of all of Borrowers' Obligations and a security agreement granting Lender a first priority security
interest in all of its assets, in form and substance satisfactory to Lender; 

        (g)  intercompany
Indebtedness owing by either Borrower to the Parent provided that such indebtedness shall not be permitted to be secured in favor of the Parent unless
Parent has entered 

53

 

into an intercreditor agreement with Lender, in form and substance satisfactory to Lender, providing for such security interest to be subordinated in all respects to the security interests, hypothecs
and liens granted by Borrowers to Lender; 

        (h)  guaranties
by any Subsidiaries of any Borrower of the Obligations in favor of Lenders; 

        (i)    Indebtedness
of any Borrower under swap agreements, cap agreements, collar agreements, exchange agreements and similar contractual agreements entered into for the
purpose of protecting a Person against fluctuations in interest rates or currency values; provided, that such arrangements are with banks or other financial institutions that have combined capital and
surplus and undivided profits of not less than Two Hundred Fifty Million Dollars ($250,000,000), are not for speculative purposes and are unsecured; 

        (j)    unsecured
Indebtedness of any Borrower arising after the date hereof to any third person (other than Indebtedness otherwise permitted under this Section 9.9),
provided, that each of the following conditions is satisfied as determined by Lender: (i) such Indebtedness shall be on terms and conditions acceptable to Lender and shall be subject and
subordinate in right of payment to the right of Lender to receive the prior indefeasible payment and satisfaction in full payment of all of the Obligations pursuant to the terms of an intercreditor
agreement between Lender and such third party, in form and substance satisfactory to Lender, (ii) Lender shall have received not less than ten (10) days prior written notice of the
intention of such Borrower to incur such Indebtedness, which notice shall set forth in reasonable detail satisfactory to Lender the amount of such Indebtedness, the person or persons to whom such
Indebtedness will be owed, the interest rate, the schedule of repayments and maturity date with respect hereto and such other information as Lender may reasonably request with respect thereto,
(iii) Lender shall have received true, correct and complete copies of all agreements, documents and instruments evidencing or otherwise related to such Indebtedness, (iv) on and before
the date of incurring such Indebtedness and after giving effect thereto, no Default or Event of Default shall exist
or have occurred, (v) such Borrower shall not, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any agreement, document or instrument related
thereto, except, that, such Borrower may, after prior written notice to Lender, amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or defer the timing of any
payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payments thereof), or to reduce the interest rate or any fees in connection therewith, or
(B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness (except pursuant to regularly scheduled payments permitted herein), or set aside or otherwise deposit or invest any
sums for such purpose, and (vi) Borrowers shall furnish to Lender all notices or demands in connection with such Indebtedness either received by such Borrower or on its behalf promptly after
the receipt thereof, or sent by such Borrower or on its behalf concurrently with the sending thereof, as the case may be; 

        (k)  the
Indebtedness set forth on Schedule 9.9 hereto; provided, that (i) Borrowers may only make regularly
scheduled payments of principal and interest in respect of such Indebtedness in accordance with the terms of the agreement or instrument evidencing or giving rise to such Indebtedness as in effect on
the date hereof, (ii) no Borrower shall, directly or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness or any agreement, document or instrument related
thereto as in effect on the date hereof except, that a Borrower may, after prior written notice to Lender, amend, modify, alter or change the terms thereof so as to extend the maturity thereof, or
defer the timing of any payments in respect thereof, or to forgive or cancel any portion of such Indebtedness (other than pursuant to payment thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set aside or otherwise deposit or invest any sums for such purpose, and
(iii) Borrowers shall furnish to Lender all notices or demands in connection with 

54

 

such Indebtedness either received by a Borrower or on its behalf, promptly after the receipt thereof, or sent by a Borrower or on its behalf, concurrently with the sending thereof, as the case may
be; 

        (l)    Indebtedness
of a SPE in connection with a Securitization so long as (i) the amount of such Indebtedness does not exceed (A) the U.S. Dollar Equivalent of
One Hundred Ten Million Dollars ($110,000,000) in the aggregate at any one time if such Indebtedness is incurred during the period commencing as of the date hereof and continuing through the second
anniversary of the date hereof, and (B) thereafter, the U.S. Dollar Equivalent of One Hundred Twenty-Five Million Dollars ($125,000,000) in the aggregate at any one time, and
(ii) the financial terms of the instruments or documents evidencing such Indebtedness are not materially adverse when compared to the term sheet with respect to a Securitization delivered to
Lender, and the interest rate charged in respect to such Indebtedness does not exceed twelve percent (12%) per annum; and 

        (m)  other
Indebtedness not listed above which outstanding amount shall not, when taken together with other Indebtedness not listed above of the other Credit Parties, exceed
(i) the U.S. Dollar Equivalent of Five Million Dollars ($5,000,000) in the aggregate at any one time if such Indebtedness is incurred during the period commencing as of the date hereof and
continuing through the second anniversary of the date hereof, and (ii) thereafter, the U.S. Dollar Equivalent of Ten Million Dollars ($10,000,000) in the aggregate at any one time. 

        9.10    Loans, Investments, Etc.    

        No
Borrower shall, and no Borrower shall permit any Domestic Subsidiary to, directly or indirectly, make, or suffer or permit to exist, any loans or advances of money or property to any
person, or any investment in (by capital contribution, dividend or otherwise), or purchase or repurchase the Capital Stock or Indebtedness or all or a substantial part of the assets or property of any
person, or form or acquire any Subsidiaries, or agree to do any of the foregoing, except: 

        (a)  the
endorsement of instruments for collection or deposit in the ordinary course of business; 

        (b)  investments
in cash or Cash Equivalents; 

        (c)  investments
in respect to any publicly traded securities, which public securities are traded in a nationally recognized stock exchange association, and which investment
shall not, when taken together with investments in public securities by the other Credit Parties, exceed the U.S. Dollar Equivalent of Two Million Dollars ($2,000,000), in the aggregate at any one
time, at original cost plus the amount of proceeds from the sale of such publicly traded securities; 

        (d)  the
existing equity investments of any Borrower as of the date hereof in its Subsidiaries, provided, that such Borrower shall have no obligation to make any other
investment in, or loans to, or other payments in respect of, any such Subsidiaries; 

        (e)  investments
or loans made by either Borrower in or to the other Borrower; 

        (f)    investments
of any Borrower in a Subsidiary that is not a Domestic Subsidiary; provided that (i) as of the date of any payment in respect of such investment and
after giving effect thereto, no Default or Event of Default shall exist or have occurred, (ii) (A) as of the date of any payment in respect of such investment and after giving effect
thereto, the U.S. Excess Availability shall be not less than Twenty Million Dollars ($20,000,000) and the Canadian Compliance Excess Availability shall not be less than One Million Dollars
($1,000,000) and (B) for each of the immediately preceding thirty (30) consecutive days, U.S. Excess Availability shall have been not less than Twenty Million Dollars ($20,000,000), and
Canadian Compliance Excess Availability shall not have been less than One Million Dollars ($1,000,000) (iii) the U.S. Dollar Equivalent of the amounts so invested in any such Subsidiary may
not, when taken together with amounts invested in 

55

 

all such Subsidiaries of the Borrowers that are not Domestic Subsidiaries and all Subsidiaries of the U.S. Borrowers that are not U.S. Domestic Subsidiaries, exceed (1) Five Million Dollars
($5,000,000) in the aggregate plus (2) such additional amount as may be permitted under Section 9.12; 

        (g)  equity
investments of any Borrower or any Domestic Subsidiary in any wholly-owned Domestic Subsidiary formed or acquired after the date hereof, provided, that
(i) promptly upon such formation or acquisition, Borrowers shall cause any such Subsidiary to execute and deliver to Lender, in form and substance satisfactory to Lender, (A) an absolute
and unconditional guaranty of payment of the Obligations, (B) a security agreement granting to Lender a first security interest, hypothec and lien (except as otherwise consented to in writing
by Lender) upon all of the assets of such Subsidiary, and (C) such other agreements, documents and instruments as Lender may require, including, but not limited to, supplements and amendments
hereto and other loan agreements or instruments evidencing Indebtedness of such new Subsidiary to Lender, (ii) promptly upon Lender's request: (A) the Borrower that formed such
Subsidiary shall execute and deliver to Lender, in form and substance satisfactory to Lender, a pledge and security agreement granting to Lender a first pledge of, hypothec and lien on all of the
issued and outstanding shares of Capital Stock of such Subsidiary, and (B) such Borrower shall deliver the original stock certificates evidencing such shares of Capital Stock (or such other
evidence as may be issued in the case of a limited liability company or other entity) together with stock powers with respect thereto duly executed in blank (or the equivalent thereof in the case of a
limited liability company), (iii) as of the date of any payment in respect of such investment and after giving effect thereto, no Default or Event of Default shall exist or have occurred,
(iv) (A) as of the date of any payment in respect of such investment and after giving effect thereto, U.S. Excess Availability shall be not less than Twenty Million Dollars ($20,000,000)
and Canadian Compliance Excess Availability shall not be less than One Million Dollars ($1,000,000) and (B) for each of the immediately preceding thirty (30) consecutive days U.S. Excess
Availability shall have been not less than Twenty Million Dollars ($20,000,000) and the Canadian Compliance Excess Availability shall not be less than One Million Dollars ($1,000,000), and
(v) the U.S. Dollar Equivalent of the amount so invested in any such Subsidiary may not, when taken together with amounts invested in all other wholly-owned Domestic Subsidiaries and
wholly-owned U.S. Domestic Subsidiaries of the other Credit Parties, exceed (1) Ten Million Dollars ($10,000,000), provided that such Subsidiary conducts and engages in business similar to any
business of Borrowers, plus (2) net profits after tax of such Subsidiary for each fiscal year during the term of this Agreement, which amount shall not be less than zero, plus (3) such
additional amount as may be permitted under Section 9.12; 

        (h)  equity
investments of any Borrower in any other Borrower; 

        (i)    stock
or obligations issued to any Borrower by any Person (or the representative of such Person) in respect of Indebtedness of such Person owing to such Borrower in
connection with the insolvency, bankruptcy, receivership or reorganization of such Person or a composition or readjustment of the debts of such Person; provided, that the original of any such stock or
instrument evidencing such obligations shall be promptly delivered to Lender, upon Lender's request, together with such stock power, assignment or endorsement by Borrowers as Lender may request; 

        (j)    obligations
of account debtors to any Borrower arising from Accounts which are past due evidenced by a promissory note made by such account debtor payable to Borrower;
provided, that promptly upon
the receipt of the original of any such promissory note by Borrower, such promissory note shall be endorsed to the order of Lender by Borrowers and promptly delivered to Lender as so endorsed; 

56

 

        (k)  the
loans and advances set forth on Schedule 9.10 hereto; provided, that, as to such loans and advances,
(i) Borrowers shall not, directly or indirectly, amend, modify, alter or change the terms of such loans and advances or any agreement, document or instrument related thereto and
(ii) Borrowers shall furnish to Lender all notices or demands in connection with such loans and advances either received by any Borrower or on its behalf, promptly after the receipt thereof, or
sent by any Borrower or on its behalf, concurrently with the sending thereof, as the case may be; 

        (l)    [intentionally deleted] 

        (m)  subject
to Section 9.12, loans to suppliers and licensees in the ordinary course of business; 

        (n)  loans
to officers and employees in respect to the purchase of capital stock of Borrowers by such officers and employees not prohibited by Section 9.13 and which
amount of loans shall not, when taken together with loans to officers and employees of the other Credit Parties in respect of the purchase of capital stock of such other Credit Parties, exceed the
U.S. Dollar Equivalent of Three Million Dollars ($3,000,000) in the aggregate at any one time; and 

        (o)  extensions
of trade credit in the ordinary course of business. 

        9.11    Dividends and Redemptions.    

        Borrowers
shall not, directly or indirectly, declare or pay any dividends on account of any shares of class of any of its Capital Stock now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of any class of Capital Stock (or set aside or otherwise deposit or invest
any sums for such purpose) for any consideration or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such shares or agree to do any
of the foregoing, except in accordance with Section 9.12 or except in any case in the form of shares of Capital Stock consisting of common stock. 

        9.12    Further Restriction on Loans, Investments, Dividends and Redemptions.    

        Borrowers
may (i) make the investments referred to in Section 9.10(f)(iii)(2) and 9.10(g)(v)(3), (ii) make the loans to suppliers or licensees referred to in
Section 9.10(m), or (iii) take any action with respect to Capital Stock referred to in Section 9.11 only to the extent that (A) the U.S. Dollar Equivalent of the amount
expended in connection with or set aside for all such purposes shall not, when taken together with the amounts expended in connection with or set aside for all such purposes by the other Credit
Parties, exceed in the aggregate the U.S. Dollar Equivalent of Thirty-five Million Dollars ($35,000,000) plus twenty-five percent (25%) of the amount of net profits after tax
reported on the consolidated financial statements of Parent prepared in accordance with GAAP for each fiscal year during the term of this Agreement, (B) (y) U.S. Excess Availability shall be
not less than Twenty Million Dollars ($20,000,000) immediately after each such action and Canadian Compliance Excess Availability shall not be less than One Million Dollars ($1,000,000) and for each
of the immediately preceding thirty (30) consecutive days and (z) U.S. Excess Availability shall have been not less than Twenty Million Dollars ($20,000,000) and Canadian Compliance
Excess Availability shall not be less than One Million Dollars ($1,000,000) and (C) no Default or Availability Compliance Period (related to an Availability Triggering Event) exists and no
Default or Availability Triggering Event would be caused by the proposed action. 

        9.13    Transactions with Affiliates.    

        No
Borrower shall, directly or indirectly, (a) purchase, acquire or lease any property from, or sell, transfer or lease any property to, any officer, director, agent or other
person affiliated with any Borrower (other than another Borrower or a Subsidiary of a Borrower), except in the ordinary course of and pursuant to the reasonable requirements of Borrowers' business and
upon fair and reasonable terms no less favorable to such Borrower than such Borrower would obtain in a comparable arm's 

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length transaction with an unaffiliated person, except transactions relating to Shareholders Agreement to which Parent is a party or (b) make any payments of management, consulting or other
fees for management or similar services, or of any Indebtedness owing to any officer, employee, shareholder, director or other Affiliate of any Borrower except any Borrower may (i) pay
reasonable compensation to officers, employees and directors for services rendered to such Borrower in the ordinary course of business; (ii) pay expenses or make loans and advances to officers,
employees and directors for bona fide business purposes, including but not limited to indemnification permitted under such Borrower's Bylaws, relocation, stock option exercises, travel or otherwise
consistent with past practice; and (iii) satisfy obligations of such Borrower under transactions described in the notes to the consolidated financial statements of Parent for the year ended
December 31, 2001, and continuations, renewals or extensions thereof in an amount not exceeding one hundred fifty percent (150%) in the aggregate of the original amount of such obligations
without Lender's prior written consent which consent shall not be unreasonably withheld. 

        9.14    Compliance Concerning Canadian Pension Plans.    

        Borrowers
shall cause the Canadian Pension Plan to be administered in accordance with the requirements of the applicable pension plan texts, funding agreements, the Income Tax Act
(Canada) and applicable provincial pension benefits legislation. Upon Lender's request, Borrowers shall use their best efforts to deliver to Lender an undertaking of the funding agent for the Canadian
Pension Plan stating that the funding agent will notify Lender within seven (7) days of the failure of any Borrower to make any required contribution to the Canadian Pension Plan. Borrowers
shall not accept payment of any amount from the Canadian Pension Plan (other than amounts on account of expenses reasonably incurred in connection with the operations of such Canadian Pension Plan)
without the prior written consent of Lender. Without the prior written consent of Lender, Borrowers shall not terminate, or cause to be terminated, the Canadian Pension Plan, if such plan would have a
solvency deficiency on termination. Borrowers shall promptly provide Lender with any documentation relating to the Canadian Pension Plan as Lender may reasonably request. Borrowers shall notify Lender
within thirty (30) days of (i) a material increase in the liabilities of the Canadian Pension Plan, (ii) the establishment of a new registered pension plan, or
(iii) commencing payment of contributions to the Canadian Pension Plan to which any Borrower had not previously been contributing. 

        9.15    End of Fiscal Years, Fiscal Quarters.    

        Borrowers
shall, for financial reporting purposes, cause its, and each of its Subsidiaries' (a) fiscal years to end on December 31 or the Saturday or Sunday closest to
December 31 of each year and (b) fiscal quarters to end on the Saturday closest to each calendar quarter end. 

        9.16    Change in Business.    

        Borrowers
shall not engage in any business other than the business of Borrowers on the date hereof and any business reasonably related, ancillary or complimentary to the business in
which Borrowers are engaged on the date hereof. 

        9.17    Limitation of Restrictions Affecting Subsidiaries.    

        Borrowers
shall not, directly or indirectly, create or otherwise cause or suffer to exist any encumbrance or restriction which prohibits or limits the ability of any Domestic Subsidiary
of any Borrower to (a) pay dividends or make other distributions or pay any Indebtedness owed to any Borrower or any Subsidiary of any Borrower; (b) make loans or advances to any
Borrower or any Subsidiary of any Borrower, (c) transfer any of its properties or assets to any Borrower or any Subsidiary of any Borrower; or (d) create, incur, assume or suffer to
exist any lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than encumbrances and restrictions arising under (i) applicable law, (ii) this
Agreement, (iii) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of any Borrower or any of its 

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Subsidiaries, (iv) customary restrictions on dispositions of real property interests found in reciprocal easement agreements of any Borrower or its Subsidiary, (v) any agreement
relating to permitted Indebtedness incurred by a Subsidiary of any Borrower prior to the date on which such Subsidiary was acquired by such Borrower and outstanding on such acquisition date,
(vi) any Securitization Documents and (vii) the extension or continuation of contractual obligations in existence on the date hereof; provided, that any such encumbrances or restrictions
contained in such extension or continuation are no less favorable to Lender than those encumbrances and restrictions under or pursuant to the contractual obligations so extended or continued. 

        9.18    Net Worth.    

        The
Borrowers, together with the Parent and Parent's other consolidated Subsidiaries shall, at all times through and including June 30, 2004, maintain Adjusted Tangible Net Worth
of not less than the U.S. Dollar Equivalent of One Hundred Million Dollars ($100,000,000) and shall, at all times after June 30, 2004 maintain Net Worth of not less than the U.S. Dollar
Equivalent of One Hundred Ten Million Dollars ($110,000,000). Compliance with the requirements of this section will be tested for each fiscal quarter upon delivery of the financial statements as of
the end of such fiscal quarter; provided that such compliance will not be tested except during any Availability Compliance Period (related to an Availability Triggering Event). 

        9.19    License Agreements.    

        (a)  Each
Borrower shall (i) promptly and faithfully observe and perform all of the material terms, covenants, conditions and provisions of the material License
Agreements to be observed and performed by it, at the times set forth therein, if any, (ii) not do, permit, suffer or refrain from doing anything could reasonably be expected to result in a
default under or breach of any of the terms of any material License Agreement, (iii) not cancel, surrender, modify, amend, waive or release any material License Agreement in any material
respect or any term, provision or right of the licensee thereunder in any material respect, or consent to or permit to occur any of the foregoing; except, that, subject to Section 9.19(b)
below, such Borrower may cancel, surrender or release any material License Agreement in the ordinary course of the business of Borrowers; provided, that Borrowers shall give Lender not less than
thirty (30) days prior written notice of such Borrower's intention to so cancel, surrender and release any such material License Agreement, (iv) give Lender prompt written notice of any
material License Agreement entered into by any Borrower after the date hereof, together with a true, correct and complete copy thereof and such other information with respect thereto as Lender may
request, (v) give Lender prompt written notice of any material breach of any obligation, or any default, by any party under any material License Agreement, and deliver to Lender (promptly upon
the receipt thereof by any Borrower in the case of a notice to any Borrower, and concurrently with the sending thereof in the case of a notice from any Borrower) a copy of each notice of default and
every other notice and other communication received or delivered by any Borrower in connection with any material License Agreement which relates to the right of any Borrower to continue to use the
property subject to such License Agreement, and (vi) furnish to Lender, promptly upon the request of Lender, such information and evidence as Lender may require from time to time concerning the
observance, performance and compliance by any Borrower or the other party or parties thereto with the terms, covenants or provisions of any material License Agreement. 

        (b)  Borrowers
will either exercise any option to renew or extend the term of each material License Agreement in such manner as will cause the term of such material License
Agreement to be effectively renewed or extended for the period provided by such option and give prompt written notice thereof to Lender or give Lender prior written notice that a Borrower does not
intend to renew or extend the term of any such material License Agreement or that the term thereof shall otherwise be expiring, not less than sixty (60) days prior to the date of any such
non-renewal or 

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expiration. In the event of the failure of any Borrower to extend or renew any material License Agreement, Lender shall have, and is hereby granted, the irrevocable right and authority, at its
option, to renew or extend the term of such material License Agreement, whether in its own name and behalf, or in the name and behalf of a designee or nominee of Lender or in the name and behalf of
any Borrower, as Lender shall determine at any time that an Event of Default shall exist or have occurred and be continuing. Lender may, but shall not be required to, perform any or all of such
obligations of any Borrower under any of the License Agreements, including, but not limited to, the payment of any or all sums due from such Borrower thereunder. Any sums so paid by Lender shall
constitute part of the Obligations. 

        9.20    Costs and Expenses.    

        Borrowers
shall pay to Lender on demand all the actual costs and reasonable expenses, filing fees and taxes paid or payable in connection with the preparation, negotiation, execution,
delivery, recording, administration, collection, liquidation, enforcement and defense of the Obligations, Lender's rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements or consents which may hereafter be contemplated (whether or not executed) or entered into in respect hereof and
thereof, including: (a) all the actual costs and expenses of filing or recording (including Uniform Commercial Code or PPSA financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b) all the actual costs and expenses and fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fees, actual costs and expenses of remitting loan proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked Accounts, together with Lender's customary charges and fees with respect thereto; (c) charges, fees or expenses charged by any bank or issuer in connection with the
Letter of Credit Accommodations; (d) actual costs and reasonable expenses of preserving and protecting the Collateral; (e) actual costs and reasonable expenses paid or incurred in
connection with obtaining payment of the Obligations, enforcing the security interests and liens of Lender, selling or otherwise realizing upon the Collateral, and otherwise enforcing the provisions
of this Agreement and the other Financing Agreements or defending any claims made or threatened against Lender arising out of the transactions contemplated hereby and thereby (including preparations
for and consultations concerning any such matters); (f) all out-of-pocket expenses and costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrowers' operations, plus a per diem charge at the rate of the U.S. Dollar Equivalent of Eight Hundred Dollars ($800) per person per day
for Lender's examiners in the field and office, provided that Borrowers shall be required to pay for only two (2) such field audits in any twelve (12) month period unless an Event of
Default or an Availability Triggering Event occurs; (g) all actual costs and expenses in connection with background investigations of the principals of Borrowers; and (h) the reasonable
fees and disbursements of counsel (including legal assistants) to Lender in connection with the preparation of this Agreement and the other Financing Agreements or any of the foregoing. The amount of
any deposit given by Borrowers to Lender in connection with this Agreement remaining after payment of all fees, costs and expenses incurred by Lender in connection with any audit or field examination
of Borrowers and their Subsidiaries and Affiliates or the preparation and negotiation of the Financing Documents shall be applied against the amounts owing under this Section 9.20. 

        9.21    Further Assurances.    

        At
the request of Lender at any time and from time to time, Borrowers shall, at their expense, duly execute and deliver, or cause to be duly executed and delivered, such further
agreements, documents and instruments, and do or cause to be done such further acts as may be necessary or proper to evidence, perfect, maintain and enforce the security interests and the priority
thereof in the Collateral and to otherwise effectuate the provisions or purposes of this Agreement or any of the other 

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Financing Agreements. Lender may at any time and from time to time request a certificate from an officer of any Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the event of such request by Lender, Lender may, at its option, cease to make any further Loans or provide any further
Letter of Credit Accommodations until Lender has received such certificate and, in addition, Lender has determined that such conditions are satisfied. 

        9.22    Applications under Insolvency Statutes.    

        Each
Borrower acknowledges that its business and financial relationships with Lender is unique from its relationship with any other of its creditors, and agrees that it shall not file
any plan of arrangement under the Companies' Creditors Arrangement Act (Canada) or make any proposal under the Bankruptcy and Insolvency Act (Canada) which provides for, or would permit directly or
indirectly, Lender to be classified with any other creditor for purposes of such plan or proposal or otherwise. 

SECTION 10
EVENTS OF DEFAULT AND REMEDIES

        10.1    Events of Default.    

        The
occurrence or existence of any one or more of the following events are referred to herein individually as an "Event of Default", and
collectively as "Events of Default": 

        (a)  (i) Borrowers
fail to pay any of the Obligations within two (2) Business Days after the same becomes due and payable, or (ii) either Borrower or any
Obligor fails to perform any of the covenants contained in Sections 9.1, 9.7 through 9.18 of this Agreement and such failure shall continue for ten (10) Business Days, or (iii) Borrowers
fail to perform any of the terms, covenants, conditions or provisions contained in this Agreement or any of the other Financing Agreements other than those described in Sections 6.3, 6.4,
10.1(a)(i) and 10.1(a)(ii) above and such failure shall continue for thirty (30) days; provided, that the cure periods specified
above shall not apply in the case of (A) any failure to observe any covenant that is not capable of being cured at all or within the applicable period or which has been the subject of a prior
failure within the preceding six (6) month period or (B) any failure by Borrowers to pursue a cure diligently and promptly during the applicable period; 

        (b)  any
representation, warranty or statement of fact made by either Borrower to Lender in this Agreement, the other Financing Agreements or any other agreement, schedule,
confirmatory assignment or otherwise shall when made or deemed made be false or misleading in any material respect; 

        (c)  any
Obligor revokes, terminates or fails to perform any of the terms, covenants, conditions or provisions of any guaranty, endorsement or other agreement of such party
in favor of Lender; 

        (d)  any
judgment for the payment of money is rendered against either Borrower or any Obligor other than a U.S. Borrower in excess of the U.S. Dollar Equivalent of Two
Million Five Hundred Thousand
Dollars ($2,500,000) in any one case or in excess of the U.S. Dollar Equivalent of Five Million Dollars ($5,000,000) in the aggregate, in each case in excess of applicable insurance coverage and shall
remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against either Borrower or any Obligor other than a U.S. Borrower or any of their assets; 

        (e)  either
Borrower or any Obligor dissolves or suspends or discontinues doing business; 

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        (f)    either
Borrower or any Obligor becomes insolvent (however defined or evidenced), makes an assignment for the benefit of creditors, makes or sends notice of a bulk
transfer or calls a meeting of its creditors or principal creditors; 

        (g)  a
petition, case, application or proceeding under any bankruptcy or insolvency laws of Canada (including the Bankruptcy and Insolvency Act (Canada) and the Companies'
Creditors Arrangement Act (Canada)) or under any insolvency, reorganization, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether at
law or in equity) is filed against either Borrower or any Obligor or all or any part of its properties and such petition or application is not dismissed within sixty (60) days, or if such case
or proceeding is under any receivership, within thirty (30) days, after the date of its filing or either Borrower or any Obligor shall file any answer admitting or not contesting such petition
or application or indicates its consent to, acquiescence in or approval of, any such action or proceeding or the relief requested is granted sooner; 

        (h)  a
petition, case, application or proceeding under any bankruptcy or insolvency laws of Canada (including the Bankruptcy and Insolvency Act (Canada) and the Companies'
Creditors Arrangement Act (Canada)) or under any insolvency, reorganization, receivership, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction now or hereafter in
effect (whether at a law or equity) is filed by either Borrower or any Obligor or for all or any part of its property; 

        (i)    any
default by either Borrower or any Obligor other than a U.S. Borrower under any agreement, document or instrument relating to any Indebtedness for borrowed money
owing to any person other than Lender, or any capitalized lease obligations, contingent Indebtedness in connection with any guaranty, letter of credit, indemnity or similar type of instrument in favor
of any person other than Lender, in any case in an amount in excess of the U.S. Dollar Equivalent of Three Million Dollars ($3,000,000), which default continues for more than the applicable cure
period, if any, with respect thereto, or any default by either Borrower or any Obligor under any Material Contract or any License Agreement with Parent or any of its successors, which default
continues for more than the applicable cure period, if any, with respect thereto; 

        (j)    any
bank at which any deposit account of either Borrower is maintained shall fail to comply with instructions regarding the disposition of funds in accordance with the
terms of any Deposit Account Control Agreement to which such bank is a party or any securities intermediary, commodity intermediary or other financial institution at any time in custody, control or
possession of any investment property of either Borrower shall fail to comply with instructions regarding the disposition of investment property in accordance with the terms of any Investment Property
Control Agreement to which such person is a party; 

        (k)  any
material provision hereof or of any of the other Financing Agreements shall for any reason cease to be valid, binding and enforceable with respect to any party
hereto or thereto (other than Lender) in accordance with its terms, or any such party shall challenge the enforceability hereof or thereof, or shall assert in writing, or take any action or fail to
take any action based on the assertion that any provision hereof or of any of the other Financing Agreements has ceased to be or is otherwise not valid, binding or enforceable in accordance with its
terms, or any security interest provided for herein or in any of the other Financing Agreements shall cease to be a valid and perfected first priority security interest in any of the Collateral
purported to be subject thereto (except as otherwise permitted herein or therein); 

        (l)    any
termination or revocation of any License Agreement with the Parent or any of its successors or the giving of any notice or the taking of any other action to
terminate any such License Agreement; 

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        (m)  any
Change of Control shall occur; 

        (n)  the
indictment by any Governmental Authority, or as Lender may reasonably and in good faith determine, the threatened indictment by any Governmental Authority of either
Borrower or any Obligor of which either Borrower, any Obligor or Lender receives notice, in either case, as to which there is a reasonable possibility of an adverse determination, in the good faith
determination of Lender, under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against either Borrower or any Obligor, pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of (i) any of the Collateral or property of any Obligor having a value in excess of the U.S. Dollar Equivalent of
One Million Dollars ($1,000,000) or (ii) any other property of either Borrower or any Obligor which is necessary or material to the conduct of its business; 

        (o)  a
material impairment of either Borrower's ability to perform their obligations under the Financing Agreements or of Lender's ability to enforce the Obligations or
realize upon the Collateral, or a material impairment of the enforceability or priority of Lender's liens or security interests or hypothecs with respect to the Collateral as a result of an action or
failure to act on the part of a Borrower; 

        (p)  there
shall be an event of default under any of the other Financing Agreements; 

        (q)  there
shall be a Default (as defined in the U.S. Agreement) or Event of Default (as defined in the U.S. Agreement) under the U.S. Agreement or the other Financing
Agreements (as defined in the U.S. Agreement); 

        (r)  a
requirement from the Minister of National Revenue for payment pursuant to Section 224 or any successor section of the Income Tax Act (Canada) or
Section 317, or any successor section in respect of either Borrower of the Excise Tax Act (Canada) or any comparable provision of similar legislation shall have been received by Lender or any
other Person in respect of either Borrower or otherwise issued in respect of either Borrower; or 

        (s)  there
shall be a failure of one or more of the conditions set forth in Section 4.3. 

        10.2    Remedies.    

        (a)  At
any time an Event of Default exists or has occurred and is continuing, Lender shall have all rights and remedies provided in this Agreement, the other Financing
Agreements, the UCC, Canadian Security Law and other applicable law, all of which rights and remedies may be exercised without notice to or consent by any Borrower or any Obligor, except as such
notice or consent is expressly provided for hereunder or required by applicable law. All rights, remedies and powers granted to Lender hereunder, under any of the other Financing Agreements, the UCC,
Canadian Security Law or other applicable law, are cumulative, not exclusive and enforceable, in Lender's discretion, alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for an injunction to restrain a breach or threatened breach by either Borrower of this Agreement or any of the other
Financing Agreements. Lender may, at any time or times, proceed directly against Borrowers or either of them or any Obligor to collect the Obligations without prior recourse to any Obligor or any of
the Collateral. 

        (b)  Without
limiting the foregoing, at any time an Event of Default exists or has occurred and is continuing, Lender may, in its discretion and without limitation,
(i) accelerate the payment of all Obligations and demand immediate payment thereof to Lender (provided, that, upon the occurrence of any Event of Default described in Sections 10.1(g) and
10.1(h), all Obligations shall automatically become immediately due and payable), (ii) with or without judicial process or the aid or assistance of others, enter upon any premises on or in
which any of the Collateral may be 

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located and take possession of the Collateral or complete processing, manufacturing and repair of all or any portion of the Collateral, (iii) require Borrowers, at Borrowers' expense, to
assemble and make
available to Lender any part or all of the Collateral at any place and time designated by Lender, (iv) collect, foreclose, receive, appropriate, setoff and realize upon any and all Collateral,
(v) remove any or all of the Collateral from any premises on or in which the same may be located for the purpose of effecting the sale, foreclosure or other disposition thereof or for any other
purpose, (vi) sell, lease, transfer, assign, deliver or otherwise dispose of any and all Collateral (including entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices or terms as Lender may deem reasonable, for cash, upon credit or for future delivery, with the Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all of the foregoing being free from any right or equity of redemption of Borrowers, which right or equity of redemption is
hereby expressly waived and released by Borrowers and/or (vii) terminate this Agreement. If any of the Collateral is sold or leased by Lender upon credit terms or for future delivery, the
Obligations shall not be reduced as a result thereof until payment therefor is finally collected by Lender. If notice of disposition of Collateral is required by law, ten (10) days prior notice
by Lender to Borrowers designating the time and place of any public sale or the time after which any private sale or other intended disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and Borrowers waive any other notice. In the event Lender institutes an action to recover any Collateral or seeks recovery of any Collateral by way of prejudgment remedy,
Borrowers waive the posting of any bond which might otherwise be required. At any time an Event of Default exists or has occurred and is continuing, upon Lender's request, Borrowers will either, as
Lender shall specify, furnish cash collateral to the issuer to be used to secure and fund Lender's reimbursement obligations to the issuer in connection with any Letter of Credit Accommodations or
furnish cash collateral to Lender for the Letter of Credit Accommodations. Such cash collateral shall be in the amount equal to one hundred five percent (105%) of the amount of the Letter of Credit
Accommodations plus the amount of any reasonable fees and expenses payable in connection therewith through the end of the expiration of such Letter of Credit Accommodations. 

        (c)  Lender
may, at any time or times that an Event of Default exists or has occurred and is continuing, enforce any Borrower's rights against any account debtor, secondary
obligor or other obligor in respect of any of the Accounts or other Receivables. Without limiting the generality of the foregoing, Lender may at such time or times (i) notify any or all account
debtors, secondary obligors or other obligors in respect thereof that the Receivables have been assigned to Lender and that Lender has a security interest therein and Lender may direct any or all
accounts debtors, secondary obligors and other obligors to make payment of Receivables directly to Lender, (ii) extend the time of payment of, compromise, settle or adjust for cash, credit,
return of merchandise or otherwise, and upon any terms or conditions, any and all Receivables or other obligations included in the Collateral and thereby discharge or release the account debtor or any
secondary obligors or other obligors in respect thereof without affecting any of the Obligations, (iii) demand, collect or enforce payment of any Receivables or such other obligations, but
without any duty to do so, and Lender shall not be liable for its failure to collect or enforce the payment thereof nor for the negligence of its agents or attorneys with respect thereto and
(iv) take whatever other action Lender may deem necessary or desirable for the protection of its interests. At any time that an Event of Default exists or has occurred and is continuing, at
Lender's request, all invoices and statements sent to any account debtor shall state that the Accounts and such other obligations have been assigned to Lender and are payable directly and only to
Lender and Borrowers shall deliver to Lender such originals of documents evidencing the sale and delivery of goods or the performance of services giving rise to any Accounts as Lender may require. In
the event any account debtor returns Inventory when an Event of Default exists or has occurred and is continuing, Borrowers shall, upon Lender's request, hold the returned Inventory in trust for 

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Lender, segregate all returned Inventory from all of its other property, dispose of the returned Inventory solely according to Lender's instructions, and not issue any credits, discounts or
allowances with respect thereto without Lender's prior written consent. 

        (d)  To
the extent that applicable law imposes duties on Lender to exercise remedies in a commercially reasonable manner (which duties cannot be waived under such law),
Borrowers acknowledge and agree that it is not commercially unreasonable for Lender (i) to fail to incur expenses reasonably deemed significant by Lender to prepare Collateral for disposition
or otherwise to complete raw material or work in process into finished goods or other finished products for disposition, (ii) to fail to obtain third party consents for access to Collateral to
be disposed of, or to obtain or, if not required by other law, to fail to obtain consents of any Governmental Authority or other third party for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies against account debtors, secondary obligors or other persons obligated on Collateral or to remove liens or encumbrances
on or any adverse claims against Collateral, (iv) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection
agencies and other collection specialists, (v) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized
nature, (vi) to contact other persons, whether or not in the same business as Borrowers, for expressions of interest in acquiring all or any portion of the Collateral, (vii) to hire one
or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (viii) to dispose of Collateral by utilizing Internet
sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (ix) to
dispose of assets in wholesale rather than retail markets, (x) to disclaim disposition warranties, (xi) to purchase insurance or credit enhancements to insure Lender against risks of
loss, collection or disposition of Collateral or to provide to the Lender a guaranteed return from the collection or disposition of Collateral, or (xii) to the extent deemed appropriate by the
Lender, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Lender in the collection or disposition of any of the Collateral. Borrowers
acknowledge that the purpose of this Section is to provide non-exhaustive indications of what actions or omissions by Lender would not be commercially unreasonable in Lender's exercise of
remedies against the Collateral and that other actions or omissions by Lender shall not be deemed commercially unreasonable solely on account of not being indicated in this Section. Without limitation
of the foregoing, nothing contained in this Section shall be construed to grant any rights to Borrowers or to impose any duties on Lender that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this Section. 

        (e)  For
the purpose of enabling Lender to exercise the rights and remedies hereunder, Borrowers hereby grant to Lender, to the extent assignable, an irrevocable,
non-exclusive license (exercisable without payment of royalty or other compensation to Borrowers) to use, assign, license or sublicense any of the trademarks, service-marks, trade names,
business names, trade styles, designs, logos and other source of business identifiers and other Intellectual Property and general intangibles now owned or hereafter acquired by any Borrower, wherever
the same maybe located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or
printout thereof. 

        (f)    Lender
may apply the cash proceeds of Collateral actually received by Lender from any sale, lease, foreclosure or other disposition of the Collateral to payment of the
Obligations, in whole or in part and in such order as Lender may elect, whether or not then due. Borrowers shall remain liable to Lender
for the payment of any deficiency with interest at the highest rate provided for herein and all reasonable costs and expenses of collection or enforcement, including reasonable attorneys' fees and
legal expenses. 

65

  

        (g)  Without
limiting the foregoing, upon the occurrence of a Default or Event of Default, Lender may, at its option, without notice, (i) cease making Loans or
arranging for Letter of Credit Accommodations or reduce the lending formulas or amounts of Loans and Letter of Credit Accommodations available to Borrowers and/or (ii) terminate any provision
of this Agreement providing for any future Loans or Letter of Credit Accommodations to be made by Lender to Borrowers. 

        (h)  Lender
may appoint or reappoint by instrument in writing, any person or persons, whether an officer or officers or any employee or employees of Lender or not, to be a
receiver or receivers (hereinafter called a "Receiver", which term when used herein shall include a receiver and manager) of any Collateral of any Borrower (including any interest, income or profits
therefrom) and may remove any Receiver so appointed and appoint another in his/her stead. Any such Receiver shall, so far as concerns responsibility for his/her acts, be deemed the agent of the
Borrower and not Lender, and Lender shall not be in any way responsible for any misconduct, negligence or non-feasance on the part of any such Receiver, his/her servants, agents or
employees. Subject to the provisions of the instrument appointing him/her, any such Receiver shall have power to take possession of Collateral, to preserve Collateral or its value, to carry on or
concur in carrying on all or any part of the business of the applicable Borrower and to sell, lease, license or otherwise dispose of or concur in selling, leasing, licensing or otherwise disposing of
Collateral. To facilitate the foregoing powers, any such Receiver may, to the exclusion of all others, including the applicable Borrower, enter upon, use and occupy all premises owned or occupied by
the applicable Borrower wherein Collateral may be situate, maintain Collateral upon such premises, borrow money on a secured or unsecured basis and use Collateral directly in carrying on the
applicable Borrower's business or as security for loans or advances to enable the Receiver to carry on applicable Borrower's business or otherwise, as such Receiver shall, in its discretion,
determine. Except as may be otherwise directed by Lender, all proceeds of Collateral received from time to time by such Receiver in carrying out his/her appointment shall be received in trust for and
paid over to Lender. Every such Receiver may, in the discretion of the Lender be vested with all or any of the rights and powers of the Lender. Lender may, either directly or through its agents or
nominees, exercise any or all powers and rights given to a Receiver by virtue of the foregoing provisions of this paragraph. 

        (i)    On
and after an Event of Default and for so long as the same is continuing, Borrowers shall pay all costs, charges and expenses incurred by Lender or any Receiver or any
nominee or agent of Lender, whether directly or for services rendered (including, without limitation, solicitor's costs on a solicitor and his own client basis, auditor's costs, other legal expenses
and Receiver remuneration) in enforcing this Agreement or any other Financing Agreement and in enforcing or collecting Obligations and all such expenses together with any money owing as a result of
any borrowing permitted hereby shall be a charge on the proceeds of realization and shall be secured hereby. 

SECTION 11    JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW    

        11.1    Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.    

        (a)  The
validity, interpretation and enforcement of this Agreement and the other Financing Agreements and any dispute arising out of the relationship between the parties
hereto, whether in contract, tort, equity or otherwise, shall be governed by the internal laws of the Province of Ontario and the laws of Canada applicable therein, except as to the extent of any
matters relating to the Deed of Hypothec or Movable Hypothec, the subject matter and the enforceability of which shall be governed by the internal laws of the Province of Quebec. 

        (b)  Borrowers
and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the state and federal courts located in Los Angeles County,
California, or of the Ontario Superior 

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Court of Justice or the courts of the Province of Quebec, whichever Lender may elect, and waive any objection based on venue or forum non conveniens with respect to any action instituted therein
arising under this Agreement or any of the other Financing Agreements or in any way connected with or related or incidental to the dealings of the parties hereto in respect of this Agreement or any of
the other Financing Agreements or the transactions related hereto or thereto, in each case whether now existing or hereafter arising, and whether in contract, tort, equity or otherwise, and agree that
any dispute with respect to any such matters shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against any Borrower or its
property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral or to otherwise enforce its rights against such Borrower or its
property). 

        (c)  Borrowers
hereby waive personal service of any and all process upon it and consent that all such service of process may be made by certified mail (return receipt
requested) directed to their address set forth herein and service so made shall be deemed to be completed five (5) days after the same shall have been so deposited in the Canadian mails, or, at
Lender's option, by service upon Borrowers in any other manner provided under the rules of any such courts. Within thirty (30) days after such service, Borrowers shall appear in answer to such
process, failing which Borrowers shall be deemed in default and judgment may be entered by Lender against Borrowers for the amount of the claim and other relief requested. 

        (d)  BORROWERS
AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR ANY OF THE
OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS
OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
TORT, EQUITY OR OTHERWISE. BORROWERS AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWERS
OR LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 

        (e)  Lender
shall not have any liability to Borrowers (whether in tort, contract, equity or otherwise) for losses suffered by Borrowers in connection with, arising out of, or
in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were the result of acts or omissions constituting gross negligence or willful misconduct of Lender. In any such
litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this
Agreement. Except as prohibited by law, Borrowers waive any right which any of them may have to claim or recover in any litigation with Lender any special, exemplary, punitive or consequential damages
or any damages other than, or in addition to, actual damages. Borrowers: (i) certify that neither Lender nor any representative, agent or attorney acting for or on behalf of Lender has
represented, expressly or otherwise, that Lender would not, in the event of litigation, seek to enforce any of the waivers provided for in this Agreement or any of the other Financing Agreements and
(ii) acknowledge that in entering into this Agreement and the other Financing Agreements, Lender 

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is relying upon, among other things, the waivers and certifications set forth in this Section 11.1 and elsewhere herein and therein. 

        11.2    Waiver of Notices.    

        Borrowers
hereby expressly waive demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and chattel paper, included in or
evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement,
except such as are expressly provided for herein. No notice to or demand on Borrowers which Lender may elect to give shall entitle Borrowers to any other or further notice or demand in the same,
similar or other circumstances. 

        11.3    Amendments and Waivers.    

        Neither
this Agreement nor any provision hereof shall be amended, modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized
officer of Lender, and as to amendments, as also signed by an authorized officers of Borrowers. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly
waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be
construed as a bar to or waiver of any such right, power and/or remedy which Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 

        11.4    Waiver of Counterclaims.    

        Borrowers
waive all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other than compulsory counterclaims) in any action or proceeding with respect to
this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 

        11.5    Indemnification.    

        Borrowers
shall indemnify and hold Lender, and its directors, agents, employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, costs or expenses
imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation,
execution, delivery, enforcement, performance or administration of this Agreement, any other Financing Agreements, or any undertaking or proceeding related to any of the transactions contemplated
hereby or any act, omission, event or transaction related or attendant thereto, including amounts paid in settlement, court costs, and the fees and expenses of counsel except for losses, claims,
damages, liabilities, costs and expenses arising from the gross negligence or willful misconduct of any such indemnified party as determined pursuant to a final, non-appealable order of a
court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy,
Borrowers shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the
payment of the Obligations and the termination of this Agreement. 

        11.6    Currency Indemnity.    

        If,
for the purposes of obtaining judgment in any court in any jurisdiction with respect to this Agreement or any of the other Financing Agreements, it becomes necessary to convert into
the currency of such jurisdiction (the "Judgment Currency") any amount due under this Agreement or under any of the other Financing Agreements in any currency other than the Judgment Currency (the 

68

 

"Currency Due"), then conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which judgment is given. For this purpose, "rate of exchange" means the rate at
which Lender is able, on the relevant date, to purchase the Currency Due with the Judgment Currency in accordance with its normal practice. In the event that there is a change in the rate of exchange
prevailing between the Business Day before the day on which the judgment is given and the date of
receipt by Lender of the amount due, Borrowers will, on the date of receipt by Lender, pay such additional amounts, if any, or be entitled to receive reimbursement of such amount, if any, as may be
necessary to ensure that the amount received by Lender on such date is the amount in the Judgment Currency which when converted at the rate of exchange prevailing on the date of receipt by Lender is
the amount then due under this Agreement or such other of the Financing Agreements in the Currency Due. If the amount of the Currency Due which Lender is able to purchase is less than the amount of
the Currency Due originally due to it, Borrowers shall indemnify and save Lender and Lenders harmless from and against loss or damage arising as a result of such deficiency. The indemnity contained
herein shall constitute an obligation separate and independent from the other obligations contained in this Agreement and the other Financing Agreements, shall give rise to a separate and independent
cause of action, shall apply irrespective of any indulgence granted by Lender from time to time and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum
in respect of an amount due under this Agreement or any of the other Financing Agreements or under any judgment or order. 

SECTION 12    TERM OF AGREEMENT; MISCELLANEOUS    

        12.1    Term.    

        (a)  This
Agreement and the other Financing Agreements shall become effective as of the date set forth on the first page hereof and shall continue in full force and effect
for a term ending on September 26, 2006 (the "Renewal Date"), and from year to year thereafter, unless sooner terminated pursuant to the terms
hereof; provided that in any event this Agreement will terminate upon termination of the U.S. Facility. Lender or Borrowers may terminate this Agreement and the other Financing Agreements effective on
the Renewal Date or on the anniversary of the Renewal Date in any year by giving to the other party at least sixty (60) days prior written notice; provided, that this Agreement and all other
Financing Agreements must be terminated simultaneously. In addition, Borrowers may terminate this Agreement at any time upon ten (10) days prior written notice to Lender (which notice shall be
irrevocable) and Lender may terminate this Agreement at any time on or after an Event of Default. Upon the effective date of termination or non-renewal of this Agreement, Borrowers shall
pay to Lender, in full, all outstanding and unpaid Obligations and shall furnish cash collateral to Lender (or at Lender's option, a letter of credit issued for the account of Borrowers and at
Borrowers' expense, in form and substance satisfactory to Lender, by an issuer acceptable to Lender and payable to Lender as beneficiary) in such amounts as Lender determines are reasonably necessary
to secure (or reimburse) Lender from loss, cost, damage or expense, including attorneys' fees and legal expenses, in connection with any contingent Obligations, including issued and outstanding Letter
of Credit Accommodations and checks or other payments provisionally credited to the Obligations and/or as to which Lender has not yet received final and indefeasible payment. Such payments in respect
of the Obligations and cash collateral shall be remitted by wire transfer in Federal funds to such bank account of Lender, as Lender may, in its discretion, designate in writing to Borrowers for such
purpose. Interest shall be due until and including the next business day, if the amounts so paid by Borrowers to the bank account designated by Lender are received in such bank account later than
12:00 noon, Toronto, Canada time. 

        (b)  No
termination of this Agreement or the other Financing Agreements shall relieve or discharge Borrowers of their respective duties, obligations and covenants under this
Agreement or the other Financing Agreements until all Obligations have been fully and finally discharged and 

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paid, and Lender's continuing security interest in the Collateral and the rights and remedies of Lender hereunder, under the other Financing Agreements and applicable law, shall remain in effect
until all such Obligations have been fully and finally discharged and paid. Accordingly, Borrowers waive any rights which they may have under the UCC or Canadian Security Law to demand the filing of
termination statements with respect to the Collateral, and Lender shall not be required to send such termination statements to any Borrower, or to file them with any filing office, unless and until
this Agreement is terminated in accordance with its terms and all of the Obligations are paid and satisfied in full in immediately available funds. 

        (c)  If
for any reason this Agreement is terminated prior to the end of the then current term or renewal term of this Agreement, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of Lender's lost profits as a result thereof, Borrowers agree to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set forth below if such termination is effective in the period indicated: 

	 
	 	Amount
 
	 	Period
 

	

(i)	
 	

one percent (1.00%) of the Maximum Credit	
 	

From the date hereof to and including September 26, 2003
	

(ii)	
 	

one-fourth percent (0.25%) of the Maximum Credit	
 	

From September 27, 2003 to and including September 26, 2005

Such
early termination fee shall be presumed to be the amount of damages sustained by Lender as a result of such early termination and Borrowers agree that it is reasonable under the circumstances
currently existing. In addition, Lender shall be entitled to such early termination fee upon the occurrence of any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if Lender
does not exercise its right to terminate this Agreement, but elects, at its option, to provide financing to any Borrower or permit the use of cash collateral under the United States Bankruptcy Code.
The early termination fee provided for in this Section 12.1 shall be deemed included in the Obligations. 

        (d)  Borrowers
will not be liable for an early termination fee under Section 12.1(c) if the termination of this Agreement results from repayment with the proceeds of a
credit facility provided by Wachovia Bank, National Association or using the proceeds of a sale of one or more of the Borrowers. 

        12.2    Interpretive Provisions.    

        (a)  All
terms used herein which are defined in the Personal Property Security Act (Ontario) shall have the meanings given
therein unless otherwise defined in this Agreement. 

        (b)  All
references to the plural herein shall also mean the singular and to the singular shall also mean the plural unless the context otherwise requires. 

        (c)  All
references to Borrower, Borrowers and Lender pursuant to the definitions set forth in the recitals hereto, or to any other person herein, shall include their
respective successors and assigns. 

        (d)  The
words "hereof", "herein", "hereunder", "this Agreement" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not any
particular provision of this Agreement and as this Agreement now exists or may hereafter be amended, modified, supplemented, extended, renewed, restated or replaced. 

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        (e)  The
word "including" when used in this Agreement shall mean "including, without limitation". 

        (f)    All
references to the term "good faith" used herein when applicable to Lender shall mean, notwithstanding anything to the contrary contained herein or in the UCC,
honesty in fact in the conduct or transaction concerned. Borrowers shall have the burden of proving any lack of good faith on the part of Lender alleged by Borrowers at any time. 

        (g)  An
Event of Default shall exist or continue or be continuing until such Event of Default is waived in accordance with Section 11.3 or is cured in a manner
satisfactory to Lender, if such Event of Default is capable of being cured as determined by Lender. 

        (h)  Any
accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given in accordance with GAAP, and all
financial computations hereunder shall be computed unless otherwise specifically provided herein, in accordance with GAAP as consistently applied and using the same method for inventory valuation as
used in the preparation of the financial statements of Borrowers most recently received by Lender prior to the date hereof. 

        (i)    In
the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including", the words "to" and "until" each mean
"to but excluding" and the word "through" means "to and including". 

        (j)    Unless
otherwise expressly provided herein, (i) references herein to any agreement, document or instrument shall be deemed to include all subsequent amendments,
modifications, supplements, extensions, renewals, restatements or replacements with respect thereto, but only to the extent the same are not prohibited by the terms hereof or of any other Financing
Agreement, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, recodifying,
supplementing or interpreting the statute or regulation. 

        (k)  The
captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. 

        (l)    This
Agreement and other Financing Agreements may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations,
tests and measurements are cumulative and shall each be performed in accordance with their terms. 

        (m)  This
Agreement and the other Financing Agreements are the result of negotiations among and have been reviewed by counsel to Lender and the other parties, and are the
products of all parties. Accordingly, this Agreement and the other Financing Agreements shall not be construed against Lender merely because of Lender's involvement in their preparation. 

        12.3    Notices.    

        All
notices, requests and demands hereunder shall be in writing and deemed to have been given or made: if delivered in person, immediately upon delivery; if by telex, telegram or
facsimile transmission, immediately upon sending and upon confirmation of receipt; if by nationally recognized overnight courier service with instructions to deliver the next Business Day, one
(1) Business Day after sending; and if by certified mail, return receipt requested, five (5) days after mailing. All notices, requests and demands upon the parties are to be given to the
addresses designated on the signature page hereto or to such other address as any party may designate by notice in accordance with this Section. 

        12.4    Partial Invalidity.    

        If
any provision of this Agreement is held to be invalid or unenforceable, such invalidity or unenforceability shall not invalidate this Agreement as a whole, but this Agreement shall be
construed 

71

 

as though it did not contain the particular provision held to be invalid or unenforceable and the rights and obligations of the parties shall be construed and enforced only to such extent as shall be
permitted by applicable law. 

        12.5    Successors.    

        This
Agreement, the other Financing Agreements and any other document referred to herein or therein shall be binding upon and inure to the benefit of and be enforceable by Lender,
Borrowers and their respective successors and assigns, except that Borrowers may not assign their rights under this Agreement, the other Financing Agreements and any other document referred to herein
or therein without the prior written consent of Lender. Lender may, after notice to Borrowers, assign its rights and delegate its obligations under this Agreement and the other Financing Agreements
and further may assign, or sell participations in, all or any part of the Loans, the Letter of Credit Accommodations or any other interest herein to another financial institution or other person, in
which event, the assignee or participant shall have, to the extent of such assignment or participation, the same rights and benefits as it would have if it were the Lender hereunder, except as
otherwise provided by the terms of such assignment or participation; provided, however, that if such financial institution is not domiciled in Canada or such financial institution and its Affiliates
have assets of less than the U.S. Dollar Equivalent of One Billion Dollars ($1,000,000,000) on a consolidated basis, Lender shall obtain a Borrower's prior written consent. 

        12.6    Entire Agreement.    

        This
Agreement, the other Financing Agreements, any supplements hereto or thereto, and any instruments or documents delivered or to be delivered in connection herewith or therewith
represents the entire agreement and understanding concerning the subject matter hereof and thereof between the parties hereto, and supersede all other prior agreements, understandings, negotiations
and discussions, representations, warranties, commitments, proposals, offers and contracts concerning the subject matter hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this Agreement shall govern. 

        12.7    Counterparts, Etc.    

        This
Agreement or any of the other Financing Agreements may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of this Agreement or any of the other Financing Agreements by telefacsimile shall have the same force and effect as the
delivery of an original executed counterpart of this Agreement or any of such other Financing Agreements. Any party delivering an executed counterpart of any such agreement by telefacsimile shall also
deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of such agreement. 

        12.8    Confidentiality.    

        (a)  Lender
shall use all reasonable efforts to keep confidential, in accordance with its customary procedures for handling confidential information and safe and sound
lending practices, any non-public information supplied to it by Borrowers pursuant to this Agreement, provided, that, nothing contained
herein shall limit the disclosure of any such information: (i) to the extent required by statute, rule, regulation, subpoena or court order, (ii) to bank examiners and other regulators,
auditors and/or accountants, (iii) in connection with any litigation to which Lender is a party, (iv) to any assignee or participant (or prospective assignee or participant) so long as
such assignee or participant (or prospective assignee or participant) shall have first agreed in writing to treat such information as confidential in accordance with this Section 12.8, or
(v) to counsel for Lender or any participant or assignee (or prospective participant or assignee). 

72

 

        (b)  In
no event shall this Section 12.8 or any other provision of this Agreement or applicable law be deemed: (i) to apply to or restrict disclosure of
information that has been or is made public by any Borrower or any third party without breach of this Section 12.8 or otherwise become generally available to the public other than as a result
of a disclosure in violation hereof, (ii) to apply to or restrict disclosure of information that was or becomes available to Lender on a non-confidential basis from a person other
than Borrowers, (iii) require Lender to return any materials furnished by any Borrower to Lender or (iv) prevent Lender from responding to routine informational requests in accordance
with the Code of Ethics for the Exchange of Credit Information promulgated by The Robert Morris Associates or other applicable industry standards
relating to the exchange of credit information. The obligations of Lender under this Section 12.8 shall supersede and replace the obligations of Lender under any confidentiality letter signed
prior to the date hereof. 

        12.9    Choice of Language.    

        The
parties hereto confirm that they have requested that this Agreement and all documents related hereto be drafted in English. Les parties aux presentes ont exige que cette convention
ainsi que tout document connexe soient rediges en anglais. 

SECTION 13    JOINT AND SEVERAL LIABILITY AND SURETYSHIP WAIVERS    

        13.1    Independent Obligations; Subrogation.    

        The
Obligations of each Borrower hereunder are joint and several. To the maximum extent permitted by law, each Borrower hereby waives any claim, right or remedy which either may now have
or hereafter acquire against any other Borrower that arises hereunder including, without limitation, any claim, remedy or right of subrogation, reimbursement, exoneration, contribution,
indemnification, or participation in any claim, right or remedy of Lender against any Borrower or any Collateral which Lender now has or hereafter acquires, whether or not such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise until the Obligations are fully paid and finally discharged. In addition, each Borrower hereby waives any right to proceed
against the other Borrowers, now or hereafter, for contribution, indemnity, reimbursement, and any other suretyship rights and claims, whether direct or indirect, liquidated or contingent, whether
arising under express or implied contract or by operation of law, which any Borrower may now have or hereafter have as against the other Borrowers with respect to the Obligations until the Obligations
are fully paid and finally discharged. Each Borrower also hereby waives any rights of recourse to or with respect to any asset of the other Borrowers until the Obligations are fully paid and finally
discharged. 

        13.2    Authority to Modify Obligations and Security.    

        Each
Borrower authorizes Lender, without notice or demand and without affecting any Borrower's liability hereunder, from time to time, whether before or after any notice of termination
hereof or before or after any default in respect of the Obligations, to: (a) renew, extend, accelerate, or otherwise change the time for payment of, or otherwise change any other term or
condition of, any document or agreement evidencing or relating to any Obligations as such Obligations relate to the other Borrowers, including, without limitation, to increase or decrease the rate of
interest thereon; (b) accept, substitute, waive, defease, increase, release, exchange or otherwise alter any Collateral, in whole or in part, securing the other Borrowers' Obligations;
(c) apply any and all such Collateral and direct the order or manner of sale thereof as Lender, in its sole discretion, may determine; (d) deal with the other Borrowers as Lender may
elect; (e) in Lender's sole discretion, settle, release on terms satisfactory to Lender, or by operation of law or otherwise, compound, compromise, collect or otherwise liquidate any of the
other Borrowers' Obligations and/or any of the Collateral in any manner, and bid and purchase any of the collateral at any sale thereof; (f) apply any and all payments or recoveries from the
other Borrowers as Lender, in its sole discretion may determine, whether or not such indebtedness relates to 

73

 

the Obligations; all whether such Obligations are secured or unsecured or guaranteed or not guaranteed by others; and (g) apply any sums realized from Collateral furnished by the other
Borrowers upon any of its indebtedness or obligations to Lender as it in its sole discretion may determine, whether or not such indebtedness relates to the Obligations; all without in any way
diminishing, releasing or discharging the liability of any Borrower hereunder. 

        13.3    Waiver of Defenses.    

        Upon
an Event of Default by any Borrower in respect of any Obligations, Lender may, at its option and without additional notice to any Borrower, proceed directly against any Borrower to
collect and recover the full amount of the liability hereunder, or any portion thereof, and each Borrower waives any right to require Lender to: (a) proceed against the other Borrowers or any
other person whomsoever; (b) proceed against or exhaust any Collateral given to or held by Lender in connection with the Obligations; (c) give notice of the terms, time and place of any
public or private sale of any of the Collateral except as otherwise provided herein; or (d) pursue any other remedy in Lender's power whatsoever. A separate action or actions may be brought and
prosecuted against any Borrower whether or not action is brought against the other Borrowers and whether the other Borrowers be joined in any such action or actions; and each Borrower agrees that any
payment of any Obligations or other act which shall toll any statute of limitations applicable thereto shall similarly operate to toll such statute of limitations applicable to the liability
hereunder. 

        13.4    Exercise of Lender's Rights.    

        Each
Borrower hereby authorizes and empowers Lender in its sole discretion, without any notice or demand to such Borrower whatsoever and without affecting the liability of such Borrower
hereunder, to exercise any right or remedy which Lender may have available to it against the other Borrowers. 

        13.5    Additional Waivers.    

        Each
Borrower waives any defense arising by reason of any disability or other defense of the other Borrowers or by reason of the cessation from any cause whatsoever of the liability of
the other Borrowers or by reason of any act or omission of Lender or others which directly or indirectly results in or aids the discharge or release of the other Borrowers or any Obligations or any
Collateral by operation of law or otherwise. The Obligations shall be enforceable against each Borrower without regard to the validity, regularity or enforceability of any of the Obligations with
respect to any of the other Borrowers or any of the documents related thereto or any collateral security documents securing any of the Obligations. No exercise by Lender of, and no omission of Lender
to exercise, any power or authority recognized herein and no impairment or suspension of any right or remedy of Lender against any Borrower or any Collateral shall in any way suspend, discharge,
release, exonerate or otherwise affect any of the Obligations or any Collateral furnished by the Borrowers or give to the Borrowers any right of recourse against Lender. Each Borrower specifically
agrees that the failure of Lender (a) to perfect any lien on or security interest in any property heretofore or hereafter given any Borrower to secure payment of the Obligations, or to record
or file any document relating thereto or (b) to file or enforce a claim against the estate (either in administration, bankruptcy or other proceeding) of any Borrower, shall not in any manner
whatsoever terminate, diminish, exonerate or otherwise affect the liability of any Borrower hereunder. 

74

   
        13.6    Additional Indebtedness.    

        Additional
Obligations may be created from time to time at the request of any Borrower and without further authorization from or notice to any other Borrowers even though the borrowing
Borrowers' financial condition may deteriorate since the date hereof. Each Borrower waives the right, if any, to require Lender to disclose to such Borrower any information it may now have or
hereafter acquire concerning the other Borrowers' character, credit, Collateral, financial condition or other matters. Each Borrower has established adequate means to obtain from the other Borrowers
on a continuing basis financial and other information pertaining to such Borrower's business and affairs, and assumes the responsibility for being and keeping informed of the financial and other
conditions of the other Borrowers and of all circumstances bearing upon the risk of nonpayment of the Obligations which diligent inquiry would reveal. Lender need not inquire into the powers of any
Borrower or the authority of any of its officers, directors, partners or agents acting or purporting to act in its behalf, and any obligations created in reliance upon the purported exercise of such
power or authority is hereby guaranteed. All obligations of each Borrower to Lender heretofore, now or hereafter created shall be deemed to have been granted at each Borrower's special insistence and
request and in consideration of and in reliance upon this Agreement. 

        13.7    Subordination.    

        Except
as otherwise provided in this Section 13.7, any indebtedness of either Borrower now or hereafter owing to the other Borrower is hereby subordinated to the Obligations,
whether heretofore, now or hereafter created, and whether before or after notice of termination hereof, and, following the occurrence and during the continuation of an Event of Default, no Borrower
shall, without the prior consent of Lender, pay in whole or in part any of such indebtedness nor will any such Borrower accept any payment of or on account of any such indebtedness at any time while
such Borrower remains liable hereunder. At the request of Lender, after the occurrence and during the continuance of an Event of Default, each Borrower shall pay to Lender all or any part of such
subordinated indebtedness and any amount so paid to Lender at its request shall be applied to payment of the Obligations. Each payment on the indebtedness of any Borrower to the other Borrowers
received in violation of any of the provisions hereof shall be deemed to have been received by any other Borrowers as trustee for Lender and shall be paid over to Lender immediately on account of the
Obligations, but without otherwise affecting in any manner any such Borrower's liability under any of the provisions of this Agreement. Each Borrower agrees to file all claims against the other
Borrowers in any bankruptcy or other proceeding in which the filing of claims is required by law in respect of any indebtedness of the other Borrowers to such Borrower, and Lender shall be entitled to
all of any such Borrower's rights thereunder. If for any reason any such Borrower fails to file such claim at least thirty (30) days prior to the last date on which such claim should be filed,
Lender, as such Borrower's attorney-in-fact, is hereby
authorized to do so in Borrowers' name or, in Lender's discretion, to assign such claim to, and cause a proof of claim to be filed in the name of, Lender's nominee. In all such cases, whether in
administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to Lender the full amount payable on the claim in the proceeding, and to the full extent necessary
for that purpose any such Borrower hereby assigns to Lender all such Borrower's rights to any payments or distributions to which such Borrower otherwise would be entitled. If the amount so paid is
greater than any such Borrower's liability hereunder, Lender will pay the excess amount to the party entitled thereto. 

        13.8    Revival.    

        If
any payments of money or transfers of property made to Lender by any Borrower should for any reason subsequently be declared to be, or in Lender's counsel's good faith opinion be
determined to be, fraudulent (within the meaning of any state or federal law relating to fraudulent conveyances), preferential or otherwise voidable or recoverable in whole or in part for any reason
(hereinafter 

75

 

collectively called "voidable transfers") under the Bankruptcy Code or any other applicable foreign, federal, state or provincial law and Lender is required to repay or restore, or in Lender's
counsel's opinion may be so liable to repay or restore, any such voidable transfer, or the amount or any portion thereof, then as to any such voidable transfer or the amount repaid or restored and all
reasonable costs and expenses (including reasonable attorneys' fees) of Lender related thereto, such Borrower's liability hereunder shall automatically be revived, reinstated and restored and shall
exist as though such voidable transfer had never been made to Lender. 

        13.9    Understanding of Waivers.    

        Each
Borrower warrants and agrees that the waivers set forth in this Section 13 are made with full knowledge of their significance and consequences. If any of such waivers are
determined to be contrary to any applicable law or public policy, such waivers shall be effective only to the maximum extent permitted by law. 

76

 

        IN
WITNESS WHEREOF, Lender, Arranger and Borrowers have caused these presents to be duly executed as of the day and year first above written. 

	LENDER	 	BORROWERS
	

CONGRESS FINANCIAL CORPORATION (CANADA)	
 	

GUESS? CANADA CORPORATION
	

By:	
 	

 	
 	

By:	
 	

 
	 	 	
	 	 	 	

	Name:	 	 	 	Name:	 	 
	 	 	
	 	 	 	

	Title:	 	 	 	Title:	 	 
	 	 	
	 	 	 	

	Address for Notice:	 	Address for Notice:
	

141 Adelaide Street W.

Suite 1500

Toronto, Ontario

M5H 3L9

Attn: Mr. H. Rosenfeld

Telephone: (416) 364-8177

Facsimile:(416) 364-3990	
 	

7077 Park Avenue

Suite 503

Montreal, Quebec

H3N 1X7

Attn: Chief Financial Officer, marked "Urgent"

Telephone: (514) 270-6666

Facsimile: (514) 270-8028
	

With a copy to:	
 	

 	
 	

 
	

CONGRESS FINANCIAL CORPORATION (WESTERN)	
 	

GUESS? CANADA RETAIL INC.
	

251 South Lake Avenue, Suite 900	
 	

By:	
 	

 
	Pasadena, California 91101	 	 	 	

	Attn: Portfolio Manager	 	Name:	 	 
	Telephone: (626) 304-4900	 	 	 	

	Facsimile: (626) 304-4949	 	Title:	 	 
	 	 	 	 	 	 	

	

 	
 	

 	
 	

Address for Notice:
	

 	
 	

 	
 	

7077 Park Avenue

Suite 503

Montreal, Quebec

H3N 1X7

Attn: Chief Financial Officer, marked "Urgent"

Telephone: (514) 270-6666

Facsimile: (514) 270-8028
	

 	
 	

 	
 	

With a copy in the case of each Borrower to:
	

 	
 	

 	
 	

Guess ?, Inc.

1444 South Alameda Street

Los Angeles,

California 90021

Attn: Frederick G. Silny

Telephone: (213) 765-3504

Facsimile: (213) 765-5927

77

EXHIBIT A  

 Information Certificates  

SCHEDULE 4.1  

 Permitted Locations  

 Please see Information Certificates  

 Central Collection Deposit Accounts  

 Please see Information Certificates  

 Customs Brokers  

 Please see Information Certificates  

SCHEDULE 5.2(b)  

 Chattel Paper and Instruments  

Nil 

SCHEDULE 5.2(f)  

 Letters of Credit, etc.  

Nil 

SCHEDULE 5.2(g)  

 Commercial Tort Claims  

Nil

SCHEDULE 8.4  

 Liens  

	Name of Creditor
 
	 	Register of Personal and Movable Real

Rights (Quebec)/ Registration No.

	

Place Jean Talon Enr.	
 	

02-0029310-0014
	

Place Jean Talon Enr.	
 	

99-0080931-0004
	

Ivanhoe Ste-Foy Inc.	
 	

01-0057739-0006

SCHEDULE 8.8  

 Environmental Disclosures  

Nil 

SCHEDULE 8.12  

 Labor Relations  

Nil

SCHEDULE 8.14  

 Material Contracts  

Nil

SCHEDULE 9.9  

 Indebtedness  

        Loan from the landlord of the store located at 1229A Ste-Catherine Street West, Montreal, Quebec, H3G 1P3 repayable over the term of the lease.
The current indebtedness under this loan is approximately CDN$22,000. 

SCHEDULE 9.10  

 Loans and Advances  

Nil 

QuickLinks

Exhibit 10.50

CANADIAN LOAN AND SECURITY AGREEMENT by and among CONGRESS FINANCIAL CORPORATION (CANADA) as Lender and GUESS? CANADA CORPORATION and GUESS? CANADA RETAIL INC. as Borrowers with WACHOVIA SECURITIES, INC. acting as
Global Arranger Dated: December 20, 2002

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00049-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00049-of-00352.parquet"}]]