Document:

Exhibit 10.1

 

[Execution]

 

SECOND AMENDED AND RESTATED LOAN
AND SECURITY AGREEMENT

 

by and among

 

LERNER NEW YORK, INC.,

LERNCO, INC. and

JASMINE COMPANY, INC.,

as Borrowers,

 

NEW YORK & COMPANY, INC.,

NEVADA RECEIVABLE FACTORING, INC.,

LERNER NEW YORK HOLDING, INC.,

LERNER NEW YORK GC, LLC and

ASSOCIATED LERNER SHOPS OF AMERICA, INC.,

as Guarantors

 

WACHOVIA BANK, NATIONAL
ASSOCIATION,

as Agent,

 

WACHOVIA CAPITAL MARKETS, LLC,

as Sole Lead Arranger and Sole Bookrunner,

 

LASALLE RETAIL FINANCE, A DIVISION
OF LASALLE BUSINESS CREDIT, LLC, AS

AGENT FOR LASALLE BANK MIDWEST, NATIONAL ASSOCIATION,

as Documentation Agent

 

and

 

THE PERSONS NAMED HEREIN,

as Lenders

 

Dated: August 22, 2007

 

 

TABLE OF CONTENTS

 

	
  SECTION 1.

  	
  DEFINITIONS

  	
   

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
  CREDIT FACILITIES

  	
   

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
  Revolving Loans

  	
   

  	
   

  	
  41

  
	
  2.2

  	
  Letter of Credit Accommodations

  	
   

  	
   

  	
  42

  
	
  2.3

  	
  Existing Term Loan

  	
   

  	
   

  	
  46

  
	
  2.4

  	
  Commitments

  	
   

  	
   

  	
  49

  
	
  2.5

  	
  Bank Products

  	
   

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.

  	
  INTEREST AND FEES

  	
   

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
  Interest

  	
   

  	
   

  	
  50

  
	
  3.2

  	
  Fees

  	
   

  	
   

  	
  51

  
	
  3.3

  	
  Changes in Laws and Increased Costs of
  Loans

  	
   

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.

  	
  CONDITIONS PRECEDENT

  	
   

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
  Conditions Precedent to Effectiveness of
  Agreement

  	
   

  	
   

  	
  53

  
	
  4.2

  	
  Conditions Precedent to All Loans and
  Letter of Credit Accommodations

  	
   

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.

  	
  GRANT AND PERFECTION OF SECURITY INTEREST

  	
   

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
  Grant of Security Interest

  	
   

  	
   

  	
  55

  
	
  5.2

  	
  Perfection of Security Interests

  	
   

  	
   

  	
  57

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.

  	
  COLLECTION AND ADMINISTRATION

  	
   

  	
   

  	
  61

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
  Borrowers’ Loan Accounts

  	
   

  	
   

  	
  61

  
	
  6.2

  	
  Statements

  	
   

  	
   

  	
  61

  
	
  6.3

  	
  Collection of Accounts

  	
   

  	
   

  	
  62

  
	
  6.4

  	
  Payments

  	
   

  	
   

  	
  63

  
	
  6.5

  	
  Authorization to Make Loans

  	
   

  	
   

  	
  66

  
	
  6.6

  	
  Use of Proceeds

  	
   

  	
   

  	
  67

  
	
  6.7

  	
  Pro Rata Treatment

  	
   

  	
   

  	
  67

  
	
  6.8

  	
  Sharing of Payments, Etc.

  	
   

  	
   

  	
  67

  
	
  6.9

  	
  Settlement Procedures

  	
   

  	
   

  	
  68

  
	
  6.10

  	
  Obligations Several; Independent Nature of
  Lenders’ Rights

  	
   

  	
   

  	
  70

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7.

  	
  COLLATERAL REPORTING AND COVENANTS

  	
   

  	
   

  	
  71

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
  Collateral Reporting

  	
   

  	
   

  	
  71

  
	
  7.2

  	
  Accounts Covenants

  	
   

  	
   

  	
  72

  
	
  7.3

  	
  Inventory Covenants

  	
   

  	
   

  	
  73

  
	
  7.4

  	
  Equipment Covenants

  	
   

  	
   

  	
  74

  
								

 

i

 

	
  7.5

  	
  Bills of Lading and Other Documents of
  Title

  	
   

  	
   

  	
  75

  
	
  7.6

  	
  Power of Attorney

  	
   

  	
   

  	
  75

  
	
  7.7

  	
  Right to Cure

  	
   

  	
   

  	
  76

  
	
  7.8

  	
  Access to Premises

  	
   

  	
   

  	
  77

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 8.

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
   

  	
  77

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
  Corporate Existence, Power and Authority

  	
   

  	
   

  	
  77

  
	
  8.2

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

  	
   

  	
   

  	
  78

  
	
  8.3

  	
  Financial Statements; No Material Adverse
  Change

  	
   

  	
   

  	
  78

  
	
  8.4

  	
  Priority of Liens; Title to Properties

  	
   

  	
   

  	
  78

  
	
  8.5

  	
  Tax Returns

  	
   

  	
   

  	
  79

  
	
  8.6

  	
  Litigation

  	
   

  	
   

  	
  79

  
	
  8.7

  	
  Compliance with Other Agreements and
  Applicable Laws

  	
   

  	
   

  	
  79

  
	
  8.8

  	
  Environmental Compliance

  	
   

  	
   

  	
  80

  
	
  8.9

  	
  Employee Benefits

  	
   

  	
   

  	
  80

  
	
  8.10

  	
  Bank Accounts, etc.

  	
   

  	
   

  	
  81

  
	
  8.11

  	
  Intellectual Property

  	
   

  	
   

  	
  81

  
	
  8.12

  	
  Subsidiaries; Affiliates; Capitalization;
  Solvency

  	
   

  	
   

  	
  82

  
	
  8.13

  	
  Labor Disputes

  	
   

  	
   

  	
  83

  
	
  8.14

  	
  Restrictions on Subsidiaries

  	
   

  	
   

  	
  83

  
	
  8.15

  	
  Material Contracts

  	
   

  	
   

  	
  83

  
	
  8.16

  	
  Credit Card Agreements

  	
   

  	
   

  	
  83

  
	
  8.17

  	
  Payable Practices

  	
   

  	
   

  	
  84

  
	
  8.18

  	
  Accuracy and Completeness of Information

  	
   

  	
   

  	
  84

  
	
  8.19

  	
  No Defaults

  	
   

  	
   

  	
  84

  
	
  8.20

  	
  Transition Services

  	
   

  	
   

  	
  84

  
	
  8.21

  	
  Survival of Warranties; Cumulative

  	
   

  	
   

  	
  84

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 9.

  	
  AFFIRMATIVE AND NEGATIVE COVENANTS

  	
   

  	
   

  	
  85

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
  Maintenance of Existence

  	
   

  	
   

  	
  85

  
	
  9.2

  	
  New Collateral Locations

  	
   

  	
   

  	
  85

  
	
  9.3

  	
  Compliance with Laws, Regulations, Etc.

  	
   

  	
   

  	
  85

  
	
  9.4

  	
  Payment of Taxes and Claims

  	
   

  	
   

  	
  87

  
	
  9.5

  	
  Insurance

  	
   

  	
   

  	
  87

  
	
  9.6

  	
  Financial Statements and Other Information

  	
   

  	
   

  	
  87

  
	
  9.7

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

  	
   

  	
   

  	
  89

  
	
  9.8

  	
  Encumbrances

  	
   

  	
   

  	
  92

  
	
  9.9

  	
  Indebtedness

  	
   

  	
   

  	
  93

  
	
  9.10

  	
  Prepayments and Amendments; Loans,
  Investments, Etc.

  	
   

  	
   

  	
  96

  
	
  9.11

  	
  Dividends and Redemptions

  	
   

  	
   

  	
  98

  
	
  9.12

  	
  Transactions with Affiliates

  	
   

  	
   

  	
  99

  
	
  9.13

  	
  Compliance with ERISA

  	
   

  	
   

  	
  99

  
	
  9.14

  	
  End of Fiscal Years; Fiscal Quarters

  	
   

  	
   

  	
  100

  
	
  9.15

  	
  Change in Business

  	
   

  	
   

  	
  100

  
	
  9.16

  	
  Limitation of Restrictions Affecting
  Subsidiaries

  	
   

  	
   

  	
  100

  
	
  9.17

  	
  Minimum Excess Availability

  	
   

  	
   

  	
  100

  
						

 

ii

 

	
  9.18

  	
  Financial Covenants

  	
   

  	
   

  	
  101

  
	
  9.19

  	
  License Agreements

  	
   

  	
   

  	
  101

  
	
  9.20

  	
  After Acquired Real Property

  	
   

  	
   

  	
  102

  
	
  9.21

  	
  Costs and Expenses

  	
   

  	
   

  	
  103

  
	
  9.22

  	
  Credit Card Agreements

  	
   

  	
   

  	
  103

  
	
  9.23

  	
  Further Assurances

  	
   

  	
   

  	
  104

  
	
  9.24

  	
  Private Label Credit Cards

  	
   

  	
   

  	
  104

  
	
  9.25

  	
  Termination of Transition Services
  Agreement

  	
   

  	
   

  	
  104

  
	
  9.26

  	
  Cash Collateral Account

  	
   

  	
   

  	
  105

  
	
  9.27

  	
  Foreign Assets Control Regulations, Etc.

  	
   

  	
   

  	
  105

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 10.

  	
  EVENTS OF DEFAULT AND REMEDIES

  	
   

  	
   

  	
  106

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
  Events of Default

  	
   

  	
   

  	
  106

  
	
  10.2

  	
  Remedies

  	
   

  	
   

  	
  108

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 11.

  	
  JURY TRIAL WAIVER; OTHER WAIVERS AND
  CONSENTS; GOVERNING LAW

  	
   

  	
   

  	
  112

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.1

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

  	
   

  	
   

  	
  112

  
	
  11.2

  	
  Waiver of Notices

  	
   

  	
   

  	
  114

  
	
  11.3

  	
  Amendments and Waivers

  	
   

  	
   

  	
  114

  
	
  11.4

  	
  Waiver of Counterclaims

  	
   

  	
   

  	
  116

  
	
  11.5

  	
  Indemnification

  	
   

  	
   

  	
  116

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 12.

  	
  THE AGENT

  	
   

  	
   

  	
  117

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
  Appointment, Powers and Immunities

  	
   

  	
   

  	
  117

  
	
  12.2

  	
  Reliance by Agent

  	
   

  	
   

  	
  118

  
	
  12.3

  	
  Events of Default

  	
   

  	
   

  	
  118

  
	
  12.4

  	
  Wachovia in its Individual Capacity

  	
   

  	
   

  	
  118

  
	
  12.5

  	
  Indemnification

  	
   

  	
   

  	
  119

  
	
  12.6

  	
  Non Reliance on Agent and Other Lenders

  	
   

  	
   

  	
  119

  
	
  12.7

  	
  Failure to Act

  	
   

  	
   

  	
  119

  
	
  12.8

  	
  Additional Revolving Loans

  	
   

  	
   

  	
  120

  
	
  12.9

  	
  Concerning the Collateral and the Related
  Financing Agreements

  	
   

  	
   

  	
  120

  
	
  12.10

  	
  Field Audit, Examination Reports and other
  Information; Disclaimer by Lenders

  	
   

  	
   

  	
  120

  
	
  12.11

  	
  Collateral Matters

  	
   

  	
   

  	
  121

  
	
  12.12

  	
  Agency for Perfection

  	
   

  	
   

  	
  123

  
	
  12.13

  	
  Successor Agent

  	
   

  	
   

  	
  123

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 13.

  	
  JOINT AND SEVERAL LIABILITY; SURETYSHIP
  WAIVERS

  	
   

  	
   

  	
  123

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
  Independent Obligations; Subrogation

  	
   

  	
   

  	
  123

  
	
  13.2

  	
  Authority to Modify Obligations and
  Security

  	
   

  	
   

  	
  124

  
	
  13.3

  	
  Waiver of Defenses

  	
   

  	
   

  	
  124

  
	
  13.4

  	
  Exercise of Agent’s and Lenders’ Rights

  	
   

  	
   

  	
  124

  
	
  13.5

  	
  Additional Waivers

  	
   

  	
   

  	
  125

  
	
  13.6

  	
  Additional Indebtedness 

  	
   

  	
   

  	
  125

  
						

 

iii

 

	
  13.7

  	
  Notices, Demands, Etc.

  	
   

  	
   

  	
  126

  
	
  13.8

  	
  Revival

  	
   

  	
   

  	
  126

  
	
  13.9

  	
  Understanding of Waivers

  	
   

  	
   

  	
  126

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 14.

  	
  TERM; MISCELLANEOUS

  	
   

  	
   

  	
  126

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.1

  	
  Term

  	
   

  	
   

  	
  126

  
	
  14.2

  	
  Interpretative Provisions

  	
   

  	
   

  	
  127

  
	
  14.3

  	
  Notices

  	
   

  	
   

  	
  129

  
	
  14.4

  	
  Partial Invalidity

  	
   

  	
   

  	
  129

  
	
  14.5

  	
  Confidentiality

  	
   

  	
   

  	
  130

  
	
  14.6

  	
  Successors

  	
   

  	
   

  	
  131

  
	
  14.7

  	
  Assignments; Participations

  	
   

  	
   

  	
  131

  
	
  14.8

  	
  Entire Agreement

  	
   

  	
   

  	
  134

  
	
  14.9

  	
  USA Patriot Act

  	
   

  	
   

  	
  134

  
	
  14.10

  	
  Counterparts, Etc.

  	
   

  	
   

  	
  134

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION 15.

  	
  ACKNOWLEDGMENT AND RESTATEMENT

  	
   

  	
   

  	
  134

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.1

  	
  Existing Obligations

  	
   

  	
   

  	
  134

  
	
  15.2

  	
  Acknowledgment of Security Interests

  	
   

  	
   

  	
  135

  
	
  15.3

  	
  Acknowledgment of Security Interests

  	
   

  	
   

  	
  135

  
	
  15.4

  	
  Existing Financing Agreements

  	
   

  	
   

  	
  135

  
	
  15.5

  	
  Restatement

  	
   

  	
   

  	
  135

  
	
  15.6

  	
  Release

  	
   

  	
   

  	
  135

  
						

 

iv

 

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

 

This
Second Amended and Restated Loan and Security Agreement (this “Agreement”),
dated as of August 22, 2007, is entered into by and among Lerner New York,
Inc., a Delaware corporation (“Lerner”), Lernco, Inc., a Delaware corporation (“Lernco”),
and Jasmine Company, Inc., a Massachusetts corporation (“Jasmine” and together
with Lerner and Lernco, collectively, “Borrowers” and individually each a “Borrower”),
New York & Company, Inc., a Delaware corporation, formerly known as NY
& Co. Group, Inc. (“NY&Co”), Lerner New York Holding, Inc., a Delaware
corporation (“Parent”), Nevada Receivable Factoring, Inc., a Nevada corporation
(“Nevada Factoring”), Associated Lerner Shops of America, Inc., a New York corporation
(“Associated Lerner”), and Lerner New York GC, LLC, an Ohio limited liability
company (“Lerner GC” and together with NY&Co, Parent, Nevada Factoring and
Associated Lerner, collectively, “Guarantors” and each a “Guarantor”), the
Lenders (as defined herein), Wachovia Bank, National Association, a national
banking association, in its capacity as agent for the Lenders and the Bank
Product Providers (in such capacity, “Agent”), LaSalle Retail Finance, a
division of LaSalle Business Credit, LLC, as agent for LaSalle Bank Midwest,
National Association, in its capacity as documentation agent for Lenders (in
such capacity, “Documentation Agent”), and Wachovia Capital Markets, LLC, as
sole lead arranger and sole bookrunner.

 

W I T N E S S E T H:

 

WHEREAS,
Lerner, Lernco, the persons party thereto as lenders (the “Existing Lenders”),
and Agent have previously entered into that certain Amended and Restated Loan
and Security Agreement, dated as of March 16, 2004, as amended by the First
Amendment to Amended and Restated Loan and Security Agreement, dated May 19,
2004, the Second Amendment to Amended and Restated Loan and Security Agreement,
dated as of December 17, 2004, the Third Amendment to Amended and Restated Loan
and Security Agreement, dated as of July 19, 2005, and the Fourth Amendment to
Amended and Restated Loan and Security Agreement, dated as of January 4, 2006
(as amended, the “Existing Loan Agreement” as hereinafter further defined),
pursuant to which, among other things, the Existing Lenders have provided
certain loans and other financial accommodations to Lerner and Lernco;

 

WHEREAS,
Borrowers are wholly-owned Subsidiaries of Parent, and together they are
inter-related entities which collectively constitute an integrated clothing
retailer;

 

WHEREAS,
the directors of each Borrower view the entities as sufficiently dependent upon
each other and so inter-related that any advance made hereunder to any Borrower
would benefit each of the Borrowers as a result of their consolidated
operations and identity of interests;

 

WHEREAS,
each Borrower has requested that Agent and the Lenders treat them as
co-borrowers hereunder, jointly and severally responsible for the obligations
of each other hereunder;

 

WHEREAS,
Borrowers have also requested that certain amendments be made to the Existing
Loan Agreement, all as more fully set forth herein;

 

WHEREAS,
each Lender is willing (severally and not jointly) to continue to make loans

 

 

and
other financial accommodations to Borrowers, in each case on a pro rata basis
according to its commitments provided for herein on the terms and conditions
set forth therein, and Agent is willing to continue to act as agent for the
Lenders on the terms and conditions set forth herein; and

 

WHEREAS,
the parties hereto have agreed to amend and restate, in their entirety, the
agreements contained in the Existing Loan Agreement 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 is hereby acknowledged, the parties hereto amend and
restate the Existing Loan Agreement and agree as follows:

 

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 each Borrower and Guarantor 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, licensed, 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 or charge card or
information contained on or for use with any such card.

 

1.2           “ACH Transactions” shall mean any
cash management or related services, including the automatic clearing house
transfer of funds by Agent or any of its Affiliates for the account of a Borrower
or a Guarantor pursuant to agreement, or overdrafts.

 

1.3           “Additional Appraisal/Field Exam
Period” shall mean the period commencing after either (a) upon the occurrence
of a Default or an Event of Default or (b) either (i) at any time the Obligations
related to the Existing Term Loan are outstanding, Compliance Excess
Availability shall be less than $30,000,000 for a period of five (5)
consecutive Business Days or (ii) at any time after the Obligations related to
the Existing Term Loan shall have been repaid in full in immediately available
funds in accordance with the terms of this Agreement, Compliance Excess
Availability shall be less than $20,000,000 for a period of five (5)
consecutive Business Days (either (a) or (b) being referred to herein as an “Additional
Appraisal/Field Exam Trigger Event”); provided, that, at any time
after an Additional Appraisal/Field Exam Trigger Event has occurred, if (i) no
Default or Event of Default shall exist or have occurred and be continuing, and
(ii) either (A) during the time any of the Obligations related to the Existing
Term Loan are outstanding, Compliance Excess Availability shall be not less
than $30,000,000 for a period of thirty (30) consecutive days or (B) if all of
the Obligations related to the Existing Term Loan have been paid in full in
accordance with the terms of this Agreement, Compliance Excess Availability
shall be not less than $20,000,000 for a period of not less than thirty (30)
consecutive days, then such Additional Appraisal/Field Exam Period shall
terminate upon the written acknowledgment of Agent to Borrowers. An Additional
Appraisal/Field Exam Period

 

2

 

may
thereafter be in effect if another Additional Appraisal/Field Exam Trigger
Event occurs or reoccurs.

 

1.4           “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 the 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.

 

1.5           “Affiliate” shall mean, with respect
to a specific 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. For the 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 contract or otherwise.

 

1.6           “Agent” shall mean Wachovia Bank,
National Association, a national banking association, successor by merger to
Congress Financial Corporation, in its capacity as agent on behalf of Lenders
pursuant to the terms hereof, and any replacement or successor agent hereunder.

 

1.7           “Agent Payment Account” shall mean
account no. 5000000030279 of Agent at Wachovia Bank, National Association,
located in Charlotte, North Carolina, ABA no. 053000219, or such other account
of Agent as Agent may from time to time designate to Borrowers as the Agent
Payment Account for purposes of this Agreement and the other Financing
Agreements.

 

1.8           “Applicable Margin” shall mean

 

(a)           Subject to clause (b) below, at any
time, as to the Revolving Loan Interest Rate for Prime Rate Loans, the
Revolving Loan Interest Rate for Eurodollar Rate Loans and  the Letter of Credit Fee for standby letters
of credit, the applicable percentages (on a per annum basis) set forth below,
in each case based on (i) Borrowers’ EBITDA during the twelve (12) month period
ending on the last day of the immediately preceding fiscal quarter, and (ii)
Borrowers’ Average Excess Availability for the immediately preceding fiscal
quarter, is at or within the amounts indicated for such percentage as of the
last day of such fiscal quarter as follows:

 

3

 

	
  Tier

  	
   

  	
  EBITDA/ Average Excess

  Availability

  	
   

  	
  Applicable

  Prime Rate

  Margin

  	
   

  	
  Applicable

  Eurodollar Rate

  Margin

  	
   

  	
  Applicable

  Standby Letter of

  Credit Margin

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1

  	
   

  	
  EBITDA
  greater than or equal to $100,000,000 and Average Excess Availability greater
  than or equal to $25,000,000

  	
   

  	
  0

  	
  %

  	
  1.00

  	
  %

  	
  1.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2

  	
   

  	
  EBITDA less
  than $100,000,000 or Average Excess Availability less than $25,000,000

  	
   

  	
  0

  	
  %

  	
  1.25

  	
  %

  	
  1.25

  	
  %

  

 

(b)           Notwithstanding anything to the
contrary set forth above in clause (a) above, (i) the Applicable Margin shall
be calculated and established once each fiscal quarter and shall remain in
effect until adjusted thereafter after the end of such fiscal quarter, (ii)
each adjustment of the Applicable Margin shall be effective as of the first day
of a fiscal quarter based on the Average Excess Availability for the
immediately preceding fiscal quarter, (iii) the Applicable Margin from the date
hereof through the end of the first full fiscal quarter after the date hereof
shall be the applicable percentages set forth in Tier 1 set forth above, and
(iv) in the event that at any time after the end of a fiscal quarter, either
(A) the Average Excess Availability for such fiscal quarter used in the
calculation of the Applicable Margin was greater than the actual amount of the
Average Excess Availability for such fiscal quarter or (B) the EBITDA for such
fiscal quarter used in the calculation of the Applicable Margin was greater
than the actual amount of EBITDA for such fiscal quarter, the Applicable Margin
shall be adjusted for such prior fiscal quarter and any additional interest as
a result of such recalculation shall promptly paid to Agent.

 

1.9           “Approved Fund” shall mean with
respect to any Lender that is a fund or similar investment vehicle that makes
or invests in commercial loans, any fund or similar investment vehicle that
invests in commercial loans which is managed or advised by the same investment
advisor as such Lender or by an Affiliate of such investment advisor.

 

1.10         “Assignment and Acceptance” shall mean
an Assignment and Acceptance substantially in the form of Exhibit A-1 or
Exhibit A-2 attached hereto (with blanks appropriately completed) delivered to
Agent in connection with an assignment of a Lender’s interest hereunder in
accordance with the provisions of Section 14.7 hereof.

 

1.11         “Associated Lerner” shall mean
Associated Lerner Shops of America, Inc., a New York corporation.

 

1.12         “Authorized Officer” shall mean Richard
Crystal, Ronald Ristau, Sheamus Toal 

 

4

 

or such other person as the
Board of Directors of each Borrower or both Richard Crystal and Ronald Ristau
may designate by written notice to Agent.

 

1.13         “Availability Compliance Period” shall
mean the period commencing after either (a) upon the occurrence of a Default or
an Event of Default or (b) if Compliance Excess Availability shall at any time
be less than $15,000,000; provided, that, if at any time the
Compliance Excess Availability is less than $15,000,000 and all of the
following conditions are, and continue to be, satisfied, a Compliance
Triggering Event shall not be deemed to have occurred: (a) the outstanding
balance of the Revolving Loans is $10,000,000 or less, (b) the Borrowers have
$50,000,000 or more in Qualified Cash, as determined by Agent, and (c) the
Compliance Excess Availability is equal to at least $10,000,000. (either (a) or
(b) being referred to herein as an “Availability Compliance Trigger Event”); provided,
that, at any time after an Availability Compliance Trigger Event has
occurred, if (i) Borrowers have thereafter either (A) maintained a daily
average Compliance Excess Availability of not less than $15,000,000 for a
period of not less than thirty (30) consecutive days or (B) satisfied all of
the following conditions: (1) the outstanding balance of the Revolving Loans is
$10,000,000 or less, (B) the Borrowers have $50,000,000 or more in Qualified
Cash, as determined by Agent, and (C) the Compliance Excess Availability is
equal to at least $10,000,000 and (ii) no Default or Event of Default shall
exist or have occurred and be continuing, then such Availability Compliance
Period shall terminate upon the written acknowledgment of Agent to Borrowers.
An Availability Compliance Period may thereafter be in effect if another
Availability Compliance Trigger Event occurs or reoccurs.

 

1.14         “Average Excess Availability” shall
mean the average daily amount, as determined by Agent for the immediately
preceding fiscal quarter, of Excess Availability.

 

1.15         “Average Compliance Excess Availability”
shall mean the average daily amount, as determined by Agent for the immediately
preceding fiscal quarter, of Compliance Excess Availability.

 

1.16         “Bank Products” shall mean any one or
more of the following types of services or facilities extended to a Borrower or
a Guarantor by a Bank Product Provider: (a) credit cards, (b) ACH Transactions,
(c) Hedging Transactions, and (d) foreign exchange contracts.

 

1.17         “Bank Product Providers” shall mean
Agent and any of its Affiliates that may, from time to time, provide any Bank
Products to any Borrower or Guarantor or any of their respective Subsidiaries.

 

1.18         “Bank Product Reserve” shall mean any
and all reserves that Agent may establish from time to time, in its sole
discretion, for the Bank Products then provided and outstanding so long as such
reserve was established by Agent at the time the Bank Product related thereto
was provided by a Bank Product Provider.

 

1.19         “Blocked Accounts” shall have the
meaning set forth in Section 6.3(a) hereof.

 

1.20         “Borrowing Base” shall mean, at any
time, the amount equal to:

 

(a)           the
lesser of:

 

5

 

(i)            the
amount equal to:

 

(A)          the lesser of (a) the sum of (x)
ninety percent (90%) of the Net Amount of Eligible Sell-Off Vendors Receivables
of Borrowers, plus (y) ninety percent (90%) of the Net Amount of Eligible
Damaged Goods Vendors Receivables of Borrowers, and (b) $4,000,000, plus

 

(B)           ninety percent (90%) of the Net
Amount of the Eligible Credit Card Receivables of Borrowers, plus

 

(C)           the lesser of:

 

(a)           the
Inventory Loan Limit or

 

(b)           the
lesser of:

 

(y)           the sum of:

 

(i)             ninety percent
(90%) multiplied by the sum of (A) the Value of the Eligible Landed Inventory
of Lerner and Lernco minus (B) the amount of shrinkage and/or material
variances in Inventory counts with respect to Eligible Landed Inventory of
Lerner and Lernco as determined by Agent, plus

 

(ii)            seventy-five
percent (75%) multiplied by the sum of (A) the Value of the Eligible Landed
Inventory of Jasmine minus (B) the amount of shrinkage and/or material
variances in Inventory counts with respect to Eligible Landed Inventory of
Jasmine as determined by Agent, plus

 

(iii)           the lesser of (aa)
the sum of (I) ninety (90%) multiplied by the Landed Value of Eligible
In-Transit Inventory of Lerner and Lernco, plus (II) seventy-five
percent (75%) multiplied by the Landed Value of Eligible In-Transit Inventory
of Jasmine, plus (III) ninety percent (90%) multiplied by the Landed
Value of Eligible In-Transit LC Inventory of Lerner and Lernco, plus
(IV) seventy-five percent (75%) multiplied by the Landed Value of Eligible
In-Transit LC Inventory of Jasmine, or (bb) $30,000,000, or

 

(z)            ninety percent (90%) (or ninety two
and one-half percent (92.5%) during the Seasonal Advance Period) of the Net
Recovery Percentage applicable to such categories of Inventory of Lerner and
Lernco multiplied by the Value of such Eligible Inventory of Lerner and Lernco,
plus ninety percent (90%) of the Net Recovery Percentage applicable to
such categories of Inventory of Jasmine multiplied by the Value of such
Eligible Inventory, in each case as reflected on the most recent appraisal of
the Inventory received and accepted by Agent prior to the date of calculation, plus

 

(D)          one hundred percent (100%) of Eligible
Cash Collateral; or

 

(ii)           the
Revolving Loan Limit, minus,

 

6

 

(b)           the
Reserves and the Bank Product Reserves.

 

Notwithstanding
the foregoing, (a) as to Jasmine, in no event will the amount of Revolving
Loans available exceed $7,500,000; provided, that, if Jasmine delivers an
opinion of Massachusetts counsel, in form and substance acceptable to Agent,
with respect with respect to such matters as Agent may reasonably require, such
$7,500,000 sublimit shall no longer be effective, and (b) each of the
percentages specified in clauses (a)(i)(A) through (C) of this definition shall
be five percent (5%) less than the amounts set forth in such clauses until such
time as the Existing Term Loan and all Obligations related thereto are
indefeasibly paid and satisfied in full in immediately available funds.

 

For
purposes of this definition, the advance rates set forth in subparagraph
(a)(i)(C)(2) above will be subject to be decreased, upon Agent providing not
less than ten (10) Business Days prior telephonic or electronic notice only to
Borrowers, based on the results satisfactory to Agent of appraisals of the
Inventory conducted in accordance with Section 7.3 hereof and to be conducted
on a “going out of business sale” basis, net of liquidation expenses, at the
expense of Borrowers, conducted by appraisers acceptable to Agent. For purposes
only of applying the Inventory Loan Limit, Agent may treat the then undrawn
amounts of outstanding Letter of Credit Accommodations for the purpose of
purchasing Eligible Inventory as Revolving Loans to the extent Agent 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. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Reserves shall be attributed first to any components of the
lending formulas set forth above that are not subject to such sublimit, before
being attributed to the components of the lending formulas subject to such
sublimit. The amounts of Eligible Inventory shall be determined based on the
lesser of the amount of Inventory set forth in the general ledgers of Borrowers
or the perpetual inventory records maintained by Borrowers. Agent shall have
the right to establish Reserves against or sublimits in the Borrowing Base in
such amounts and with respect to such matters as Agent in its sole discretion
shall deem necessary or appropriate, at all times and after Agent has completed
its updated field audits, examinations and appraisals of the Collateral;
provided, however, that, so long as an Availability Compliance Period does not
exist, Agent shall only give to Borrowers ten (10) Business Days’ telephonic or
electronic notice if (a) Agent establishes Reserves relating to new categories
of Reserves, (b) Agent changes the methodology of calculating Reserves, or (c)
Agent establishes sublimits in the Borrowing Base. The foregoing
notwithstanding, in the event Agent is required to establish Reserves to
preserve or protect or maximize the value of the Collateral, Agent shall only
provide Borrowers with notice at the time such Reserve is established.

 

1.21         “Borrowers” shall mean, collectively,
the following (together with their respective successors and assigns): (a)
Lerner, (b) Lernco, and (e) Jasmine; each sometimes being referred to herein
individually as “Borrower”.

 

1.22         “Borrowing Base Certificate” shall have
the meaning given in Section 7.1(a)(i)(c) hereof.

 

1.23         “BSMB” shall mean BSMB/NYCG, LLC, a
Delaware limited liability company.

 

7

 

1.24         “Business Day” shall mean any day other
than a Saturday, Sunday, or other day on which commercial banks are authorized
or required to close under the laws of the State of New York, or the State of
North Carolina, and a day on which Agent is 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.

 

1.25         “Capital Expenditures” shall mean, with
respect to any Person and its Subsidiaries, all expenditures made and
liabilities incurred for the acquisition of equipment, software, fixed assets,
real property or improvements, or replacements or substitutions therefor, which
are not, in accordance with GAAP, treated as expense items for such Person and
its Subsidiaries in the year made or incurred or as a prepaid expense
applicable to a future year or years.

 

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 or partnership,
limited liability company or other equity 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 Collateral Account” shall mean a
deposit account: (a) maintained by a Borrower as a collateral account with
either Wachovia or LaSalle National Bank, and otherwise mutually satisfactory
to Lerner, Agent and Lenders; (b) that is a money market account which does not
contain stocks, bonds, other investment property or interests in such
investment property; (c) used by such Borrower to deposit cash collateral for
the purpose of supporting advances described in clause (a)(i)(E) of the
definition of Borrowing Base; (d) which contains readily available funds sufficient
to support any and all advances that may be requested by Borrowers pursuant to
clause (a)(i)(E) of the definition of Borrowing Base, as determined by Agent;
and (e) which is subject to the Cash Collateral Account Control Agreement. For
purposes of clarification, there is no dollar limit on the amount of cash, Cash
Equivalents or investment property that may be deposited in or credited to a
Cash Collateral Account at any time.

 

1.29         “Cash Collateral Account Control
Agreement” means a Deposit Account Control Agreement, which, among other
things, (a) prohibits the Borrowers from withdrawing or transferring any
amounts or investment property from such account except upon the conditions set
forth in Section 9.26(f) hereof, (b) provides that the bank at which such
account is maintained will provide to Agent a daily report as to the balance of
such account, and (c) and is otherwise satisfactory to Agent in form and
substance.

 

1.30         “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 

 

8

 

by the United States of America
or any agency or instrumentality thereof; provided, that, the full faith and
credit of the United States of America 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 having combined capital and surplus and undivided profits of not
less than $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 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 $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 or issued by any governmental agency
thereof and backed by the full faith and credit of the United States of
America, 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; (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; and (g) other investments
as agreed by Agent in writing.

 

1.31         “Central Collection Deposit Account”
shall mean any deposit account established by Borrowers that is used by
Borrowers 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.

 

1.32         “Change of Control” shall mean, as of
any date of determination, the occurrence of any of the following: (a) any
Person and/or one or more of its Affiliates, other than BSMB and/or one or more
of its Affiliates, or group (within the meaning of the Securities Exchange Act
of 1934, as amended) of Persons shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended) of twenty percent (20%)
or more of the issued and outstanding Voting Stock of NY&Co, unless either
(i) BSMB and/or one or more of its Affiliates, collectively, own more of the
Voting Stock of NY&Co than such Person and/or its Affiliates or (ii) BSMB
and/or one or more of its Affiliates has the right to elect, or cause to be
elected, and has elected, or caused to be elected, a majority of the members of
the Board of Directors of NY&Co, (b) during any period of twelve (12)
consecutive calendar months, individuals who at the beginning of such period
constituted the board of directors of NY&Co (together with any new
directors whose election by the board of directors of NY&Co or whose
nomination for election by the shareholders of NY&Co was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose elections or nomination for
election was previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in office; or (c)
except as permitted under the terms of Section 9.7 hereof, NY&Co shall
cease to own (directly or indirectly) one hundred percent (100%) of the Capital
Stock of each Borrower and each other Guarantor; or (d) any Borrower or
Guarantor other than NY&Co does not own 100% of the Capital Stock of any of
its Subsidiaries.

 

9

 

1.33         “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.

 

1.34         “Collateral” shall have the meaning set
forth in Section 5 hereof.

 

1.35         “Collateral Access Agreement” shall
mean an agreement in writing, in form and substance reasonably satisfactory to
Agent, from any lessor of premises to any Borrower or Guarantor, or any other
person to whom any Collateral 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, among other things, acknowledges the first
priority security interest of Agent, for itself and the ratable benefit of the
Lenders and the Bank Product Providers, in such Collateral, agrees to waive or
subordinate 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 Agent access to, and the right to remain on,
the premises of such lessor, consignee or other person so as to exercise Agent’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 Agent, the Lenders and the Bank
Product Providers and agrees to follow all instructions of Agent with respect
thereto.

 

1.36         “Compliance Excess Availability” shall
mean the amount, as determined by Agent, calculated at any date, equal to: (a)
the lesser of:  (i) the Borrowing Base
(calculated, for this purpose, without giving effect to the Total LC Reserve
Amount) and (ii) the Revolving Loan Limit, minus (b) the sum of:  (i) the amount of all then outstanding and
unpaid Obligations (but not including for this purpose the then outstanding
Letter of Credit Accommodations or the outstanding balance of the Existing Term
Loan), which, for purposes of clarification, may be a credit balance arising
from the overpayment of the Obligations, plus (ii) the Total LC Reserve Amount.

 

1.37         “Covered Taxes” shall have the meaning
set forth in Section 6.4(d) hereof.

 

1.38         “Credit Card Acknowledgments” shall
mean, collectively, the agreements by Credit Card Issuers or Credit Card
Processors who are parties to Credit Card Agreements in favor of Agent
acknowledging Agent’s first priority security interest, for and on behalf of
Lenders, in the monies due and to become due to any Borrower or Guarantor
(including, without limitation, credits and reserves) under the Credit Card
Agreements, and agreeing to transfer all such amounts to the Blocked Accounts,
as the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, sometimes being referred to herein
individually as a “Credit Card Acknowledgment”.

 

1.39         “Credit Card Agreements” shall mean all
agreements now or hereafter entered into by any Borrower or Guarantor with any
Credit Card Issuer or any Credit Card Processor, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, including, but not limited to, the agreements set forth on Schedule
8.16 hereto.

 

10

 

1.40         “Credit Card Issuer” shall mean any
person (other than a Borrower or Guarantor) who issues or whose members issue
credit cards, including, without limitation, MasterCard or VISA bank credit or
debit cards or other bank credit or debit cards issued through MasterCard
International, Inc., Visa, U.S.A., Inc. or Visa International and American
Express, Discover, Diners Club, Carte Blanche and other non-bank credit or
debit cards, including, without limitation, credit or debit cards issued by or
through American Express Travel Related Services Company, Inc.

 

1.41         “Credit Card Processor” shall mean any
servicing or processing agent or any factor or financial intermediary who
facilitates, services, processes or manages the credit authorization, billing
transfer and/or payment procedures with respect to any Borrower’s or Guarantor’s
sales transactions involving credit card or debit card purchases by customers
using credit cards or debit cards issued by any Credit Card Issuer.

 

1.42         “Credit Card Receivables” shall mean
all domestic Accounts consisting of the present and future rights of any
Borrower or Guarantor, but excluding the Private Label Credit Card Receivables,
to payment by any Credit Card Processor or Credit Card Issuer and all
information contained on or for use with a credit, charge or debit card issued
by a Credit Card Issuer.

 

1.43         “Credit Facility” shall mean the
Revolving Loan Facility and the Existing Term Loan.

 

1.44         “Default” shall mean an act, condition
or event that with notice or passage of time or both would constitute an Event
of Default.

 

1.45         “Defaulting Lender” shall have the
meaning set forth in Section 6.9(c) hereof.

 

1.46         “Deposit Account Control Agreement”
shall mean an agreement in writing, in form and substance satisfactory to
Agent, by and among Agent, a Borrower or Guarantor with a deposit account at
any bank, and the bank at which such deposit account is at any time maintained
which provides that such bank will comply with instructions originated by Agent
directing disposition of the funds in the deposit account without further
consent by such Borrower or Guarantor and such other terms and conditions as
Agent 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 Agent, for itself and the ratable benefit of the
Lenders and the Bank Product Providers, that the bank has no lien upon, 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 Agent Payment Account all funds received or deposited into the
Blocked Accounts.

 

1.47         “Documentation Agent” shall mean
LaSalle Retail Finance, a division of LaSalle Business Credit, LLC, as agent
for LaSalle Bank Midwest, National Association.

 

1.48         “Domestic In-Transit Inventory” shall
mean Inventory owned by a Borrower that is located in the continental United
States of America which is in transit to one of the locations set forth on
Exhibit E (as such schedule may be updated from time to time by Borrowers to 

 

11

 

exclude locations which have
been closed and/or include additional locations of Inventory which Borrowers
are permitted to establish under the terms of this Agreement) being the
premises of such Borrower in the United States of America which are either
owned and controlled by such Borrower or leased by such Borrower.

 

1.49         “EBITDA” shall mean, for any period,
without duplication, the total of the following for the Borrowers and
Guarantors on a consolidated basis, each calculated for such period:  Net Income plus (i) preferred dividends, plus
(ii) income tax expense, plus (iii) Interest Expense (including all charges
owed with respect to letters of credit), plus (iv) depreciation expense, plus
(v) amortization expense, plus (vi) management fees and expenses, as permitted
hereunder, paid or accrued, plus (vii) non-cash losses from any sale or
disposition of assets, and minus (viii) non-cash gains from any sale or
disposition of assets, plus (ix) any other non-cash charges, non-cash expenses
(including non-cash straight line rent), non-cash losses or non-cash
restructuring charges, minus (x) the amortization of construction or landlord
tenant allowances of the Borrowers or any Subsidiary of a Borrower for such
period, all of the foregoing determined in accordance with GAAP, adjusted as
provided in Schedule 1.49(a) hereto; provided, however, for
purposes of determining EBITDA for any fiscal month ending prior to the
expiration of the twelve (12) months after the date hereof, EBITDA for each
fiscal month ending prior to the date hereof shall be the amount set forth in
Schedule 1.49(b) hereto. For purposes of calculating EBITDA for any Measurement
Period, (A) acquisitions that have been made by such Person and its
Subsidiaries, including through mergers or consolidated and including any
related financing transactions, during the Measurement Period shall be deemed
to have occurred on the first day of the Measurement Period; provided, however,
that only the actual historical results of operations of the Persons so
acquired, without adjustment for pro forma expense savings or revenue
increases, shall be used for such calculation; and (B) the EBITDA of such
Person and its Subsidiaries attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the end of such Measurement Period, shall be excluded.

 

1.50         “Eligible Cash Collateral” shall mean
the cash or Cash Equivalents, in each case denominated in United States
Dollars, of a Borrower which are: (a) pledged by such Borrower to Agent
pursuant to the Cash Collateral Control Agreement, in form and substance
reasonably satisfactory to Agent and duly authorized, executed and delivered by
such bank or financial intermediary and such Borrower; (b) free and clear of
any lien, security interest, claim or other encumbrance or restriction, except
for (i) liens in favor of Agent and (ii) liens of the financial intermediary
holding such cash or Cash Equivalents that are expressly permitted by the Cash
Collateral Control Agreement; (c) 
subject to the first priority, valid and perfected security interest and
pledge in favor of Agent, except (as to priority) for liens in favor of the
financial intermediary holding such cash or Cash Equivalents to the extent such
liens are expressly permitted to have priority by the Cash Collateral Control
Agreement; and (d) available to such Borrower without condition or restriction
except those arising pursuant to the pledge in favor of Agent; provided,
that, no cash or Cash Equivalents shall constitute Eligible Cash
Collateral prior to the date (if any) on which Agent shall have consented to
the request by Borrowers to include Eligible Cash Collateral in the Borrowing
Base.

 

1.51         “Eligible Credit Card Receivables”
shall mean the gross amount of all Credit Card Receivables that are subject to
a valid, exclusive, first priority and fully perfected security 

 

12

 

interest in favor of Agent, for
itself and the ratable benefit of the Lenders and the Bank Product Providers,
which conform to all applicable warranties contained herein less, without
duplication, the sum of all Credit Card Receivables: (a) for which Agent has
not received a Credit Card Acknowledgment within sixty (60) days after the date
hereof if the Credit Card Agreement exists on the date hereof (or if the Credit
Card Agreement is entered into after the date hereof, no later than sixty (60)
days after the date of such Credit Card Agreement or such later date as is
acceptable to Agent), and (b) which are unpaid more than ten (10) days after
the date submitted to the appropriate Credit Card Processor for payment.

 

1.52         “Eligible Damaged Goods Vendors
Receivables” shall mean Accounts, other than Credit Card Receivables or
Eligible Sell-Off Vendors Receivables, created by any Borrower which are and
continue to be acceptable to Agent based on the criteria set forth below. In
general, Accounts shall be Eligible Damaged Goods Vendors Receivables if:

 

(a)           such Accounts arise from the actual
and bona fide sale and delivery of damaged Inventory by such Borrower to a
third-party off-price wholesaler satisfactory to Agent, in the ordinary course
of such Borrower’s business, which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;

 

(b)           such Accounts are not unpaid more
than ninety (90) days after the date of the original invoice for them;

 

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

 

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

 

(e)           the chief executive office of the
account debtor with respect to such Accounts is located in the United States of
America or Canada;

 

(f)            such Accounts do not consist of
progress billings (such that the obligation of the account debtors with respect
to such Accounts is conditioned upon such Borrower’s 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 Agent
shall have received an agreement in writing from the account debtor, in form
and substance satisfactory to Agent, confirming the unconditional obligation of
the account debtor to take the goods related thereto and pay such invoice;

 

(g)           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 such Borrower to such account debtor or claimed to be owed by such
account debtor may be deemed Eligible Damaged Goods Vendors Receivables);

 

(h)           there are no facts, events or
occurrences which would impair the validity, 

 

13

 

enforceability or
collectability of such Accounts or reduce the amount payable or delay payment
thereunder;

 

(i)            such Accounts are subject to the
first priority, valid and perfected security interest of Agent and any goods
giving rise thereto are not, and were not at the time of the sale thereof,
subject to any liens except those of Agent or those permitted in this Agreement
that are subject to an intercreditor agreement in form and substance
satisfactory to Agent between the holder of such security interest or lien and
Agent;

 

(j)            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 or Guarantor;

 

(k)           the account debtors with respect to
such Accounts are not any foreign government, the United States of America, any
State, political subdivision, department, agency or instrumentality thereof,
unless, if the account debtor is the United States of America, any State,
political subdivision, department, agency or instrumentality thereof, upon
Agent’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 Agent;

 

(l)            there are no proceedings or actions
which are threatened or pending against the account debtors with respect to
such Accounts which are likely to 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);

 

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

 

(n)           such Accounts are not owed by an
account debtor who has Accounts unpaid more than ninety (90) days after the original
invoice date for them which constitute more than thirty-five percent (35%) of
the total Accounts of such account debtor;

 

(o)           the account debtor is not located in
a state requiring the filing of a Notice of Business Activities Report or
similar report in order for such Borrower to seek judicial enforcement in such
State of payment of such Account, unless such 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; and

 

(p)           such Accounts do not constitute
amounts which have been invoiced by such Borrower but with respect to which
goods so invoiced have not been delivered to the account debtor.

 

The
criteria for Eligible Damaged Goods Vendors Receivables set forth above may
only be changed and any new criteria for Eligible Damaged Goods Vendors
Receivables may only be established by Agent 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 Agent has no
written notice thereof from Borrowers prior to the date hereof,

 

14

 

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 Agent. Any Accounts which are not Eligible Damaged Goods
Vendors Receivables shall nevertheless be part of the Collateral.

 

1.53         “Eligible Inventory” shall mean
Eligible Landed Inventory, Eligible In-Transit Inventory and Eligible
In-Transit LC Inventory.

 

1.54         “Eligible In-Transit Inventory” shall
mean Domestic In-Transit Inventory and Foreign In-Transit Inventory owned by a
Borrower that otherwise satisfies the criteria for Eligible Landed Inventory; provided,
that:

 

(a)           as to any such Domestic In-Transit
Inventory or Foreign In-Transit Inventory:

 

(i)            title to such Inventory has passed
to such Borrower;

 

(ii)           such Inventory is not then subject to
a Letter of Credit Accommodation;

 

(iii)          such Inventory is insured against
types of loss, damage, hazards, and risks, and in amounts, satisfactory to
Agent in its discretion and Agent shall have received a copy of the certificate
of evidence of property insurance in the case of Domestic In-Transit Inventory
and the certificate of evidence of marine cargo insurance in the case of
Foreign In-Transit Inventory, in each case, in which Agent has been named as an
additional insured and lender’s loss payee in a manner acceptable to Agent;

 

(iv)          the applicable Borrower has provided a
certificate to Agent that certifies that, to the best knowledge of such
Borrower, such Inventory meets all of such Borrower’s representations and
warranties contained herein concerning Eligible Inventory, that it knows of no
reason why such Inventory would not be accepted by such Borrower when it
arrives and that the shipment as evidenced by the documents conforms to the
related order documents; and

 

(v)           Agent has a first priority perfected
security interest in and lien upon such Inventory and all documents of title
with respect thereto;

 

(b)           in addition to and not in limitation
of the criteria set forth in clause (a) of this definition, as to any such
Domestic In-Transit Inventory,

 

(i)            such Inventory shall not have been
in transit for more than fourteen (14) days, without the prior written consent
of Agent;  and

 

(ii)           such Inventory, and if requested by
Agent, any documents of title related thereto, is in the possession of a Person
who has executed, in form and substance acceptable to Agent, a Collateral
Access Agreement in favor of Agent;

 

(c)           in addition to and not in limitation
of the criteria set forth in clause (a) of this definition, as to any such
Foreign In-Transit Inventory,

 

15

 

(i)            such Inventory either (A) is the
subject of a negotiable bill of lading (1) in which Agent is named as the
consignee (either directly or by means of endorsements), (2) that was issued by
the carrier respecting such Inventory that is subject to such bill of lading,
and (3) that is in the possession of Agent or the Freight Forwarder handling
the importing, shipping and delivery of such Inventory, in all cases, acting on
Agent’s behalf subject to a Collateral Access Agreement, duly authorized,
executed and delivered by such Freight Forwarder, or (B) is the subject of a
negotiable forwarder’s cargo receipt and such cargo receipt on its face
indicates the name of the freight forwarder as a carrier or multimodal
transport operator and has been signed or otherwise authenticated by it in such
capacity or as a named agent for or on behalf of the carrier or multilmodal

 

(ii)           transport operator, in any case respecting
such Inventory and either (1) names Agent as the consignee (either directly or
by means of endorsements), or (2) is in the possession of Agent or the Freight
Forwarder handling the importing, shipping and delivery of such Inventory, in
all cases, acting on Agent’s behalf subject to a Collateral Access Agreement,
duly authorized, executed and delivered by such Freight Forwarder; such
Inventory currently is in the possession or control of a bailee signatory to a
Collateral Access Agreement and is in transit (whether by vessel, air, or
land); and

 

(iii)          such Inventory shall not have been in
transit for more than seventy-five (75) days, without the prior written consent
of Agent.

 

1.55         Eligible In-Transit LC Inventory” shall
mean Inventory owned by a Borrower that otherwise satisfies the criteria for
Eligible Landed Inventory but is not located in the continental United States
of America and which is in transit to one of the locations set forth on Exhibit
E hereto (as such schedule may be updated from time to time by Borrowers to
exclude locations which have been closed and/or include additional locations of
Inventory which Borrowers are permitted to establish under the terms of this
Agreement) being either the premises of a Freight Forwarder in the United
States of America or the premises of such Borrower in the United States of
America which are either owned and controlled by such Borrower or leased by
such Borrower (but only if Agent has received a Collateral Access Agreement
duly authorized, executed and delivered by such Freight Forwarder or the owner
and lessor of such leased premises, as the case may be); provided, that:

 

(a)           such Inventory is the subject of an
outstanding documentary Letter of Credit Accommodation issued hereunder for the
purchase of such Inventory;

 

(b)           the documentary Letter of Credit
Accommodation issued hereunder for the purchase of such Inventory has not been
outstanding more than seventy-five (75) days from its date of issuance;

 

(c)           title to such Inventory has passed to
such Borrower,

 

(d)           Agent has a first priority perfected
security interest in and lien upon such Inventory and all documents of title
with respect thereto;

 

(e)           such Inventory is insured against
types of loss, damage, hazards, and risks, and in amounts, satisfactory to
Agent in its discretion and Agent shall have received a

 

16

 

copy of the certificate of
evidence of marine cargo insurance in connection therewith in which it has been
named as an additional insured and lender’s loss payee in a manner acceptable
to Agent;

 

(f)            such Inventory either (i) is the
subject of a negotiable bill of lading (A) in which Agent is named as the
consignee (either directly or by means of endorsements), (B) that was issued by
the carrier respecting such Inventory that is subject to such bill of lading,
and (C) that is in the possession of Agent or the Freight Forwarder handling
the importing, shipping and delivery of such Inventory, in all cases, acting on
Agent’s behalf subject to a Collateral Access Agreement, duly authorized,
executed and delivered by such Freight Forwarder, or (ii) is the subject of a
negotiable forwarder’s cargo receipt and such cargo receipt on its face
indicates the name of the freight forwarder as a carrier or multimodal
transport operator and has been signed or otherwise authenticated by it in such
capacity or as a named agent for or on behalf of the carrier or multilmodal
transport operator, in any case respecting such Inventory and either (A) names
Agent as the consignee (either directly or by means of endorsements), or (B) is
in the possession of Agent or the Freight Forwarder handling the importing,
shipping and delivery of such Inventory, in all cases, acting on Agent’s behalf
subject to a Collateral Access Agreement, duly authorized, executed and
delivered by such Freight Forwarder; such Inventory currently is in the
possession or control of a bailee signatory to a Collateral Access Agreement
and is in transit (whether by vessel, air, or land); and

 

(g)           the applicable Borrower has provided
a certificate to Agent that certifies that, to the best knowledge of such
Borrower, such Inventory meets all of such Borrower’s representations and
warranties contained herein concerning Eligible Inventory, that it knows of no
reason why such Inventory would not be accepted by such Borrower when it
arrives and that the shipment as evidenced by the documents conforms to the
related order documents.

 

1.56         “Eligible Landed Inventory” shall mean
Inventory consisting of finished goods held for resale in the ordinary course
of the business of Borrowers located in one of the locations of Borrowers set
forth on Exhibit E hereto (as such schedule may be updated from time to time by
Borrowers to exclude locations which have been closed and/or include additional
locations of Inventory which Borrowers are permitted to establish under the
terms of this Agreement) which are acceptable to Agent based on the criteria
set forth below. In general, Eligible Landed Inventory shall not include:

 

(a)           work-in-process;

 

(b)           raw materials;

 

(c)           spare parts for equipment;

 

(d)           packaging and shipping materials;

 

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

 

(f)            Inventory at premises other than
those owned or leased and controlled by a Borrower unless Agent has either (i)
received a Collateral Access Agreement in form and substance satisfactory to
Agent with respect to such location or (ii) established a Reserve in an 

 

17

 

amount in accordance with the
terms hereof with respect to such location;

 

(g)           Inventory subject to a perfected
security interest or lien in favor of any person other than Agent except those
permitted in this Agreement including those that are subordinate to the
security interest of Agent pursuant to an intercreditor agreement in form and
substance satisfactory to Agent between Agent and the holder of such other
security interest or lien;

 

(h)           bill and hold goods;

 

(i)            obsolete, out-of-season or slow
moving Inventory;

 

(j)            damaged and/or defective Inventory;

 

(k)           Inventory returned by customers and
not held for resale;

 

(l)            Inventory consisting of samples or
displays;

 

(m)          Inventory held for return to vendors;
and

 

(n)           Inventory purchased or sold on
consignment.

 

General
criteria for Eligible Landed Inventory may only be made more restricted and any
new criteria for Eligible Landed Inventory may only be established by Agent in
good faith, based on either:  (i) an
event, condition or other circumstance arising after the date hereof, or (ii)
existing on the date hereof to the extent Agent 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 Agent. Any Inventory
which is not Eligible Landed Inventory shall nevertheless be part of the
Collateral.

 

1.57         “Eligible Sell-Off Vendors Receivables”
shall mean Accounts, other than Credit Card Receivables or Eligible Damaged
Goods Vendor Receivables, created by any Borrower which are and continue to be
acceptable to Agent based on the criteria set forth below. In general, Accounts
shall be Eligible Sell-Off Vendors Receivables if:

 

(a)           such Accounts arise from the actual
and bona fide sale and delivery of out-of-season or slow moving Inventory by
such Borrower to a third-party off-price wholesaler, including Ben Elias and
Value City (or any other Person engaged in substantially the same business as
Ben Elias or Value City and permitted by Agent), in the ordinary course of such
Borrower’s business, which transactions are completed in accordance with the
terms and provisions contained in any documents related thereto;

 

(b)           such Accounts are not unpaid more
than ninety (90) days after the date of the original invoice for them;

 

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

 

18

 

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

 

(e)           the chief executive office of the
account debtor with respect to such Accounts is located in the United States of
America or Canada;

 

(f)            such Accounts do not consist of
progress billings (such that the obligation of the account debtors with respect
to such Accounts is conditioned upon such Borrower’s 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 Agent
shall have received an agreement in writing from the account debtor, in form
and substance satisfactory to Agent, confirming the unconditional obligation of
the account debtor to take the goods related thereto and pay such invoice;

 

(g)           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 such Borrower to such account debtor or claimed to be owed by such
account debtor may be deemed Eligible Sell-Off Vendors Receivables),

 

(h)           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;

 

(i)            such Accounts are subject to the
first priority, valid and perfected security interest of Agent and any goods
giving rise thereto are not, and were not at the time of the sale thereof,
subject to any liens except those permitted in this Agreement that are subject
to an intercreditor agreement in form and substance satisfactory to Agent
between the holder of such security interest or lien and Agent;

 

(j)            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 or Guarantor;

 

(k)           the account debtors with respect to
such Accounts are not any foreign government, the United States of America, any
State, political subdivision, department, agency or instrumentality thereof,
unless, if the account debtor is the United States of America, any State,
political subdivision, department, agency or instrumentality thereof, upon
Agent’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 Agent;

 

(l)            there are no proceedings or actions
which are threatened or pending against the account debtors with respect to
such Accounts which are likely to 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);

 

19

 

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

 

(n)           such Accounts are not owed by an
account debtor who has Accounts unpaid more than ninety (90) days after the
original invoice date for them which constitute more than thirty-five (35%) of
the total Accounts of such account debtor;

 

(o)           the account debtor is not located in
a state requiring the filing of a Notice of Business Activities Report or
similar report in order for such Borrower to seek judicial enforcement in such
State of payment of such Account, unless such 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; and

 

(p)           such Accounts do not constitute
amounts which have been invoiced by such Borrower but with respect to which
goods so invoiced have not been delivered to the account debtor.

 

The
criteria for Eligible Sell-Off Vendors Receivables set forth above may only be
changed and any new criteria for Eligible Sell-Off Vendors Receivables may only
be established by Agent 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 Agent 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 Agent. Any
Accounts which are not Eligible Sell-Off Vendors Receivables shall nevertheless
be part of the Collateral.

 

1.58         “Eligible Transferee” shall mean (a)
any Lender; (b) the parent company of any Lender and/or any Affiliate of such
Lender which is at least fifty percent (50%) owned by such Lender or its parent
company; (c) any person (whether a corporation, partnership, trust or
otherwise) that is engaged in the business of making, purchasing, holding or
otherwise investing in bank loans and similar extensions of credit in the
ordinary course of its business and is administered or managed by a Lender or
with respect to any Lender that is a fund which invests in bank loans and
similar extensions of credit, any other fund that invests in bank loans and
similar extensions of credit and is managed by the same investment advisor as
such Lender or by an Affiliate of such investment advisor, and in each case
(unless otherwise provided herein with regard to the Existing Term Loan) is
approved by Agent; and (d) any other commercial bank, financial institution or “accredited
investor” (as defined in Regulation D under the Securities Act of 1933)
approved by Agent, provided, that, (i) no Borrower, Guarantor, Affiliate of any
Borrower or Guarantor, BSMB or any Affiliate of BSMB shall qualify as an
Eligible Transferee, (ii) no Person to whom any Indebtedness which is in any
way subordinated in right of payment to any other Indebtedness of any Borrower
or Guarantor shall qualify as an Eligible Transferee, except as Agent may
otherwise specifically agree and (iii) no Person that is organized under the
laws of a jurisdiction other than the United States or any state thereof shall
qualify as an Eligible Transferee.

 

1.59         “Environmental Laws” shall mean all
foreign, Federal, State and local laws 

 

20

 

(including common law), rules,
codes, licenses, permits (including any conditions imposed therein),
authorizations, judicial or administrative decisions, injunctions or agreements
between any Borrower or Guarantor 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 occupational 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 Federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, the Federal Superfund Amendments and Reauthorization
Act, the Federal Water Pollution Control Act of 1972, the Federal Clean Water
Act, the Federal Clean Air Act, the Federal Resource Conservation and Recovery
Act of 1976 (including the Hazardous and Solid Waste Amendments thereto), the
Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, and the Federal Safe
Drinking Water Act of 1974, (ii) applicable state 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.

 

1.60         “Equipment” shall mean all of each
Borrower’s and each Guarantor’s now owned and hereafter acquired equipment,
wherever located, including machinery, data processing and computer equipment
(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.

 

1.61         “ERISA” shall mean the United States
Employee Retirement Income Security Act of 1974, as amended, together with all
rules, regulations and interpretations thereunder or related thereto.

 

1.62         “ERISA Affiliate” shall mean any person
required to be aggregated with any Borrower or any Guarantor under Sections
414(b), 414(c), 414(m) or 414(o) of the Code.

 

1.63         “ERISA Event” shall mean (a) any “reportable
event”, as defined in Section 4043(c) of ERISA or the regulations issued
thereunder, with respect to a Pension Plan, except for any such event with
respect to which notice has been waived pursuant to applicable regulations; (b)
the adoption of any amendment to a Pension Plan that would require the
provision of security pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA; (c) the existence with respect to any Pension Plan of an “accumulated
funding deficiency” (as defined in Section 412 of the Code or Section 302 of
ERISA), whether or not waived; (d) the filing pursuant to Section 412 of the
Code or Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Pension Plan; (e) the occurrence of a
non-exempt “prohibited transaction” with respect to which any Borrower or
Guarantor, or any of their respective Subsidiaries is a “disqualified person”
(within the meaning of Section 4975 of the Code); (f) a complete or partial
withdrawal by any Borrower, any Guarantor or any ERISA 

 

21

 

Affiliate from a Multiemployer
Plan or a cessation of operations which is treated as such a withdrawal or
notification that a Multiemployer Plan is in reorganization; (g) the filing of
a notice of intent to terminate, the treatment of a Pension Plan amendment as a
termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings
by the Pension Benefit Guaranty Corporation to terminate a Pension Plan; (h) an
event or condition which might reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; and (i) the imposition of any
liability under Title IV of ERISA, other than the Pension Benefit Guaranty
Corporation premiums due but not delinquent under Section 4007 of ERISA, upon
any Borrower, any Guarantor or any ERISA Affiliate in an amount that could
reasonably be expected to have a Material Adverse Effect.

 

1.64         “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 the 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 Agent) 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 or on
behalf of Borrowers.

 

1.65         “Eurodollar Rate Loans” shall mean the
Loans or portions thereof on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the terms hereof.

 

1.66         “Event of Default” shall mean the
occurrence or existence of any event or condition described in Section 10.1
hereof.

 

1.67         “Excess Availability” shall mean, the
amount, as determined by Agent, calculated at any date, equal to: (a) the
Borrowing Base (calculated, for this purpose, without giving effect to the
Total LC Reserve Amount), minus (b) the sum of: (i) the amount of all then
outstanding and unpaid Obligations (but not including for this purpose the then
outstanding Letter of Credit Accommodations or the outstanding balance of the
Existing Term Loan), which, for purposes of clarification, may be a credit
balance arising from the overpayment of the Obligations, plus (ii) the Total LC
Reserve Amount, plus (iii) the aggregate amount of all outstanding and unpaid
trade payables and other obligations of any Borrower which, as reported on the
most recent Borrowing Base Certificate for the most recent month end, are
outstanding more than forty-five (45) days past due as of such time (other than
trade payables or other obligations being contested or disputed by such
Borrower in good faith), plus (iv) without duplication, the amount of checks
issued by any Borrower to pay trade payables and other obligations which, as
reported on the most recent Borrowing Base Certificate for the most recent
month end, are more than forty-five (45) days past due as of such time (other
than trade payables or other obligations being contested or disputed by such
Borrower in good faith), but not yet sent.

 

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

 

22

 

1.69         “Existing Financing Agreements” shall
mean, collectively, the Existing Loan Agreement, the Existing Guarantor
Security Agreements, and all other documents, certificates, instruments, notes,
guarantees, mortgages and agreements executed and delivered by Borrowers and
Guarantors in connection therewith, whether or not specifically mentioned
herein or therein as heretofore, amended and as in effect immediately prior to
the date hereof.

 

1.70         “Existing Guarantor Security Agreements”
shall mean, collectively, the Amended and Restated Guaranty and Security
Agreement, dated March 16, 2004, by NY&Co in favor of Agent, the Amended
and Restated Guaranty and Security Agreement, dated March 16, 2004, by Parent
in favor of Agent, the Amended and Restated Guaranty and Security Agreement,
dated March 16, 2004, by Nevada Factoring in favor of Agent, the Amended and
Restated Guaranty and Security Agreement, dated March 16, 2004, by Associated
Lerner in favor of Agent, Associated Lerner, and the Amended and Restated Guaranty
and Security Agreement, dated March 16, 2004, by Lerner GC in favor of Agent as
heretofore amended and as in effect immediately prior to the date hereof.

 

1.71         “Existing Loan Agreement” shall have
the meaning set forth in the recitals hereof as heretofore amended and as in
effect immediately prior to the date hereof.

 

1.72         “Existing Term Loan” shall have the
meaning set forth in Section 2.3 hereof.

 

1.73         “Existing Term Loan Commitment” shall
mean that portion of the Existing Term Loan made by and owing to Existing Term
Loan Lender, as the same may be adjusted from time to time in accordance with
the terms hereof.

 

1.74         “Existing Term Loan Interest Rate”
shall mean, for any month during which any Obligations related to the Existing
Term Loan are outstanding, a per annum rate equal to two and one-half (2.50%)
percent per annum in excess of the Adjusted Eurodollar Rate (when calculated
using the Eurodollar Rate existing as of the last day of the month ended
immediately prior to such month and an Interest Period of one month); provided,
that, (a) at Agent’s option or, upon the written direction of Existing Term
Loan Lender, the Existing Term Loan Interest Rate shall be increased by two
(2.0) percentage points either (i) for the period on and after the date of
termination or non-renewal hereof until such time as all Obligations arising
under the Existing Term Loan are indefeasibly paid and satisfied in full in
immediately available funds, or (ii) for the period from and after the date of
the occurrence of any Event of Default, and for so long as such Event of
Default is continuing and (b) notwithstanding anything to the contrary
contained herein, if any of the conditions described in Sections 3.3(b)(i),
3.3(b)(ii) or 3.3(b)(iii) hereof exist with respect to Eurodollar Rate Loans,
or if the adoption of or any change in any law, treaty, rule or regulation or
final, non-appealable determination of an arbitrator or a court or other
Governmental Authority or in the interpretation or application thereof, in each
case, occurring after the date hereof shall make it unlawful for Existing Term
Loan Lender to maintain loans based on the Adjusted Eurodollar Rate, then
Existing Term Loan Lender may, at its option, after notice to Agent and
Borrowers, convert the interest rate on the Existing Term Loan on the last day
of the then-current Interest Period to the Prime Rate (or at the option of
Existing Term Loan Lender, after notice to Agent, for the period from and after
the date of the occurrence of any Event of Default, and for so long as such
Event of Default is continuing as determined by Agent, to two (2%) percent per
annum in excess of the Prime Rate).

 

23

 

1.75         “Existing Term Loan Lender” shall mean
Wachovia.

 

1.76         “Existing Term Loan Maturity Date”
shall mean March 17, 2012.

 

1.77         “Fee Letter” shall mean that certain
confidential letter agreement, captioned “Fee Letter,” dated as of the date
hereof, among Borrowers and Agent.

 

1.78         “Financing Agreements” shall mean,
collectively, this Agreement, any and all notes, the Fee Letter, the Guarantee,
the Stock Pledge Agreements, the Collateral Access Agreements, the Credit Card
Acknowledgments, the Deposit Account Control Agreements (together with all
other agreements necessary for Agent to take (conditionally or otherwise)
dominion of all cash receipts and payments on credit card receivables of each
Borrower and Guarantor), the Investment Property Control Agreements, any other
security agreements, the Intellectual Property Security Agreements, the
Intercompany Subordination Agreement, and all other agreements, documents and
instruments now or at any time hereafter executed and/or delivered by any
Borrower or any Obligor in connection with this Agreement.

 

1.79         “Fiscal Year-End” shall mean the dates
denoted as Fiscal Year-End dates on Exhibit F hereto.

 

1.80         “First Quarter-End” shall mean the
dates denoted as First Quarter-End dates on Exhibit F hereto.

 

1.81         “Fixed Charge Coverage Ratio” shall
mean, as to any Person and their Subsidiaries, calculated on a consolidated
basis, for any applicable measurement period, measured as of the end of such,
the ratio of: (a) the amount equal to sum of (i) EBITDA plus (ii) Qualified
Cash to (b) Fixed Charges.

 

1.82         “Fixed Charges” shall mean, with respect
to any Person and its Subsidiaries for any period, the sum of, without
duplication, (a) all cash Interest Expense paid during such period (net of
interest income of such Person during such Period and excluding, to the extent
taken into account in the calculation of Interest Expense, upfront fees, costs
and expenses in respect of this Agreement, the New Term Loan Documents and the
transactions contemplated hereby and thereby), plus (b) all regularly
scheduled mandatory principal payments with respect to Indebtedness for
borrowed money (excluding payments in respect of Revolving Loans) paid or
payable for such period, and Indebtedness with respect to Capital Leases paid
during such period in cash (excluding the interest component with respect to
Indebtedness under Capital Lease), plus (c) all income taxes paid during
such period in cash (net of refunds or tax credits to such Person in respect to
income taxes, and excluding income tax on extraordinary or non-recurring gains
or gains from asset sales outside of the ordinary course of business), plus
(d) all Capital Expenditures paid in cash during such period net of applicable
construction or landlord tenant allowances during such period (other Capital
Expenditures of such Person, made with the proceeds of Indebtedness permitted
for such purpose hereunder), all of the foregoing as determined in accordance
with GAAP.

 

1.83         “Fourth Quarter-End” shall mean the
dates denoted as Fourth Quarter-End dates on Exhibit F hereto.

 

24

 

1.84         “Foreign In-Transit Inventory” shall
mean Inventory owned by a Borrower that is not located in the continental
United States of America and which is in transit to one of the  locations set forth on Exhibit E hereto (as
such schedule may be updated from time to time by Borrowers to exclude
locations which have been closed and/or include additional locations of
Inventory which Borrowers are permitted to establish under the terms of this
Agreement) being either the premises of a Freight Forwarder in the United
States of America or the premises of such Borrower in the United States of
America which are either owned and controlled by such Borrower or leased by
such Borrower.

 

1.85         “Foreign Subsidiary” shall mean any
Subsidiary of any Borrower or Guarantor that is a corporation (or is treated as
a corporation under the Code) and is not organized under the laws of the United
States or a state thereof.

 

1.86         “Freight Forwarders” shall mean the
persons listed on Schedule 1.86 hereto or such other person or persons as may
be selected by Borrower after the date hereof and after written notice by
Borrower to Agent who are reasonably acceptable to Agent to handle the receipt
of Inventory within the United States of America and/or to clear Inventory through
the Bureau of Customs and Border Protection (formerly the Customs Service) or
other domestic or foreign export control authorities or otherwise perform port
of entry services to process Inventory imported by Borrower from outside the
United States of America (such persons sometimes being referred to herein
individually as a “Freight Forwarder”), provided, that, as to
each such person, (a) Agent shall have received a Collateral Access Agreement
by such person in favor of Agent (in form and substance satisfactory to Agent)
duly authorized, executed and delivered by such person, (b) such agreement
shall be in full force and effect and (c) such person shall be in compliance in
all material respects with the terms thereof.

 

1.87         “Funding Bank” shall have the meaning
set forth in Section 3.3(a) hereof.

 

1.88         “GAAP” shall mean 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 Agent prior to the date hereof.

 

1.89         “Gift Certificate and Store Credit
Reserve” shall mean, as of any date of determination, a Reserve equal to the
amount of fifty-one percent (51%) of all (i) accrued and outstanding gift
certificates which any Borrower is obligated to honor and (ii) the aggregate
amount of outstanding store credit to be honored by any Borrower.

 

1.90         “Goods in Progress LC” shall mean a
documentary Letter of Credit Accommodation (a) initially requested for the
purpose of ordering and ultimately purchasing Inventory which, upon its
completion and deposit with a shipper who has executed a Collateral Access
Agreement, in form and substance satisfactory to Agent, is reasonably
anticipated to be deemed Eligible In-Transit Inventory or Eligible In-Transit
LC Inventory, (b) which has not been 

 

25

 

issued and outstanding for more
than seventy-five (75) days and (c) which does not relate to Inventory which
has in fact become finished goods which have been deposited for shipment to a
Borrower with a Freight Forwarder who has executed a Collateral Access
Agreement, in form and substance satisfactory to Agent; provided, that,
after such goods become finished goods and have been so deposited with such a
Freight Forwarder, then such Letter of Credit Accommodation shall no longer be
deemed a Goods in Progress LC.

 

1.91         “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, and any entity exercising executive, legislative, judicial, regulatory
or administrative functions of government.

 

1.92         “Guarantee” shall mean the Amended and
Restated Guarantee executed and delivered by each Borrower and Guarantor in
favor of Agent, for itself and the ratable benefit of the Lenders and the Bank
Product Providers, in form and substance satisfactory to Agent, as the same may
be amended, modified or supplemented from time to time, and any other guaranty
from time to time executed by any Guarantor in favor of Agent, for itself and
the ratable benefit of the Lenders and the Bank Product Providers, as the same
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

1.93         “Guarantors” shall mean collectively,
the following (together with their respective successors and assigns): (a)
NY&Co, (b) Parent, (c) Nevada Factoring, (d) Associated Lerner, and (e)
Lerner GC; each sometimes being referred to herein individually as ‘Guarantor’.

 

1.94         “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, polychlorinated biphenyls, pesticides, herbicides and
any other kind and/or type of pollutants or contaminants, 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 classified as hazardous or toxic under any Environmental Law.

 

1.95         “Hedging Transactions” shall mean (a)
any and all rate swap transactions, basis swaps, forward rate transactions,
commodity swaps, commodity options, forward commodity contracts, equity or
equity index swaps or options, bond or bond price or bond index swaps or
options, forward bond or forward bond price or forward bond index transactions,
interest rate options, forward foreign exchange transactions, cap transactions,
floor transactions, collar transactions, currency swap transactions,
cross-currency rate swap transaction, currency options or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, or (b) any and all transactions
of any kind, and the related confirmations, that are subject to the terms or
conditions of, or governed by, any form of master agreement published by the
International Swaps and Derivatives Association, Inc., or any other master
agreement, as amended, restated, extended, supplemented or otherwise modified
in writing from time to time, including but not limited to, any such
obligations or liabilities under any such agreement.

 

26

 

1.96         “In Store Payment” shall have the
meaning set forth in the Private Label Credit Card Agreement.

 

1.97         “Indebtedness” shall mean, with respect
to any Person and without duplication, 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 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 of another Person; (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 (marked 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 guarantee royalty payments.

 

1.98         “Indemnitee” shall have the meaning set
forth in Section 11.5 hereof.

 

1.99         “Information Certificates” shall mean
the Information Certificates, dated the date hereof, of Borrowers and
Guarantors collectively constituting Exhibit D hereto, containing material
information with respect to such Person and such Person’s businesses and assets
provided by or on behalf of such Person to Agent in connection with the
preparation of this Agreement and the other Financing Agreements and the
financing arrangements provided for herein.

 

1.100       “Insolvency Event” shall mean, the
commencement of any of the following with respect to any Borrower or Guarantor:
(i) any case or proceeding with respect to such person under the Bankruptcy Code,
or any other Federal, State or other bankruptcy, insolvency, 

 

27

 

reorganization or other law
affecting creditors’ rights or any other or similar proceedings seeking any
stay, reorganization, arrangement, composition or readjustment of all or
substantially all of the obligations and indebtedness of such person or (ii)
any proceeding seeking the appointment of any receiver, trustee, administrator,
liquidator, custodian or other insolvency official with similar powers with
respect to such person or all or substantially all of its assets or (iii) any
proceeding for liquidation, dissolution or other winding up of the business of
such person or (iv) any general assignment for the benefit of creditors or any
general marshaling of all or substantially all of the assets of such person.

 

1.101       “Intellectual Property” shall mean any
Borrower’s or any Guarantor’s 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; trade secret rights,
copyright rights, rights in works of authorship, domain names and domain name
registration; software and contract rights relating to computer software
programs, in whatever form created or maintained.

 

1.102       “Intellectual Property Security
Agreements” shall mean, collectively, the Lerner Trademark Agreement, the
Lernco Trademark Agreement and any other security agreement concerning any
Intellectual Property of any Borrower or Guarantor at any time delivered to
Agent in connection with this Agreement, as the same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.

 

1.103       “Intercompany Subordination Agreement”
shall mean the Second Amended and Restated Intercompany Subordination
Agreement, in form and substance satisfactory to Agent, dated of even date
herewith, by and among Borrowers, certain of their Affiliates and Agent, as the
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

 1.104      “Interest
Expense” shall mean, for any period, total interest expense in accordance with
GAAP of Borrowers and Guarantors on a consolidated basis with respect to all
outstanding Indebtedness.

 

1.105       “Interest Period” shall mean for any
Eurodollar Rate Loan, a period of approximately one (1), two (2), three (3) or
six (6) 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.

 

1.106       “Inventory” shall mean all of each
Borrower’s and each Guarantor’s now owned and hereafter existing or acquired
goods, wherever located, which (a) are leased by such Borrower or Guarantor as
lessor; (b) are held by such Borrower or Guarantor for sale or lease or 

 

28

 

to be furnished under a
contract of service; (c) are furnished by such Borrower or Guarantor under a
contract of service; (d) consist of raw materials, work in process, finished
goods or materials used or consumed in its business; or (e) are goods in
transit to such Borrower or Guarantor.

 

1.107       “Inventory Loan Limit” shall mean
$90,000,000.

 

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

 

1.109       “Jasmine” shall mean Jasmine Company,
Inc., a Massachusetts corporation.

 

1.110       “Landed Value” shall mean, with respect
to Eligible In-Transit Inventory or Eligible In-Transit LC Inventory, the sum
of (a) the face amount of all documentary Letter of Credit Accommodations
issued under this Agreement for purposes of purchasing such Inventory from a
Person who is not an Affiliate of any Borrower plus (b) the amount of freight,
customs, taxes and duty and other amounts which Agent estimates must be paid
upon the arrival and in connection with the delivery of such Inventory to a
Borrower’s location for Eligible Landed Inventory within the United States of
America.

 

1.111       “LC Reserve Amount” shall mean, with
respect to each Letter of Credit Accommodation provided under this Agreement,
the amount equal to:

 

(a)           if such Letter of Credit
Accommodation is a Goods in Progress LC and the Non-Reserved LC Amount does not
then exceed $20,000,000, the sum of (i) twenty-five percent (25%) (or twenty
percent (20%) during the Seasonal Advance Period) of the face amount of such
Goods in Progress LC plus (ii) freight, taxes, duty, and other amounts which
Agent estimates must be paid in connection with the delivery of the Inventory
ordered thereunder to a Borrower’s location for Eligible Landed Inventory
within the United States of America; or

 

(b)           if such Letter of Credit
Accommodation is for any other purpose, including, if it does not meet any of
the conditions for being a Goods in Progress LC or if the Non-Reserved LC
Amount does then exceed $20,000,000, the sum of (i) one hundred percent (100%)
of the face amount of the proposed Letter of Credit Accommodation plus (ii) if such
Letter of Accommodation is for the purchase of Inventory, freight, taxes, duty,
and other amounts which Agent estimates must be paid in connection with the
delivery of such Inventory to a Borrower’s location for Eligible Landed
Inventory within the United States of America, plus (iii) all other commitments
and obligations made or incurred by Agent with respect thereto.

 

1.112       “Lender Register” shall have the meaning
given in Section 14.7(b) hereof.

 

29

 

1.113       “Lenders” shall mean
the Persons who are signatories hereto as Lenders and other Persons made a
party to this Agreement as a Lender in accordance with Section 14.7 hereof, and
their respective successors and assigns; each sometimes being referred to
herein individually as a “Lender”.

 

1.114       “Lernco” shall have
the meaning set forth in the introduction hereto.

 

1.115       “Lernco Trademark
Agreement” shall mean the Second Amended and Restated Collateral Assignment of
Trademarks (Security Agreement), dated of even date herewith, by Lernco and
Jasmine in favor of Agent, for itself and the ratable benefit of the Lenders
and the Bank Product Providers, as the now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

1.116       “Lerner” shall have
the meaning set forth in the preamble hereto.

 

1.117       “Lerner GC” shall mean
Lerner New York GC, LLC, an Ohio limited liability company.

 

1.118       “Lerner Stock Pledge
Agreement” shall mean the Second Amended and Restated Stock Pledge Agreement,
dated of even date herewith, by Lerner in favor of Agent, for itself and the
ratable benefit of the Lenders and the Bank Product Providers, with respect to
the pledge of 100% of the Capital Stock of Associated Lerner, Lernco, Lerner GC
and Jasmine, owned by Lerner, as the now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

1.119       “Lerner Trademark
Agreement” shall mean the Amended and Restated Collateral Assignment of
Trademarks (Security Agreement), dated of even date herewith, by Lerner in
favor of Agent, for itself and the ratable benefit of the Lenders and the Bank
Product Providers, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

1.120       “Letter of Credit
Accommodations” shall mean, collectively, the letters of credit, merchandise
purchase or other guaranties, or acceptances of drafts relating to letters of
credit, which are from time to time either (a) issued or opened by Agent or any
Revolving Loan Lender for the account of any Borrower or any Obligor or for
which Agent or any Revolving Loan Lender is the confirming bank or in respect
of which it has otherwise agreed to make any payment or (b) with respect to
which Agent or Revolving Loan Lenders have agreed to indemnify the issuer or
guaranteed to the issuer the performance by any Borrower or any Obligor of its
obligations to such issuer; sometimes being referred to herein individually as
a “Letter of Credit Accommodation”.

 

1.121       “Letter of Credit Fee”
shall have the meaning set forth in Section 2.2(b) hereof.

 

1.122       “Leverage Ratio” shall
mean, at the end of any fiscal month, the ratio computed for the period
consisting of twelve (12) consecutive fiscal months ended on such date of (a)
the principal amounts of the Loans and any other secured Indebtedness of any
Borrower or Guarantors that are outstanding as of the last day of such period,
to (b) EBITDA of Borrowers and Guarantors for such period.

 

30

 

1.123       “License Agreements”
shall have the meaning set forth in Section 8.11 hereof.

 

1.124       “Loan Parties” means
the Borrowers, the Guarantors and the other Obligors.

 

1.125       “Loans” shall mean the
Revolving Loans, the Special Agent Advances, the Existing Term Loan and the
Letter of Credit Accommodations.

 

1.126       “Material Adverse
Effect” shall mean a material adverse effect on (a) the financial condition,
business, performance or operations of the Borrowers taken as a whole or the
Loan Parties taken as a whole; (b) the legality, validity or enforceability of
this Agreement or any of the other Financing Agreements; (c) the legality,
validity, enforceability, perfection or priority of the security interests and
liens of Agent upon the Collateral; (d) the Collateral or its value; (e) the
ability of the Borrowers, taken as a whole, to repay the Obligations or of the
Borrowers, taken as a whole, or the Loan Parties, taken as a whole, to perform
their obligations under this Agreement or any of the other Financing Agreements
as and when to be performed; or (f) the ability of Agent or any Lender to
enforce the Obligations or realize upon the Collateral or otherwise with
respect to the rights and remedies of Agent and Lenders under this Agreement or
any of the other Financing Agreements.

 

1.127       “Material Contract”
shall mean (a) any contract or other agreement (other than the Financing
Agreements), written or oral, of any Borrower or Obligor involving liability
for $5,000,000 or more of Indebtedness owed to any Person (other than another
Loan Party) or (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, nonperformance, cancellation or failure to renew
by any party thereto would have a Material Adverse Effect.

 

1.128       “Maximum Credit” shall
mean (a) prior to the repayment in full of the Existing Term Loan and all
Obligations related thereto, the amount equal to $118,500,000, less the then
outstanding principal amount of the Existing Term Loan, and (b) upon the
repayment in full of the Existing Term Loan and all Obligations related
thereto, the amount of $90,000,000.

 

1.129       “Measurement Period”
shall mean the twelve-month period ending on the last day of any month in which
EBITDA is to be measured, taken as a single accounting period.

 

1.130       “Multiemployer Plan”
shall mean a “multi-employer plan” as defined in Section 4001(a)(3) of ERISA
which is or was at any time during the current year or the immediately
preceding six (6) years contributed to by any Borrower or any ERISA Affiliate.

 

1.131       “Net Amount of
Eligible Credit Card Receivables” shall mean, the gross amount of the Eligible
Credit Card Receivables less returns, discounts, claims, credits and allowances
of any nature at any time issued, owing, granted, outstanding, available or
claimed with respect thereto.

 

1.132       “Net Amount of
Eligible Damaged Goods Vendors Receivables” shall mean the gross amount of the
Eligible Damaged Goods Vendors Receivables less returns, discounts, claims,
credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed with respect thereto.

 

31

 

1.133       “Net Amount of Eligible
Sell-Off Vendors Receivables” shall mean, the gross amount of the Eligible
Sell-Off Vendors Receivables less returns, discounts, claims, credits and
allowances of any nature at any time issued, owing, granted, outstanding,
available or claimed with respect thereto.

 

1.134       “Net Cash Proceeds”
shall mean the aggregate cash proceeds received by any Borrower or Guarantor
(i) in respect of any sale, lease, transfer or other disposition of any assets
or properties, or interest in assets and properties, in each case outside the
ordinary course of business of such Borrower or Guarantor, or (ii) as proceeds
of any loans or other financial accommodations provided to any Borrower or
Guarantor (either of clause (i) or (ii) of this definition, a “Specified Disposition”),
in each case net of (A) the reasonable costs relating to such Specified
Disposition (including, without limitation, legal, accounting and investment
banking fees, and sales commissions), (B) the portion of such proceeds
deposited in an escrow account or otherwise required to be reserved pursuant to
the purchase agreements related to such Specified Disposition for purchase
price adjustments or indemnification payments payable by such Borrower or
Guarantor to the purchaser thereof (but only until such time as such portion of
such proceeds is received by such Borrower or Guarantor), (C) taxes paid or
estimated to be payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), and (D)
amounts applied to the repayment of Indebtedness secured by a valid and
enforceable lien on the asset or assets that are the subject of such Specified
Disposition required to be repaid in connection with such transaction. For
purposes of this definition, a Specified Disposition described in clause (i)
above shall exclude (x) sales, leases, transfers and other dispositions of
Inventory permitted under Section 9.7(b)(vi) or Section 9.7(b)(x) hereof, and
(y) sales and other dispositions of defective, obsolete, out-of-season or slow
moving Inventory to a third-party off-price wholesaler, including Ben Elias and
Value City, or any other Person engaged in substantially the same business as
Ben Elias or Value City and permitted by Agent. Net Cash Proceeds shall exclude
any non-cash proceeds received by any Borrower or Guarantor from any Specified
Disposition, but shall include such proceeds when and as converted by any
Borrower or Guarantor to cash or other immediately available funds.

 

1.135       “Net Income” shall mean,
for any period, the net income (or loss) of the Borrowers and Obligors on a
consolidated basis for such period taken as a single accounting period as
determined in accordance with GAAP; provided, however, there shall be excluded
therefrom (i) unrealized gains and losses due solely to fluctuations in
currency values and the related tax effects according to GAAP and (ii) items
classified as a cumulative effect of an accounting change or as extraordinary
items, in accordance with GAAP; provided, further, for clarification purposes,
stores openings and closings in ordinary course shall not be considered
extraordinary for the purposes hereof.

 

1.136       “Net Recovery
Percentage” shall mean the fraction, expressed as a percentage, (a) the
numerator of which is the amount equal to the amount of the recovery in respect
of the Inventory at such time a “net orderly liquidation value” basis as set
forth in the most recent acceptable appraisal of Inventory received by Agent in
accordance with Section 7.3 hereof, net of operating expenses, liquidation
expenses and commissions, and (b) the denominator of which is the applicable
Value of the aggregate amount of the Inventory subject to such appraisal.

 

1.137       “Nevada Factoring”
shall mean Nevada Receivable Factoring, Inc., a Nevada 

 

32

 

corporation.

 

1.138       “New Term Loan Agent”
shall mean Wachovia Bank, National Association, a national banking association,
or such other financial institution reasonably acceptable to Agent, in its
capacity as administrative agent acting for and on behalf of the New Term Loan
Lenders pursuant to the New Term Loan Agreement and any replacement or
successor agent thereunder.

 

1.139       “New Term Loan
Agreement” shall mean a credit agreement among New Term Loan Agent, New Term
Loan Lenders, Borrowers and Guarantors to evidence the terms and condition of
the New Term Loan, as such agreement will exist upon the execution and delivery
thereof, and as may be thereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

1.140       “New Term Loan
Documents” shall mean, collectively, the following: (a) the New Term Loan
Agreement and (b) all agreements, documents and instruments to be executed and
delivered in connection therewith and related thereto, as such agreements,
documents and instruments will exist upon the execution and delivery thereof,
and as may be thereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.

 

1.141       “New Term Loan
Intercreditor Agreement” shall mean the intercreditor agreement to be executed
and delivered between Agent and New Term Loan Agent, as acknowledged and agreed
to by Borrowers and Guarantors, in connection with the New Term Loan, as such
agreement will exist upon the execution and delivery thereof, and as may be
thereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.

 

1.142       “New Term Loan Lenders”
shall mean, collectively, the financial institutions from time to time party to
the New Term Loan Agreement as lenders, and their respective successors and
assigns; each sometimes being referred to herein individually as a “New Term
Loan Lender”.

 

1.143       “New Term Loan” shall
mean the term loan made by New Term Loan Lenders to Borrowers on or after the
date hereof pursuant to the New Term Loan Agreement.

 

1.144       “Non-Borrower
Receivables” shall mean those receivables owned by World Bank, Nevada Factoring
or any Person other than a Borrower, with respect to which the proceeds thereof
are, at any time, in the possession of a Borrower or in a deposit account of a
Borrower and such Borrower maintains possession or control of such proceeds for
the benefit of World Bank, Nevada Factoring or any other such Person pursuant
to the Private Label Credit Card Agreement or any other agreement.

 

1.145       “Non-Consenting Lender”
shall have the meaning set forth in Section 11.3(d) hereof.

 

1.146       “Non-Recourse
Agreement” shall mean that certain agreement dated as of November 27, 2002 and
entered into by and among Lerner, Nevada Factoring and World Bank.

 

1.147       “Non-Reserved LC
Amount” shall mean, as of any date of determination, seventy-five percent (75%)
(or eighty percent (80%) during the Seasonal Advance Period) of the 

 

33

 

face amount of each Goods in
Progress LC then outstanding.

 

1.148       “Non-Seasonal Advance
Period” shall mean those periods during any calendar year other than the
Seasonal Advance Period.

 

1.149       “Notice of Default or
Failure of Condition” shall have the meaning set forth in Section 12.3(a)
hereof.

 

1.150       “NY&Co” shall have
the meaning set forth in the preamble hereto.

 

1.151       “NY&Co Stock
Pledge Agreement” shall mean that certain Second Amended and Restated Stock
Pledge Agreement, dated of even date herewith, by NY&Co in favor of Agent,
for itself and the ratable benefit of the Lenders and the Bank Product
Providers, with respect to the pledge of 100% of the Capital Stock of Parent
owned by NY&Co, as the same may be amended, modified, supplemented,
extended, renewed, restated or replaced.

 

1.152       “Obligations” shall
mean the Existing Term Loan, any and all Revolving Loans, Letter of Credit
Accommodations and all other obligations, liabilities and indebtedness of every
kind, nature and description owing by any Borrower or any Guarantor to Agent or
any Lender and/or any of their Affiliates, including all obligations arising
under or in connection with Bank Products, whether consisting of principal,
interest, charges, fees, costs and expenses, fees relating to Letters of Credit,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, arising under this Agreement or any of the other Financing
Agreements, whether now existing or hereafter arising, in each case under this
Agreement or the other Financing Agreements, 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 or any Guarantor or
Obligor under the United States Bankruptcy Code 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, or secured or unsecured.

 

1.153       “Obligor” shall mean
any 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 (including, without limitation, Guarantors, other
than Borrowers).

 

1.154       “Parent” shall have
the meaning set forth in the preamble hereof.

 

1.155       “Parent Stock Pledge
Agreement” shall mean that certain Second Amended and Restated Stock Pledge
Agreement, dated of even date herewith, by Parent in favor of Agent, for itself
and the ratable benefit of the Lenders and the Bank Product Providers, with
respect to the pledge of 100% of the Capital Stock of Lerner, Lernco and Nevada
Factoring owned by Parent, as the same may be amended, modified or supplemented
from time to time.

 

1.156       “Participant” shall
mean any Person that acquires and holds a participation in the interest of any
Lender in any of the Revolving Loans, Letter of Credit Accommodations or the
Existing Term Loan in conformity with the provisions of Section 14.7 of this
Agreement governing participations.

 

34

 

1.157       “Pension Plan” shall
mean a Plan that is subject to Title IV of ERISA.

 

1.158       “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.

 

1.159       “Plan” shall mean an
employee benefit plan (as defined in Section 3(3) of ERISA) which any Borrower
or Guarantor or, solely with respect to an employee benefit plan subject to
Title IV of ERISA, an ERISA Affiliate sponsors or to which it contributes, or a
Multiemployer Plan.

 

1.160       “Prime Rate” shall
mean the rate from time to time publicly announced by Wachovia Bank, National
Association, or its successors, as its prime rate, whether or not such
announced rate is the best rate available at such bank.

 

1.161       “Prime Rate Loans” shall
mean the Loans or any portion thereof on which interest is payable based on the
Prime Rate in accordance with the terms thereof.

 

1.162       “Priority Event” shall
mean the occurrence of any one or more of the following: (a) the occurrence and
continuance of an Event of Default under Section 10.1(a)(i) hereof with respect
to any Borrower’s failure to pay any of the Obligations related to the
Revolving Loans (including principal, interest, fees and expenses attributable
thereto); (b) the occurrence and continuance of an Event of Default under
Sections 10.1(g) or 10.1(h) hereof; or (c) the occurrence of any other Event of
Default and the acceleration by Agent of the payment of all or a material
portion of the Obligations related to the Revolving Loans.

 

1.163       “Private Label Credit
Card Agreement” shall mean that certain Private Label Credit Card Program
Agreement, dated as of August 8, 2002 as amended, and as may be further amended
from time to time in accordance with the terms hereof, and entered into by and
among Lerner, Nevada Factoring, and World Bank.

 

1.164       “Private Label Credit
Card Receivables” shall mean those Accounts and other indebtedness owed to
Lerner arising under Lerner’s private label credit card program and sold or
otherwise assigned or transferred by Lerner to Nevada Factoring or World Bank,
directly or indirectly.

 

1.165       “Pro Rata Share” shall
mean:

 

(a)           with respect to a
Revolving Loan Lender’s obligation to make Revolving Loans and right to receive
payments relative thereto, the fraction (expressed as a percentage) the
numerator of which is such Lender’s Revolving Loan Commitment and the
denominator of which is the aggregate amount of all of the Revolving Loan
Commitments of all Revolving Loan Lenders; and

 

(b)           with respect to all
other matters (including the indemnification obligations arising under Section
12.5 hereof), the fraction (expressed as a percentage) the numerator of 

 

35

 

which is such Lender’s Total
Commitment and the denominator of which is the aggregate amount of all of the
Total Commitments of all Lenders.

 

1.166       “Provision for Taxes”
shall mean an amount equal to all taxes imposed on or measured by net income,
whether Federal, State, Provincial, county or local, and whether foreign or
domestic, that are paid or payable by any Person in respect of any period in
accordance with GAAP.

 

1.167       “Qualified Cash” shall
mean, as of any date of determination, the amount of cash carried by any
Borrower on its balance sheet, other than cash in the Cash Collateral Account,
cash constituting Eligible Cash Collateral or cash in any Blocked Account,
which is in an account subject to a Deposit Account Control Agreement and with
respect to which Agent has received statements of the available balances
thereof from the bank or other financial institution at which such account is
maintained which confirm such amounts.

 

1.168       “Real Property” shall
mean all now owned and hereafter acquired real property of any Borrower and
Guarantor, including leasehold interests, together with all buildings,
structures, and other improvements located thereon and all licenses, easements
and appurtenances relating thereto, wherever located.

 

1.169       “Receivables” shall
mean all of the following now owned or hereafter arising or acquired property
of each Borrower and Guarantor: (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; (c) all payment intangibles; (d)
letters of credit, indemnities, guarantees, security or other deposits and
proceeds thereof issued payable to such Borrower or Guarantor or otherwise in
favor of or delivered to such Borrower or Guarantor in connection with any
Account; or (e) all other accounts, contract rights, chattel paper,
instruments, notes, general intangibles and other forms of obligations owing to
such Borrower or Guarantor, 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 such
Borrower or Guarantor or to or for the benefit of any third person (including
loans or advances to any Affiliates or Subsidiaries of any Borrower or Guarantor)
or otherwise associated with any Accounts, Inventory or general intangibles of
such Borrower or Guarantor (including, without limitation, choses in action,
causes of action, tax refunds, tax refund claims, any funds which may become
payable to such Borrower or Guarantor in connection with the termination of any
Plan or other employee benefit plan and any other amounts payable to such
Borrower or Guarantor from any 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 such Borrower or Guarantor is a beneficiary).

 

1.170       “Records” shall mean
all of each Borrower’s or Guarantor’s 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 

 

36

 

on which the foregoing are
stored (including any rights of such Borrower or Guarantor with respect to the
foregoing maintained with or by any other person).

 

1.171       “Reference Bank” shall
mean Wachovia Bank, National Association, or such other bank as Agent may from
time to time designate.

 

1.172       “Register” shall have
the meaning set forth in Section 14.7(b) hereof.

 

1.173       “Renewal Date” shall
have the meaning set forth in Section 14.1(a) hereof.

 

1.174       “Report” or “Reports”
shall have the meaning set forth in Section 12.10(a) hereof.

 

1.175       “Required Lenders”
shall mean, at any time, those Lenders whose Pro Rata Shares aggregate
sixty-six and two-thirds percent (662⁄3%) or more of the aggregate of the
Total Commitments of all Lenders.

 

1.176       “Required Revolving
Loan Lenders” shall mean, at any time, those Revolving Loan Lenders whose Pro
Rata Shares aggregate sixty-six and two-thirds percent (662⁄3%) or more of
the aggregate of the Revolving Loan Commitments of all Revolving Loan Lenders.

 

1.177       “Reserves” shall mean
as of any date of determination, such amounts as Agent may from time to time
establish and revise in good faith reducing the amount of Revolving 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 Agent in good faith, adversely
affect, or would have a reasonable likelihood of adversely affecting, either
(i) the Collateral or any other property which is security for the Obligations
or its value or (ii) the assets or business of any Borrower or any Obligor or
(iii) the security interests and other rights of Agent or any Lender in the
Collateral (including the enforceability, perfection and priority thereof) or
(b) to reflect Agent’s good faith belief that any collateral report or
financial information furnished by or on behalf of any Borrower or any Obligor
to Agent is or may have been incomplete, inaccurate or misleading in any
material respect. To the extent Agent may decrease the lending formulas used to
determine the Borrowing Base or establish new criteria or revise existing
criteria for Eligible Sell-Off Vendors Receivables, Eligible Damaged Goods
Vendors Receivables, Eligible Credit Card Receivables or Eligible Inventory so
as to address any circumstances, condition, event or contingency in a manner
satisfactory to Agent, Agent shall not establish a Reserve for the same purpose.
The amount of any Reserve established by Agent shall have a reasonable
relationship to the event, condition or other matter which is the basis for
such reserve as determined by Agent in good faith. For purposes of this
definition, and without limiting the foregoing, “Reserves” shall include: (u)
the Total LC Reserve Amount, (v) the Gift Certificate and Store Credit Reserve,
(w) such amounts, as determined by Agent, for amounts at any time due or to
become past due in the good faith judgment of Agent to the owner, lessor or
operator of any facility at which Eligible Inventory may be located with
respect to which Agent has not received a Collateral Access Agreement, in form
and substance satisfactory to Agent, provided that, with respect to facilities
leased by a Borrower or Guarantor which are located in a jurisdiction which
affords the lessor thereof a lien, or other such rights, on any of the
Collateral for unpaid rent or other amounts, which lien may have priority over
Agent’s liens on or rights to the Collateral, 

 

37

 

such amount shall equal three
(3) months rent for such facility plus any amounts past due, (x) such amounts,
as determined by Agent, for sales, excise or similar taxes that are (i) past
due and (ii) not being contested in good faith and not subject to liens filed
against any Borrower or Guarantor with respect thereto, (y) such amounts, as
determined by Agent, for payments owed by any Borrower or Guarantor to bailees,
customs brokers or freight forwarders for the services provided by such
bailees, customs brokers or freight forwarders in an amount not to exceed
$1,000,000, plus such freight, customs, taxes and duty and other amounts which
Agent estimates must be paid upon the arrival and in connection with the
delivery to a Borrower’s location for Eligible Inventory within the United
States of America of any Inventory ordered or purchased by any Borrower under a
documentary Letter of Credit Accommodation or which constitutes any portion of
the Borrowing Base, and (z) upon an Event of Default or if Borrowers’
Compliance Excess Availability is less than $10,000,000, such amounts, as
determined by Agent, for Service Costs owed to Limited Brands, Inc. or any of
its Affiliates and payable by any Borrower or any of their Affiliates arising
from logistic or information technology services to be provided by Limited
Brands, Inc. for the benefit of any Borrower or its Affiliates pursuant to the
Transition Services Agreement in an amount not to exceed $1,000,000.

 

1.178       “Revolving Loan
Commitment” shall mean, as to any Lender: (a) at any time prior to the
termination of the Revolving Loan Commitments, the amount of such Lender’s
revolving loan commitment as set forth on Schedule 1.196 or on Schedule 1 to
the Assignment and Acceptance Agreement pursuant to which such Lender became a
Lender under this Agreement, as such amount may be adjusted from time to time
in accordance with the provisions of Section 14.7 hereof, and (b) after the
termination of the Revolving Loan Commitments, the unpaid amount of Revolving
Loans and Special Agent Advances made by such Lender and such Lender’s interest
in the outstanding Letter of Credit Accommodations, in each case as the same
may be adjusted from time to time in accordance with the terms hereof.

 

1.179       “Revolving Loan Credit
Facility” shall mean the Revolving Loans and Letter of Credit Accommodations
provided to or for the benefit of Borrowers pursuant to the terms of this
Agreement.

 

1.180       “Revolving Loan
Interest Rate” shall mean:

 

(a)           Subject
to clause (b) of this definition below:

 

(i)  as to Revolving Loans that
are Prime Rate Loans, a rate equal to the Prime Rate plus the Applicable Margin
for Prime Rate Loans,

 

(ii)  as to Revolving Loans that
are Eurodollar Rate Loans, a rate equal to the Adjusted Eurodollar Rate plus
the Applicable Margin for Eurodollar Rate Loans (in each case, based on the
Eurodollar Rate applicable for the Interest Period selected by Borrowers as in
effect two (2) Business Days after the date of receipt by Agent of the request
of or on behalf 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).

 

(b)           Notwithstanding
anything to the contrary contained in clause (a) of this definition, the
Applicable Margin otherwise used to calculate the Interest Rate for Prime Rate 

 

38

 

Loans and Eurodollar Rate Loans
shall be the percentage set forth in the definition of the term Applicable
Margin for each category of Loans that is then applicable plus two (2.00%)
percent per annum, at Agent’s option, or, upon the written direction of
Required Revolving Loan Lenders (i) either (A) for the period from and after
the effective date of termination or non-renewal hereof until such time as all
Obligations are indefeasibly paid and satisfied in full in immediately
available funds, or (B) for the period from and after the date of the
occurrence of any Event of Default, and for so long as such Event of Default is
continuing as determined by Agent and (ii) on the Revolving Loans at any time
outstanding in excess of the Borrowing Base or the Revolving Loan Limit (whether
or not such excess(es) arise or are made with or without Agent’s or any Lender’s
knowledge or consent and whether made before or after an Event of Default).

 

1.181       “Revolving Loan Lender”
shall mean any Lender having a Revolving Loan Commitment.

 

1.182       “Revolving Loan Limit”
shall mean $90,000,000 unless Borrowers shall have exercised their right to
reduce such amount pursuant to Section 2.1(e) hereof, in which event Revolving
Loan Limit shall mean such reduced amount.

 

1.183       “Revolving Loans”
shall mean the loans now or hereafter made by or on behalf of any Revolving
Loan Lender or by Agent for the account of any Revolving Loan Lender on a
revolving basis (involving advances, repayments and readvances) as set forth in
Section 2.1 hereof.

 

1.184       “Seasonal Advance
Period” shall mean the period commencing on May 1 and ending on November 30 of
each calendar year.

 

1.185       “Second Quarter-End”
shall mean the dates denoted as Second Quarter-End dates on Exhibit F hereto.

 

1.186       “Service Costs” shall
have the meaning set forth in the Transition Services Agreement.

 

1.187       “Settlement Period”
shall have the meaning set forth in Section 6.9(b) hereof.

 

1.188       “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
guarantees 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
guarantee the face amount of such liability as reduced to reflect the
probability of it becoming a matured liability).

 

39

 

1.189       “Special Agent Advances”
shall have the meaning set forth in Section 12.11 hereof.

 

1.190       “Specified Amounts”
shall have the meaning set forth in Section 6.4(b)(i) hereof.

 

1.191       “Specified Excess
Availability Amount” shall mean (a) until such time as the Existing Term Loan
and all Obligations related thereto are indefeasibly paid and satisfied in full
in immediately available funds, the amount of $30,000,000, and (b) upon the
indefeasible payment and satisfaction in full of the Existing Term Loan and all
Obligations related thereto in immediately available funds, the amount of
$20,000,000.

 

1.192       “Stock Pledge
Agreements” shall mean, collectively, the NY&Co Stock Pledge Agreement, the
Parent Stock Pledge Agreement, the Lerner Stock Pledge Agreement and any other
stock pledge agreement at any time made in favor of Agent, for itself and the
ratable benefit of the Lenders and the Bank Product Providers, in connection
with this Agreement.

 

1.193       “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.

 

1.194       “Taxes” shall have the
meaning set forth in Section 6.4(d) hereof.

 

1.195       “Third Quarter-End”
shall mean the dates denoted as Third Quarter-End dates on Exhibit F hereto.

 

1.196       “Total Commitment”
shall mean, as to each Lender, the sum of such Lender’s Revolving Loan
Commitment, if any, plus such Lender’s Existing Term Loan Commitment, if any,
in each case as set forth on Schedule 1.196 hereto, or on Schedule 1 to the
Assignment and Acceptance Agreement pursuant to which such Lender became a
Lender under this Agreement, as such amounts may be adjusted from time to time
in accordance with the provisions of Section 14.7 hereof.

 

1.197       “Total LC Reserve
Amount” shall mean, as of any date of determination, the aggregate amount of
all LC Reserve Amounts for all Letter of Credit Accommodations then
outstanding.

 

1.198       “Transition Services
Agreement” shall mean collectively, those certain transition services
agreements, dated as of November 27, 2002, and entered into by and among
Seller, NY&Co and Lerner.

 

1.199       “UCC” shall mean the
Uniform Commercial Code as in effect in the State of New York and any successor
statute, as in effect from time to time (except that terms used herein 

 

40

 

which are defined in the
Uniform Commercial Code as in effect in the State of New York on the date
hereof shall continue to have the same meaning notwithstanding any replacement
or amendment of such statute except as Agent may otherwise determine);
provided, that, if, with respect to any financing statement or by reason of any
provisions of law, the perfection or the effect of perfection or non-perfection
of the security interests granted to the Agent pursuant to the applicable
Financing Agreement is governed by the Uniform Commercial Code as in effect in
a jurisdiction of the United States other than the State of New York, then “UCC”
means the Uniform Commercial Code as in effect from time to time in such other
jurisdiction for purposes of the provisions of each Financing Agreement and any
financing statement relating to such perfection or effect of perfection or
non-perfection.

 

1.200       “Unused Line Fee”
shall have the meaning set forth in Section 3.2(a) hereof.

 

1.201       “Value” shall mean, as
determined by Agent in good faith, with respect to Inventory, the lower of (a)
cost computed on a specific identification 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 a Borrower or any Affiliate of any Borrower on
the sale thereof to any Borrower 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 Agent prior to the date hereof, if any.

 

1.202       “Voting Stock” shall
mean with respect to any Person, (a) one (1) or more classes of Capital Stock
of such Person having general voting powers 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.

 

1.203       “Wachovia” shall mean
Wachovia Bank, National Association, a national banking association, in its
individual capacity, and its successors and assigns.

 

1.204       “World Bank” shall
mean World Financial Network National Bank.

 

2.                                       CREDIT FACILITIES

 

2.1           Revolving Loans.

 

(a)           Subject to and upon the terms
and conditions contained herein, each Revolving Loan Lender severally (and not
jointly) agrees to fund its Pro Rata Share of Revolving Loans to Borrowers from
time to time in amounts requested by any Borrower up to the amount outstanding
at any time equal to the Borrowing Base.

 

(b)           Agent may, in its discretion,
from time to time, upon not less than ten (10) Business Days prior telephonic
or electronic notice only to each Borrower, reduce the lending formula(s) with
respect to Eligible Inventory to the extent that Agent determines in good 

 

41

 

faith that:  (i) the number of days of the turnover of the
Inventory for any period has adversely changed or (ii) the liquidation value of
the Eligible Inventory, or any category thereof, has decreased, including any
decrease attributable to a material change in the nature, quality or mix of the
Inventory. The amount of any decrease in the lending formulas shall have a
reasonable relationship to the event, condition or circumstance which is the
basis for such decrease as determined by Agent in good faith. In determining
whether to reduce the lending formula(s), Agent may consider events, conditions,
contingencies or risks which are also considered in determining Eligible
Sell-Off Vendors Receivables, Eligible Damaged Goods Vendors Receivables,
Eligible Credit Card Receivables, Eligible Inventory or in establishing
Reserves.

 

(c)           Except with the consent of all
Lenders, or as otherwise provided in Sections 12.8 and 12.11 hereof, (i) the
aggregate amount of the Loans outstanding at any time shall not exceed the
Maximum Credit, (ii) the aggregate principal amount of the Revolving Loans and
Letter of Credit Accommodations outstanding at any time to Borrowers shall not
exceed the Borrowing Base, and (iii) the aggregate principal amount of the
Revolving Loans outstanding at any time to Borrowers based on the Eligible
Inventory shall not exceed the Inventory Loan Limit.

 

(d)           In the event that the
aggregate principal amount of the Revolving Loans and Letter of Credit
Accommodations outstanding to Borrowers exceeds the Borrowing Base, the
aggregate principal amount of Revolving Loans and Letter of Credit Accommodations
based on the Eligible Inventory exceed the Inventory Loan Limit, or the
aggregate amount of the outstanding Letter of Credit Accommodations exceed the
sublimit for Letter of Credit Accommodations set forth in Section 2.2(e)
hereof, such event shall not limit, waive or otherwise affect any rights of
Agent or Lenders in such circumstances or on any future occasions and Borrowers
shall immediately repay to Agent the entire amount of any such excess(es).

 

(e)           At Borrowers’ option, upon not
less than ten (10) Business Days prior written notice to Agent by Borrowers,
Borrowers may permanently reduce the Revolving Loan Limit; provided, however,
that (i) such reductions may only be requested in increments of $10,000,000;
(ii) on and after giving effect to such reduction, no Event of Default shall
exist or have occurred and be continuing; and (iii) the Revolving Loan Limit
may not be reduced to an amount that is less than $60,000,000 unless reduced to
zero in connection with the termination of the Agreement or the Revolving Loan
Facility in accordance with the provisions of Section 14.1 hereof.

 

2.2           Letter of Credit
Accommodations.

 

(a)           Subject to and upon the terms
and conditions contained herein, at the request of any Borrower, Agent agrees,
for the ratable risk of each Revolving Loan Lender according to its Pro Rata
Share, to provide or arrange for Letter of Credit Accommodations for the
account of Borrowers containing terms and conditions acceptable to Agent and
the issuer thereof. Any payments made by or on behalf of Agent or any Revolving
Loan Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations provided to or for the benefit of any Borrower
shall constitute additional Revolving Loans to Borrowers pursuant to this
Section 2 (or Special Agent Advances as the case may be).

 

42

 

(b)           In addition to any charges,
fees or expenses charged by any bank or issuer in connection with the Letter of
Credit Accommodations, Borrowers shall pay to Agent, for the benefit of
Revolving Loan Lenders, a letter of credit fee at a rate equal to five-eighths
percent (.625%) per annum on the daily outstanding balance of the Letter of
Credit Accommodations in respect of commercial Letter of Credit Accommodations
and a letter of credit fee at a rate equal to the Applicable Margin for standby
Letter of Credit Accommodations on the daily outstanding balance of the Letter
of Credit Accommodations in respect of standby Letter of Credit Accommodations
(the “Letter of Credit Fee”), in each case for the immediately preceding month
(or part thereof), payable in arrears as of the first day of each succeeding
month; provided, that, Agent may, and upon the written direction of the
Required Revolving Loan Lenders shall, require Borrowers to pay to Agent, for
the ratable benefit of Revolving Loan Lenders, such Letter of Credit Fee, at a
rate that is (2%) percent per annum greater than the otherwise applicable rate
on such daily outstanding balance for: (i) the period from and after the date
of termination or non-renewal hereof until Agent and Lenders have received full
and final payment of all Obligations (notwithstanding entry of a judgment
against any 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 Agent. Such Letter of Credit Fee shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed and the obligation of Borrowers to pay such fee shall survive the
termination or non-renewal of this Agreement.

 

(c)           A Borrower shall give Agent
one (1) Business Day’s prior written notice of such Borrower’s request for the
issuance of a commercial Letter of Credit Accommodation and two (2) Business
Days’ prior written notice of such Borrower’s request for the issuance of a
stand-by Letter of Credit Accommodation. Such notice shall be irrevocable and
shall specify the original face amount 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. Such Borrower shall attach to such notice the proposed terms of
the Letter of Credit Accommodation.

 

(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
Agent:  (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
Agent, 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
Agent 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 

 

43

 

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) after giving effect to the LC
Reserve Amount applicable to such requested Letter of Credit Accommodation, the
aggregate amount of the Obligations then outstanding would not exceed the
Borrowing Base. Effective on the issuance of each Letter of Credit
Accommodation, a Reserve shall be established in an amount equal to the LC Reserve
Amount for such Letter of Credit Accommodation.

 

(e)           Except with the consent of all
Lenders, the amount of all outstanding Letter of Credit Accommodations and all
other commitments and obligations made or incurred by Agent or any Lender in
connection therewith shall not at any time exceed $75,000,000.

 

(f)            Each Borrower and Guarantor
shall indemnify and hold Agent and Revolving Loan Lenders harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Agent or any Revolving Loan 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 such losses, claims, damages,
liabilities, costs or expenses that are a direct result of the gross negligence
or willful misconduct of Agent or any Revolving Loan Lender as determined
pursuant to a final non-appealable order of a court of competent jurisdiction. Each
Borrower assumes 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 such Borrower’s agent. Each Borrower
assumes all risks for, and agrees to pay, all foreign, Federal, State and local
taxes, duties and levies relating to any goods subject to any Letter of Credit
Accommodations or any documents, drafts or acceptances thereunder. Each
Borrower and Guarantor hereby releases and holds Agent and Revolving Loan
Lenders harmless from and against any acts, waivers, errors, delays or
omissions, whether caused by such Borrower or Guarantor, 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 Agent
or any Revolving Loan 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)           At any time during an
Availability Compliance Period, in connection with Inventory purchased pursuant
to Letter of Credit Accommodations during such Availability Compliance Period,
each Borrower and Guarantor shall, at Agent’s request, instruct all suppliers,
carriers, forwarders, customs brokers, warehouses or others receiving or
holding cash, checks, Inventory, documents or instruments in which Agent holds
a security interest to deliver them to Agent and/or subject to Agent’s order,
and if they shall come into such Borrower’s or Guarantor’s possession, to
deliver them, upon Agent’s request, to Agent in their original form. Each
Borrower and Guarantor shall also, at Agent’s request, designate Agent as the
consignee on all bills of lading and other negotiable and non-negotiable
documents.

 

44

 

(h)           Each Borrower hereby
irrevocably authorizes and directs any issuer of a Letter of Credit
Accommodation to name such Borrower as the account party therein and to deliver
to Agent all instruments, documents and other writings and property received by
issuer pursuant to the Letter of Credit Accommodations and to accept and rely
upon Agent’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 Agent or any Revolving
Loan Lender in any manner. Agent and Revolving Loan Lenders shall have no
liability of any kind with respect to any Letter of Credit Accommodation
provided by an issuer other than Agent or any Revolving Loan Lender unless
Agent has duly executed and delivered to such issuer the application or a
guarantee or indemnification in writing with respect to such Letter of Credit
Accommodation. Borrowers shall be bound by any reasonable interpretation made
in good faith by Agent, 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 from any Borrower.

 

(i)            At any time an Event of
Default exists or has occurred and is continuing, Agent shall have the right
and authority to, and no Borrower or Guarantor shall, without the prior written
consent of Agent, (i) approve or resolve any questions of non-compliance of
documents, (ii) give any instructions as to acceptance or rejection of any
documents or goods, (iii) execute any and all applications for steamship or
airway guaranties, indemnities or delivery orders, (iv) grant any extensions of
the maturity of, time of payments for, or time of presentation of, any drafts,
acceptances, or documents, and (v) 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. Agent may take such actions either in its own name or in any
Borrower’s or Guarantor’s name.

 

(j)            At any time, so long as no
Event of Default exists or has occurred and is continuing, any Borrower may,
with Agent’s consent, (i) grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts, acceptances, or documents,
and (ii) 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; provided, that, such
Borrower may approve or resolve any questions of non-compliance of documents
following notice to Agent thereof and without Agent’s consent except as
otherwise provided in Section 2.2(i) hereof.

 

(k)           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 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
such Borrower to Agent for the ratable benefit of Revolving Loan Lenders. Any
duties or obligations undertaken by Agent to any issuer or correspondent in any
application for any Letter of Credit Accommodation, or any other agreement by
Agent in favor of any issuer or correspondent to the extent relating to any
Letter of Credit Accommodation, shall be deemed to have been undertaken 

 

 

45

 

by such Borrower to Agent for
the ratable benefit of Revolving Loan Lenders and to apply in all respects to
such Borrower.

 

(l)            Immediately upon the issuance
or amendment of any Letter of Credit Accommodation, each Revolving Loan Lender
shall be deemed to have irrevocably and unconditionally purchased and received,
without recourse or warranty, an undivided interest and participation to the
extent of such Revolving Loan Lender’s Pro Rata Share of the liability with
respect to such Letter of Credit Accommodation (including, without limitation,
all Obligations with respect thereto).

 

(m)          Borrowers and Guarantors are
irrevocably and unconditionally, jointly and severally, obligated, without presentment,
demand or protest, to pay to Agent any amounts paid by an issuer of a Letter of
Credit Accommodation with respect to such Letter of Credit Accommodation
(whether through the borrowing of Revolving Loans in accordance with Section
2.2(a) hereof or otherwise). In the event that Borrowers and Guarantors fail to
pay Agent on the date of any payment under a Letter of Credit Accommodation in
an amount equal to the amount of such payment, Agent (to the extent it has
actual notice thereof) shall promptly notify each Revolving Loan Lender of the
unreimbursed amount of such payment and each Revolving Loan Lender agrees, upon
one (1) Business Day’s notice, to fund to Agent the purchase of its
participation in such Letter of Credit Accommodation in an amount equal to its
Pro Rata Share of the unpaid amount. The obligation of each Revolving Loan
Lender to deliver to Agent an amount equal to its respective participation
pursuant to the foregoing sentence is absolute and unconditional and such
remittance shall be made notwithstanding the occurrence or continuance of any
Event of Default, the failure to satisfy any other condition set forth in
Section 4 hereof or any other event or circumstance. If such amount is not made
available by a Revolving Loan Lender when due, Agent shall be entitled to
recover such amount on demand from such Revolving Loan Lender with interest
thereon, for each day from the date such amount was due until the date such
amount is paid to Agent at the Federal Funds Rate for each day during such period
(as published by the Federal Reserve Bank of New York or at Agent’s option
based on the arithmetic mean determined by Agent of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York
City time) on that day by each of the three leading brokers of Federal funds
transactions in New York City selected by Agent) and if such amounts are not
paid within three (3) days of Agent’s demand, at the highest Revolving Loan
Interest Rate provided for in Section 3.1 hereof applicable to Prime Rate
Loans.

 

2.3           Existing Term Loan.

 

(a)           Subject to and upon the terms
and conditions contained herein, Agent, Lenders and Borrowers are amending and
restating the term loans made by Agent and Lenders to Lerner and Lernco
pursuant to the Existing Loan Agreement in the original principal amount of
$37,500,000 (the “Existing Term Loan”). Each of Borrowers and Guarantors hereby
acknowledges, confirms and agrees that Lerner and Lernco are indebted to Agent
and Lenders as of the date hereof in respect of the Obligations arising in
connection with the Existing Term Loan in the aggregate principal amount of
$28,500,000 (the “Existing Term Loan Balance”), together with interest accrued
and accruing thereon and costs, expenses, fees (including attorneys’ fees and
legal expenses) and other charges now or hereafter owed by Lerner and Lernco to
Agent and Lenders attributable to the Existing Term Loan Balance, all of which
are 

 

46

 

unconditionally owing by Lerner
and Lernco to Agent and Lenders, without offset, defense or counterclaim of any
kind, nature and description whatsoever.

 

(b)           Effective as of the date
hereof, the Existing Term Loan is hereby amended and restated to provide that
the principal amount of the Existing Term Loan is payable in eighteen (18)
consecutive quarterly installments (or earlier as provided herein) payable on
the first day of each calendar quarter commencing October 1, 2007, of which (i)
the first seventeen (17) installments shall each be in the amount of $1,500,000
and (ii) the last installment shall be in the amount of the entire unpaid
principal amount of the Existing Term Loan, together with all accrued and
unpaid interest thereon. All other Obligations with respect thereto (other than
contingent indemnification obligations and other contingent Obligations related
thereto which expressly survive the repayment of the Existing Term Loan), shall
be due and payable on the earlier of (A) the Existing Term Loan Maturity Date,
or (B) the date of termination of this Agreement, whether by its terms, by
prepayment, or by acceleration.

 

(c)           The amendment and restatement
of the Existing Term Loan as set forth herein, shall not, in any manner, be
construed to constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, any of the Obligations arising under the
Existing Term Loan. The Existing Term Loan shall continue to be repaid,
together with all accrued and unpaid interest thereon and all other Obligations
outstanding with respect thereto (other than contingent indemnification
obligations and other contingent Obligations related thereto which expressly
survive the repayment of the Existing Term Loan), in accordance with this
Agreement and the other Financing Agreements and the Existing Term Loan may be
prepaid in whole or in part at any time without premium or penalty in
accordance with the provisions of Sections 2.3(d) through 2.3(g) hereof, but
once repaid may not be reborrowed. The Existing Term Loan shall continue to be
secured by all of the Collateral.

 

(d)           Borrowers may, at their
option, make a prepayment of all or any portion of the outstanding balance of
the Existing Term Loan:

 

(i)            so long as: (A) at
all times during the thirty (30) day period immediately prior to such payment
and after giving effect to such payment, Borrowers have Excess Availability
plus Qualified Cash of no less than $40,000,000; (B) Borrowers’ EBITDA for the
twelve (12) month period most recently ended is $55,000,000 or more; and (C)
both before and after giving effect to such payment, no Default or Event of
Default exists or would occur;

 

(ii)           with the net cash
proceeds of any issuance or sale of, or capital contribution in respect of, any
Capital Stock of NY&Co after the date hereof in each case, to the extent
the transaction giving rise to such proceeds is not prohibited under the terms
of the Financing Agreements or is otherwise consented to by Agent in writing;
or

 

(iii)          with the net cash
proceeds of a refinancing of the Existing Term Loan on terms and conditions
reasonably satisfactory to Agent.

 

(e)           Within ten (10) days following
the receipt by Borrowers of the Net Cash Proceeds from the incurrence or
issuance by Borrowers of any Indebtedness for borrowed 

 

47

 

money described in clause (a)
of the definition of Indebtedness on or after the date hereof (which shall
exclude for purposes of this Section 2.3(e) the Indebtedness permitted under
Sections 9.9(e), (f), (g), (h) and (i) hereof), Borrowers shall, absolutely and
unconditionally and without notice or demand, prepay the then outstanding
principal amount of the Existing Term Loan in an amount equal to fifty (50%)
percent of the amount by which such Net Cash Proceeds exceed $20,000,000; provided,
that, in the event that all or a portion of the Net Cash Proceeds from
the incurrence or issuance of such Indebtedness is used by Borrowers to build a
distribution center, such prepayment shall be in an amount equal to fifty (50%)
percent of the amount by which such Net Cash Proceeds exceed the sum of (x) the
amount of such Net Cash Proceeds used by Borrowers to build such distribution
center (up to $45,000,000), and (y) $20,000,000. Notwithstanding the foregoing,
immediately upon the receipt by Borrowers of the Net Cash Proceeds from the New
Term Loan, Borrowers shall, absolutely and unconditionally and without notice
or demand, prepay in full the then outstanding balance of the Existing Term
Loan and all Obligations related thereto.

 

(f)            Within ten (10) days
following the receipt by Borrowers of the Net Cash Proceeds from the sale by
Borrowers of any assets or properties of Borrowers (other than as permitted in
Section 9.7(b) hereof) on or after the date hereof, Borrowers shall, absolutely
and unconditionally and without notice or demand, prepay the then outstanding
principal amount of the Existing Term Loan in an amount equal to fifty (50%)
percent of the amount of such Net Cash Proceeds; provided, that, (i) in the
event of a sale of the trademarks listed on Schedule 2.3(f) hereto, such
prepayment shall be in an amount equal to such percentage of the Net Cash
Proceeds in excess of $5,000,000; and (ii) so long as no Default or an Event of
Default has occurred and is continuing, on the date any Borrower receives Net
Cash Proceeds from the sale of any Equipment or Real Property of such Borrower,
such Net Cash Proceeds may, at the option of such Borrower, be applied to
acquire replacement property or assets of a like kind to the property or assets
so disposed, provided, that (A) Agent shall have a first priority, valid and
perfected security interest in such replacement property or assets, and (B)
such Borrower shall deliver to Agent a certificate within ten (10) days after
the date of receipt of such Net Cash Proceeds stating that such Net Cash
Proceeds shall be used to acquire such replacement property or assets of a like
kind to the property or assets so disposed within one hundred eighty (180) days
after the date of receipt of such Net Cash Proceeds (which certificate shall
set forth an estimate of the Net Cash Proceeds to be so expended), (C) if all
or any portion of such Net Cash Proceeds are not so used within such one
hundred eighty (180) day period, such unused Net Cash Proceeds shall be applied
to prepay the Existing Term Loan and the Obligations related thereto in
accordance with Section 2.3(i) hereof, and (D) pending such reinvestment, such
Net Cash Proceeds shall be applied as a prepayment of Revolving Loans.

 

(g)           In the event that at any time
(i) the sum of Excess Availability plus 
Qualified Cash  of Borrowers
is at any time less than $50,000,000, and (ii) EBITDA of Borrowers when
calculated for the twelve (12) consecutive fiscal month period most recently
ended for which Agent has received financial statements of Borrowers as
provided by Section 9.6(a) hereof is less than $65,000,000, within ten (10)
days thereafter, Borrowers shall, absolutely and unconditionally without notice
or demand, prepay the then outstanding principal amount of the Existing Term
Loan in an amount such that, after giving effect thereto, the outstanding
principal amount of the Existing Term Loan shall be equal to $25,000,000; provided,
that,

 

48

 

(A)          in the event that as
of any date that such mandatory prepayment is due as set forth above, the
conditions to optional prepayments by Borrowers in respect of the Existing Term
Loan set forth in Section 2.3(d)(i) hereof would not be satisfied after giving
effect to such mandatory prepayment, then payments in respect of such mandatory
prepayment shall instead be due and payable on each date thereafter that all or
any portion of such mandatory prepayment otherwise due on the date set forth
above may be made to the extent that after giving effect thereto the conditions
to optional prepayments in Section 2.3(d)(i) hereof would be satisfied, and
Borrowers shall make such payments in respect of such mandatory prepayment
until the aggregate amount of all of such payments equals the amount required
to have been paid as of the original due date for such mandatory prepayment;

 

(B)           in the event that
Borrowers are not required to make a mandatory prepayment under this Section
2.3(g) on the due date as set forth above, then on and after such due date, the
amount of the minimum Excess Availability that Borrowers are required to
maintain under Section 9.17 hereof shall be increased by the amount of the
mandatory prepayment that would have otherwise been paid under this Section 2.3(g)
on the such due date, provided, that, (1) the amount of the minimum Excess
Availability required to be maintained under Section 9.17 hereof shall
thereafter be reduced to the extent of payments received by Agent in respect of
such mandatory prepayment as provided in clause (A) above, and (2) in no event
shall the amount of the minimum Excess Availability that Borrowers are required
to maintain under Section 9.17 hereof be reduced to less than $7,500,000.

 

(h)           Each such prepayment required
pursuant to clauses (e), (f) and (g) of this Section 2.3 shall be accompanied
by a certificate signed by each Borrower’s chief financial officer certifying
the manner in which the Net Cash Proceeds from the transactions described in
subsections (e), (f) and (g) of this Section 2.3 and the resulting prepayment
were calculated.

 

(i)            Each prepayment of principal
under this Section 2.3(d) through (g) hereof shall be made together with
accrued and unpaid interest thereon to the date of such prepayment. Each
prepayment set forth in this Section 2.3 shall be applied against the remaining
installments (if any) of principal due on the Existing Term Loan in the inverse
order of maturity. To the extent that the Existing Term Loan has been repaid in
full, Agent shall apply such amounts to the Obligations, whether or not then
due, in such order or manner as Agent shall determine, or at Agent’s option, to
be held as cash collateral for the Obligations. Nothing contained in this
Section 2.3 shall be construed to constitute a consent, implied or otherwise,
to any such issuance, incurrence or sale otherwise prohibited by the terms and
conditions of this Agreement.

 

2.4           Commitments.  The aggregate amount of each Revolving Loan
Lender’s Pro Rata Share of the Revolving Loans and Letter of Credit
Accommodations shall not exceed the amount of such Revolving Loan Lender’s
Revolving Commitment, as the same may from time to time be amended in
accordance with the provisions hereof. The aggregate amount of the Existing
Term Loan shall not exceed the amount of the Existing Term Loan Commitment, as
the same may from time to time be amended, with the written acknowledgment of
Agent.

 

2.5           Bank Products.
Any Borrower or Guarantor may (but no such Person is 

 

49

 

required to) request that the
Agent provide or arrange for such Person to obtain Bank Products from Agent or
its Affiliates, and Agent may, in its sole discretion, provide or arrange for
such Person to obtain the requested Bank Products. Any Borrower or Guarantor
that obtains Bank Products shall indemnify and hold Agent, each Lender and
their respective Affiliates harmless from any and all obligations now or
hereafter owing to any other Person by Agent or its Affiliates in connection
with any Bank Products. Each Borrower and Guarantor acknowledges and agrees
that the obtaining of Bank Products from the Agent and its Affiliates (a) is in
the sole discretion of the Agent or such Affiliate, as the case may be, and (b)
is subject to all rules and regulations of the Person that provides the Bank
Product.

 

3.                                       INTEREST AND FEES

 

3.1           Interest.

 

(a)           Borrowers shall pay to Agent,
for the ratable benefit of the (i) Revolving Loan Lenders, interest on the
outstanding principal amount of the Revolving Loans at the Revolving Loan
Interest Rate and (ii) Existing Term Loan Lender, interest on the outstanding
principal amount of the Existing Term Loan at the Existing Term Loan Interest
Rate. All interest accruing hereunder on and after the date of any Event of
Default or termination hereof shall be payable on demand.

 

(b)           Any Borrower may from time to
time request that Revolving Loans be made as Eurodollar Rate Loans or may
request that Revolving Loans which are Prime Rate Loans be converted to
Eurodollar Rate Loans or that any existing Revolving Loans which are Eurodollar
Rate Loans continue for an additional Interest Period. Such request from a
Borrower shall specify the amount of such Eurodollar Rate Loans or the amount
of such Prime Rate Loans to be converted to Eurodollar Rate Loans or the amount
of such 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, two (2) Business Days after
receipt by Agent of such a request from such Borrower, such Eurodollar Rate
Loans shall be made or 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 of this Agreement, (iii) such Borrower shall have complied with
such customary procedures as are established by Agent and specified by Agent to
Borrowers for Eurodollar Rate Loans, (iv) exclusive of the Existing Term Loan,
no more than six (6) Interest Periods may be in effect at any one time, (v)
exclusive of the Existing Term Loan, the aggregate amount of the Eurodollar
Rate Loans must be in an amount not less than $3,000,000 or an integral
multiple of $500,000 in excess thereof, and (vi) Agent and each Revolving Loan
Lender shall have determined that the Interest Period or Adjusted Eurodollar
Rate is available to Agent and such Revolving Loan Lender and can be readily
determined as of the date of the request for such Eurodollar Rate Loan by such
Borrower. Any request by or on behalf of any Borrower for Revolving Loans that
are to be Eurodollar Rate Loans or to convert Revolving Loans that are Prime
Rate Loans to Eurodollar Rate Loans or to continue any existing Revolving Loans
that are Eurodollar Rate Loans shall be irrevocable. Notwithstanding anything
to the contrary contained herein, Agent and Lenders shall not be required to
purchase United States Dollar deposits in the London interbank market or other
applicable Eurodollar Rate 

 

50

 

market to fund any Eurodollar
Rate Loans, but the provisions hereof shall be deemed to apply as if Agent and
Lenders had purchased such deposits to fund the Eurodollar Rate Loans.

 

(c)           Any Revolving Loans that are
Eurodollar Rate Loans shall automatically convert to Prime Rate Loans upon the
last day of the applicable Interest Period, unless Agent has received and
approved a request to continue such Eurodollar Rate Loan at least two (2)
Business Days prior to such last day in accordance with the terms hereof. Any
Revolving Loans that are Eurodollar Rate Loans shall, at Agent’s option, upon
notice by Agent to Borrowers, be subsequently converted to Prime Rate Loans in
the event that this Agreement or the Revolving Credit Facility shall terminate
or not be renewed. Borrowers shall pay to Agent, for the benefit of Revolving
Loan Lenders, upon demand by Agent (or Agent may, at its option, charge any
loan account of Borrowers) any amounts required to compensate any Revolving
Loan Lender or Participant 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.

 

(d)           Interest shall be payable by
Borrowers to Agent, for the account of Lenders, monthly in arrears not later
than the first day of each calendar month and shall be calculated on the basis
of a three hundred sixty (360) day year and 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 Agent and Lenders 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.

 

3.2           Fees.

 

(a)           Unused Line Fee. Borrowers
shall pay to Agent, for the Pro Rata Share of each Revolving Loan Lender,
monthly an unused line fee at a rate equal to one-fifth percent (0.20%) per
annum in aggregate of the difference between (i) the average daily principal
balance of the outstanding Revolving Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while this Agreement
is in effect and for so long thereafter as any of the Obligations are
outstanding and (ii) the lesser of: (A) $80,000,000, or (B) the Revolving Loan
Limit (the “Unused Line Fee”), which fee shall be payable on the first day of
each month in arrears

 

(b)           Servicing Fee. Borrowers
shall pay to Agent, for its own account, a servicing fee in the amount of
$7,500 per month, which fee will be charged and fully earned when due, payable
monthly, on the first day of each month, in advance, and non-refundable when
paid; provided, however, that upon the occurrence and during an Availability
Compliance Period, such servicing fee shall be increased to $10,000.

 

51

 

3.3           Changes in Laws and
Increased Costs of Loans.

 

(a)           If after the date hereof,
either (i) any change in, or in the interpretation of, any law or regulation is
introduced, including, without limitation, with respect to reserve
requirements, applicable to any Lender or any banking or financial institution
from whom any Lender borrows funds or obtains credit (a “Funding Bank”), or
(ii) a Funding Bank or any Lender complies with any future guideline or request
from any central bank or other Governmental Authority or (iii) a Funding Bank
or any Lender determines that the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof has or would have the effect described below, or a
Funding Bank or any Lender complies with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, and in the case of any event set
forth in this clause (iii), such adoption, change or compliance has or would
have the direct or indirect effect of reducing the rate of return on any Lender’s
capital as a consequence of its obligations hereunder to a level below that
which such Lender could have achieved but for such adoption, change or
compliance (taking into consideration the Funding Bank’s or such Lender’s
policies with respect to capital adequacy) by an amount deemed by such Lender
to be material, and the result of any of the foregoing events described in
clauses (i), (ii) or (iii) is or results in an increase in the cost to any
Lender of funding or maintaining the Loans or its Total Commitment (other than
any increased cost resulting from (1) Taxes (as to which Section 6.4(d) hereof
and the limitations thereto shall govern) or (2) changes in the basis of
taxation of overall net income by the jurisdiction under the laws of which the
Agent or such Lender is organized or in which the Agent’s or such Lender’s
lending office is located or any political subdivision thereof), then Borrowers
shall from time to time upon demand by Agent pay to Agent additional amounts
sufficient to indemnify Lenders against such increased cost. A certificate as
to the amount of such increased cost shall be submitted to Borrowers by Agent
and shall be conclusive, absent manifest error.

 

(b)           If prior to the first day of
any Interest Period, (i) Agent or the Required Lenders shall have determined in
good faith (which determination shall be conclusive and binding upon Borrowers)
that, by reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period, (ii) Agent has received notice from the Required Lenders that
the Eurodollar Rate determined or to be determined for such Interest Period
will not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Eurodollar Rate Loans during such Interest Period, or (iii)
Dollar deposits in the principal amounts of the Eurodollar Rate Loans to which
such Interest Period is to be applicable are not generally available in the
London interbank market, Agent shall give notice thereof to Borrowers either by
telephone or in writing sent by telecopy and Lenders as soon as practicable
thereafter, and will also give prompt written notice to Borrowers when such
conditions no longer exist. If such notice is given (A) any Eurodollar Rate
Loans requested to be made on the first day of such Interest Period shall be
made as Prime Rate Loans, (B) any Loans that were to have been converted on the
first day of such Interest Period to or continued as Eurodollar Rate Loans
shall be converted to or continued as Prime Rate Loans and (C) each outstanding
Eurodollar Rate Loan shall be converted, on the last day of the then-current
Interest Period thereof, to Prime Rate Loans. Until such notice has been
withdrawn by Agent, no further Eurodollar Rate Loans shall be made or continued
as such, nor shall Borrowers have the right to convert Prime Rate Loans to
Eurodollar Rate Loans.

 

52

 

(c)           Notwithstanding any other
provision herein, if the adoption of or any change in any law, treaty, rule or
regulation or final, non-appealable determination of an arbitrator or a court
or other Governmental Authority or in the interpretation or application thereof
occurring after the date hereof shall make it unlawful for Agent or any Lender
to make or maintain Eurodollar Rate Loans as contemplated by this Agreement,
(i) Agent or such Lender shall promptly give written notice of such
circumstances to Borrowers and Agent (which notice shall be withdrawn whenever
such circumstances no longer exist), (ii) the commitment of such Lender hereunder
to make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such and
convert Prime Rate Loans to Eurodollar Rate Loans shall forthwith be canceled
and, until such time as it shall no longer be unlawful for such Lender to make
or maintain Eurodollar Rate Loans, such Lender shall then have a commitment
only to make a Prime Rate Loan when a Eurodollar Rate Loan is requested and
(iii) such Lender’s Loans then outstanding as Eurodollar Rate Loans, if any,
shall be converted automatically to Prime Rate Loans on the respective last
days of the then current Interest Periods with respect to such Loans or within
such earlier period as required by law. If any such conversion of a Eurodollar
Rate Loan occurs on a day which is not the last day of the then current Interest
Period with respect thereto, Borrowers shall pay to such Lender such amounts,
if any, as may be required pursuant to Section 3.3(d) below.

 

(d)           Each Borrower and Guarantor
shall indemnify Agent and each Lender and hold Agent and each Lender harmless
from any loss or expense which Agent or such Lender may sustain or incur as a
consequence of (i) default by any Borrower in making a borrowing of, conversion
into or extension of Eurodollar Rate Loans after any Borrower has given a
notice requesting the same in accordance with the provisions of this Agreement,
(ii) default by any Borrower in making any prepayment of a Eurodollar Rate Loan
after any Borrower has given a notice thereof in accordance with the provisions
of this Agreement, and (iii) the making of a prepayment of Eurodollar Rate
Loans on a day which is not the last day of an Interest Period with respect
thereto. With respect to Eurodollar Rate Loans, such indemnification may
include an amount equal to the excess, if any, of (A) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed,
converted or extended, for the period from the date of such prepayment or of
such failure to borrow, convert or extend to the last day of the applicable
Interest Period (or, in the case of a failure to borrow, convert or extend, the
Interest Period that would have commenced on the date of such failure) in each
case at the applicable rate of interest for such Eurodollar Rate Loans provided
for herein over (B) the amount of interest (as determined by Agent or such
Lender) which would have accrued to Agent or such Lender on such amount by
placing such amount on deposit for a comparable period with leading banks in
the interbank Eurodollar market. This covenant shall survive the termination or
non-renewal of this Agreement and the payment of the Obligations.

 

4.                                       CONDITIONS PRECEDENT

 

4.1           Conditions
Precedent to Effectiveness of Agreement. 
Each of the following is a condition precedent to the effectiveness of
this Agreement:

 

(a)           all requisite corporate action
and proceedings in connection with this Agreement and the other matters related
hereto shall be satisfactory in form and substance to Agent, and Agent shall
have received all information and copies of all documents, including records of
requisite corporate action and proceedings which Agent may have requested in 

 

53

 

connection therewith, such
documents where requested by Agent or its counsel to be certified by
appropriate corporate officers or Governmental Authority;

 

(b)           no material adverse change
shall have occurred in the assets or business of Borrowers since February 3,
2007 and no change or event shall have occurred which would impair the ability
of any Borrower or Obligor to perform its obligations hereunder or under any of
the other Financing Agreements to which it is a party or of Agent or any Lender
to enforce the Obligations or realize upon the Collateral;

 

(c)           Agent shall have received the
Information Certificates, the review of which shall be satisfactory to Agent;

 

(d)           Agent shall have received, in
form and substance satisfactory to Agent, such opinion letters of counsel to
Borrowers and Guarantors with respect to this Agreement and such other matters
related hereto as Agent may request;

 

(e)           Agent shall have received the
Guarantee, in form and substance satisfactory to Agent, duly executed by each
Guarantor;

 

(f)            Agent shall have received the
Stock Pledge Agreements, in form and substance satisfactory to Agent, duly
executed by each party thereto;

 

(g)           Agent shall have received the
Intercompany Subordination Agreement, in form and substance satisfactory to
Agent, duly executed by each party thereto;

 

(h)           Agent shall have received the
Intellectual Property Security Agreements, in form and substance satisfactory
to Agent, duly executed by each party thereto;

 

(i)            Agent shall have received the
Fee Letter, in form and substance satisfactory to Agent, duly executed by each
Borrower;

 

(j)            all fees, costs and expenses
payable by Borrowers under the terms of this Agreement and the other Financing
Agreements shall have been paid in full; and

 

(k)           all other documents and legal
matters in connection with the transactions contemplated by this Agreement
shall have been delivered, executed by all parties hereto or thereto, as
applicable, or recorded and shall be in form and substance satisfactory to
Agent.

 

4.2           Conditions Precedent to All
Loans and Letter of Credit Accommodations. Each of the following is an
additional condition precedent to the Revolving Loan Lenders continuing to
provide Loans and/or providing Letter of Credit Accommodations to Borrowers:

 

(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 

 

54

 

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 a reasonable likelihood of having a
Material Adverse Effect;

 

(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)           solely with respect to the
making of any Revolving Loan or the issuing of any Letter of Credit
Accommodation, the Excess Availability as determined by Agent, as of any date
of determination, shall be at least $7,500,000, subject to adjustment pursuant
to Section 2.3(g) hereof, after giving effect to all Revolving Loans made or to
be made and Letter of Credit Accommodations issued or to be issued in
connection herewith.

 

5.                                       GRANT AND PERFECTION OF SECURITY INTEREST

 

5.1           Grant of Security
Interest.  To secure payment and
performance of all Obligations, each Borrower and Guarantor hereby grants to
Agent, for itself and the ratable benefit of the Lenders and the Bank Product
Providers, a continuing security interest in, a lien upon, and a right of set
off against, for itself and the ratable benefit of the Lenders and the Bank
Product Providers, as security, and hereby confirms, reaffirms and restates the
prior grant thereof to Agent, for itself and the ratable benefit of the Lenders
and the Bank Product Providers pursuant to the Existing Loan Agreement, all
personal property and fixtures, and interests in personal property and
fixtures, of such Borrower or Guarantor, 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
Agent or any Lender, collectively, the “Collateral”) including, without
limitation, the following:

 

(a)           all Accounts;

 

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

 

(c)           all goods, including, without
limitation, Inventory and Equipment, whether ordered, in progress, finished or
received;

 

(d)           all fixtures;

 

(e)           all chattel paper, including,
without limitation, all tangible and electronic chattel paper;

 

55

 

(f)            all instruments, including,
without limitation, all promissory notes;

 

(g)           all documents;

 

(h)           all deposit accounts;

 

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

 

(j)            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 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;

 

(k)           all (i) investment property
(including securities, whether certificated or uncertificated, securities
accounts, security entitlements, commodity contracts or commodity accounts) and
(ii) monies, credit balances, deposits and other property of such Borrower or
Guarantor now or hereafter held or received by or in transit to Agent, any
Lender or its Affiliates or at any other depository or other institution from
or for the account of such Borrower or Guarantor, whether for safekeeping,
pledge, custody, transmission, collection or otherwise;

 

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

 

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

 

(n)           all Records; and

 

(o)           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.

 

Notwithstanding anything herein to the contrary, in no event shall the
Collateral include, and no Borrower or Guarantor shall be deemed to have
granted a security interest in, (i) any personal and real property, fixtures
and interests of such Borrower or Guarantor which are not assignable or are
incapable of being encumbered as a matter of law, except for the products and proceeds
thereof, (ii) such Borrower’s or Guarantor’s rights or interests in any
license, contract or agreement to which such Borrower or Guarantor is a party
or any of its rights or interests thereunder to the extent, but only to the
extent, that such a grant would, under the terms of such license, contract or
agreement, applicable laws or otherwise, result in a breach of the terms of, or
constitute a default under any license, contract or agreement to which such
Borrower or Guarantor is a party (except for the products and proceeds
thereof); provided, however, upon the 

 

56

 

ineffectiveness, lapse or termination of any such provision, the
Collateral shall include, and such Borrower or Guarantor shall be deemed to
have granted a security interest in, all such rights and interests as if such
provision had never been in effect, and (iii) the Capital Stock of any Foreign
Subsidiary to the extent that such Capital Stock constitutes more than
sixty-five percent (65%) of the Voting Stock of all classes of the Capital
Stock of such Foreign Subsidiary that are entitled to vote, except for the
products and proceeds thereof. In addition, the Collateral shall exclude any
rights to any Intellectual Property, License Agreements or software that would
be rendered invalid or unenforceable under the terms thereof or under
applicable laws by the grant of a security interest created pursuant to the
terms of this Agreement, for as long as such prohibition or reason for
invalidity exists, except for the products and proceeds thereof.

 

5.2           Perfection of Security
Interests.

 

(a)           Each Borrower and Guarantor
irrevocably and unconditionally authorizes Agent (or its agent) to file at any
time and from time to time such financing statements with respect to the
Collateral naming Agent or its designee as the secured party and such Borrower
or Guarantor as debtor, as Agent may require, and including any other
information with respect to such Borrower or Guarantor or otherwise required by
part 5 of Article 9 of the Uniform Commercial Code of such jurisdiction as
Agent 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. Each Borrower and Guarantor hereby ratifies
and approves all financing statements naming Agent or its designee as secured
party and such Borrower or Guarantor, as the case may be, as debtor with
respect to the Collateral (and any amendments with respect to such financing
statements) filed by or on behalf of Agent prior to the date hereof and
ratifies and confirms the authorization of Agent to file such financing
statements (and amendments, if any). Each Borrower and Guarantor hereby
authorizes Agent to adopt on behalf of such Borrower or Guarantor any symbol
required for authenticating any electronic filing. In the event that the
description of the collateral in any financing statement naming Agent or its
designee as the secured party and any Borrower or Guarantor as debtor includes
assets and properties of such Borrower or Guarantor that do not at any time
constitute Collateral, whether hereunder, under any of the other Financing
Agreements or otherwise, the filing of such financing statement shall nonetheless
be deemed authorized by such Borrower or Guarantor 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 or Guarantor 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 Agent or
its designee as secured party and such Borrower or Guarantor as debtor, without
the prior written consent of Agent.

 

(b)           No Borrower or Guarantor has
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 or Guarantor shall be entitled to or shall receive any chattel
paper or instrument after the date hereof, which together with all other
chattel paper and instruments that Borrowers and Guarantors have become
entitled to or have received after the date hereof has a fair market value in
excess of $100,000 individually or in the aggregate, such Borrower or Guarantor
shall promptly notify Agent thereof in writing. Promptly upon the receipt
thereof by 

 

57

 

or on behalf of such Borrower
or Guarantor (including by any agent or representative), such Borrower or
Guarantor shall deliver, or cause to be delivered to Agent, all tangible
chattel paper and instruments that such Borrower or Guarantor has or may at any
time acquire, accompanied by such instruments of transfer or assignment duly
executed in blank as Agent may from time to time specify, in each case except
as Agent may otherwise agree. At Agent’s option, such Borrower or Guarantor
shall, or Agent may at any time on behalf of such Borrower or Guarantor, cause
the originals of  any such instruments
and chattel paper that have a fair market value in excess of $100,000 individually
or in the aggregate, to be conspicuously marked in a form and manner acceptable
to Agent with the following legend referring to chattel paper or instruments as
applicable: “This [chattel paper][instrument] is subject to the security
interest of Wachovia Bank, National Association, 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
or Guarantor 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), which together with all other electronic chattel paper
or “transferable record” that Borrowers and Guarantors have become entitled to
has a fair market value in excess of $100,000 individually or in the aggregate,
such Borrower or Guarantor shall promptly notify Agent thereof in writing. Promptly
upon Agent’s request, such Borrower or Guarantor shall take, or cause to be
taken, such actions as Agent may request to give Agent 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 or Guarantor has
any deposit accounts as of the date hereof, except as set forth in such
Borrower’s or Guarantor’s Information Certificate. No Borrower or Guarantor
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) Agent shall
have received not less than five (5) Business Days prior written notice of the
intention of such Borrower or Guarantor to open or establish such account which
notice shall specify in reasonable detail and specificity acceptable to Agent
the name of the Central Collection Deposit Account, the owner of the Central
Collection 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 or Guarantor 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 reasonably
acceptable to Agent, and (iii) on or before the opening of such Central
Collection Deposit Account, such Borrower or Guarantor shall as Agent may
specify either (A) deliver to Agent a Deposit Account Control Agreement with
respect to such Central Collection Deposit Account duly authorized, executed
and delivered by such Borrower or Guarantor and the bank at which such deposit
account is opened and maintained or (B) arrange for Agent to become the
customer of the bank with respect to the deposit account on terms and
conditions reasonable acceptable to Agent. The terms of this subsection (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 or Guarantor’s salaried employees. Agent shall
not exercise its right to require

 

58

 

amounts in such accounts to be
sent to the Agent Payment Account except as provided by Section 6.3 hereof.

 

(e)           No Borrower or Guarantor 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 on
Schedule 5.2(e) hereto.

 

(i)            In the event that
any Borrower or Guarantor shall be entitled to or shall at any time after the
date hereof hold or acquire any certificated securities, which together with
all other certificated securities in which Borrowers and Guarantors hold or
acquire an interest after the date hereof have a fair market value in excess of
$100,000 individually or in the aggregate, such Borrower or Guarantor shall
promptly endorse, assign and deliver the same to Agent, accompanied by such
instruments of transfer or assignment duly executed in blank as Agent may from
time to time specify. If any securities, now or hereafter acquired by any
Borrower or Guarantor are uncertificated and are issued to such Borrower or
Guarantor or its nominee directly by the issuer thereof, and such securities
together with all other such securities acquired by Borrowers and Guarantors
have a fair market value in excess of $100,000 individually or in the
aggregate, such Borrower or Guarantor shall immediately notify Agent thereof
and shall as Agent may specify, either (A) cause the issuer to agree to comply
with instructions from Agent as to such securities, without further consent of
such Borrower or Guarantor or such nominee, or (B) arrange for Agent to become
the registered owner of the securities.

 

(f)            No Borrower or Guarantor
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) with any securities
intermediary or commodity intermediary unless each of the following conditions
is satisfied: (A) Agent shall have received not less than five (5) Business
Days prior written notice of the intention of such Borrower or Guarantor to
open or establish such account which notice shall specify in reasonable detail
and specificity reasonably acceptable to Agent 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 or Guarantor 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 reasonably acceptable to Agent, 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 or Guarantor
shall as Agent may specify either (1) execute and deliver, and cause to be
executed and delivered to Agent, an Investment Property Control Agreement with
respect thereto duly authorized, executed and delivered by such Borrower or
Guarantor and such securities intermediary or commodity intermediary or (2)
arrange for Agent to become the entitlement holder with respect to such
investment property on terms and conditions acceptable to Agent. Agent shall
not exercise its right to require amounts in such accounts to be sent to the
Agent Payment Account except during an Availability Compliance Period.

 

59

 

(g)           No Borrower or Guarantor 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) hereto. In the event that any Borrower
or Guarantor 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, which together with all
other letters of credit, banker’s acceptances and similar instruments that
Borrowers and Guarantors have become entitled to or have received after the
date hereof have a fair market value in excess of $100,000 individually or in
the aggregate, such Borrower or Guarantor shall promptly notify Agent thereof
in writing. Such Borrower or Guarantor shall immediately, as Agent may specify,
either (i) deliver, or cause to be delivered to Agent, 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 Agent, consenting to the assignment of the
proceeds of the letter of credit to Agent by such Borrower or Guarantor and
agreeing to make all payments thereon directly to Agent or as Agent may
otherwise direct or (ii) cause Agent to become, at Borrowers’ expense, the
transferee beneficiary of the letter of credit, banker’s acceptance or similar
instrument (as the case may be).

 

(h)           No Borrower or Guarantor has
any commercial tort claims with respect to which the amount claimed exceeds
$1,000,000 and either a written demand therefor has been made or legal action
has commenced, except as set forth on Schedule 5.2(g) hereto. In the event that
any Borrower or Guarantor shall at any time after the date hereof have any such
commercial tort claims, or if an Event of Default exists, if any Borrower or
Guarantor has any commercial tort claims, such Borrower or Guarantor shall
promptly notify Agent 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 or Guarantor to Agent 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 such Borrower or Guarantor to Agent shall be deemed to
constitute such grant to Agent. 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 Agent
provided in Section 5.2(a) hereof or otherwise arising by the execution by such
Borrower or Guarantor of this Agreement or any of the other Financing
Agreements, Agent is hereby irrevocably authorized from time to time and at any
time to file such financing statements naming Agent or its designee as secured
party and such Borrower or Guarantor as debtor, or any amendments to any
financing statements, covering any such commercial tort claim as Collateral. In
addition, such Borrower or Guarantor shall promptly upon Agent’s request,
execute and deliver, or cause to be executed and delivered, to Agent such other
agreements, documents and instruments as Agent may require in connection with
such commercial tort claim.

 

(i)            No Borrower or Guarantor 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 such
Borrower’s or Guarantor’s Information Certificate and except for goods located
in the United States in transit to a location of a Borrower or Guarantor
permitted herein in the ordinary course of business of such Borrower or
Guarantor in the possession of any carrier transporting such goods. In the
event that any goods, documents of title or other Collateral with 

 

60

 

a fair market value in excess
of $100,000 are at any time after the date hereof in the custody, control or
possession of any other person not referred to in a Borrower’s or Guarantor’s
Information Certificate or such carriers, such Borrower or Guarantor shall
promptly notify Agent thereof in writing. Promptly upon Agent’s request, such
Borrower or Guarantor shall deliver to Agent a Collateral Access Agreement duly
authorized, executed and delivered by such person and such Borrower or
Guarantor.

 

(j)            Each Borrower and Guarantor
shall take any other actions reasonably requested by Agent from time to time to
cause the attachment, perfection and first priority of, and the ability of
Agent to enforce, the security interest of Agent 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 or other applicable law, to the extent, if any, that such Borrower’s or
Guarantor’s signature thereon is required therefor, (ii) upon Agent’s request
after the occurrence and during the continuance of an Event of Default, causing
Agent’s name to be noted as 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 Agent to enforce, the security interest of Agent in
such Collateral, (iii) complying with any provision of any statute, regulation
or treaty of the United States as to any Collateral if compliance with such
provision is a condition to attachment, perfection or priority of, or ability
of Agent to enforce, the security interest of Agent in such Collateral, (iv)
obtaining the consents and approvals required by 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
other law, as applicable in any relevant jurisdiction.

 

6.                                       COLLECTION AND ADMINISTRATION

 

6.1           Borrowers’ Loan Accounts.  Agent shall maintain one or more Loan
accounts on its books in which shall be recorded (a) the Existing Term Loan,
all Revolving Loans, all Letter of Credit Accommodations, all 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
accounts shall be made in accordance with Agent’s customary practices as in
effect from time to time.

 

6.2           Statements.  Agent shall render to Borrowers a monthly
statement setting forth the balance in the Borrowers’ loan accounts maintained
by Agent for Borrowers pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses as of the end of such month. Agent
shall use its best efforts to provide such monthly statement to Borrowers by
the 15th day of the next succeeding month. Each such statement shall be subject
to subsequent adjustment by Agent 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 Agent receives a
written notice from Borrowers of any specific exceptions of Borrowers thereto
within sixty (60) days after the date such statement has been received by
Borrowers. Until such time as Agent shall have rendered to Borrowers a written
statement as provided above, the balance in Borrowers’ loan accounts shall be
presumptive evidence of the amounts due and owing to Agent and Lenders by
Borrowers.

 

61

 

6.3           Collection of Accounts.

 

(a)           Borrowers and Guarantors shall
establish and maintain, at their expense, blocked accounts or lockboxes and
related blocked accounts (in either case, “Blocked Accounts”), as Agent may
specify, with such banks as are reasonably acceptable to Agent. Such Blocked
Accounts may be Central Collection Deposit Accounts, and the term Blocked
Accounts shall include the Central Collection Deposit Accounts. Borrowers and
Guarantors shall retain the use of their cash, including payments and proceeds
of Collateral, so long as an Availability Compliance Period does not exist; provided,
that, during an Availability Compliance Period, and upon Agent’s
request, each Borrower and Guarantor shall promptly deposit into one or more
Blocked Accounts, and direct its account debtors to directly remit into such
Blocked Accounts all payments on Receivables, other than the Non-Borrower
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, each Borrower
and Guarantor shall deliver, or cause to be delivered to Agent, 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 Agent (which shall be given upon an Availability Compliance Triggering
Event and shall be revoked promptly after the expiration of the Availability
Compliance Period that was initiated upon such Availability Compliance
Triggering Event), such bank will send funds on a daily basis to the Agent
Payment Account and otherwise take instruction with respect to such Blocked
Account only from Agent. Promptly upon Agent’s request, each Borrower and
Guarantor shall execute and deliver such agreements or documents as Agent may
require in connection therewith. Each Borrower and Guarantor agrees that after
notice by Agent to the bank under the Deposit Account Control Agreement, all
payments made to such Blocked Accounts or other funds received and collected by
Agent, whether in respect of the Receivables, as proceeds of Inventory or other
Collateral or otherwise shall be treated as payments to Agent, for itself and
the ratable benefit of the Lenders and the Bank Product Providers, in respect
of the Obligations and therefore shall constitute the property of Agent, for
itself and the ratable benefit of the Lenders and the Bank Product Providers,
to the extent of the then outstanding Obligations; provided, however, that in
the event any Non-Borrower Receivable is deposited into the Blocked Accounts,
in error or otherwise, such deposit shall be treated as a non-refundable
payment to Agent, for itself and the ratable benefit of the Lenders and the
Bank Product Providers, in respect of the Obligations and therefore shall
constitute the property of Agent, for itself and the ratable benefit of the
Lenders and the Bank Product Providers, to the extent of the then outstanding
Obligations.

 

(b)           For purposes of calculating
the amount of the Revolving Loans available to Borrowers, such payments will be
applied (conditional upon final collection) to the Obligations on the Business
Day of receipt by Agent of immediately available funds in the Agent Payment
Account provided such payments and notice thereof are received in accordance
with Agent’s usual and customary practices as in effect from time to time and
prior to 12:00 p.m. New York time, and if not, then on the next Business Day. For
the purposes of calculating interest on the Obligations, for the sole and equal
benefit of Wachovia and Documentation Agent, such payments or other funds
received will be applied (conditional upon final collection) to the Obligations
on the same day of the receipt of immediately available funds by Agent in the
Agent Payment Account provided such payments or other funds and notice thereof
are prior to 12:00 p.m. New York time, and if not, then on the next Business
Day.

 

62

 

(c)           During any Availability
Compliance Period, each Borrower and Obligor and its shareholders, directors,
employees, agents, Subsidiaries or other Affiliates shall, acting as trustee
for Agent, receive, as the property of Agent, 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 promptly,
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 Agent. In no event shall the same be commingled with any Borrower’s or
Obligor’s funds. Borrowers and Guarantors agree to reimburse Agent on demand
for any amounts owed or paid to any bank at which a Blocked Account or any
other deposit account is established or any other bank or Person involved in
the transfer of funds to or from the Blocked Accounts arising out of Agent’s
payments to or indemnification of such bank or Person. The obligation of
Borrowers and Guarantors to reimburse Agent for such amounts pursuant to this
Section 6.3(c) 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 Agent Payment Account or, at any time during an
Availability Compliance Period, by payments and proceeds of Collateral being
directly remitted to the Agent Payment Account as provided in Section 6.3
hereof or such other place as Agent may designate from time to time. Agent
shall apply payments received or collected from Borrowers or Obligors or for
the account of Borrowers or Obligors (including the monetary proceeds of
collections or of realization upon any Collateral) to the specific Obligation
designated by Borrowers in connection with such payment as follows:

 

(i)            so long as no
Priority Event shall have occurred and be continuing, or will result from any
of the following payment applications:

 

(A)          first, to pay in full
all indemnities or expense reimbursements then due to Agent from Borrowers and
Guarantors (other than fees);

 

(B)           second, ratably to
pay in full indemnities or expense reimbursements then due to Lenders from
Borrowers and Guarantors (other than fees);

 

(C)           third, ratably to
pay in full all fees payable by Borrowers under the Financing Agreements then
due;

 

(D)          fourth, ratably to
pay in full interest due in respect of the Loans;

 

(E)           fifth, to pay or
prepay principal in respect of Special Agent Advances;

 

(F)           sixth, to pay
principal amounts permitted to be paid under the terms of Sections 2.3(c)
through (g) hereof, if any, in respect of the Existing Term Loan;

 

(G)           seventh, to pay
principal in respect of the Revolving 

 

63

Loans then outstanding (whether
or not then due) until paid in full;

 

(H)          eighth, to cash
collateralize any outstanding Letter of Credit Accommodations if required under
the terms of this Agreement;

 

(I)            ninth, to pay any
Obligations due in respect of the Bank Products, if any; and

 

(J)            tenth, to pay any
other Obligations then due, in such order and manner as Agent determines; or

 

(ii)           after the
occurrence and during the continuance of a Priority Event:

 

(A)          first, to pay in full
the expenses of Agent for the collection and enforcement of the Obligations and
for the protection, preservation or sale, disposition or other realization upon
the Collateral, including all expenses, liabilities and advances (including
Special Agent Advances) incurred or made by or on behalf of Agent, in
connection therewith (including attorneys’ fees and legal expenses and other
expenses of Agent);

 

(B)           second, to pay all
Obligations, other than (1) the Existing Term Loan and any Obligations related
to the Existing Term Loan, and (2) any Obligations due with respect to Bank
Products, until paid in full, in cash or other immediately available funds, in
such order and manner as Agent shall elect in its discretion (including cash
collateral for any outstanding Letter of Credit Accommodations in accordance
with the terms of this Agreement);

 

(C)           third, to pay any
Obligations due with respect to the Bank Products up to the amount of the then
extant Bank Product Reserve,

 

(D)          fourth, to pay the
Existing Term Loan and any Obligations related to the Existing Term Loan until
paid in full;

 

(E)           fifth, to pay any
remaining Obligations due in respect of the Bank Products; and

 

(F)           sixth, ratably to
pay in full all other Obligations.

 

(b)           Notwithstanding anything to
the contrary contained in this Agreement:

 

(i)            if the payment of
any expenses, costs, scheduled servicing fees (such servicing fees to consist
of scheduled servicing fees existing on the date hereof along with any
increases to such servicing fees which have been consented to by Wachovia)
and/or interest (other than default interest charged during the existence of an
Event of Default) to Agent for the account of itself and Revolving Loans would
accrue and become due but for the occurrence of an Insolvency Event and any
such amounts are not allowed or allowable in whole or in part (any such amounts
are hereinafter referred to as the “Specified Amounts”), then Agent 

 

64

 

and Revolving Loans shall
receive payment in full of the Specified Amounts (but not the items excluded
from Specified Amounts above) before any payment of the Existing Term Loan or
any Obligations related to the Existing Term Loan; provided, that nothing
herein shall prevent Agent or the Revolving Loans from recovering any default
interest charged during the existence of an Event of Default from any Borrower
or Guarantor not subject to an Insolvency Event, which amounts shall be payable
to Agent and Revolving Loans before any payment of the Existing Term Loan or
any Obligations related to the Existing Term Loan;

 

(ii)           should any payment
or distribution on security or instrument or proceeds thereof be received by a
Lender other than in accordance with this Section 6.4, such Lender shall
receive and hold the same in trust, for the benefit of Agent, the other Lenders
and the Bank Product Providers, and shall forthwith deliver the same to Agent
(together with any endorsement or assignment of such Lender where necessary),
for application by Agent to the Obligations in accordance with the terms of
this Section 6.4;

 

(iii)          unless so directed
by Borrowers, Agent shall not apply any payments which it receives to any Revolving
Loans that are Eurodollar Rate Loans except on the expiration date of the
Interest Period applicable to any such Revolving Loans that are Eurodollar Rate
Loans and if payments are received or collected from Borrowers that otherwise
would be applied to Eurodollar Rate Loans, provided no Availability Compliance
Period exists, Borrowers may instruct Agent to remit such funds to Borrowers,
otherwise, such payments shall be held by Agent and shall bear interest at the
Federal Funds Rate 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 Agent’s sole discretion, remitted to
Borrowers; and

 

(iv)          to the extent any
Borrower uses 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 such Borrower acquired
such rights or use.

 

(c)           At Agent’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 accounts of Borrowers maintained by Agent. Borrowers shall make all
payments to Agent and Lenders on the Obligations free and clear of, and without
deduction or withholding for or on account of, any setoff, counterclaim,
defense, 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, Agent or any 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 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 Agent or such Lender. 

 

65

 

Borrowers shall be liable to
pay to Agent and Lenders, and do hereby indemnify and hold Agent and Lenders
harmless for the amount of any payments or proceeds surrendered or returned. This
Section 6.4(c) shall remain effective notwithstanding any contrary action which
may be taken by Agent or any Lender in reliance upon such payment or proceeds. This
Section 6.4(c) shall survive the payment of the Obligations and the termination
of this Agreement.

 

(d)           Except as required by law,
Borrowers shall make all payments hereunder free and clear of and without
deduction for or withholding of any taxes, levies, imposts, deductions or
charges and penalties, interest and all other liabilities with respect thereto
imposed by the United States or any political subdivision thereof
(collectively, “Taxes”), excluding (1) Taxes imposed on or measured by the
Agent’s or any Lender’s net income or capital and franchise taxes imposed on
the Agent or any Lender by the jurisdiction under the laws of which the Agent
or such Lender is organized or in which the Agent’s or such Lender’s lending
office is located or any political subdivision thereof and (2) Taxes that are
in effect and would apply at the time such Lender becomes a Lender (all such
nonexcluded Taxes being hereinafter referred to as “Covered Taxes”). If the
Borrowers shall be required by law to deduct or withhold any Covered Taxes from
or in respect of any sum payable hereunder to the Agent or any Lender, then the
sum payable shall be increased as may be necessary so that after making all
required withholdings and deductions of Covered Taxes (including deductions and
withholdings of Covered Taxes applicable to additional sums payable under this
paragraph), the Agent or such Lender receives an amount equal to the sum the
Agent or such Lender would have received had no such deductions or withholdings
been made. The Borrowers shall make such deductions or withholdings and the
Borrowers shall pay the full amount so deducted or withheld to the relevant taxation
authority or other authority in accordance with applicable law. The foregoing
indemnity shall survive the payment of the Obligations and the termination of
this Agreement. The Agent and each Lender shall provide any documentation
prescribed by applicable law, properly completed and executed, as will permit
payments to be made by the Borrowers hereunder without the imposition of
Covered Taxes. If the Agent or any Lender receives a refund or credit in
respect of Covered Taxes, then the Agent or such Lender will pay over the
amount of such refund or credit to Borrowers to the extent that the Agent or
such Lender has received indemnity payments or additional amounts pursuant to
this Section 6.4(d), net of all out-of-pocket expenses incurred in obtaining
such refund or credit and without interest (other than interest paid by the
relevant taxing authority with respect to such refund or credit).

 

6.5           Authorization to Make Loans.  Agent and Lenders are 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 a
Borrower or other authorized person or, at the discretion of Agent, if such
Loans are necessary to satisfy any Obligations; provided, however, that Agent
and Lenders shall direct the Loans only into those accounts of a Borrower
authorized in writing by more than one Authorized Officer. The foregoing
sentence notwithstanding, if Agent or a Lender makes a Loan into an account of
a Borrower designated by a Person who no longer is an Authorized Officer and
Agent did not receive notice that such Person is no longer an Authorized
Officer, such Loan will still be considered an Obligation hereunder. 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 for any Revolving
Loan or Letter of Credit Accommodation and must be the date hereof with respect
to the Existing Term Loan) and the 

 

66

 

amount of the requested Loan. Requests received after 12:00 p.m. New
York 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 under this
Agreement shall be conclusively presumed to have been made to, and at the
request of and for the benefit of, Borrowers or 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.

 

6.6           Use of Proceeds.  Borrowers shall use the proceeds of the Loans
provided by or on behalf of Lenders to Borrowers hereunder only for (a) costs,
expenses and fees in connection with the preparation, negotiation, execution
and delivery of this Agreement and the other Financing Agreements and
consummation of any other permitted transactions contemplated hereby which will
take place on the date hereof, (b) the repurchase of shares of Capital Stock to
the extent permitted by the terms and condition of this Agreement, and (c) for
general operating, working capital and other proper corporate purposes of
Borrowers not otherwise prohibited by the terms hereof. None of the proceeds of
any Loans or Letter of Credit Accommodations 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 or Letter of Credit Accommodations to be
considered a “purpose credit” within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, as amended.

 

6.7           Pro Rata Treatment.  Except to the extent otherwise provided in
this Agreement:  (a) the making and
conversion of Loans shall be made among the Lenders based on their respective
Pro Rata Shares as to the Loans and (b) each payment on account of any
Obligations to or for the account of one or more of Lenders in respect of any
Obligations due on a particular day shall be allocated among the Lenders
entitled to such payments based on their respective Pro Rata Shares and shall
be distributed accordingly.

 

6.8           Sharing of Payments, Etc.

 

(a)           Each Borrower agrees that, in
addition to (and without limitation of) any right of setoff, banker’s lien or
counterclaim Agent or any Lender may otherwise have, each Lender shall be
entitled, at its option (but subject, as among Agent and Lenders, to the
provisions of Section 12.3(b) hereof), to offset balances held by it for the
account of any Borrower at any of its offices, in dollars or in any other
currency, against any principal of or interest on any Loans owed to such Lender
or any other amount payable to such Lender hereunder, that is not paid when due
(regardless of whether such balances are then due to any Borrower), in which
case it shall promptly notify Borrowers and Agent thereof; provided, that, such
Lender’s failure to give such notice shall not affect the validity thereof.

 

(b)           If any Lender (including
Agent) shall obtain from any Borrower payment of any principal of or interest
on any Loan owing to it or payment of any other amount under this Agreement or
any of the other Financing Agreements through the exercise of any right of
setoff, banker’s lien or counterclaim or similar right or otherwise (other than
from Agent as provided herein), and, as a result of such payment, such Lender
shall have received more than its Pro Rata Share of the principal of the Loans
or more than its share of such other amounts then 

 

67

 

due hereunder or thereunder by
Borrowers to such Lender than the percentage thereof received by any other
Lender, it shall promptly pay to Agent, for the benefit of Lenders, the amount
of such excess and simultaneously purchase from such other Lenders a
participation in the Loans or such other amounts, respectively, owing to such
other Lenders (or such interest due thereon, as the case may be) in such
amounts, and make such other adjustments from time to time as shall be
equitable, to the end that all Lenders shall share the benefit of such excess
payment (net of any expenses that may be incurred by such Lender in obtaining
or preserving such excess payment) in accordance with their respective Pro Rata
Shares or as otherwise agreed by Lenders. To such end all Lenders shall make
appropriate adjustments among themselves (by the resale of participation sold
or otherwise) if such payment is rescinded or must otherwise be restored.

 

(c)           Each Borrower agrees that any
Lender purchasing a participation (or direct interest) as provided in this
Section may exercise, in a manner consistent with this Section, all rights of
setoff, banker’s lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Loans or other
amounts (as the case may be) owing to such Lender in the amount of such
participation.

 

(d)           Nothing contained herein shall
require any Lender to exercise any right of setoff, banker’s lien,
counterclaims or similar rights or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other Indebtedness or obligation of any Borrower. If, under any applicable
bankruptcy, insolvency or other similar law, any Lender receives a secured
claim in lieu of a setoff to which this Section applies, such Lender shall, to
the extent practicable, assign such rights to Agent, for itself and the ratable
benefit of the Lenders and the Bank Product Providers, and, in any event,
exercise its rights in respect of such secured claim in a manner consistent
with the rights of Lenders entitled under this Section to share in the benefits
of any recovery on such secured claim.

 

6.9           Settlement Procedures.

 

(a)           In order to administer the
Credit Facility in an efficient manner and to minimize the transfer of funds
between Agent and Lenders, Agent may, at its option, subject to the terms of
this Section, make available, on behalf of Lenders, the full amount of the
Loans requested or charged to Borrowers’ loan accounts or otherwise to be
advanced by Lenders pursuant to the terms hereof, without requirement of prior
notice to Lenders of the proposed Loans.

 

(b)           With respect to all Loans made
by Agent on behalf of Lenders as provided in this Section, the amount of each
Lender’s Pro Rata Share of the outstanding Loans shall be computed weekly, and
shall be adjusted upward or downward on the basis of the amount of the
outstanding Loans as of 5:00 p.m. New York time on the Business Day immediately
preceding the date of each settlement computation; provided, that, Agent
retains the absolute right at any time or from time to time to make the above
described adjustments at intervals more frequent than weekly, but in no event
more than twice in any week. Agent shall deliver to each of the Lenders after
the end of each week, or at such lesser period or periods as Agent shall
determine, a summary statement of the amount of outstanding Loans for such
period (such week or lesser period or periods being hereinafter referred to as
a “Settlement Period”). If the summary statement is sent by Agent and received
by a Lender prior to 12:00 p.m. New York 

 

68

 

time, then such Lender shall
make the settlement transfer described in this Section by no later than 3:00
p.m. New York time on the same Business Day and if received by a Lender after
12:00 p.m. New York time, then such Lender shall make the settlement transfer
by no later than 3:00 p.m. New York time on the next Business Day following the
date of receipt. If, as of the end of any Settlement Period, the amount of a
Lender’s Pro Rata Share of the outstanding Loans is more than such Lender’s Pro
Rata Share of the outstanding Loans as of the end of the previous Settlement
Period, then such Lender shall forthwith (but in no event later than the time
set forth in the preceding sentence) transfer to Agent by wire transfer in
immediately available funds the amount of the increase. Alternatively, if the
amount of a Lender’s Pro Rata Share of the outstanding Loans in any Settlement
Period is less than the amount of such Lender’s Pro Rata Share of the
outstanding Loans for the previous Settlement Period, then, if the summary
statement is prepared and delivered to Lenders by Agent prior to 12:00 p.m. New
York time, then Agent shall make the transfer described in this Section by no
later than 3:00 p.m. New York time on the same Business Day and if prepared and
delivered to Lenders by Agent after 12:00 p.m. New York time, then Agent shall
make the transfer by no later than 3:00 p.m. New York time on the next Business
Day following the date of receipt, by wire transfer in immediately available
funds the amount of the decrease. The obligation of each of the Lenders and the
Agent to transfer such funds and effect such settlement shall be irrevocable. Agent
and each Lender agrees to mark its books and records at the end of each
Settlement Period to show at all times the dollar amount of its Pro Rata Share
of the outstanding Loans and Letter of Credit Accommodations. Each Lender shall
only be entitled to receive interest on its Pro Rata Share of the Loans to the
extent such Loans have been funded by such Lender. Because the Agent on behalf
of Lenders may be advancing and/or may be repaid Loans prior to the time when
Lenders will actually advance and/or be repaid such Loans, interest with
respect to Loans shall be allocated by Agent in accordance with the amount of
Loans actually advanced by and repaid to each Lender and the Agent and shall
accrue from and including the date such Loans are so advanced to but excluding
the date such Loans are either repaid by Borrowers or actually settled with the
applicable Lender as described in this Section.

 

(c)           To the extent that Agent has
made any such amounts available and the settlement described above shall not
yet have occurred, upon repayment of any Loans by Borrower, Agent may apply
such amounts repaid directly to any amounts made available by Agent pursuant to
this Section. In lieu of weekly or more frequent settlements, Agent may, at its
option, at any time require each Lender to provide Agent with immediately
available funds representing its Pro Rata Share of each Loan, prior to Agent’s
disbursement of such Loan to Borrowers. In such event, all Loans under this
Agreement shall be made by the Lenders simultaneously and proportionately to
their Pro Rata Shares. No Lender shall be responsible for any default by any
other Lender in the other Lender’s obligation to make a Loan requested
hereunder nor shall the Revolving Loan Commitment or Existing Term Loan
Commitment, as the case may be, of any Lender be increased or decreased as a
result of the default by any other Lender in the other Lender’s obligation to
make a Loan hereunder.

 

(d)           If Agent is not funding a
particular Loan to Borrowers pursuant to Section 6.9(a) hereof on any day, Agent
may assume that each Lender will make available to Agent such Lender’s Pro Rata
Share of the Loan requested or otherwise made on such day and Agent may, in its
discretion, but shall not be obligated to, cause a corresponding amount to be
made available to or for the benefit of Borrowers on such day. If Agent makes
such 

 

69

 

corresponding amount available
to Borrowers and such corresponding amount is not in fact made available to
Agent by such Lender, Agent shall be entitled to recover such corresponding
amount on demand from such Lender together with interest thereon for each day
from the date such payment was due until the date such amount is paid to Agent
at the Federal Funds Rate for each day during such period (as published by the
Federal Reserve Bank of New York or at Agent’s option based on the arithmetic
mean determined by Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (New York City time) on that day by
each of the three leading brokers of Federal funds transactions in New York
City selected by Agent) and if such amounts are not paid within three (3) days
of Agent’s demand, at the highest interest rate provided for in Section 3.1
hereof applicable to such Loans. During the period in which such Lender has not
paid such corresponding amount to Agent, notwithstanding anything to the
contrary contained in this Agreement or any of the other Financing Agreements,
the amount so advanced by Agent to or for the benefit of Borrowers shall, for
all purposes hereof, be a Loan made by Agent for its own account. Upon any such
failure by a Lender to pay Agent, Agent shall promptly thereafter notify
Borrowers of such failure and Borrowers shall pay such corresponding amount to
Agent for its own account within five (5) Business Days of Borrowers’ receipt
of such notice. A Lender who fails to pay Agent its Pro Rata Share of any Loans
made available by the Agent on such Lender’s behalf, or any Lender who fails to
pay any other amount owing by it to Agent, in each case within two (2) Business
Days after the date such payment is due, is a “Defaulting Lender”. Agent shall
not be obligated to transfer to a Defaulting Lender any payments received by
Agent for the Defaulting Lender’s benefit, nor shall a Defaulting Lender be
entitled to the sharing of any payments hereunder (including any principal,
interest or fees). Amounts payable to a Defaulting Lender shall instead be paid
to or retained by Agent. Agent may hold and, in its discretion, relend to
Borrowers the amount of all such payments received or retained by it for the
account of such Defaulting Lender. For purposes of voting or consenting to
matters with respect to this Agreement and the other Financing Agreements and
determining Pro Rata Shares, such Defaulting Lender shall be deemed not to be a
“Lender” and such Lender’s Total Commitment shall be deemed to be zero (0). This
Section shall remain effective with respect to a Defaulting Lender until such
default is cured. The operation of this Section shall not be construed to
increase or otherwise affect the Revolving Loan Commitment or Existing Term
Loan Commitment of any Lender, or relieve or excuse the performance by any
Borrower or any Obligor of their duties and obligations hereunder.

 

(e)           Nothing in this Section or
elsewhere in this Agreement or the other Financing Agreements shall be deemed
to require Agent to advance funds on behalf of any Lender or to relieve any
Lender from its obligation to fulfill its Total Commitment hereunder or to
prejudice any rights that Borrowers may have against any Lender as a result of
any default by any Lender hereunder in fulfilling its Total Commitment.

 

6.10         Obligations Several;
Independent Nature of Lenders’ Rights. 
The obligation of each Lender hereunder is several, and no Lender shall
be responsible for the obligation or commitment of any other Lender hereunder. Nothing
contained in this Agreement or any of the other Financing Agreements and no
action taken by the Lenders pursuant hereto or thereto shall be deemed to
constitute the Lenders to be a partnership, an association, a joint venture or
any other kind of entity. The amounts payable at any time hereunder to each
Lender shall be a separate and independent debt, and subject to Section 12.3
hereof, each Lender shall be entitled to protect and enforce its rights arising
out of this Agreement and it shall not be 

 

70

 

necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.

 

7.                                       COLLATERAL REPORTING AND COVENANTS

 

7.1           Collateral Reporting.

 

(a)           Borrowers shall provide Agent
with the following documents in a form satisfactory to Agent:

 

(i)            as soon as possible
after the end of each month (but in any event within fifteen (15) Business Days
after the end thereof), on a monthly basis, and at any time during an
Availability Compliance Period, more frequently as Agent may request: (A)
Inventory reports by category, (B) a Collateral mix report, in form and
substance satisfactory to Agent, certified by either the Principal Accounting
Officer or the Principal Financial Officer of each Borrower; (C) a certified
calculation of the Borrowing Base and the Borrowers’ Excess Availability, which
shall be at least $7,500,000, substantially in the form of Exhibit B hereto (a “Borrowing
Base Certificate”), which certificate shall include the calculation of Net
Amount of Eligible Credit Card Receivables, Net Amount of Eligible Damaged
Goods Vendors Receivables and Net Amount of Eligible Sell-Off Vendors
Receivables 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 a
Borrowing Base Certificate shall be delivered weekly during any Availability
Compliance Period; and (D) a statement confirming the payment of rent and other
amounts due to owners and lessors of real property used by any Borrower or
Guarantor during the immediately preceding month, subject to year-end or
periodic adjustments, certified by the principal accounting officer or
principal financial officer of each Borrower as true and correct;

 

(ii)           as soon as possible
after the end of each fiscal quarter (but in any event within fifteen (15)
Business Days after the end thereof), on a quarterly basis, or during any
Availability Compliance Period, more frequently as Agent may request, (A)
perpetual Inventory reports by location and category (and including the amounts
of Inventory and the value thereof at any leased locations and at premises of
warehouses, bailees or other third parties in possession of the Collateral);
(B) a report detailing Inventory turnover, (C) the addresses of all new retail
store locations of any Borrower or Guarantor opened, and existing retail store
locations closed or sold, in each case during the immediately preceding fiscal
quarter, certified by the principal accounting officer or principal financial
officer of each Borrower as true and correct, and (D) a report of all deposit
accounts (including without limitation local retail store deposit accounts)
opened by any Borrower or Guarantor with any bank during the immediately
preceding fiscal quarter, which report shall include the Borrower or Guarantor
in whose name the account is maintained, the account number of such account,
the name and address of the bank at which such account is maintained, the
purpose of such account and the amount held in such account if any, on or about
the date of such report;

 

(iii)          upon the occurrence
and during the continuance of an Event of Default or during such time as Agent
performs an audit or examination of the Borrowers and Guarantors, upon Agent’s
reasonable request, (a) amounts owing to owners and 

 

71

 

lessors of retail store
locations, (b) copies of all bank statements, (c) copies of shipping and
delivery documents, and (d) copies of purchase orders, invoices and delivery
documents for Inventory and Equipment acquired by any Borrower or Guarantor;

 

(iv)          upon Agent’s
reasonable request, (a) reports of sales for each category of Inventory, (b)
reports of aggregate Inventory purchases (including all costs related thereto,
such as freight, duty and taxes) and identifying items of Inventory in transit
to each Borrower related to the applicable documentary letter of credit and/or
bill of lading number, (c) copies of remittance advices and reports, (d) copies
of bank statements relating to the Blocked Accounts, (e) reports by retail
store location of sales and operating profits for each such retail store
location, and (f) agings of accounts payable (and including information
indicating the amounts owing to owners and lessors of leased premises (except
for the retail store locations), warehouses, fulfillment centers, bailees and
other third parties from time to time in possession of any Collateral);

 

(v)           upon the occurrence
and during the continuance of an Event of Default, as frequently as Agent may
request, (a) the monthly statements received by any Borrower or Guarantor or
any of its Affiliates from any Credit Card Issuers or Credit Card Processors,
together with such additional information with respect thereto as shall be
sufficient to enable Agent to monitor the transactions pursuant to the Credit
Card Agreements, (b) a report of credit card sales during the preceding month,
including the amount of the chargebacks, fees, factored receivables, and
credits with respect thereto and providing an aging of such sales identifying
those outstanding more than five (5) days since the sale date giving rise
thereto, (c) reports on sales and use tax collections, deposits and payments,
including monthly sales and use tax accruals, and (d) a report reconciling the
amount of Non-Borrower Receivables received by or into the account of any
Borrower and remitted by such Borrower or another Person at the direction of
such Borrower to or for the account of World Bank, Nevada Factoring or any
other Person; and

 

(vi)          such other reports
as to the Collateral as Agent shall reasonably request from time to time.

 

(b)           If any Borrower’s or Guarantor’s
records or reports of the Collateral are prepared or maintained by an
accounting service, contractor, shipper or other agent, such Borrower or
Guarantor hereby irrevocably authorizes such service, contractor, shipper or
agent to deliver such records, reports, and related documents to Agent and to
follow Agent’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)           Each Borrower and Guarantor
shall notify Agent promptly of the assertion of any material claims, offsets,
defenses or counterclaims by any account debtor, Credit Card Issuer or Credit
Card Processor or any material disputes with any of such persons or any
settlement, adjustment or compromise thereof and all material adverse
information relating to the financial condition of any account debtor, Credit
Card Issuer or Credit Card Processor. No credit, discount, allowance or
extension or agreement for any of the foregoing shall be granted to 

 

72

 

any account debtor, Credit Card
Issuer or Credit Card Processor except in the ordinary course of such Borrower’s
or Guarantor’s business in accordance with the current practices of such
Borrower or Guarantor as in effect on the date hereof. So long as an Event of
Default exists or has occurred and is continuing, no Borrower or Guarantor
shall, without the prior consent of Agent, settle, adjust or compromise any
material claim, offset, counterclaim or dispute with any account debtor, Credit
Card Issuer, Credit Card Processor. At any time that an Event of Default exists
or has occurred and is continuing, Agent shall, at its option, have the
exclusive right to settle, adjust or compromise any claim, offset, counterclaim
or dispute with account debtors, Credit Card Issuers or Credit Card Processors
or grant any credits, discounts or allowances.

 

(b)           With respect to each Account:
no payments shall be made thereon except payments delivered to Agent pursuant
to the terms of this Agreement, there shall be no material setoffs, deductions,
contras, defenses, counterclaims or disputes existing or asserted with respect
thereto except as reported to Agent in accordance with the terms of this
Agreement and none of the transactions giving rise thereto will violate any
applicable State or Federal 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)           Each Borrower and Guarantor
shall notify Agent promptly of: any notice of a material default by such
Borrower or Guarantor under any of the Credit Card Agreements or of any default
which has a reasonable likelihood of resulting in the Credit Card Issuer or
Credit Card Processor ceasing to make payments or suspending payments to such
Borrower or Guarantor, any notice from any Credit Card Issuer or Credit Card
Processor that such person is ceasing or suspending, or will cease or suspend,
any present or future payments due or to become due to such Borrower or
Guarantor from such person, or that such person is terminating or will terminate
any of the Credit Card Agreements, and the failure of such Borrower or
Guarantor to comply with any material terms of the Credit Card Agreements or
any terms thereof which has a reasonable likelihood of resulting in the Credit
Card Issuer or Credit Card Processor ceasing or suspending payments to such
Borrower or Guarantor.

 

(d)           Upon an Event of Default,
Agent shall have the right at any time or times, in Agent’s name or in the name
of a nominee of Agent, to verify the validity, amount or any other matter
relating to any Receivables or other Collateral, by mail, telephone, facsimile
transmission or otherwise.

 

7.3           Inventory Covenants.  With respect to the Inventory:  (a) each Borrower and Guarantor shall at all
times maintain inventory records reasonably satisfactory to Agent, keeping
correct and accurate records itemizing and describing the kind, type, quality
and quantity of such Borrower’s or Guarantor’s Inventory, such Borrower’s or
Guarantor’s cost therefor and daily withdrawals therefrom and additions
thereto; (b) each Borrower and Guarantor shall conduct a physical count of its
Inventory either through periodic cycle counts or wall to wall counts, so that
all Inventory is subject to such counts at least once each year, but at any
time or times as Agent may request on or after an Event of Default, and
promptly following such physical inventory (whether through periodic cycle
counts or wall to wall counts) shall supply Agent with a report in the form and
with such specificity as may be reasonably satisfactory to Agent concerning
such physical count; (c) no Borrower or Guarantor shall remove any Inventory
from the locations set forth or permitted herein, without the prior written
consent of Agent, 

 

73

 

except for sales of Inventory
in the ordinary course of such Borrower’s or Guarantor’s 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 such Borrower or Guarantor which is in transit to the locations set
forth or permitted herein; (d) upon Agent’s request, Borrowers and Guarantors
shall, at their expense, no more than one (1) time in any twelve (12) month
period, but at any time or times as Agent may request at Agent’s expense, or at
any time or times as Agent may reasonably request at Borrowers’ expense during
an Additional Appraisal/Field Exam Period, deliver or cause to be delivered to
Agent written reports or appraisals as to the Inventory in form, scope and
methodology acceptable to Agent and by an appraiser acceptable to Agent,
addressed to Agent and upon which Agent and Lenders are expressly permitted to
rely; (e) upon Agent’s request, Borrowers and Guarantors shall, at their
expense, conduct through RGIS Inventory Specialists, Inc. or another inventory
counting service acceptable to Agent, a physical count of the Inventory in
form, scope and methodology acceptable to Agent no more than one (1) time in
any twelve (12) month period, and at a time to coincide with Borrowers’ and or
Guarantors’ physical count of the Inventory, so long as no Availability
Compliance Period exists, the results of which shall be reported directly by
such inventory counting service to Agent and Borrowers and Guarantors shall
promptly deliver confirmation in a form reasonably satisfactory to Agent that
appropriate adjustments have been made to the inventory records of Borrowers
and Guarantors to reconcile the inventory count to Borrowers’ and Guarantors’
inventory records; (f) each Borrower and Guarantor 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 Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(g) none of the Inventory or other Collateral constitutes farm products or the
proceeds thereof; (h) each Borrower and Guarantor assumes all responsibility
and liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (i) no Borrower or Guarantor shall sell Inventory
to any customer on approval, or any other basis which entitles the customer to
return or may obligate such Borrower or Guarantor to repurchase such Inventory
except for the right of return given to retail customers of any Borrower or
Guarantor in the ordinary course of the business of such Borrower or Guarantor in
accordance with the then current return policy of such Borrower; (j) each
Borrower and Guarantor shall keep the Inventory in good and marketable
condition; and (k) no Borrower or Guarantor shall, without prior written notice
to Agent or the specific identification of such Inventory in a report with
respect thereto provided by such Borrower or Guarantor to Agent 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) upon Agent’s request, Borrowers and
Guarantors shall, at their expense, at any time or times as Agent may request
after the occurrence and during the continuance of an Event of Default, deliver
or cause to be delivered to Agent written appraisals as to the Equipment in
form, scope and methodology acceptable to Agent and by an appraiser acceptable
to Agent, addressed to Agent and upon which Agent is expressly permitted to
rely; (b) Borrowers and Guarantors shall use commercially reasonable efforts to
keep the Equipment in good order, repair and running (ordinary wear and tear
excepted); (c) Borrowers and Guarantors 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; (d) the Equipment is and
shall be used in the business of Borrowers and

 

74

 

Guarantors and not for personal, family, household or farming use; (e)
Borrowers and Guarantors shall not remove any Equipment from the locations set
forth or permitted herein, except to the extent necessary to have any Equipment
repaired or maintained in the ordinary course of its business or to move
Equipment directly from one location set forth or permitted herein to another
such location and except for the movement of motor vehicles used by or for the
benefit of Borrowers and Guarantors in the ordinary course of business; (f) the
Equipment is now and shall remain personal property and Borrowers and
Guarantors shall not permit any of the Equipment to be or become a part of or
affixed to real property; and (g) Borrowers and Guarantors assume all responsibility
and liability arising from the use of the Equipment.

 

7.5           Bills of Lading and Other
Documents of Title.

 

(a)           On and after the date hereof,
each Borrower shall cause all bills of lading or other documents of title
relating to goods purchased by such Borrower which are outside the United
States of America and in transit to the premises of such Borrower or the
premises of a Freight Forwarder in the United States of America (i) to be
issued in a form so as to constitute negotiable documents as such term is
defined in the Uniform Commercial Code and (ii) other than those relating to
goods being purchased pursuant to a Letter of Credit, to be issued either to
the order of Agent or such other person as the Agent may from time to time
designate for such purpose as consignee or such Borrower as consignee, as Agent
may specify.

 

(b)           There shall be no more than
three (3) originals of any bills of lading and other documents of title
relating to goods being purchased by a Borrower which are outside the United
States of America and in transit to the premises of such Borrower or the
premises of a Freight Forwarder in the United States of America. As to any such
bills of lading or other documents of title, unless and until Agent shall
direct otherwise, three (3) originals of each of such bill of lading or other
document of title shall be delivered to such Freight Forwarder as such Borrower
may specify and that is party to a Collateral Access Agreement. Upon the
request of Agent, one (1) original of each such bill of lading or other
document of title shall be delivered to Agent. To the extent that the terms of
this Section have not been satisfied as to any Inventory, such Inventory shall
not constitute Eligible Inventory, except as Agent may otherwise agree.

 

7.6           Power of Attorney.  Each Borrower and Guarantor hereby
irrevocably designates and appoints Agent (and all persons designated by Agent)
as such Borrower’s or Guarantor’s true and lawful attorney-in-fact, and
authorizes Agent, in such Borrower’s or Guarantor’s, or Agent’s name, to, 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 such
Borrower’s or Guarantor’s 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 Agent deems advisable, (v) settle,
adjust, compromise, extend or renew an Account, (vi) discharge and release any
Receivable, (vii) prepare, file and sign such Borrower’s or Guarantor’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 Agent, and open and 

 

 

75

 

dispose of all mail addressed
to such Borrower or Guarantor and handle and store all mail relating to the
Collateral, (ix) do all acts and things which are necessary, in Agent’s
determination, to fulfill such Borrower’s or Guarantor’s obligations under this
Agreement and the other Financing Agreements, (x) 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 Agent or any Lender, (xi) 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, (xii) endorse
such Borrower’s or Guarantor’s name upon any items of payment in respect of
Receivables or constituting Collateral or otherwise received by Agent and any
Lender and deposit the same in Agent’s account for application to the
Obligations, (xiii) endorse such Borrower’s or Guarantor’s name upon any
chattel paper, document, instrument, invoice, or similar document or agreement
relating to any Receivable or any goods pertaining thereto or any other
Collateral, including any warehouse or other receipts, or bills of lading and
other negotiable or non-negotiable documents, (xiv) clear Inventory the
purchase of which was financed with Letter of Credit Accommodations through
U.S. Customs or foreign export control authorities in such Borrower’s or
Guarantor’s name, Agent’s name or the name of Agent’s designee, and to sign and
deliver to customs officials powers of attorney in such Borrower’s or
Guarantor’s own name for such purpose, and to complete in such Borrower’s or
Guarantor’s or Agent’s name, any order, sale or transaction, obtain the
necessary documents in connection therewith and collect the proceeds thereof,
and (xv) sign such Borrower’s or Guarantor’s name on any verification of
Receivables and notices thereof to account debtors or any secondary obligors or
other obligors in respect thereof. Each Borrower and Guarantor hereby releases
Agent and Lenders and their respective 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 Agent’s or any Lender’s own gross negligence or willful misconduct as
determined pursuant to a final non-appealable order of a court of competent
jurisdiction.

 

7.7           Right to Cure.  Agent may, at its option, upon notice to
Borrowers, (a) cure any default by any Borrower or Obligor under any material
agreement with a third party that affects the Collateral, its value or the
ability of Agent to collect, sell or otherwise dispose of the Collateral or the
rights and remedies of Agent or any Lender therein or the ability of any
Borrower or any Obligor to perform its obligations hereunder or under any of
the other Financing Agreements, (b) pay or bond on appeal any judgment entered
against any Borrower or Obligor, (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 Agent’s judgment, is necessary or appropriate to preserve, protect, insure
or maintain the Collateral and the rights of Agent and Lenders with respect
thereto. Agent may add any amounts so expended to the Obligations and charge
Borrowers’ loan accounts therefor, such amounts to be repayable by Borrowers on
demand. Agent and Lenders 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 any Borrower or any Obligor. Any payment made or
other action taken by Agent or any Lender under this Section shall be (a) made
by Agent or such Lender after Agent or such Lender makes reasonable efforts to
consult with Borrowers with respect thereto, and (b) without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.

 

76

 

7.8           Access to Premises.  From time to time as requested by Agent, at
the cost and expense of Borrowers, (a) Agent and its designees (which shall
include Documentation Agent) shall contemporaneously have complete access to
all of each Borrower’s and Guarantor’s personnel and premises during normal
business hours and after notice to, or at any time and without notice to
Borrowers or Guarantors 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 each Borrower’s and Guarantor’s books and records,
including the Records, and (b) Borrowers and Guarantors shall promptly furnish to
Agent such copies of such books and records or extracts therefrom as Agent may
request, and (c) Agent or any Lender or Agent’s designee may use during normal
business hours such of any Borrower’s or Guarantor’s 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.

 

8.                                       REPRESENTATIONS AND WARRANTIES

 

Each Borrower and Guarantor hereby represents and warrants to Agent and
Lenders 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 to Borrowers:

 

8.1           Corporate Existence, Power
and Authority.  Each Borrower and
Guarantor is a corporation or limited liability company duly organized and in
good standing under the laws of its state of incorporation or formation
identified in its Information Certificate and is duly qualified as a foreign
corporation or limited liability company and in good standing in all states 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 such Borrower’s or Guarantor’s financial condition,
results of operation or business or the rights of Agent 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 by each Borrower and Guarantor (a) are all within such Borrower’s or
Guarantor’s corporate or limited liability company powers, (b) have been duly
authorized, (c) are not in contravention of law or the terms of such Borrower’s
or Guarantor’s certificate of incorporation, certificate of formation, by-laws,
operating agreement or other organizational documentation, or any indenture,
agreement or undertaking to which such Borrower or Guarantor is a party or by
which such Borrower or Guarantor or its property are bound, except for those
lease agreements of Lerner for which Lerner did not obtain consents from the
parties thereto with respect to this Agreement, 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
such Borrower or Guarantor other than liens in favor of Agent or any Lender as
contemplated hereby. This Agreement and the other Financing Agreements to which
each Borrower and Guarantor is a party constitute legal, valid and binding
obligations of such Borrower or Guarantor enforceable in accordance with their
respective terms.

 

77

 

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

 

(a)           The exact legal name of each
Borrower and Guarantor is as set forth on the signature pages of this Agreement
and in each Borrower’s and Guarantor’s Information Certificate, subject to the
rights of Borrowers and Guarantors to change names in accordance with Section
9.1(b) hereof. No Borrower or Guarantor has, during the five years immediately
prior to the date hereof, been known by or used 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 its property
or assets out of the ordinary course of business, except as set forth in such
Borrower’s or Guarantor’s Information Certificate.

 

(b)           Each Borrower and Guarantor is
an organization of the type and organized in the jurisdiction set forth in such
Borrower’s and Guarantor’s Information Certificate. Each Borrower’s and
Guarantor’s Information Certificate accurately sets forth the organizational
identification number of such Borrower or Guarantor or accurately states that
such Borrower or Guarantor has none and accurately sets forth the federal
employer identification number of such Borrower and Guarantor, subject to the
right of each Guarantor or Borrower to change names in accordance with Section
9.1(c) hereof.

 

(c)           The chief executive office and
mailing address of each Borrower and Guarantor and each Borrower’s and
Guarantor’s Records concerning Accounts are located only at the address(es)
identified as such in such Borrower’s and Guarantor’s Information Certificate,
subject to the rights of each Borrower and Guarantor to change its chief
executive office or its mailing address in accordance with Section 9.1(c)
hereof, and its only other places of business and the only other locations of
Collateral, if any, are the addresses set forth in such Borrower’s or Guarantor’s
Information Certificate, subject to the rights of Borrowers and Guarantors to
establish new locations in accordance with Section 9.2 hereof. Each Borrower’s
and Guarantor’s Information Certificate correctly identifies any of such
locations which are not owned by such Borrower or Guarantor and sets forth the
owners and/or operators thereof.

 

8.3           Financial Statements; No
Material Adverse Change.  All
financial statements relating to Borrowers and Guarantors (or any of them)
which have been or may hereafter be delivered by Borrowers and Guarantors (or
any of them) to Agent and Lenders 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 in all material respects the financial condition and the results
of operation of Borrowers and Guarantors as at the dates and for the periods
set forth therein. Except as disclosed in any interim financial statements
furnished by Borrowers or Guarantors to Agent prior to the date of this
Agreement or otherwise fully and accurately disclosed to Agent in writing,
there has been no act, condition, circumstance or event which has had or is
reasonably likely to have a Material Adverse Effect since the date of the most
recent audited financial statements of Borrowers and Guarantors furnished by
Borrowers and Guarantors to Agent prior to the date of this Agreement.

 

8.4           Priority of Liens; Title to
Properties.  The security interests
and liens granted to Agent under this Agreement and the other Financing
Agreements upon filing the 

 

78

 

appropriate documents
(including UCC financing statements and filings with the U.S. Patent and
Trademark Office and the U.S. Copyright Office), but only if and to the extent
that a security interest may be so perfected under applicable laws, constitute
valid and perfected first priority liens and security interests in and upon the
Collateral subject only to the liens indicated on the Information Certificates
and the other liens permitted under Section 9.8 hereof.

 

8.5           Tax Returns.  Each Borrower and Guarantor has filed, or
caused to be filed, in a timely manner (including any extensions) all federal
income tax returns and all other material tax returns, reports and declarations
that are required to be filed by it. All information in such tax returns,
reports and declarations is complete and accurate in all material respects. Each
Borrower and Guarantor has paid or caused to be paid all taxes due and payable
or claimed due and payable in any assessment received by it, except taxes (i)
the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to such Borrower or Guarantor and
with respect to which adequate reserves have been set aside on its books or
(ii) the nonpayment of which could not reasonably be expected to have a
Material Adverse Effect. Adequate provision has been made for the payment of
all accrued and unpaid material Federal, State, 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
Certificates, (a) there are no investigations by any Governmental Authority
pending, or to the best of each Borrower’s Guarantor’s knowledge threatened,
against or affecting any Borrower or Guarantor, its assets or business and (b)
there is no action, suit, proceeding or claim by any Person pending, or to the
best of each Borrower’s and Guarantor’s knowledge threatened, against any
Borrower or Guarantor or its assets or goodwill, or against or affecting any
transactions contemplated by this Agreement, in each case, which if adversely
determined against such Borrower or Guarantor has or could reasonably be
expected to have a Material Adverse Effect.

 

8.7           Compliance with Other
Agreements and Applicable Laws.  Except
for those lease agreements of Lerner for which Lerner did not obtain consents
from the parties thereto with respect to this Agreement, no Borrower or
Guarantor is in default in any respect under, or in violation in any material
respect 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 which could reasonably be expected to have a Material Adverse Effect. Except
as could not reasonably be expected to have a Material Adverse Effect, each
Borrower and Guarantor is in compliance in all respects with the requirements
of all applicable laws, rules, regulations and orders of any Governmental
Authority relating to its business, including, without limitation, those set
forth in or promulgated pursuant to the Occupational Safety and Health Act of
1970, as amended, the Fair Labor Standards Act of 1938, as amended, ERISA, the
Code, as amended, and the rules and regulations thereunder, all Federal, State
and local statutes, regulations, rules and orders relating to consumer credit
(including, without limitation, as each has been amended, the Truth-in-Lending
Act, the Fair Credit Billing Act, the Equal Credit Opportunity Act and the Fair
Credit Reporting Act, and regulations, rules and orders promulgated
thereunder), all Federal, State and local states, regulations, rules and orders
pertaining to sales of consumer goods (including, without limitation, the
Consumer Products Safety Act of 1972, as amended, and the Federal Trade
Commission Act of 1914, as amended, and all regulations, rules and orders
promulgated thereunder).

 

79

 

8.8           Environmental Compliance.

 

(a)           Except as set forth on
Schedule 8.8 hereto or as would not reasonably be expected to have a Material
Adverse Effect, no Borrower or Guarantor 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 in any material respect any applicable Environmental
Law or any permit issued to any Borrower or Guarantor under Environmental Law,
and the operations of Borrowers and Guarantors and their respective
Subsidiaries comply in all material respects with all Environmental Laws and
all permits issued to any Borrower or Guarantor under Environmental Law.

 

(b)           Except as set forth on
Schedule 8.8 hereto or as would not reasonably be expected to have a Material
Adverse Effect, there has been no investigation by any Governmental Authority
or any 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 each Borrower’s and Guarantor’s knowledge threatened, with respect to
any non-compliance with or violation of the requirements of any Environmental
Law by such Borrower or Guarantor 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 by such Borrower or Guarantor or any other
environmental, health or safety matter involving such Borrower or Guarantor,
which adversely affects or would reasonably be expected to adversely affect in
any material respect such Borrower or Guarantor or its business, operations or
assets or any properties at which such Borrower or Guarantor has transported,
stored or disposed of any Hazardous Materials.

 

(c)           Except as set forth on
Schedule 8.8 hereto or as would not reasonably be expected to have a Material
Adverse Effect, no Borrower or Guarantor has any 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)           Except as set forth on
Schedule 8.8 hereto or as would not reasonably be expected to have a Material
Adverse Effect, each Borrower and Guarantor has all permits required to be
obtained or filed in connection with the operations of such Borrower and
Guarantor under any Environmental Law and all of such licenses, certificates,
approvals or similar authorizations and other permits are valid and in full
force and effect.

 

8.9           Employee Benefits.

 

(a)           Except as could not reasonably
be expected to have a Material Adverse Effect, each Plan is in compliance in
all material respects with the applicable provisions of ERISA, the Code and
other Federal or State law and each Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service or is still within the remedial amendment period
(as defined in Section 401(b) of the Code) to obtain a favorable determination
letter. Each Borrower and Guarantor and its ERISA Affiliates have made all
required contributions to any Pension Plan subject to Section 412 

 

80

 

of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any such Pension Plan.

 

(b)           Except as could not reasonably
be expected to have a Material Adverse Effect, there are no pending, or to the
best of each Borrower’s and Guarantor’s knowledge, threatened claims, actions
or lawsuits, or action by any Governmental Authority, with respect to any Plan,
and there has been no non-exempt prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan.

 

(c)           (i)            Except as could not reasonably be expected to have a
Material Adverse Effect, no ERISA Event has occurred or is reasonably expected
to occur; (ii) the current value of the assets of each Pension Plan (determined
in accordance with the assumptions used for funding such Pension Plan pursuant
to Section 412 of the Code) are not exceeded by such Pension Plan’s liabilities
under Section 4001(a)(16) of ERISA in an amount that could reasonably be
expected to have a Material Adverse Effect; (iii) no Borrower or Guarantor or
any of its ERISA Affiliates have incurred nor do any of them reasonably expect
to incur any liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA) in an
amount which could reasonably be expected to have a Material Adverse Effect;
(iv) except as could not reasonably be expected to have a Material Adverse
Effect, no Borrower or Guarantor or any of its ERISA Affiliates have incurred
nor do any of them reasonably expect to incur any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multiemployer Plan; and (v) except as set forth on Schedule 8.9(c) hereto, no
Borrower or Guarantor or any of its ERISA Affiliates has engaged in a
transaction that would be subject to Section 4069 or 4212(c) of ERISA.

 

8.10         Bank Accounts, etc.  All of the deposit accounts, investment
accounts or other accounts in the name of or used by any Borrower or Guarantor
maintained at any bank or other financial institution are set forth on such
Borrower’s or Guarantor’s Information Certificate, subject to the right of
Borrowers and Guarantors to establish new accounts in accordance with Section
5.2(d) hereof.

 

8.11         Intellectual Property.  Each Borrower and Guarantor 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, no Borrower or Guarantor has any Intellectual Property
registered, or subject to pending applications, in the United States Patent and
Trademark Office or any similar office or agency in the United States, any
State thereof, any political subdivision thereof or in any other country, other
than those described in such Borrower’s or Guarantor’s Information Certificate
and has not granted any licenses with respect thereto other than as set forth
in such Borrower’s or Guarantor’s Information Certificate. To the best of each
Borrower’s and Guarantor’s knowledge, no event has occurred which permits or
would permit after notice or passage of time or both, the revocation,
suspension or termination of any Borrower’s or Guarantor’s Intellectual
Property rights the loss of which could reasonably be expected to have a
Material Adverse Effect. To the best of each Borrower’s and Guarantor’s
knowledge, except as could not reasonably be expected to have a Material
Adverse Effect: (i) no slogan or other advertising device, product, process, 

 

81

 

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 or Guarantor infringes
any patent, trademark, servicemark, tradename, copyright, license or other
Intellectual Property owned by any other Person presently, (ii) and no claim or
litigation is pending or threatened against or affecting any Borrower or
Guarantor contesting its right to sell or use any such Intellectual Property. Each
Borrower’s and Guarantor’s Information Certificate sets forth all of the
agreements of such Borrower or Guarantor pursuant to which such Borrower or
Guarantor has a license or other right to use any material trademarks, logos,
designs or other material Intellectual Property owned by another person as in
effect on the date hereof and the dates of the expiration of such agreements
(collectively, together with such agreements or other arrangements as may be
entered into by any Borrower or Guarantor after the date hereof, collectively,
the “License Agreements” and individually, a “License Agreement”). No
trademark, servicemark, copyright or other Intellectual Property at any time
used by any Borrower or Guarantor which is owned by another person, or owned by
such Borrower or Guarantor subject to any security interest, lien, collateral
assignment, pledge or other encumbrance in favor of any person other than
Agent, is affixed to any Eligible Inventory, except (a) as set forth on such
Borrower’s or Guarantor’s Information Certificate, (b) to the extent permitted
under the term of the License Agreements listed on such Borrower’s or
Guarantor’s  Information Certificate, and
(c) to the extent the sale of Inventory to which such Intellectual Property is
affixed is permitted to be sold by such Borrower or Guarantor under applicable
law (including the United States Copyright Act of 1976).

 

8.12         Subsidiaries; Affiliates;
Capitalization; Solvency.

 

(a)           No Borrower or Guarantor has
any direct or indirect Subsidiaries or Affiliates and is not engaged in any
joint venture or partnership except as set forth in such Borrower’s or
Guarantor’s Information Certificate.

 

(b)           Each Borrower and Guarantor is
the record and beneficial owner of all of the issued and outstanding shares of
Capital Stock of each of the Subsidiaries listed on such Borrower’s or
Guarantor’s Information Certificate as being owned by such Borrower or
Guarantor and there are no proxies, irrevocable or otherwise, with respect to
such shares and no equity securities of any of Subsidiary of a Borrower or
Guarantor 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 of a Borrower or Guarantor 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 and Guarantor are directly and
beneficially owned and held by the persons indicated in such Borrower’s or Guarantor’s
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 may be permitted under
the terms of the Financing Agreements.

 

(d)           Each Borrower and Guarantor is
Solvent and will continue to be Solvent after the creation of the Obligations,
the security interests of Agent and the other 

 

82

 

transaction contemplated
hereunder.

 

8.13         Labor Disputes.

 

(a)           Set forth on Schedule 8.13
hereto is a list (including dates of termination) of all collective bargaining
or similar agreements between or applicable to any Borrower or Guarantor and
any union, labor organization or other bargaining agent in respect of the
employees of such Borrower or Guarantor on the date hereof.

 

(b)           Except as could not reasonably
be expected to have a Material Adverse Effect, there is (i) no unfair labor
practice complaint pending against any Borrower or Guarantor or, to the best of
such Borrower’s or Guarantor’s knowledge, threatened against it, before the
National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is pending on the
date hereof against such Borrower or Guarantor or, to best of such Borrower’s
or Guarantor’s knowledge, threatened against it, and (ii) no strike, labor
dispute, slowdown or stoppage is pending against any Borrower or Guarantor or,
to the best of such Borrower’s or Guarantor’s knowledge, threatened against
such Borrower or Guarantor.

 

8.14         Restrictions on Subsidiaries.  Except for restrictions contained in this
Agreement, the Transition Services Agreement, or any other agreement with respect
to Indebtedness of any Borrower or Guarantor permitted hereunder as in effect
on the date hereof (or hereafter in effect pursuant to any refinancing thereof
permitted under the terms of this Agreement), there are no contractual or
consensual restrictions on any Borrower or Guarantor or any of its Subsidiaries
which prohibit or otherwise restrict (a) the transfer of cash or other assets
(i) between Borrowers, (ii) between any Borrower or Guarantor and any
Subsidiary of a Borrower or Guarantor, or (iii) between any Subsidiaries of any
Borrower or Guarantor or (b) the ability of any Borrower or Guarantor or any of
its Subsidiaries to incur Indebtedness or grant security interests to Agent or
any Lender in the Collateral.

 

8.15         Material Contracts.  Schedule 8.15 hereto sets forth a list of all
Material Contracts to which any Borrower or Guarantor is a party or is bound as
of the date hereof. Each Borrower and Guarantor has delivered true, correct and
complete copies of such Material Contracts to Agent on or before the date
hereof. No Borrower or Guarantor is in breach or in default in any material
respect of or under any Material Contract and have not received any notice of
the intention of any other party thereto to terminate any Material Contract.

 

8.16         Credit Card Agreements.  Set forth in Schedule 8.16 hereto is a
correct and complete list of all of the Credit Card Agreements as of the date
hereof and all other agreements, documents and instruments existing as of the
date hereof between or among any Borrower or Guarantor, any of their
Affiliates, the Credit Card Issuers, the Credit Card Processors and any of
their Affiliates. The Credit Card Agreements constitute all of such agreements
necessary for Borrowers and Guarantors to operate their business as presently
conducted with respect to credit cards and debit cards and no Receivables of
any Borrower or Guarantor arise from purchases by customers of Inventory with
credit cards or debit cards, other than those which are issued by Credit Card
Issuers with whom such Borrower or Guarantor has entered into one of the Credit
Card Agreements set forth on Schedule 8.16 hereto or with whom 

 

83

 

such Borrower or Guarantor has
entered into a Credit Card Agreement in accordance with Section 9.22 hereof. Each
of the Credit Card Agreements constitutes the legal, valid and binding
obligations of the Borrower or Guarantor that is party thereto and to the best
of each Borrower and Guarantor’s knowledge, the other parties thereto,
enforceable in accordance with their respective terms and is in full force and
effect. Except as could not reasonably (i) be expected to have a Material
Adverse Effect or (ii) result in the cessation of the transfer of payments
under any Credit Card Agreement to the Blocked Accounts as required under this
Agreement, no default or event of default, or act, condition or event which
after notice or passage of time or both, would constitute a default or an event
of default under any of the Credit Card Agreements exists or has occurred. The
applicable Borrower and Guarantors and the other parties thereto have complied
with all of the terms and conditions of the Credit Card Agreements to the
extent necessary for such Borrower or Guarantor to be entitled to receive all
payments thereunder which constitute proceeds of Eligible Credit Card
Receivables. Borrowers and Guarantors have delivered, or caused to be delivered
to Agent, true, correct and complete copies of all of the Credit Card
Agreements.

 

8.17         Payable Practices.  Borrowers and Guarantors have not made any
material changes in their historical accounts payable practices from those in
effect immediately prior to the date hereof.

 

8.18         Accuracy and Completeness of
Information.  All information
furnished by or on behalf of any Borrower or Guarantor in writing to Agent or
any 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 Certificates 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 Affect, which has not been
fully and accurately disclosed to Agent in writing prior to the date hereof.

 

8.19         No Defaults.  As of the date hereof, no event has occurred
and is continuing that constitutes (a) an Event of Default or Default
hereunder, [or (b) except as could not reasonably be expected to have a
Material Adverse Effect, a default or event of default under the Transition
Services Agreement.

 

8.20         Transition Services.  As of the date hereof, the only material
services being provided to Borrowers and Guarantors under the Transition
Services Agreement are logistics or other such Inventory processing and
handling services.

 

8.21         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 Agent and Lenders on the date of each additional
borrowing or other credit accommodation hereunder and shall be conclusively
presumed to have been relied on by Agent and Lenders regardless of any
investigation made or information possessed by Agent or any Lender. The
representations and warranties set forth herein shall be cumulative and in
addition to any other representations or warranties which any Borrower or
Guarantor shall now or hereafter give, or cause to be given, to 

 

84

 

Agent or any Lender.

 

9.                                       AFFIRMATIVE AND NEGATIVE COVENANTS

 

9.1           Maintenance of Existence.

 

(a)           Except as permitted under
Section 9.7 hereof, each Borrower and Guarantor shall at all times preserve,
renew and keep in full force and effect its corporate existence and material
rights and franchises with respect thereto and maintain in full force and
effect all material licenses, trademarks, tradenames, approvals,
authorizations, leases, contracts and Permits necessary to carry on the
business as presently or proposed to be conducted.

 

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

 

(c)           No Borrower or Guarantor 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 Agent shall have received not less than thirty (30) days’ prior written
notice from such Borrower or Guarantor of such proposed change, which notice
shall set forth such information with respect thereto as Agent may require and
Agent shall have received such agreements as Agent may reasonably require in
connection therewith. Without the prior written consent of Agent, such consent
not to be unreasonably withheld, no Borrower or Guarantor shall change its type
of organization, jurisdiction of organization or other legal structure.

 

9.2           New Collateral Locations.  Any Borrower or Guarantor may open any new
location within the continental United States provided such Borrower or
Guarantor (a) gives Agent written notice of the opening of any such new
location on or before the date such Borrower or Guarantor decides to open such
new location and (b) executes and delivers, or causes to be executed and
delivered, to Agent such agreements, documents, and instruments as Agent may
deem reasonably necessary or desirable to protect its interests in the
Collateral at such location.

 

9.3           Compliance with Laws,
Regulations, Etc.

 

(a)           Except as could not reasonably
be expected to cause a Material Adverse Effect, each Borrower and Guarantor
shall, and shall cause its respective Subsidiaries to, at all times, comply in
all material respects with all laws, rules, regulations, licenses, approvals,
orders and other Permits applicable to it and duly observe all requirements of
any foreign, Federal, State or local Governmental Authority, the Code, the
Occupational Safety and Health Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, all Federal, State and local statutes,
regulations, rules and orders relating to consumer credit (including, without
limitation, as each has been amended, the Truth-in-Lending Act, the Fair Credit
Billing Act, the Equal Credit Opportunity Act and the Fair Credit Reporting
Act, and regulations, rules 

 

85

 

and orders promulgated
thereunder), all Federal, State and local statutes, regulations, rules and
orders pertaining to sales of consumer goods (including, without limitation,
the Consumer Products Safety Act of 1972, as amended, and the Federal Trade
Commission Act of 1914, as amended, and all regulations, rules and orders
promulgated thereunder) and all statutes, rules, regulations, orders, permits
and stipulations relating to environmental pollution and employee health and
safety, including all of the Environmental Laws.

 

(b)           Each Borrower and Guarantor
shall give written notice to Agent promptly upon such Borrower’s or Guarantor’s
receipt of any notice of, or such Borrower’s or Guarantor’s otherwise obtaining
knowledge of any of the following, except if it could not reasonably be
expected to have a Material Adverse Effect, (i) the occurrence of any event
involving the unpermitted release, spill or discharge, threatened or actual, of
any Hazardous Material by any Borrower or Guarantor or (ii) any investigation,
proceeding, complaint, order, directive, claims, citation or notice with
respect to: (A) any non-compliance with or violation of any Environmental Law
by any Borrower or Guarantor or (B) the release, spill or discharge, threatened
or actual, of any Hazardous Material by any Borrower or Guarantor 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 and Guarantors
to Agent. Borrowers and Guarantors shall take prompt action to respond to any
material non-compliance with any of the Environmental Laws and shall regularly
report to Agent on such response.

 

(c)           Without limiting the
generality of the foregoing, whenever Agent reasonably determines that there is
non-compliance, or any condition which requires any action by or on behalf of
any Borrower or Guarantor in order to avoid any non-compliance, with any
Environmental Law except with respect to such noncompliance that could not
reasonably be expected to have a Material Adverse Effect, Borrowers and
Guarantors shall, at Agent’s request and Borrowers’ expense: (i) cause an independent
environmental consultant reasonably acceptable to Agent to assess such
non-compliance or alleged non compliance with such Environmental Laws
(including sampling and analysis, if necessary) and prepare and deliver to
Agent a report as to such non-compliance setting forth the results of any
sampling or analysis, a proposed plan for responding to any environmental
problems described therein, and an estimate of the costs thereof and (ii)
provide to Agent a supplemental report of such consultant whenever the scope of
such non-compliance, or any Borrower’s or Guarantor’s response thereto or the
estimated costs thereof, shall change in any material respect.

 

(d)           Each Borrower and Guarantor
shall indemnify and hold harmless Agent and Lenders and their respective
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys’ fees and 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 or Guarantor and the preparation and
implementation of any closure, remedial or other required plans except to the
extent such losses, claims, damages, liabilities, costs, and expenses arise out
of or are attributable to the negligence or willful 

 

86

 

misconduct of Agent or any
Lender. All representations, warranties and indemnifications in this Section
9.3 shall survive the payment of the Obligations and the termination of this
Agreement.

 

9.4           Payment of Taxes and Claims.  Each Borrower and Guarantor shall, and shall
cause its Subsidiaries to, duly pay and discharge all taxes, assessments,
contributions and governmental charges upon or against it or its properties or
assets, except for taxes (i) the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to such
Borrower or Guarantor or its Subsidiaries, as the case may be, and with respect
to which adequate reserves have been set aside on its books or (ii) the
non-payment of which could not reasonably be expected to have a Material
Adverse Effect.

 

9.5           Insurance.  Each Borrower and Guarantor shall, and shall
cause its Subsidiaries to, at all times, maintain with financially sound and
reputable insurers insurance with respect to the Collateral against loss or
damage and all other 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 reasonably satisfactory to Agent as to form, amount and
insurer. Each Borrower and Guarantor shall furnish certificates, policies or
endorsements to Agent as Agent shall reasonably require as proof of such
insurance, and, if such Borrower or Guarantor fails to do so, Agent is
authorized, but not required, to obtain such insurance at the expense of
Borrowers. All policies with regard to such insurance shall provide for at
least thirty (30) days prior written notice to Agent of any cancellation or
reduction of coverage and that Agent may act as attorney for such Borrower or
Guarantor in obtaining, and at any time an Event of Default exists or has
occurred and is continuing, adjusting, settling, amending and canceling such
insurance. Within ten days after the date hereof, Borrowers and Guarantors
shall cause Agent to be named as a loss payee and an additional insured, as its
interests may appear (but without any liability for any premiums), under such
insurance policies and Borrowers and Guarantors shall obtain non-contributory
lender’s loss payable endorsements to all such insurance policies in form and
substance satisfactory to Agent. Such lender’s loss payable endorsements shall
specify that the proceeds of such insurance shall be payable to Agent, for
itself and the ratable benefit of the Lenders and the Bank Product Providers,
as its interests may appear and further specify that Agent and Lenders shall be
paid regardless of any act or omission by any Borrower or Guarantor or any of
its Affiliates. Without limiting any other rights of Agent or Lenders, any
insurance proceeds received by Agent at any time may be applied to payment of
the Obligations, whether or not then due, in accordance with Section 6.4(a)
hereof. Upon application of such proceeds to the Revolving Loans, Revolving
Loans may be available subject and pursuant to the terms hereof to be used for
the costs of repair or replacement of the Collateral lost or damages resulting
in the payment of such insurance proceeds.

 

9.6           Financial Statements and
Other Information.

 

(a)           Each Borrower and Guarantor
shall, and shall cause its Subsidiaries 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 such Borrower or
Guarantor and its Subsidiaries in accordance with GAAP. Borrowers and
Guarantors shall promptly furnish to Agent and Lenders all such financial and
other information as Agent shall reasonably request relating to the Collateral
and the assets, business and 

 

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operations of Borrowers and
Guarantors, and Borrowers and Guarantors shall notify their auditors and
accountants that Agent is authorized to obtain such information directly from
them. Without limiting the foregoing, Borrowers and Guarantors shall furnish or
cause to be furnished to Agent, the following: (i) within thirty (30) days
after the end of each fiscal month, monthly unaudited consolidated financial
statements, and unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss, statements of cash flow,
and statements of shareholders’ equity), all in reasonable detail, fairly
presenting the financial position and the results of the operations of
NY&Co and its Subsidiaries as of the end of and through such fiscal month,
certified to be correct by either the “chief accounting officer or the or chief
financial officer of each Borrower, subject to normal year-end adjustments and
accompanied by a compliance certificate substantially in the form of Exhibit C
hereto, along with a schedule in a form reasonably satisfactory to Agent of the
calculations used in determining, as of the end of such month, whether
Borrowers and Guarantors are in compliance with the covenants set forth in
Sections 9.17 and 9.18 of this Agreement for such month, (ii) during any
Availability Compliance Period or any Additional Appraisal/ Field Exam Period,
on the last Business Day of any month therein, Borrowers will deliver to Agent
a compliance report, in form and substance reasonably satisfactory to Agent,
along with a schedule 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 either or both an Availability Compliance Period and an
Additional Appraisal/Field Exam Period has ceased to exist, and (iii) without duplication
within ninety (90) days after each Fiscal Year-End, audited consolidated
financial statements and unaudited consolidating financial statements of
NY&Co and its Subsidiaries (including in each case balance sheets,
statements of income and loss, statements of cash flow, and statements of
shareholders’ equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of NY&Co and its Subsidiaries as of the Fiscal Year-End of and
for such fiscal year, together with the unqualified opinion of independent
certified public accountants with respect to the audited consolidated financial
statements, which accountants shall be an independent accounting firm selected
by NY&Co and reasonably acceptable to Agent, that such audited consolidated
financial statements have been prepared in accordance with GAAP, and present
fairly the results of operations and financial condition of NY&Co and its
Subsidiaries as of the Fiscal Year-End then ended.

 

(b)           Borrowers and Guarantors shall
promptly notify Agent in writing of the details of (i) any loss, damage,
investigation, action, suit, proceeding or claim relating to Collateral having
a value of more than $1,000,000 or which if adversely determined would result
in any material adverse change in any Borrower’s or Guarantor’s business,
properties, assets, goodwill or condition, financial or otherwise, (ii) any
Material Contract being terminated or amended or any new Material Contract
entered into (in which event the applicable Borrower or Guarantor shall provide
Agent with a copy of such Material Contract), (iii) any order, judgment or
decree in excess of $1,000,000 shall have been entered against any Borrower or
Guarantor or any of its properties or assets, (iv) any notification of a
material violation of laws or regulations received by any Borrower or
Guarantor, (v) any ERISA Event, and (vi) the occurrence of any Event of
Default.

 

(c)           Borrowers shall promptly after
the sending or filing thereof furnish or cause to be furnished to Agent copies
of all reports and registration statements which any Borrower or Guarantor
files with the Securities and Exchange Commission, any national 

 

88

 

securities exchange or the
National Association of Securities Dealers, Inc. Borrowers shall, in addition
to the foregoing, promptly after the sending of all material business reports
which any Borrower or Guarantor sends to its stockholders generally furnish or
cause to be furnished to Agent copies thereof.

 

(d)           As soon as available but in
any event by no later than the thirtieth (30th) day after each Fiscal Year-End,
Borrowers and Guarantors shall furnish or cause to be furnished to Agent such
budgets, forecasts, projections and other information respecting the Collateral
and the business of Borrowers and Guarantors, as Agent may reasonably request. Agent
is hereby authorized to deliver a copy of any financial statement or any other
information relating to the business of Borrowers and Guarantors to any court
or other Governmental Authority, or to any Lender or Participant or prospective
Lender or Participant, or any financial institution engaged in the same
business as Agent. Each Borrower and Guarantor hereby irrevocably authorizes
and directs all accountants or auditors to deliver to Agent, at Borrowers’
expense and without duplication, copies of the financial statements of
Borrowers and Guarantors (or any of them) and any reports or management letters
prepared by such accountants or auditors on behalf of Borrowers and Guarantors
(or any of them) and to disclose to Agent and Lenders such information as they
may have regarding the business of any Borrower or Guarantor. Any documents,
schedules, invoices or other papers delivered to Agent or any Lender may be
destroyed or otherwise disposed of by Agent or such Lender one (1) year after
the same are delivered to Agent or such Lender, except as otherwise designated
by party to Agent or such Lender in writing.

 

9.7           Sale of Assets,
Consolidation, Merger, Dissolution, Etc. 
No Borrower or Guarantor shall, nor shall it permit any of its
Subsidiaries to, directly or indirectly:

 

(a)           merge into or with or
consolidate with any other Person or permit any other Person to merge into or
with or consolidate with it; provided, however, upon prior written notice to
Agent:

 

(i)            a Borrower may
merge into or with or consolidate with another Borrower so long as both before
and after giving effect thereto no Default, Event of Default or Material Adverse
Effect exists or would occur;

 

(ii)           a Guarantor may
merge into or with or consolidate with another Guarantor; and

 

(iii)          a Guarantor may
merge into or with or consolidate with a Borrower so long as (A) such Borrower
is the surviving entity with respect thereto and continues to be an
organization of the type, domiciled in the state and bearing the same corporate
name as existed prior to such merger or consolidation, (B) no Default or Event
of Default then exists or would occur, (C) no liens, other than those permitted
under the terms of this Agreement with regard to a Borrower, on the assets of
such Guarantor then exist, and (D) such Borrower would not, as a result of such
transaction, be liable for any Indebtedness or other obligations of such Guarantor,
other than Indebtedness or other obligations which are permitted under the
terms of this Agreement with regard to a Borrower;

 

89

 

(b)           sell, issue, assign, lease,
license, transfer, abandon or otherwise dispose of any Capital Stock to any
other Person or any of its assets to any other Person, except  for

 

(i)            sales of Inventory
in the ordinary course of business;

 

(ii)           subleases of real
property or licenses of Intellectual Property in the ordinary course of
business, as disclosed to Agent pursuant to quarterly reports of such activity,

 

(iii)          exclusive of sales
or dispositions contemplated by clause (vi) hereof, the sale or other disposition
of Equipment (including worn-out or obsolete Equipment or Equipment no longer
used or useful in the business of Borrowers) so long as the value of such
Equipment sold in any fiscal year is equal to or less than the value of all
Equipment acquired in such year, and

 

(iv)          the issuance and
sale by any Borrower or Guarantor of Capital Stock of such Borrower or
Guarantor after the date hereof; provided, that, (A) Agent shall have received
not less than ten (10) Business Days’ prior written notice of such issuance and
sale by such Borrower or Guarantor, which notice shall specify the parties to
whom such shares are to be sold, the terms of such sale, the total amount which
it is anticipated will be realized from the issuance and sale of such stock and
the net cash proceeds which it is anticipated will be received by such Borrower
or Guarantor from such sale, (B) such Borrower or Guarantor shall not be
required to pay any cash dividends or repurchase or redeem such Capital Stock
or make any other payments in respect thereof, except as otherwise permitted in
Section 9.11 hereof, (C) the terms of such Capital Stock, and the terms and
conditions of the purchase and sale thereof, shall not include any terms that
include any limitation on the right of any Borrower to request or receive Loans
or Letter of Credit Accommodations or the right of any Borrower or Guarantor to
amend or modify any of the terms and conditions of this Agreement or any of the
other Financing Agreements or otherwise in any way relate to or affect the
arrangements of Borrowers and Guarantors with Agent and Lenders or are more
restrictive or burdensome to Borrowers and Guarantors than the terms of any
Capital Stock in effect on the date hereof and (D) if an Event of Default then
exists, all of the proceeds of the sale and issuance of such Capital Stock
shall be paid to Agent for application to the Obligations in accordance with
Section 6.4(a) hereof or at Agent’s option, to be held as cash collateral for
the Obligations,

 

(v)           the issuance of
Capital Stock of a Borrower or Guarantor consisting of common stock pursuant to
an employee stock option or grant or similar equity plan or 401(k) plans of
such Borrower or Guarantor for the benefit of its employees, directors and
consultants, provided, that, in no event shall such Borrower or Guarantor be
required to issue, or shall such Borrower or Guarantor issue, Capital Stock
pursuant to such stock plans or 401(k) plans which would result in a Change of
Control or other Event of Default,

 

(vi)          sales or other
dispositions by any Borrower of assets in connection with the closing or sale
of a retail store location of such Borrower in the ordinary course of such
Borrower’s business which consist of leasehold interests in the premises of
such store, the Equipment and fixtures located at such premises and the books
and records relating 

 

 

90

 

exclusively and directly to the
operations of such store; provided, that, as to each and all such
sales and closings, on the date of, and after giving effect to, any such
closing or sale, (A) the number of retail store locations closed or sold by
such Borrower in any fiscal year minus the number of retail stores opened by
such Borrower in such fiscal year, shall not exceed the amount equal to fifteen
percent (15%) of the number of retail store locations of such Borrower as of
the end of the immediately preceding fiscal year, (B) Agent shall have received
not less than ten (10) Business Days prior written notice of such sale or closing,
which notice shall set forth in reasonable detail satisfactory to Agent, the
parties to such sale or other disposition, the assets to be sold or otherwise
disposed of, the purchase price and the manner of payment thereof and such
other information with respect thereto as Agent may request, (C) as of the date
of such sale or other disposition and after giving effect thereto, no Default
or Event of Default shall exist or have occurred and be continuing, (D) such
sale shall be on commercially reasonable prices and terms in a bona fide arm’s
length transaction, and (E) any and all proceeds payable or delivered to such
Borrower or any Guarantor in respect of such sale or other disposition shall be
paid or delivered, or caused to be paid or delivered, to Agent in accordance
with the terms of this Agreement (except to the extent such proceeds reflect
payment in respect of Indebtedness secured by a properly perfected first
priority security interest in the assets sold, in which case, such proceeds
shall be applied to such Indebtedness secured thereby),

 

(vii)         sales or transfers
of assets between Borrowers,

 

(viii)        sales or transfers
of assets from a Guarantor to a Borrower so long as no Default or Event of
Default would occur as a result thereof,

 

(ix)           sales or transfers
of assets among Guarantors, and

 

(x)            the sale by
Borrowers of the assets and properties related to the “JasmineSola” division so
long as the following conditions have been satisfied: (A)  Agent shall have received not less than ten
(10) Business Days prior written notice of such sale, which notice shall set
forth in reasonable detail satisfactory to Agent, the parties to such sale, the
assets to be sold, the purchase price and the manner of payment thereof and
such other information with respect thereto as Agent may request, (B) as of the
date of such sale and after giving effect thereto, no Default or Event of
Default shall exist or have occurred and be continuing, (C) such sale shall be
on commercially reasonable prices and terms in a bona fide arm’s length
transaction, and  (D) Borrowers may
receive and retain the net proceeds of any such sale if each of the following
conditions have been satisfied:  (a) no
Availability Compliance Period is then in effect, and (b) Agent shall have
received a pro forma Borrowing Base Certificate that reflects the effect of the
transactions contemplated by such sale, and if such conditions are not
satisfied, all net proceeds payable or delivered to Jasmine or the other
Borrowers or any Guarantor in respect of such sale shall be paid or delivered,
or caused to be paid or delivered, to Agent in accordance with the terms of
this Agreement (except to the extent such proceeds reflect payment in respect
of Indebtedness secured by a properly perfected first priority security
interest in the assets sold, in which case, such proceeds shall be applied to
such Indebtedness secured thereby);

 

(c)           except as permitted in clause
(a) above, wind up, liquidate or dissolve; or

 

91

 

(d)           agree to do any of the
foregoing.

 

9.8           Encumbrances.

 

No Borrower or Guarantor shall, nor shall it permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any security
interest, mortgage, pledge, lien, charge or other encumbrance of any nature
whatsoever on any of its assets or properties, including the Collateral, or
file or permit the filing of, or permit to remain in effect, any financing
statement or other similar notice of any security interest or lien with respect
to any such assets or properties, except:

 

(a)           the security interests and
liens of Agent, for itself and the ratable benefit of the Lenders and the Bank
Product Providers;

 

(b)           liens securing the payment of
taxes, assessments or other governmental charges or levies either not yet
overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to such Borrower or
Guarantor or its 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, such Guarantor’s, or such Subsidiary’s, business to the
extent: (i) such liens secure Indebtedness 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 Borrower, such Guarantor 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, such
Guarantor or such Subsidiary, as presently conducted thereon or materially
impair the value of the Real Property which may be subject thereto;

 

(e)           purchase money security
interests in Equipment (including Capital Leases) to secure Indebtedness
permitted under Section 9.9(b) hereof;

 

(f)            pledges and deposits of cash
by such Borrower or Guarantor after the date hereof in the ordinary course of
business in connection with workers’ compensation, unemployment insurance and
other types of social security benefits consistent with the practices of such
Borrower or Guarantor as of the date hereof;

 

(g)           pledges and deposits of cash
by such Borrower or Guarantor after the date hereof to secure the performance
of tenders, bids, leases, trade contracts (other than for the repayment of
Indebtedness), statutory obligations and other similar obligations in each case
in the ordinary course of business consistent with the practices of such
Borrower or Guarantor as of the date hereof; provided, that, in connection with
any performance bonds issued by a surety or other person, the issuer of such
bond shall have waived in writing any rights in or to, or other 

 

92

 

interest in, any of the
Collateral in an agreement, in form and substance satisfactory to Agent;

 

(h)           liens arising from (i)
operating leases and the precautionary UCC financing statement filings in
respect thereof and (ii) equipment or other materials which are not owned by a
Borrower or Guarantor located on the premises of such Borrower or Guarantor
(but not in connection with, or as part of, the financing thereof) from time to
time in the ordinary course of business and consistent with current practices
of such Borrower or Guarantor and the precautionary UCC financing statement
filings in respect thereof;

 

(i)            liens or rights of setoff or
credit balances of such Borrower or Guarantor with Credit Card Issuers, but not
liens on or rights of setoff against any other property or assets of such
Borrower or Guarantor pursuant to the Credit Card Agreements (as in effect on
the date hereof) to secure the obligations of such Borrower or Guarantor to the
Credit Card Issuers as a result of fees and chargebacks;

 

(j)            deposits of cash with the
owner or lessor of premises leased and operated by such Borrower or Guarantor
in the ordinary course of the business of such Borrower or Guarantor to secure
the performance by such Borrower or Guarantor of its obligations under the
terms of the lease for such premises;

 

(k)           judgments and other similar
liens arising in connection with court proceedings that do not constitute an
Event of Default, provided, that, (i) such liens are being contested in good
faith and by appropriate proceedings diligently pursued, (ii) adequate reserves
or other appropriate provision, if any, as are required by GAAP have been made
therefor, (iii) a stay of enforcement of any such liens is in effect and (iv)
Agent may establish a Reserve with respect thereto;

 

(l)            the security interests and
liens in favor of New Term Loan Agent to secure Indebtedness permitted by
Section 9.9(i) hereof and that are subject to the terms and conditions of the
New Term Loan Intercreditor Agreement; and

 

(m)          the security interests and
liens set forth on the Information Certificates.

 

9.9           Indebtedness.  No Borrower or Guarantor shall, nor shall it
permit any of its respective Subsidiaries to, incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any Indebtedness,
or guarantee, assume, endorse, or otherwise become responsible for (directly or
indirectly), the Indebtedness of any other 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) so
long as such security interests do not apply to any property of any Borrower or
Guarantor, or any Subsidiary of a Borrower or Guarantor other than the
Equipment so acquired, and the Indebtedness secured thereby does not exceed the
cost of the Equipment so acquired, as the case may be;

 

93

 

(c)           unsecured Indebtedness of a
Borrower or Guarantor arising after the date hereof to any third person; provided,
that, (i) Borrowers have Excess Availability plus Qualified Cash of at
least the Specified Excess Availability Amount after giving effect to such
Indebtedness, and if such Indebtedness is incurred while an Event of Default
has occurred and is continuing, each of the following conditions is satisfied
as determined by Agent, such Indebtedness shall be on terms and conditions
acceptable to Agent and shall be subject and subordinate in right of payment to
the right of Agent and Lenders 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 Agent and such third party, in form and
substance satisfactory to Agent, (ii) Agent shall have received not less than
ten (10) days prior written notice of the intention of such Borrower or
Guarantor to incur such Indebtedness, which notice shall set forth in
reasonable detail satisfactory to Agent 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 thereto and such
other information as Agent may request with respect thereto, (iii) Agent shall
have received true, correct and complete copies of all agreements, documents
and instruments evidencing or otherwise related to such Indebtedness, (iv) all
of the proceeds of the loans or other accommodations giving rise to such
Indebtedness shall be paid to Agent for application to the Obligations in such
order and manner consistent with Section 6.4(a) hereof, or at Agent’s option,
to be held as cash collateral for the Obligations, (v) such Borrower or
Guarantor 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 or Guarantor may, after prior written
notice to Agent, 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) such Borrower or Guarantor shall furnish to Agent all
notices or demands in connection with such Indebtedness either received by such
Borrower or Guarantor or on its behalf promptly after the receipt thereof, or
sent by such Borrower or Guarantor or on its behalf concurrently with the
sending thereof, as the case may be;

 

(d)           [Reserved];

 

(e)           refinancing of the
Indebtedness referenced in the subsections (a), (b) or (c) above so long as
such Indebtedness continues to comply with all provisions of such subsections
(a), (b), or (c) as applicable, and the incurrence of such Indebtedness would
not otherwise cause a Default or Event of Default to occur;

 

(f)            unsecured Indebtedness
arising under or pursuant to any agreements entered into by a Borrower or
Guarantor or a Subsidiary of a Borrower or Guarantor, for non-speculative
purposes, that provides for an interest rate, credit, commodity or equity swap,
cap, floor, collar, forward foreign exchange transaction, currency swap, cross
currency rate swap, currency option, or any combination of, or option with
respect to, these or similar transactions, for the purpose of hedging such
Person’s exposure to fluctuations in interest or exchange rates, loan, credit
exchange, security or currency valuations or commodity prices;

 

94

 

(g)           Indebtedness arising in
connection with any reasonable deferred compensation plan to officers,
employees and directors for services rendered to Borrowers and Guarantors in
the ordinary course of business;

 

(h)           the Indebtedness set forth on
Schedule 9.9(h) hereto or other Indebtedness of any Borrower to another
Borrower or Guarantor or of any Guarantor to a Borrower or another Guarantor,
in each case, so long as (i) such Guarantors are parties to the Intercompany
Subordination Agreement, (ii) such Indebtedness is unsecured and (iii) payments
made by a Borrower with respect to such Indebtedness are made on a non-cash
basis by way of a balance sheet adjustment; and

 

(i)            Indebtedness of Borrowers and
Guarantors to New Term Loan Agent and New Term Loan Lenders evidenced by or
arising under the New Term Loan Agreement (as permitted to be amended under the
terms of the New Term Loan Intercreditor Agreement); provided, that,
each of the following conditions is satisfied as determined by Agent:

 

(i)            Agent shall have
received not less than thirty (30) days’ prior written notice of the intention
of Borrowers and Guarantors to incur the such Indebtedness, including a
description of the terms of such Indebtedness;

 

(ii)           the aggregate
principal amount of such Indebtedness shall not exceed $100,000,000, less the aggregate
amount of all repayments, repurchases or redemptions, whether optional or
mandatory, in respect thereof, plus any interest in accordance with the terms
of the New Term Loan Agreement (as may be amended in accordance with the terms
and conditions of the New Term Loan Intercreditor Agreement);

 

(iii)          the Existing Term
Loan and all Obligations relating thereto shall have been indefeasibly paid in
full in immediately available funds;

 

(iv)          Agent shall have
received, in form and substance reasonably satisfactory to Agent, the New Term
Loan Intercreditor Agreement, duly authorized, executed and delivered by New
Term Loan Agent and acknowledged by Borrowers and Guarantors;

 

(v)           the security
interests and liens and other terms thereof shall be subject to the terms of
the New Term Loan Intercreditor Agreement to the extent provided for therein;

 

(vi)          Agent shall have
received, in form and substance satisfactory to Agent, true, correct and
complete copies of all of the New Term Loan Documents or other agreements,
documents, and instruments evidencing or otherwise related to such
Indebtedness, each as executed and delivered by the parties thereto;

 

(vii)         Borrowers and
Guarantors shall not, directly or indirectly, make any payments in respect of
such Indebtedness, except to the extent permitted by the terms of the New Term
Loan Agreement;

 

(viii)        Borrowers and
Guarantors shall not, directly or indirectly, 

 

95

 

amend, modify, alter or change
the terms of such Indebtedness or any of the New Term Loan Documents in any
manner prohibited by the New Term Loan Intercreditor Agreement; and

 

(ix)           Borrowers and
Guarantors shall furnish to Agent all material notices or demands in connection
with such Indebtedness either received by Borrowers or on their behalf promptly
after the receipt thereof, or sent by any Borrower or Guarantor or on its
behalf concurrently with the sending thereof, as the case may be; and

 

(j)            the guarantee by Guarantors
of the Indebtedness under the Term Loan Documents to the extent permitted by
Section 9.9(i) hereof.

 

9.10         Prepayments and Amendments;
Loans, Investments, Etc.

 

(a)           No Borrower or Guarantor
shall, nor permit any of its respective Subsidiaries to, directly or
indirectly, prepay, redeem, defease, purchase or otherwise acquire: (i) the
Obligations except in accordance with this Agreement; and (ii) any Indebtedness
which has been subordinated to the Obligations except in accordance with the
terms of such subordination.

 

(b)           No Borrower or Guarantor
shall, nor shall any Borrower or Guarantor permit any of its respective
Subsidiaries to, directly or indirectly, make any loans or advance money or
property to any person, or invest 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:

 

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

 

(ii)           investments in cash
or Cash Equivalents, provided, that, (i) no Revolving Loans are then
outstanding and (ii) the terms and conditions of Section 5.2 hereof shall have
been satisfied with respect to the deposit account, investment account or other
account in which such cash or Cash Equivalents are held;

 

(iii)          the equity
investments of such Borrower or Guarantor in its Subsidiaries existing as of
the date hereof or otherwise permitted to be made hereunder, provided, that,
such Borrower or Guarantor shall not have any further obligations or
liabilities to make any capital contributions or other additional investments
in or for the benefit of any of such Subsidiaries;

 

(iv)          loans and advances
by such Borrower or Guarantor to employees of such Borrower or Guarantor not to
exceed the principal amount of $2,000,000 in the aggregate for all Borrowers
and Guarantors at any time outstanding for: 
(i) reasonably and necessary work-related travel or other ordinary
business expenses to be incurred by such employee in connection with their work
for such Borrower or Guarantor and (ii) reasonable and necessary relocation
expenses of such employees (including home mortgage financing for relocated
employees);

 

(v)           stock or obligations
issued to such Borrower or Guarantor 

 

96

 

by any Person (or the
representative of such Person) in respect of Indebtedness of such Person owing
to such Borrower or Guarantor 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 Agent,
upon Agent’s request, together with such stock power, assignment or endorsement
by such Borrower or Guarantor as Agent may request;

 

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

 

(vii)         the loans and
advances set forth on Schedule 9.10 hereto; provided, that, as to such loans
and advances, (i) such Borrower or Guarantor 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) such Borrower or
Guarantor shall furnish to Agent all notices or demands in connection with such
loans and advances either received by such Borrower or Guarantor or on its
behalf, promptly after the receipt thereof, or sent by such Borrower or
Guarantor or on its behalf, concurrently with the sending thereof, as the case
may be;

 

(viii)        investments made by
such Borrower or Guarantor in connection with the purchase of assets or Capital
Stock of a Person engaged in substantially the same or a related business as
such Borrower or Guarantor so long as (A) no Event of Default has occurred and
is continuing, (B) Borrowers have Excess Availability plus Qualified Cash of at
least the Specified Excess Availability Amount after giving effect to such
investment, (C) such Person shall have executed and delivered a Guarantee to
Agent, for itself and the ratable benefit of the Lenders and the Bank Product
Providers, and (D) the assets of such Person shall not be included in the
calculation of the Borrowing Base;

 

(ix)           loans or advances
from (A) one Borrower to another, (B) from a Guarantor to a Borrower or another
Guarantor so long as such Guarantors are parties to the Intercompany
Subordination Agreement, or (C) from any Borrower to any Guarantor so long as
(1) such loans or advances are made on a non-cash basis as balance sheet
entries and (2) such Guarantor is a party to the Intercompany Subordination
Agreement; and

 

(x)            NY&Co may
repurchase shares of Capital Stock from its shareholders; provided, that  (A) for each of the thirty (30) days
immediately prior to the date of such repurchase, Excess Availability plus
Qualified Cash shall have been not less than the Specified Excess Availability
Amount, and as of the date of any such repurchase and after giving effect
thereto, Excess Availability plus Qualified Cash shall not be less than the
Specified Excess Availability Amount, (B) any such repurchase by NY&CO
shall not contravene its Certificate of Incorporation and By-Laws and shall
comply with all applicable provisions of State and Federal law and (C) as of
the date of any such repurchase and after giving effect thereto, no Event of
Default shall exist or shall have occurred and be continuing.

 

97

 

9.11         Dividends and Redemptions.

 

No Borrower or Guarantor shall, directly or indirectly, declare or pay
any dividends on account of any shares of class of any Capital Stock of such
Borrower or Guarantor 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 that:

 

(a)           any Borrower or Guarantor may
declare and pay such dividends or redeem, retire, defease, purchase or
otherwise acquire any shares of any class of Capital Stock for consideration in
the form of shares of common stock (so long as after giving effect thereto no
Change of Control or other Default or Event of Default shall exist or occur);

 

(b)           any Borrower may pay dividends
to any other Borrower and any Guarantor may pay dividends to any Borrower;

 

(c)           Borrowers and Guarantors may
pay (directly or indirectly) dividends to NY&Co to the extent required to
permit NY&Co to repurchase Capital Stock consisting of common or preferred
stock held by employees pursuant to any employee stock ownership plan thereof
upon the termination, retirement or death of any such employee in accordance
with the provisions of such plan; provided, that, as to any such
repurchase, each of the following conditions is satisfied: (A) as of the date
of the payment for such repurchase and after giving effect thereto, no Default
or Event of Default shall exist or have occurred and be continuing, (B) such
repurchase shall be paid with funds legally available therefor, and (C) such
repurchase shall not violate any law or regulation or the terms of any
indenture, agreement or undertaking to which Lerner is a party or by which
Lerner or its properties are bound, and (D) Borrowers have Excess Availability
plus Qualified Cash of at least the Specified Excess Availability Amount after
giving effect to such payments;

 

(d)           Borrowers and Guarantors may
pay dividends (directly or indirectly) to NY&Co for annual management fees
and cost reimbursement payable to Bear Stearns Merchant Manager II, LLC,
pursuant to the terms of the Advisory Services Agreement dated as of November
27, 2002, as in effect on the date hereof, so long as (i) no Event of Default
has occurred and is continuing or would result therefrom and (ii) such fees do
not exceed an aggregate annual amount of up to the greater of $750,000 or two
and one-half percent (2.5%) of the EBITDA for the fiscal year to which such
fees relate;

 

(e)           Borrowers and Guarantors may
pay dividends (directly or indirectly) to NY&Co for investments made by
NY&Co in connection with the purchase of assets or Capital Stock of a
Person engaged in a business activity similar to or related to the business of
Borrowers and Guarantors, so long as (i) no Event of Default has occurred and
is continuing or would result therefrom, (ii) Borrowers have Excess
Availability plus Qualified Cash of at least the Specified Excess Availability
Amount after giving effect to such payment of dividend and (iii) Borrowers’
trailing Average Compliance Excess Availability plus Qualified Cash for the
fiscal quarter preceding the date of any such investment is greater than
Specified Excess Availability Amount;

 

98

 

(f)            Borrowers and Guarantors may
pay dividends (directly or indirectly) to NY&Co, or any other corporation
that is the parent of any affiliated, consolidated, combined or unitary group
of corporations of which Borrowers and Guarantors are members, in an amount
equal to the sum of (i) the federal, state and local income tax liability of
such group that is attributable to Borrowers and Guarantors and their
respective Subsidiaries and (ii) amounts owed by NY&Co to the independent
trade creditors, service providers, employees and independent directors of
NY&Co (other than Bear Stearns Merchant Manager II, LLC), for the services
or goods (of the types set forth on Schedule 9.11(f)) hereto supplied by such
independent trade creditors, service providers, employees and independent
directors which have conferred a direct benefit to Borrowers, Guarantors and/or
their respective Subsidiaries, plus an arms-length cost plus fees (not to
exceed one and three-quarters of one percent (1.75%) of the amounts payable
thereof) to NY&Co for its services rendered in arranging and processing
payments for those goods and services; and

 

(g)           Borrowers and Guarantors may
pay dividends (directly or indirectly) to NY&Co so long as (i) no Default
or Event of Default then exists or would occur after giving effect to such
dividend, (ii) Excess Availability plus Qualified Cash during the one hundred
twenty (120) consecutive day period immediately preceding such dividend equals
or exceeds the Specified Excess Availability Amount; and (iii) the Existing
Term Loan and all Obligations related thereto have been paid in full.

 

9.12         Transactions with Affiliates.  No Borrower or Guarantor shall, directly or
indirectly:

 

(a)           except as provided in
subsection (b) below, purchase, acquire or lease any property from, or sell,
transfer or lease any property to, any officer, director or other Affiliate of
a Borrower or Guarantor (other than another Borrower or Guarantor), except in the
ordinary course of and pursuant to the reasonable requirements of such
Borrower’s or Guarantor’s business (as the case may be) and upon fair and
reasonable terms no less favorable to such Borrower or Guarantor than such
Borrower or Guarantor would obtain in a comparable arm’s length transaction
with an unaffiliated person; or

 

(b)           make any payments (whether by
dividend, loan or otherwise) of management, consulting or other fees for
management or similar services, or of any Indebtedness owing to any officer,
employee, shareholder, director or any other Affiliate of any Borrower or
Guarantor, except

 

(i)            reasonable current
or deferred compensation to officers, employees and directors for services
rendered to Borrowers and Guarantors in the ordinary course of business, and

 

(ii)           as permitted under
Section 9.11 hereof.

 

9.13         Compliance with ERISA.  Except as could not reasonably be expected to
have a Material Adverse Effect, each Borrower and Guarantor shall, and shall
with respect to any Pension Plan cause each of its ERISA Affiliates, to:  (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
Federal and State

 

99

 

law; (b) cause each Plan which is qualified under Section 401(a) of the
Code to maintain such qualification; (c) not terminate any Pension Plan so as
to incur any material liability to the Pension Benefit Guaranty Corporation;
(d) not allow or suffer to exist any non-exempt prohibited transaction which
would be reasonably likely to subject any Borrower or Guarantor or any ERISA
Affiliate to a material tax or penalty or other liability on prohibited
transactions imposed under Section 4975 of the Code or ERISA; (e) make all
required contributions to any Pension Plan under Section 302 of ERISA, Section
412 of the Code or the terms of such Pension Plan; (f) not allow or suffer to
exist any accumulated funding deficiency, whether or not waived, with respect
to any Pension Plan; or (g) allow or suffer to exist any occurrence of a
reportable event or any other event or condition which presents a material risk
of termination by the Pension Benefit Guaranty Corporation of any Pension Plan
that is a single employer plan, which termination could result in any material
liability to any Borrower or Guarantor.

 

9.14         End of Fiscal Years; Fiscal
Quarters.  NY&Co shall, for
financial reporting purposes, cause its and its Subsidiaries’ (a) fiscal years
to end on the Fiscal Year-End of each year, (b) fiscal quarters to end on First
Quarter-End, Second Quarter-End, Third Quarter-End, and Fourth Quarter-End of
each year and (c) fiscal months to end on the fiscal month-end set forth on
Exhibit F hereto.

 

9.15         Change in Business.  No Borrower or Guarantor shall, nor shall it
permit its Subsidiaries to, engage in any business other than the business of
Borrowers and Guarantors on the date hereof and any business reasonably
related, ancillary or complimentary to the business in which Lerner was engaged
as of the date hereof.

 

9.16         Limitation of Restrictions
Affecting Subsidiaries.  No Borrower
or Guarantor shall, directly or indirectly, create or otherwise cause or suffer
to exist any encumbrance or restriction which prohibits or limits the ability
of any Subsidiary of any Borrower or Guarantor to (a) pay dividends or make
other distributions or pay any Indebtedness owed to such Borrower or Guarantor
or any of its Subsidiaries; (b) make loans or advances to such Borrower or
Guarantor or any of its Subsidiaries, (c) transfer any of its properties or
assets to such Borrower or Guarantor or any of its Subsidiaries; 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 such Borrower or Guarantor or any of its
Subsidiaries, (iv) customary restrictions on dispositions of real property
interests found in reciprocal easement agreements of such Borrower or Guarantor
or any of its Subsidiaries, (v) any agreement relating to Indebtedness incurred
by a Subsidiary of such Borrower or Guarantor prior to the date on which such
Subsidiary was acquired by such Borrower or Guarantor and outstanding on such
acquisition date that is permitted under the terms of this Agreement, (vi) the
extension or continuation of contractual obligations in existence on the date
hereof, or (vii) any agreement relating to a refinancing of Indebtedness
permitted under the terms of this Agreement; provided, that, any such
encumbrances or restrictions contained in such extension or continuation are no
less favorable to Agent and Lenders than those encumbrances and restrictions
under or pursuant to the contractual obligations so extended or continued.

 

9.17         Minimum Excess Availability.  Borrowers shall maintain Excess 

 

100

 

Availability of at least
$7,500,000, subject to adjustment pursuant to Section 2.3(g) hereof.

 

9.18         Financial Covenants.

 

(a)           Until such time as the
Existing Term Loan and all Obligations related thereto are indefeasibly paid
and satisfied in full in immediately available funds in accordance with the
terms of this Agreement:

 

(i)            Subject to Section
9.18(a)(ii) hereof, if the sum of Excess Availability plus Qualified Cash is
greater than $30,000,000,

 

(A)          Borrowers shall be
required to maintain a Leverage Ratio of not greater than 2.75:1.00 when
measured as of each Fiscal Quarter End; and

 

(B)           Borrowers shall be
required to maintain a Fixed Charge Coverage Ratio of not less than 1.0:1.0
calculated on a trailing twelve (12) month basis when measured as of as of each
Fiscal Quarter End.

 

(ii)           If the sum of
Excess Availability plus Qualified Cash is equal to or less than $30,000,000,

 

(A)          Borrowers shall be
required to maintain a Leverage Ratio of not greater than 2.75:1.00 when
measured as of the end of each fiscal month; and

 

(B)           Borrowers shall be
required to maintain a Fixed Charge Coverage Ratio of not less than 1.0:1.0
calculated on a trailing twelve (12) month basis when measured as of the end of
each fiscal month.

 

(b)           Upon the indefeasible payment
and satisfaction in full of the Existing Term Loan and all Obligations related
thereto in immediately available funds in accordance with the terms of this
Agreement, if as of the end of any fiscal month of the Borrowers the average
amount of Borrowers’ Excess Availability is less than $10,000,000, Borrowers
shall be required to maintain a Fixed Charge Coverage Ratio of not less than
1.0:1.0 calculated on a trailing twelve (12) month basis when measured as of
the end of each fiscal month.

 

9.19         License Agreements.

 

(a)           Except as could not reasonably
be expected to have a Material Adverse Effect, each Borrower and Guarantor
shall (i) promptly and faithfully observe and perform all of the material
terms, covenants, conditions and provisions of the material License Agreements
to which it is a party 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 that 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 any of the foregoing; except, subject to
Section 9.19(b)(i) below, a Borrower or Guarantor may cancel, surrender or
release any material License 

 

101

 

Agreement in the ordinary
course of the business of such Borrower or Guarantor; provided, that, such
Borrower or Guarantor shall give Agent not less than thirty (30) days prior
written notice of its intention to so cancel, surrender and release any such
material License Agreement, (iv) give Agent prompt written notice of any
material License Agreement entered into by such Borrower or Guarantor after the
date hereof, together with a true, correct and complete copy thereof and such
other information with respect thereto as Agent may request (subject to any
obligation of confidentiality contained therein), (v) give Agent prompt written
notice of any notice of default sent to another party to a material License
Agreement by such Borrower or Guarantor of any material breach of any obligation,
or any default, by such party under any material License Agreement, and deliver
to Agent (promptly upon the receipt thereof by such Borrower or Guarantor in
the case of a notice to such Borrower or Guarantor and concurrently with the
sending thereof in the case of a notice from such Borrower or Guarantor) a copy
of each notice of default and every other notice and other communication
received or delivered by such Borrower or Guarantor in connection with any
material License Agreement which relates to the right of such Borrower or
Guarantor to continue to use the property subject to such License Agreement,
and (vi) furnish to Agent, promptly upon the request of Agent, such information
and evidence as Agent may reasonably require from time to time concerning the
observance, performance and compliance by such Borrower or Guarantor or the
other party or parties thereto with the material terms, covenants or provisions
of any material License Agreement.

 

(b)           Each Borrower or Guarantor
will either exercise any option to renew or extend the term of each material
License Agreement to which it is a party 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
Agent or give Agent prior written notice that such Borrower or Guarantor does
not intend to renew or extend the term of any such material License Agreement,
not less than sixty (60) days prior to the date of any such non-renewal or
expiration. In the event of the failure of any Borrower or Guarantor to extend
or renew any material License Agreement to which it is a party for reasons
which are commercially unreasonable, Agent 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 Agent or in the name and behalf
of such Borrower or Guarantor, as Agent shall determine at any time that an
Event of Default shall exist or have occurred and be continuing. Agent may, but
shall not be required to, perform any or all of such obligations of such
Borrower or Guarantor under any of the License Agreements, including, but not
limited to, the payment of any or all sums due from such Borrower or Guarantor
thereunder, except for amount due to another Borrower or Guarantor. Any sums so
paid by Agent shall constitute part of the Obligations.

 

9.20         After Acquired Real Property.  If any Borrower or Guarantor hereafter
acquires any Real Property, fixtures or any other property, then if such Real
Property, fixtures or other property at any location (or series of adjacent,
contiguous or related locations, and regardless of the number of parcels) has a
fair market value in an amount equal to or greater than $3,000,000 (or if a
Default or Event of Default exists, then regardless of the fair market value of
such assets), without limiting any other rights of Agent or any Lender, or
duties or obligations of any Borrower or Guarantor, promptly upon Agent’s
request, such Borrower or Guarantor shall execute and deliver to Agent a
mortgage, deed of trust or deed to secure debt, as Agent may 

 

102

 

determine, in form and
substance satisfactory to Agent and as to any provisions relating to specific
state laws satisfactory to Agent and in form appropriate for recording in the
real estate records of the jurisdiction in which such Real Property or other
property is located granting to Agent a first and only lien and mortgage on and
security interest in such Real Property, fixtures or other property (except as
such Borrower or Guarantor would otherwise be permitted to incur hereunder or
under its Guaranty, as applicable, or as otherwise consented to in writing by
Agent ) and such other agreements, documents and instruments as Agent may
reasonable require in connection therewith. Notwithstanding any provisions to
the contrary herein, no Borrower or Guarantor shall be required to deliver to
Agent a mortgage, deed of trust or deed to secure debt if the Real Property to
be secured thereby is a leasehold interest, and the granting of such security
interest is prohibited under the lease and the landlord has withheld its
consent to such security interest. Except as provided in Section 9.8 hereof or
if Agent’s prior written consent shall have been obtained, no Borrower shall
grant to any Person other than Agent a lien on or security interest in the Real
Property located on 466-472 53rd Street, Brooklyn, New York.

 

9.21         Costs and Expenses.  Borrowers shall pay to Agent on demand all
costs, 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, Agent’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 costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) costs and expenses and fees for insurance premiums,
appraisal fees and search fees, costs and expenses of remitting Loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
the Blocked Accounts, together with Agent’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) costs and expenses of
preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Agent, 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
Agent or any Lender arising out of the transactions contemplated hereby and
thereby (including preparations for and consultations concerning any such
matters); (f) all reasonable out-of-pocket expenses and costs incurred by Agent
during the course of periodic field examinations of the Collateral and
Borrowers’ operations, plus a per diem charge at the then standard rate for
Agent’s field examiners in the field and office (which rate as of the date
hereof is of $800 per person per day); provided, however, that so long as no
Event of Default has occurred and is continuing, and no Additional
Appraisal/Field Exam Period exists, Borrowers shall not be obligated to
reimburse the Agent for more than one (1) field examination of the Collateral
in any twelve (12) consecutive month period; and (g) the fees and disbursements
of counsel (including legal assistants) to Agent in connection with any of the
foregoing.

 

9.22         Credit Card Agreements.  Each Borrower and Guarantor shall (a) observe
and perform all material terms, covenants, conditions and provisions of the
Credit Card Agreements to be observed and performed by it at the times set
forth therein; (b) not do, permit, 

 

103

 

suffer or refrain from doing
anything, as a result of which there could be a default under or breach of any
of the terms of any of the Credit Card Agreements and at all times maintain in
full force and effect the Credit Card Agreements and not terminate, cancel,
surrender, modify, amend, waive or release any of the Credit Card Agreements,
or consent to or permit to occur any of the foregoing; except, that, any
Borrower or Guarantor may terminate or cancel any of the Credit Card Agreements
in the ordinary course of the business of such Borrower or Guarantor; provided,
that, such Borrower or Guarantor shall give Agent not less than ten (10)
Business Days prior written notice of its intention to so terminate or cancel
any of the Credit Card Agreements; (c) not enter into any new Credit Card
Agreements with any new Credit Card Issuer unless Agent shall have received not
less than ten (10) Business Days prior written notice of the intention of such
Borrower or Guarantor to enter into such agreement (together with such other
information with respect thereto as Agent may request) and such Borrower or
Guarantor delivers, or causes to be delivered to Agent, a Credit Card
Acknowledgment in favor of Agent; (d) give Agent immediate written notice of
any Credit Card Agreement entered into by such Borrower or Guarantor after the
date hereof, together with a true, correct and complete copy thereof and such
other information with respect thereto as Agent may reasonably request; (e)
furnish to Agent, promptly upon the request of Agent, such information and
evidence as Agent may require from time to time concerning the observance,
performance and compliance by such Borrower or Guarantor or the other party or
parties thereto with the terms, covenants or provisions of the Credit Card
Agreements; and (f) not modify any instructions given by Agent to any Credit
Card Issuer or Credit Card Processor provided for in any Credit Card
Acknowledgement or otherwise direct the remittance of payments under any Credit
Card Agreement to any account other than the Blocked Account.

 

9.23         Further Assurances.  At the request of Agent at any time and from
time to time, Borrowers and Guarantors 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 Financing Agreements. Upon any Borrower’s request for a Loan or a Letter
of Credit Accommodation in accordance with the provisions of Section 6.5
hereof, Agent may request a certificate from an officer of each 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 Agent, Agent and Lenders may, at Agent’s option, cease to make
any further Loans or provide any further Letter of Credit Accommodations until
Agent has received such certificate and, in addition, Agent has determined that
such conditions are satisfied.

 

9.24         Private Label Credit Cards.  In the event an Event of Default has occurred
and is continuing and upon Agent’s written notice to Borrowers, Borrowers and
Guarantors will cease to receive any In Store Payments. Upon an acceleration of
the Obligations following an Event of Default, Borrowers and Guarantors will
cease to accept any customer payments made through any Borrower’s or
Guarantor’s private label credit cards.

 

9.25         Termination of Transition
Services Agreement.  Borrowers shall
give Agent written notice of the termination of the Transition Services
Agreement thirty (30) days prior to the date of such termination.

 

104

 

9.26         Cash Collateral Account. Borrowers
shall:

 

(a)           continue to maintain the Cash
Collateral Account at their sole expense;

 

(b)           ensure that at all times the
Cash Collateral Account Control Agreement is in effect with respect to the Cash
Collateral Account;

 

(c)           not, without the prior written
consent of Agent, close or transfer the Cash Collateral Account or take any
other action with respect to the Cash Collateral Account that is not expressly
authorized by this Agreement;

 

(d)           provide to Agent, as and when
received by Borrowers, copies of all statements received by Borrowers with
respect to the Cash Collateral Account to the extent that the financial
institution or other person with whom such account is maintained has not
provided such statements directly to Agent;

 

(e)           in the event the available
balance of the Cash Collateral Account is at any time less than an amount
sufficient to support the advances then outstanding pursuant to clause
(a)(i)(D) of the definition of Borrowing Base, immediately report such event to
Agent and immediately, but in any event within two (2) Business Days after
receipt of written notice from Agent of such event, deposit readily available
funds into the Cash Collateral Account sufficient to cause such balance to
support the full amount of all advances then outstanding pursuant to clause
(a)(i)(D) of the definition of Borrowing Base; and

 

(f)            not make any withdrawals or
transfers from the Cash Collateral Account without the prior written consent of
Agent, which consent shall not be unreasonably withheld to the extent that both
before and after giving effect to such withdrawal or transfer, (i) no Default
or Event of Default then exists and (ii) the then outstanding balance of the
Revolving Loans made against the available balance of the Cash Collateral
Account is greater than or equal to one hundred percent (100%) of the available
balance of the Cash Collateral Account.

 

9.27         Foreign Assets Control
Regulations, Etc.  None of the
requesting or borrowing of the Loans or the requesting or issuance, extension
or renewal of Letter of Credit Accommodation or the use of the proceeds of any
thereof will violate the Trading With the Enemy Act (50 U.S.C. §1 et seq., as
amended) (the “Trading With the Enemy Act”) or any of the foreign assets
control regulations of the United States Treasury Department (31 C.F.R.,
Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”)
or any enabling legislation or executive order relating thereto (including, but
not limited to (a) Executive order 13224 of September 21, 2001 Blocking
Property and Prohibiting Transactions With Persons Who Commit, Threaten to
Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive
Order”) and (b) the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law
107-56). None of Borrowers or any of their Subsidiaries or other Affiliates is
or will become a “blocked person” as described in the Executive Order, the
Trading with the Enemy Act or the Foreign Assets Control Regulations or engages
or will engage in any dealings or transactions, or be otherwise associated,
with any such “blocked person”.

 

105

 

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)           any Borrower fails to make any
principal payment after the same becomes due and payable, or any Borrower fails
to pay any of the other Obligations (other than with respect to principal
payments) within two (2) Business Days after the same becomes due and payable
or (ii) any Borrower or Guarantor fails to perform any of the covenants
contained in Sections 9.1(a), 9.2, 9.3, 9.4, 9.5, 9.7, 9.11, 9.13, 9.15, 9.16,
9.17, 9.18, 9.21, 9.25, 9.26 and 9.27 of this Agreement and such failure shall
continue for fifteen (15) Business Days; provided, that, such fifteen (15) Business
Day period shall not apply in the case of: (A) any failure to observe any such
covenant which is not capable of being cured at all or within such fifteen (15)
Business Day period or which has been the subject of a prior failure within a
six (6) month period or (B) an intentional breach by Borrower or any Guarantor
of any such covenant or (iii) any Borrower or Guarantor fails 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
10.1(a)(i) and 10.1(a)(ii) above and such failure shall continue for thirty
(30) Business Days; provided, that, such thirty (30) Business Day
period shall not apply in the case of: (A) any failure to observe any such
covenant which is not capable of being cured at all or within such thirty (30)
Business Day period or which has been the subject of a prior failure within a
six (6) month period or (B) an intentional breach by any Borrower or such
Guarantor of any such covenant;

 

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

 

(c)           any Guarantor revokes or
terminates, or fails to perform any of the terms, covenants, conditions or
provisions of any Guarantee in favor of Agent or any Lender;

 

(d)           any (i) judgment for the
payment of money is rendered against any Borrower or any Obligor in excess of
$4,000,000 in any one case or in excess of $8,000,000  in the aggregate for Borrowers and Obligors (to the extent
not covered by insurance where the insurer has assumed responsibility in
writing for such judgment) 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 any
Borrower or any Obligor or any of the Collateral having a value in excess of
$4,000,000 or (ii) unless consented to by Agent, any settlement of a legal
action or litigated claim or controversy is made by any Borrower or any Obligor
in an amount in excess of $8,000,000 (to the extent not covered by insurance
where the insurer has assumed responsibility in writing for such settlement) if
(A) any portion of the Existing Term Loan is outstanding and (B) after giving pro
forma effect to such payment as of the last day of the latest fiscal month
ended prior to the date of such payment, the Borrowers would have satisfied the
covenants set forth in Section 9.18(a) hereof for such prior fiscal month;

 

106

 

(e)           except as permitted by Section
9.7 hereof, any Borrower or Guarantor dissolves or any Borrower suspends or
discontinues doing business;

 

(f)            any Borrower or any Obligor
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 in
connection with a moratorium or adjustment of the Indebtedness due to them;

 

(g)           a case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect 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 law or in equity) is filed against any Borrower, any
Obligor or all or any part of any such Person’s properties and such petition or
application is not dismissed within thirty (30) days after the date of its
filing or any 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 case or proceeding under the
bankruptcy laws of the United States of America now or hereafter in effect 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 any Borrower or any Obligor
or for all or any part of its property;

 

(i)            any default in respect of any
Indebtedness of any Borrower or Obligor (other than Indebtedness owing to Agent
and Lenders hereunder), in any case in an amount in excess of $25,000,000,
which default continues beyond any cure period applicable thereto, if any, with
respect to such Indebtedness, or any default by any Borrower or Obligor under
any Material Contract (other than a Credit Card Agreement), which default
continues beyond any cure period applicable thereto, if any, and/or is not
waived in writing by the other parties thereto;

 

(j)            any Credit Card Issuer or
Credit Card Processor: (i) shall send notice to any Borrower or Guarantor that
it is ceasing to make or suspending payments to such Borrower or Guarantor of
amounts due or to become due to such Borrower or Guarantor or shall cease or
suspend such payments, (ii) shall send notice to any Borrower or Guarantor that
it is terminating its arrangements with such Borrower or Guarantor or such
arrangements shall terminate as a result of any event of default under such
arrangements, except where (A) the loss of services by a Credit Card Issuer or
Credit Card Processor would not result in non-payment of amounts due to any
Borrower or Guarantor or could not reasonably be expected to cause a Material
Adverse Effect or (B) such Borrower or Guarantor shall have entered into
arrangements with another Credit Card Issuer or Credit Card Processor, as the
case may be, within forty-five (45) days after the date of any such notice, (iii)
withholds payment of amounts otherwise payable to any Borrower or Guarantor to
fund a reserve account or otherwise hold as collateral, or shall require any
Borrower or Guarantor to pay funds into a reserve account or for such Credit
Card Issuer or Credit Card Processor to otherwise hold as collateral, or any
Borrower or Guarantor shall provide a letter of credit, guarantee, indemnity or
similar instrument to or in favor of such 

 

107

 

Credit Card Issuer or Credit
Card Processor such that in the aggregate all of such funds in the reserve
account, other amounts held as collateral and the amount of such letters of
credit, guarantees, indemnities or similar instruments shall exceed an
aggregate for Borrowers and Guarantors of $5,000,000 at any one time or (iv)
debits or deducts any amounts from any deposit account of any Borrower or
Guarantor;

 

(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 Agent) 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)            an ERISA Event shall occur
which results in or could reasonably be expected to result in liability of any
Borrower or Guarantor in an amount which could reasonably be expected to have a
Material Adverse Effect;

 

(m)          any Change of Control;

 

(n)           the indictment by any
Governmental Authority, or as Agent may reasonably and in good faith determine,
the threatened indictment by any Governmental Authority of any Borrower or any
Obligor of which such Borrower, such Obligor or Agent receives notice, in
either case, as to which there is a reasonable possibility of an adverse
determination, in the good faith determination of Agent, under any criminal
statute, or commencement or threatened commencement of criminal or civil
proceedings against any 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 having a value in excess of $2,500,000 or (ii) any
other property of any Borrower or Guarantor which is necessary or material to
the conduct of its business, and which indictment or proceeding, in the Agent’s
reasonable judgment, has had, or could reasonably be expected to have, a
Material Adverse Effect; or

 

(o)           any event occurs that gives
rise to an actual termination of the logistics and other Inventory handling
services being provided pursuant to the Transition Services Agreement as of the
date hereof and such services have not been adequately replaced by another
service provider or assumed by a Borrower or an Obligor.

 

10.2         Remedies.

 

(a)           At any time an Event of
Default exists or has occurred and is continuing, Agent and Lenders shall have
all rights and remedies provided in this Agreement, the other Financing
Agreements, the UCC 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, 

 

108

 

remedies and powers granted to
Agent and Lenders hereunder, under any of the other Financing Agreements, the
UCC or other applicable law, are cumulative, not exclusive and enforceable, in
Agent’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
any Borrower or any Obligor of this Agreement or any of the other Financing
Agreements. Subject to Section 12 hereof, Agent may, and at the direction of
the Required Lenders shall, at any time or times, proceed directly against any
Borrower or any Obligor to collect the Obligations without prior recourse to
the Collateral.

 

(b)           Without limiting the
foregoing, at any time an Event of Default exists or has occurred and is
continuing, Agent may, in its discretion, and upon the direction of the
Required Lenders, shall (i) accelerate the payment of all Obligations and
demand immediate payment thereof to Agent, for itself and the ratable benefit
of the Lenders and the Bank Product Providers (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)
make Reserves for all sales, excise or similar taxes that are past due, (iii)
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 located and take
possession of the Collateral or complete processing, manufacturing and repair
of all or any portion of the Collateral, (iv) require Borrowers or any Obligor,
at Borrowers’ expense, to assemble and make available to Agent any part or all
of the Collateral at any place and time designated by Agent, (v) collect,
foreclose, receive, appropriate, setoff and realize upon any and all
Collateral, (vi) 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, (vii) 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 Agent or elsewhere) at
such prices or terms as Agent may deem reasonable, for cash, upon credit or for
future delivery, with the Agent 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 any Borrower or any Obligor, which
right or equity of redemption is hereby expressly waived and released by each
Borrower and Obligors and/or (viii) terminate this Agreement. If any of the
Collateral is sold or leased by Agent upon credit terms or for future delivery,
the Obligations shall not be reduced as a result thereof until payment therefor
is finally collected by Agent. If notice of disposition of Collateral is
required by law, ten (10) days prior notice by Agent 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
Agent 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 Agent’s request, Borrowers will either,
as Agent shall specify, furnish cash collateral to the issuer to be used to
secure and fund Agent’s reimbursement obligations to the issuer in connection
with any Letter of Credit Accommodations or furnish cash collateral to Agent
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 fees and expenses payable in
connection therewith through the end of the latest expiration date of such
Letter of Credit Accommodations.

 

109

 

(c)           At any time or times that an
Event of Default exists or has occurred and is continuing, Agent may, in its
discretion, and upon the direction of the Required Lenders, Agent shall,
enforce the rights of any Borrower or any Obligor 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, Agent may, in
its discretion, and upon the direction of the Required Lenders, Agent shall, at
such time or times (i) notify any or all account debtors (including Credit Card
Issuers and Credit Card Processors), secondary obligors or other obligors in
respect thereof that the Receivables have been assigned to Agent and that Agent
has a security interest therein and Agent may direct any or all accounts
debtors (including Credit Card Issuers and Credit Card Processors), secondary
obligors and other obligors to make payment of Receivables directly to Agent,
(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 Agent and Lenders shall not be
liable for any 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 Agent may deem necessary or desirable for the protection
of its interests and the interests of Lenders. At any time that an Event of
Default exists or has occurred and is continuing, at Agent’s request, all
invoices and statements sent to any account debtor shall state that the
Accounts and such other obligations have been assigned to Agent and are payable
directly and only to Agent and Borrowers and Obligors shall deliver to Agent
such originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Agent 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 Agent’s request, hold
the returned Inventory in trust for Agent, segregate all returned Inventory
from all of its other property, dispose of the returned Inventory solely
according to Agent’s instructions, and not issue any credits, discounts or
allowances with respect thereto without Agent’s prior written consent.

 

(d)           If Agent determines at any
time that any amount received by Agent must be returned to any Borrower or any
Obligor or paid to any other person pursuant to any insolvency law or
otherwise, then, notwithstanding any other term or condition of this Agreement
or any other Financing Agreement, Agent will not be required to distribute any
portion thereof to any Lender. In addition, each Lender will repay to Agent on
demand any portion of such amount that Agent has distributed to such Lender,
together with interest at such rate, if any, that Agent is required to pay to
any Borrower or any Obligor or such other person (without setoff, counterclaim
or deduction of any kind).

 

(e)           Anything in this Agreement,
any Financing Agreement or any other agreements or document related hereto to
the contrary notwithstanding, each Lender hereby agrees with each other Lender
that no Lender shall take any action (other than actions against Agent for
violating its obligations under this Agreement) to protect or enforce its
rights arising out of this Agreement or one or more Financing Agreements
without first obtaining the prior written consent of Agent, it being the intent
of Lenders that any such action to protect or enforce rights under this
Agreement or one or more Financing Agreements shall be taken in concert and at
the direction or with the consent of Agent. Each Lender agrees and acknowledges

 

110

 

that Agent may exercise all
rights and remedies provided to Agent under, and in accordance with, the terms
of the Financing Agreements and applicable law (including, without limitation,
with respect to the liens granted to Agent).

 

(f)            To the extent that applicable
law imposes duties on Agent or any Lender to exercise remedies in a
commercially reasonable manner (which duties cannot be waived under such law),
each Borrower and Guarantor acknowledges and agrees that it is not commercially
unreasonable for Agent or any Lender (i) to fail to incur expenses reasonably
deemed significant by Agent or any 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 and Guarantors, 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 Agent
or Lenders against risks of loss, collection or disposition of Collateral or to
provide to Agent or Lenders a guaranteed return from the collection or
disposition of Collateral, or (xii) to the extent deemed appropriate by Agent,
to obtain the services of other brokers, investment bankers, consultants and
other professionals to assist Agent in the collection or disposition of any of
the Collateral. Each Borrower and Guarantor acknowledges that the purpose of
this Section is to provide non-exhaustive indications of what actions or
omissions by Agent or any Lender would not be commercially unreasonable in the
exercise by Agent or any Lender of remedies against the Collateral and that
other actions or omissions by Agent or any 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 any Borrower or Guarantor or to
impose any duties on Agent or Lenders that would not have been granted or
imposed by this Agreement or by applicable law in the absence of this Section.

 

(g)           For the purpose of enabling
Agent to exercise the rights and remedies hereunder, each Borrower and
Guarantor hereby grants to Agent, to the extent assignable and to the extent
that the same would not conflict with or, under applicable law and the terms of
such agreement, result in the invalidity or breach of any agreements (other
than any agreement between any Borrower or Guarantor and any other Borrower or
Guarantor) or otherwise result in the revocation, infringement,
unenforceability, misappropriation or dilution of any rights in any
Intellectual Property forming the subject thereof, an irrevocable,
non-exclusive 

 

111

 

license (exercisable upon the
occurrence of and during the continuation of an Event of Default) without
payment of royalty or other compensation to any Borrower or Guarantor, 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 such 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.

 

(h)           Agent may apply the cash
proceeds of Collateral actually received by Agent 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 Agent may elect, whether
or not then due. Borrowers and Guarantors shall remain liable to Agent and
Lenders for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys’ fees and expenses.

 

(i)            Without limiting the
foregoing, upon the occurrence of a Default or an Event of Default, (i) Agent
and Lenders may, at Agent’s option, and upon the occurrence of an Event of
Default, at the direction of the Required Lenders, Agent and Lenders shall,
without notice, (A) 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 (B) terminate any provision
of this Agreement providing for any future Loans or Letter of Credit
Accommodations to be made by Agent and Lenders to Borrowers, and (ii) Agent
may, at its option, establish such Reserves as Agent determines without
limitation or restriction, notwithstanding anything to the contrary provided
herein.

 

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 State of New York but excluding any principles of conflicts of law or other
rule of law that would cause the application of the law of any jurisdiction
other than the laws of the State of New York.

 

(b)           Borrowers, Guarantors, Agent
and Lenders irrevocably consent and submit to the non-exclusive jurisdiction of
the Supreme Court of the State of New York for New York County and the United
States District Court for the Southern District of New York, whichever Agent
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 

 

112

 

matters shall be heard only in
the courts described above (except that Agent and Lenders shall have the right
to bring any action or proceeding against any Borrower or Guarantor or its or
their property in the courts of any other jurisdiction which Agent deems
necessary or appropriate in order to realize on the Collateral or to otherwise
enforce its rights against any Borrower or Guarantor or its or their property).

 

(c)           Each Borrower and Guarantor
hereby waives personal service of any and all process upon it and consents that
all such service of process may be made by certified mail (return receipt
requested) directed to its 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 U.S. mails, or, at Agent’s option, by service upon such Borrower or
Guarantor in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, such Borrower or Guarantor shall appear in
answer to such process, failing which such Borrower or Guarantor shall be
deemed in default and judgment may be entered by Agent against such Borrower or
Guarantor for the amount of the claim and other relief requested.

 

(d)           BORROWERS, GUARANTORS, AGENT
AND LENDERS EACH HEREBY WAIVE 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, GUARANTORS, AGENT AND LENDERS EACH HEREBY
AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY BORROWER, ANY GUARANTOR,
AGENT OR ANY 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)           Agent and Lenders shall not
have any liability to any Borrower or any Guarantor (whether in tort, contract,
equity or otherwise) for losses suffered by such Borrower or Guarantor 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 Agent and such Lender, that
the losses were the result of acts or omissions constituting gross negligence
or willful misconduct of Agent and/or such Lenders. In any such litigation,
Agent and Lenders 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. Each Borrower and
Guarantor: (i) certifies that neither Agent, any Lender nor any representative,
agent or attorney acting for or on behalf of Agent or any Lender has
represented, expressly or otherwise, that Agent and Lenders 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) acknowledges that
in entering into this Agreement and the other Financing Agreements, Agent and
Lenders are relying upon, among other things, the 

 

113

 

waivers and certifications set
forth in this Section 11.1 and elsewhere herein and therein.

 

11.2         Waiver of Notices.  Each Borrower and Guarantor hereby expressly
waives 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 any Borrower or Guarantor which
Agent or any Lender may elect to give shall entitle any Borrower or Guarantor
to any other or further notice or demand in the same, similar or other
circumstances.

 

11.3         Amendments and Waivers.

 

(a)           Neither this Agreement nor any
other Financing Agreement nor any terms hereof or thereof may be amended,
waived, discharged or terminated unless such amendment, waiver, discharge or
termination is in writing signed by Agent and the Required Lenders or at
Agent’s option, by Agent with the authorization of the Required Lenders, and as
to amendments to any of the Financing Agreements (other than with respect to
any provision of Section 12 hereof), by Borrowers; except, that:

 

(i)            without the prior
written consent of Agent and each Lender, no such amendment, waiver, discharge
or termination shall:

 

(A)          amend, modify or
waive any of the provisions of the introductory paragraph of this Section
11.3(a) or any of the provisions of this Section 11.3(a)(i);

 

(B)           reduce any
percentage specified in the definition of Required Lenders or amend, modify or
waive any provision of the definition of Pro Rata Share;

 

(C)           release any
Collateral (except as expressly required hereunder or under any of the other
Financing Agreements or applicable law and except as permitted under Section
12.11(b) hereof);

 

(D)          consent to the
assignment or transfer by any Borrower or any Guarantor of any of their rights and
obligations under this Agreement;

 

(E)           increase (1) the
advance rates set forth in the definition of Borrowing Base, (2) the Revolving
Loan Limit, (3) the Maximum Credit or (4) the amount of Revolving Loans, the
Existing Term Loan or Letter of Credit Accommodations available to Borrowers at
any time;

 

(F)           amend, modify or
waive any of the provisions of the definition of Borrowing Base or of any of
the defined terms referred to in the definition of Borrowing Base if the effect
thereof increases the amount of the Borrowing Base;

 

(G)           reduce the amount of
Excess Availability required in Section 4.2(d) or Section 9.17 hereof;

 

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(H)          amend, modify, or
waive the provisions of Sections 9.17 or 9.18 hereof, or any definition of any
term relating to the financial terms used in such Section, if such amendment,
modification or waiver makes the covenants contained therein less restrictive;
or

 

(I)            amend, modify or
waive any provision of the definitions of Availability Compliance Period,
Excess Availability, Specified Excess Availability Amount or Additional
Appraisal/Field Exam Period;

 

(ii)           without the prior
written consent of Agent and each Revolving Loan Lender directly affected
thereby, no such amendment, waiver, discharge or termination shall:

 

(A)          amend, modify or
waive any of the provisions of this Section 11.3(a)(ii);

 

(B)           reduce any
percentage specified in the definition of Required Revolving Loan Lenders;

 

(C)           reduce the Revolving
Loan Interest Rate or any fees or indemnities related to the Revolving Loans or
Letter of Credit Accommodations, amend, modify or waive the provisions of
Section 14.1(b) hereof or otherwise extend the time of payment of principal of
the Revolving Loans, extend the time of payment of interest or any fees related
to the Revolving Loans or reduce the principal amount of any Revolving Loans or
Letter of Credit Accommodations; or

 

(D)          increase the total
amount of Revolving Loan Commitments or the Revolving Loan Commitment of any
Revolving Loan Lender over the amount thereof then in effect or provided
hereunder;

 

(b)           Notwithstanding anything to
the contrary contained in Section 11.3(a) above, Agent may, in its discretion
and without the consent of the Lenders, amend or otherwise modify the Borrowing
Base, the Reserves or any of their respective components which amendments or
modifications have the effect of increasing the Borrowing Base, decreasing the
Reserves or otherwise increasing the amounts available for borrowing hereunder
to the extent that such amendment or modification is made to restore the
Borrowing Base, Reserves or other components thereof if the reason for such
reduction or increase no longer exists, as determined by Agent.

 

(c)           Agent and Lenders shall not,
by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its or their rights, powers and/or remedies unless such
waiver shall be in writing and signed as provided herein. Any such waiver shall
be enforceable only to the extent specifically set forth therein. A waiver by
Agent or any 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 Agent or any Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.

 

(d)           Notwithstanding anything to
the contrary contained in Section 11.3(a) 

 

115

 

above, in connection with any
amendment, waiver, discharge or termination, in the event that any Lender whose
consent thereto is required shall fail to consent or fail to consent in a
timely manner (such Lender being referred to herein as a “Non-Consenting
Lender”), but the consent of any other Lenders to such amendment, waiver,
discharge or termination that is required is obtained, if any, then Wachovia
shall have the right, but not the obligation, at any time thereafter, and upon
the exercise by Wachovia of such right, such Non-Consenting Lender shall have
the obligation, to sell, assign and transfer to Wachovia or such Eligible
Transferee as Wachovia may specify, the Total Commitment of such Non-Consenting
Lender and all rights and interests of such Non-Consenting Lender pursuant
thereto. Wachovia shall provide the Non-Consenting Lender with prior written
notice of its intent to exercise its right under this Section, which notice
shall specify on the date on which such purchase and sale shall occur. Such
purchase and sale shall be pursuant to the terms of an Assignment and
Acceptance (whether or not executed by the Non-Consenting Lender), except that
on the date of such purchase and sale, Wachovia, or such Eligible Transferee
specified by Wachovia, shall pay to the Non-Consenting Lender the amount equal
to: (i) the principal balance of the Loans held by the Non-Consenting Lender
outstanding as of the close of business on the business day immediately
preceding the effective date of such purchase and sale, plus (ii) amounts
accrued and unpaid in respect of interest and fees payable to the
Non-Consenting Lender to the effective date of the purchase, minus (iii) if
such Non-Consenting Lender is a Revolving Loan Lender, the amount of any
closing fee received by such Non-Consenting Lender in connection with the
Existing Loan Agreement and any closing, consent or amendment fee received by
such Non-Consenting Lender in connection with this Agreement, multiplied by the
fraction, the numerator of which is the number of months remaining, in the then
current term of the Revolving Loan Facility and the denominator of which is the
total number of months in the then current term of the Revolving Loan Facility.
Such purchase and sale shall be effective on the date of the payment of such
amount to the Non-Consenting Lender and the Total Commitment of the
Non-Consenting Lender shall terminate on such date.

 

(e)           The consent of Agent shall be
required for any amendment, waiver or consent affecting the rights or duties of
Agent hereunder or under any of the other Financing Agreements, in addition to
the consent of the Lenders otherwise required by this Section and the exercise
by Agent of any of its rights hereunder with respect to Reserves, Eligible
Credit Card Receivables, Eligible Damaged Goods Vendors Receivables, Eligible
Sell-Off Vendors Receivables or Eligible Inventory shall not be deemed an
amendment to the advance rates provided for in this Section 11.3.

 

11.4         Waiver of Counterclaims.  Each Borrower and Guarantor waives all rights
to interpose any claims, deductions, setoffs or counterclaims of any nature
(other then 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.  Each Borrower and Guarantor shall indemnify
and hold Agent and each Lender, and its respective officers, directors, agents,
employees, advisors and counsel and their respective Affiliates (each such
person being an “Indemnitee”), harmless from and against any and all losses,
claims, damages, liabilities, costs or expenses (including attorneys’ fees and
expenses) imposed on, incurred by or asserted against any of them in connection
with any litigation, investigation, claim or proceeding commenced or threatened

 

116

 

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
that no Borrower or Guarantor shall not have any obligation under this Section
11.5 to indemnify an Indemnitee with respect to a matter covered hereby
resulting from the gross negligence or willful misconduct of such Indemnitee as
determined pursuant to a final, non-appealable order of a court of competent
jurisdiction (but without limiting the obligations of any Borrower or Guarantor
as to any other Indemnitee). 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 and Guarantors shall pay the
maximum portion which they are permitted to pay under applicable law to Agent
and Lenders in satisfaction of indemnified matters under this Section. To the
extent permitted by applicable law, no Borrower or Guarantor shall assert, and
each Borrower and Guarantor hereby waives, any claim against any Indemnitee, on
any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement, any of the other Financing Agreements
or any undertaking or transaction contemplated hereby. All amounts due under
this Section shall be payable upon demand. The foregoing indemnity shall
survive the payment of the Obligations and the termination or non-renewal of
this Agreement.

 

12.                                 THE AGENT

 

12.1         Appointment, Powers and
Immunities.  Each Lender irrevocably
designates, appoints and authorizes Wachovia to act as Agent hereunder and
under the other Financing Agreements with such powers as are specifically
delegated to Agent by the terms of this Agreement and of the other Financing
Agreements, together with such other powers as are reasonably incidental
thereto. Agent (a) shall have no duties or responsibilities except those
expressly set forth in this Agreement and in the other Financing Agreements,
and shall not by reason of this Agreement or any other Financing Agreement be a
trustee or fiduciary for any Lender; (b) shall not be responsible to Lenders
for any recitals, statements, representations or warranties contained in this
Agreement or in any of the other Financing Agreements, or in any certificate or
other document referred to or provided for in, or received by any of them
under, this Agreement or any other Financing Agreement, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Financing Agreement or any other document referred to or
provided for herein or therein or for any failure by any Borrower or any
Guarantor or any other Person to perform any of its obligations hereunder or
thereunder; and (c) shall not be responsible to Lenders for any action taken or
omitted to be taken by it hereunder or under any other Financing Agreement or
under any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith, except for its own gross
negligence or willful misconduct as determined by a final non-appealable
judgment of a court of competent jurisdiction. Agent may employ agents and
attorneys in fact and shall not be responsible for the negligence or misconduct
of any such agents or attorneys in fact selected by it in good faith. Agent may
deem and treat the payee of any note as the holder thereof for all purposes
hereof unless and until the assignment thereof pursuant to an agreement (if and
to the extent permitted herein) in form and substance satisfactory to Agent
shall have been delivered to and acknowledged by Agent.

 

117

 

12.2         Reliance by Agent.  Agent shall be entitled to rely upon any
certification, notice or other communication (including any thereof by
telephone, telecopy, telex, telegram or cable) believed by it to be genuine and
correct and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent. As to any matters not
expressly provided for by this Agreement or any other Financing Agreement,
Agent shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or thereunder in accordance with instructions given by the
Required Lenders or all of Lenders as is required in such circumstance, and
such instructions of such Agents and any action taken or failure to act
pursuant thereto shall be binding on all Lenders.

 

12.3         Events of Default.

 

(a)           Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default or an Event of Default
or other failure of a condition precedent to the Loans and Letter of Credit
Accommodations hereunder, unless and until Agent has received written notice
from a Lender, or a Borrower specifying such Event of Default or any
unfulfilled condition precedent, and stating that such notice is a “Notice of
Default or Failure of Condition” (each a “Notice of Default or Failure of
Condition”). In the event that Agent receives such a Notice of Default or
Failure of Condition, Agent shall give prompt notice thereof to the Lenders. Agent
shall (subject to Section 12.7 hereof) take such action with respect to any
such Event of Default or failure of condition precedent as shall be directed by
the Required Lenders; provided, that, unless and until Agent shall have
received such directions, Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to or by reason of
such Event of Default or failure of condition precedent, as it shall deem
advisable in the best interest of Lenders. Without limiting the foregoing, and
notwithstanding the existence or occurrence and continuance of an Event of
Default or any other failure to satisfy any of the conditions precedent set
forth in Section 4 of this Agreement to the contrary, subject to the
limitations set forth in Section 12.8 hereof, Agent may, but shall have no
obligation to, make Loans and issue or cause to be issued Letter of Credit
Accommodations for the ratable account and risk of Lenders from time to time if
Agent reasonably and in good faith believes making such Loans or issuing or
causing to be issued such Letter of Credit Accommodations is in the best
interest of Lenders.

 

(b)           Except with the prior written
consent of Agent, no Lender may assert or exercise any enforcement right or
remedy in respect of the Loans, Letter of Credit Accommodations or other
Obligations, as against any Borrower or any Guarantor or any of the Collateral
or other property of any Borrower or Guarantor.

 

12.4         Wachovia in its Individual
Capacity.  With respect to its Total
Commitment and the Loans made and Letter of Credit Accommodations issued or
caused to be issued by it (and any successor acting as Agent), so long as
Wachovia shall be a Lender hereunder, it shall have the same rights and powers
hereunder as any other Lender and may exercise the same as though it were not
acting as Agent, and the term “Lender” or “Lenders” shall, unless the context
otherwise indicates, include Wachovia in its individual capacity as Lender
hereunder. Wachovia (and any successor acting as Agent) and its Affiliates may
(without having to account therefor to any Lender) lend money to, make
investments in and 

 

118

 

generally engage in any kind of
business with any Borrower or Guarantor (and any of its Subsidiaries or
Affiliates) as if it were not acting as Agent, and Wachovia and its Affiliates
may accept fees and other consideration from any Borrower or any Guarantor and
any of its Subsidiaries and Affiliates for services in connection with this
Agreement or otherwise without having to account for the same to Lenders.

 

12.5         Indemnification.  Lenders agree to indemnify Agent (to the
extent not reimbursed by Borrowers or Guarantors hereunder and without limiting
any obligations of Borrowers or Guarantors hereunder) ratably, in accordance
with their Pro Rata Shares, for any and all claims of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against Agent
arising out of or by reason of any investigation in or in any way relating to
or arising out of this Agreement or any other Financing Agreement or any other
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that Agent is
obligated to pay hereunder) or the enforcement of any of the terms hereof or
thereof or of any such other documents, provided, that, no Lender shall be
liable for any of the foregoing to the extent it arises from the gross
negligence or willful misconduct of the party to be indemnified as determined
by a final non-appealable judgment of a court of competent jurisdiction. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.

 

12.6         Non Reliance on Agent and
Other Lenders.  Each Lender agrees
that it has, independently and without reliance on Agent or other Lender, and
based on such documents and information as it has deemed appropriate, made its
own credit analysis of Borrowers and Guarantors and has made its own decision
to enter into this Agreement and that it will, independently and without
reliance upon Agent or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Financing Agreements. Agent shall not be required to keep itself informed
as to the performance or observance by Borrowers or Guarantors of any term or
provision of this Agreement or any of the other Financing Agreements or any
other document referred to or provided for herein or therein or to inspect the
properties or books of any Borrower or Guarantor. Agent will use reasonable
efforts to provide Lenders with any information received by Agent from any
Borrower or Guarantor which is required to be provided to Lenders or which is
deemed to be requested by Lenders hereunder and with a copy of any Notice of
Default or Failure of Condition received by Agent from any Borrower or
Guarantor; provided, that, Agent shall not be liable to any Lender for any
failure to do so, except to the extent that such failure is attributable to
Agent’s own gross negligence or willful misconduct as determined by a final
non-appealable judgment of a court of competent jurisdiction. Except for
notices, reports and other documents expressly required to be furnished to
Lenders by Agent hereunder, Agent shall not have any duty or responsibility to
provide any Lender with any other credit or other information concerning the
affairs, financial condition or business of any Borrower or Guarantor that may
come into the possession of Agent.

 

12.7         Failure to Act.  Except for action expressly required of Agent
hereunder and under the other Financing Agreements, Agent shall in all cases be
fully justified in failing or refusing to act hereunder and thereunder unless
it shall receive further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 12.5 hereof against 

 

119

 

any and all liability and
expense that may be incurred by it by reason of taking or continuing to take
any such action.

 

12.8         Additional Revolving Loans.  Agent shall not make any Revolving Loans or
provide any Letter of Credit Accommodations to Borrowers on behalf of Lenders
intentionally and with actual knowledge that such Revolving Loans or Letter of
Credit Accommodations would cause the aggregate amount of the total outstanding
Revolving Loans and Letter of Credit Accommodations to Borrowers to exceed the
Borrowing Base, without the prior consent of all Lenders, provided, that
notwithstanding any provision to the contrary, Agent may make any such
additional Revolving Loan or Letter of Credit Accommodation so long as:  (a) the total principal amount of such
additional Revolving Loans or such additional Letter of Credit Accommodations
together with the principal amount of Special Agent Advances made pursuant to
Section 12.11 hereof, shall not exceed the least of (i) $7,500,000, (ii)the sum
of (x) the amount which, when added to all other Revolving Loans, Letter of
Credit Accommodations and Special Agent Advances, would not cause the principal
amount of all outstanding Revolving Loans, Letter of Credit Accommodations and
Special Agent Advances to exceed the Borrowing Base and (y) if applicable, an
amount equal to any reduction, made with the consent of all Lenders, of the
Excess Availability required by Section 9.17 hereof, and (iii) the amount which
would not cause the total principal amount of all Revolving Loans, Letter of
Credit Accommodations and Special Agent Advances to exceed the Revolving Loan
Limit, and (b) no such additional Revolving Loans or Letter of Credit
Accommodations shall be outstanding more than ninety (90) days after the date
such additional Revolving Loan or Letter of Credit Accommodation is made or
issued (as the case may be), except as the Required Lenders may otherwise agree.
Each Lender shall be obligated to pay Agent the amount of its Pro Rata Share of
any such additional Revolving Loans or Letter of Credit Accommodations.

 

12.9         Concerning the Collateral and
the Related Financing Agreements.  Each
Lender authorizes and directs Agent to enter into this Agreement and the other
Financing Agreements. Each Lender agrees that any action taken by Agent or
Required Lenders in accordance with the terms of this Agreement or the other
Financing Agreements and the exercise by Agent or Required Lenders of their
respective powers set forth therein or herein, together with such other powers
that are reasonably incidental thereto, shall be binding upon all of the
Lenders.

 

12.10       Field Audit, Examination
Reports and other Information; Disclaimer by Lenders. By signing this
Agreement, each Lender:

 

(a)           is deemed to have requested
that Agent furnish such Lender, promptly after it becomes available, a copy of
each field audit or examination report and a monthly or weekly Borrowing Base
Certificate, as the case may be, pursuant to Section 7.1(a)(i)(c) hereof,
prepared by Agent (each field audit or examination report and monthly or weekly
report with respect to the Borrowing Base being referred to herein as a
“Report” and collectively, “Reports”);

 

(b)           expressly agrees and
acknowledges that Agent (A) does not make any representation or warranty as to
the accuracy of any Report, or (B) shall not be liable for any information
contained in any Report;

 

120

 

(c)           expressly agrees and
acknowledges that the Reports are not comprehensive audits or examinations,
that Agent or any other party performing any audit or examination will inspect
only specific information regarding any Borrower and any Guarantor and will
rely significantly upon such Borrower’s and Guarantor’s books and records, as
well as on representations of such Borrower’s and Guarantor’s personnel; and

 

(d)           agrees to keep all Reports
confidential and strictly for its internal use in accordance with the terms of
Section 14.5 hereof, and not to distribute or use any Report in any other
manner.

 

12.11       Collateral Matters.

 

(a)           Subject to the limitations in
Section 12.8 hereof, Agent may, at its option, from time to time, at any time
on or after an Event of Default and for so long as the same is continuing or
upon any other failure of a condition precedent to the Revolving Loans and
Letter of Credit Accommodations hereunder, make such disbursements and advances
(“Special Agent Advances”) which Agent, in its sole discretion, deems necessary
or desirable either (i) to preserve or protect the Collateral or any portion
thereof or (ii) to enhance the likelihood or maximize the amount of repayment
by Borrowers of the Loans and other Obligations, or (iii) to pay any other
amount chargeable to Borrowers or Obligors pursuant to the terms of this
Agreement or any of the other Financing Agreements consisting of (A) costs,
fees and expenses and (B) payments to any issuer of Letter of Credit
Accommodations; provided, that notwithstanding any provision to the contrary,
Agent may make any such Special Agent Advances so long as:  (a) the total principal amount of such
Special Agent Advances together with the principal amount of the additional
Revolving Loans and additional Letter of Credit Accommodations made pursuant to
Section 12.11 hereof, shall not exceed the least of (i) $7,500,000, (ii) the
sum of (x) the amount which, when added to all other Special Agent Advances,
Revolving Loans and Letter of Credit Accommodations, would not cause the
principal amount of all outstanding Special Agent Advances, Revolving Loans and
Letter of Credit Accommodations to exceed the Borrowing Base and (y) if
applicable, an amount equal to any reduction, made with the consent of all
Lenders, of the Excess Availability required by Section 9.17 hereof, and (iii)
the amount which would not cause the total principal amount of all Revolving
Loans, Letter of Credit Accommodations and Special Agent Advances to exceed the
Revolving Loan Limit. Special Agent Advances shall be repayable on demand and
be secured by the Collateral. Special Agent Advances shall not constitute
Revolving Loans but shall otherwise constitute Obligations hereunder. Agent
shall notify Lenders and Borrowers in writing of each such Special Agent
Advance, which notice shall include a description of the purpose of such
Special Agent Advance. Without limitation of its obligations pursuant to
Section 6.10 hereof, each Lender agrees that it shall make available to Agent,
upon Agent’s demand, in immediately available funds, the amount equal to such
Lender’s Pro Rata Share of each such Special Agent Advance. If such funds are
not made available to Agent by such Lender, then such Lender shall be deemed a
Defaulting Lender and Agent shall be entitled to recover such funds, on demand
from such Lender together with interest thereon for each day from the date such
payment was due until the date such amount is paid to Agent at the Federal
Funds Rate for each day during such period (as published by the Federal Reserve
Bank of New York or at Agent’s option based on the arithmetic mean determined
by Agent of the rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m. (New York City time) on that 

 

121

 

day by each of the three
leading brokers of Federal funds transactions in New York City selected by
Agent) and if such amounts are not paid within three (3) days of Agent’s
demand, at the highest Revolving Loan Interest Rate provided for in Section 3.1
hereof applicable to Prime Rate Loans.

 

(b)           Lenders hereby irrevocably
authorize Agent, at its option and in its discretion to release any security
interest in, mortgage or lien upon, any of the Collateral (i) upon termination
of all of the Total Commitments of all Lenders and payment and satisfaction of
all of the Obligations and delivery of cash collateral to the extent required
under Section 14.1 below, or (ii) constituting property being sold or disposed
of if the applicable Borrower or Guarantor certifies to Agent that the sale or
disposition is made in compliance with Section 9.7 hereof (and Agent may rely
conclusively on any such certificate, without further inquiry), or (iii)
constituting property in which no Borrower or Guarantor owned an interest at
the time the security interest, mortgage or lien was granted or at any time
thereafter, or (iv) having a value in the aggregate in any twelve (12) month
period of less than $1,000,000 or (v) if required or permitted under the terms
of any of the other Financing Agreements, including any intercreditor
agreement, or (vi) if approved, authorized or ratified in writing by all of
Lenders. Except as provided above, Agent will not release any security interest
in, mortgage or lien upon, any of the Collateral without the prior written
authorization of all of Lenders. Upon request by Agent at any time, Lenders
will promptly confirm in writing Agent’s authority to release particular types
or items of Collateral pursuant to this Section.

 

(c)           Without any manner limiting
Agent’s authority to act without any specific or further authorization or
consent by the Required Lenders, each Lender agrees to confirm in writing, upon
request by Agent, the authority to release Collateral conferred upon Agent
under this Section. Agent shall (and is hereby irrevocably authorized by
Lenders to) execute such documents as may be necessary to evidence the release
of the security interest, mortgage or liens granted to Agent upon any
Collateral to the extent set forth above; provided, that, (i) Agent shall not
be required to execute any such document on terms which, in Agent’s opinion,
would expose Agent to liability or create any obligations or entail any
consequence other than the release of such security interest, mortgage or liens
without recourse or warranty and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any security interest, mortgage
or lien upon (or obligations of any Borrower or any Guarantor in respect of)
the Collateral retained by such Borrower or such Guarantor.

 

(d)           Agent shall have no obligation
whatsoever to any Lender or any other Person to investigate, confirm or assure
that the Collateral exists or is owned by any Borrower or Guarantor or is cared
for, protected or insured or has been encumbered, or that any particular items
of Collateral meet the eligibility criteria applicable in respect of the Loans
or Letter of Credit Accommodations hereunder, or whether any particular
reserves are appropriate, or that the liens and security interests granted to
Agent pursuant hereto or any of the Financing Agreements or otherwise have been
properly or sufficiently or lawfully created, perfected, protected or enforced
or are entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to Agent in this Agreement or in any of the other Financing
Agreements, it being understood and agreed that in respect of the Collateral,
or any act, omission or event related thereto, Agent may act in any manner it
may deem 

 

122

 

appropriate, in its discretion,
given Agent’s own interest in the Collateral as a Lender and that Agent shall
have no duty or liability whatsoever to any other Lender.

 

12.12       Agency for Perfection.  Each Lender hereby appoints Agent and each
other Lender as agent and bailee for the purpose of perfecting the security
interests in and liens upon the Collateral of Agent in assets which, in
accordance with Article 9 of the UCC can be perfected only by possession (or
where the security interest of a secured party with possession has priority over
the security interest of another secured party) and Agent and each Lender
hereby acknowledges that it holds possession of any such Collateral for the
benefit of Agent, the other Lenders and the Bank Product Providers as secured
party. Should any Lender obtain possession of any such Collateral, such Lender
shall notify Agent thereof, and, promptly upon Agent’s request therefor shall
deliver such Collateral to Agent or in accordance with Agent’s instructions.

 

12.13       Successor Agent.  Agent may resign as Agent upon thirty (30)
days’ notice to Lenders and Borrowers. If Agent resigns under this Agreement,
the Required Lenders shall appoint from among the Lenders a successor agent for
Lenders. If no successor agent is appointed prior to the effective date of the
resignation of Agent, Agent may appoint, after consulting with Lenders and
Borrowers, a successor agent from among Lenders. Upon the acceptance by the
Lender so selected of its appointment as successor agent hereunder, such
successor agent shall succeed to all of the rights, powers and duties of the
retiring Agent and the term “Agent” as used herein and in the other Financing
Agreements shall mean such successor agent and the retiring Agent’s
appointment, powers and duties as Agent shall be terminated. After any retiring
Agent’s resignation hereunder as Agent, the provisions of this Section 12 shall
inure to its benefit as to any actions taken or omitted by it while it was
Agent under this Agreement. If no successor agent has accepted appointment as
Agent by the date which is thirty (30) days after the date of a retiring
Agent’s notice of resignation, the retiring Agent’s resignation shall
nonetheless thereupon become effective and Lenders shall perform all of the
duties of Agent hereunder until such time, if any, as the Required Lenders
appoint a successor agent as provided for above.

 

13.                                 JOINT AND SEVERAL LIABILITY; SURETYSHIP WAIVERS.

 

13.1         Independent Obligations;
Subrogation.  The Obligations of each
Borrower and of each Guarantor hereunder are joint and several. To the maximum
extent permitted by law, each Borrower and Guarantor hereby waives any claim,
right or remedy which such Borrower or Guarantor now has or hereafter acquires
against any other Borrower or Guarantor 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 Agent or any Lender against any Borrower or Guarantor or any
Collateral which Agent or any 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 and Guarantor hereby waives any right to
proceed against the other Borrowers and Guarantors, 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 or
Guarantor may now have or hereafter have as 

 

123

 

against the other Borrowers and Guarantors with respect to the Obligations
until the Obligations are fully paid and finally discharged. Each Borrower and
Guarantor also hereby waives any rights of recourse to or with respect to any
asset of the other Borrowers and Guarantors until the Obligations are fully
paid and finally discharged.

 

13.2         Authority to Modify
Obligations and Security.  Each
Borrower and Guarantor acknowledges that any action taken by Agent and/or
Lenders in accordance with the terms of this Agreement and applicable law 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 and Guarantors, 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 Obligations of each other Borrower or Guarantor; (c) apply any
and all such Collateral and direct the order or manner of sale thereof as Agent
and Lenders, in their sole discretion, may determine; (d) deal with the other
Borrowers and Guarantors as Agent or any Lender may elect; (e) in Agent’s and
Lenders’ sole discretion, settle, release on terms satisfactory to them, or by
operation of law or otherwise, compound, compromise, collect or otherwise
liquidate any Obligations of any other Borrower or Guarantor 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 and Guarantors as Agent or Lenders, in their sole discretion, may
determine, whether or not such indebtedness relates to 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 and Guarantors upon any of its indebtedness or
obligations to Agent or Lenders as they in their sole discretion, may
determine, whether or not such indebtedness relates to the Obligations; shall
not in any way diminish, release or discharge the liability of any Borrower or
Guarantor hereunder (except to the extent that the Obligations are in fact
repaid as a result of such action).

 

13.3         Waiver of Defenses.  Upon an Event of Default by any Borrower or
Guarantor in respect of any Obligations, Agent and Lenders may, at their option
and without notice to any Borrower or Guarantor, proceed directly against any
Borrower or Guarantor to collect and recover the full amount of the liability
hereunder, or any portion thereof, and each Borrower and Guarantor waives any
right to require Agent or any Lender to: (a) proceed against the other Borrowers
and Guarantors or any other person whomsoever; (b) proceed against or exhaust
any Collateral given to or held by Agent or any 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 Agent’s or any Lender’s power whatsoever. A
separate action or actions may be brought and prosecuted against any Borrower
or Guarantor whether or not action is brought against the other Borrowers and
Guarantors and whether the other Borrowers and Guarantors be joined in any such
action or actions; and each Borrower and Guarantor waives the benefit of any
statute of limitations affecting the liability hereunder or the enforcement
hereof, and 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 Agent’s and
Lenders’ Rights.  Each Borrower and
Guarantor 

 

124

 

hereby authorizes and empowers
Agent and Lenders in their sole discretion, without any notice or demand to
such Borrower or Guarantor whatsoever and without affecting the liability of
such Borrower or Guarantor hereunder, to exercise any right or remedy which
Agent or any Lender may have available to them against the other Borrowers and
Guarantors.

 

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

 

13.6         Additional Indebtedness .  Additional Obligations may be created from
time to time at the request of any Borrower or Guarantor and without further
authorization from or notice to any other Borrower or Guarantor even though the
borrowing Borrower’s or Guarantor’s financial condition may deteriorate since
the date hereof. Each Borrower and Guarantor waives the right, if any, to
require Agent or any Lender to disclose to such Borrower or Guarantor any
information it may now have or hereafter acquire concerning any other
Borrower’s or Guarantor’s character, credit, Collateral, financial condition or
other matters. Each Borrower and Guarantor has established adequate means to
obtain from each other Borrower and Guarantor, on a continuing basis, financial
and other information pertaining to such Borrower’s or Guarantor’s business and
affairs, and assumes the responsibility for being and keeping informed of the
financial and other conditions of the other Borrowers and Guarantors and of all
circumstances bearing upon the risk of nonpayment of the Obligations which
diligent inquiry would reveal. Neither Agent nor any Lender need inquire into
the powers of any Borrower or Guarantor or the authority of any of their
respective officers, directors, partners or agents acting or purporting to act
in their behalf, and any Obligations created in reliance upon the purported
exercise of such power or authority is hereby guaranteed. All Obligations of
each Borrower and Guarantor to Agent and Lenders heretofore, now or hereafter
created shall be deemed to have been granted at each Borrower’s and Guarantor’s
special insistence and request and in consideration of and in reliance upon
this Agreement.

 

125

 

13.7         Notices, Demands, Etc.  Except as expressly provided by this
Agreement, neither Agent nor any Lender shall be under any obligation
whatsoever to make or give to any Borrower or Guarantor, and each Borrower and
Guarantor hereby waives diligence, all rights of setoff and counterclaim
against Agent or any Lender, all demands, presentments, protests, notices of
protests, notices of protests, notices of nonperformance, notices of dishonor,
and all other notices of every kind or nature, including notice of the
existence, creation or incurring of any new or additional Obligations.

 

13.8         Revival.  If any payments of money or transfers of
property made to Agent or any Lender by any Borrower or Guarantor should for
any reason subsequently be declared to be, or in Agent’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
collectively called “voidable transfers”) under the Bankruptcy Code or any
other federal or state law and Agent or any Lender is required to repay or
restore, or in Agent’s counsel’s good faith 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 Agent
or any Lender related thereto, such Borrower’s and Guarantor’s liability
hereunder shall automatically be revived, reinstated and restored and shall
exist as though such voidable transfer had never been made to Agent or such
Lender.

 

13.9         Understanding of Waivers .  Each Borrower and Guarantor 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.

 

14.                                 TERM; MISCELLANEOUS.

 

14.1         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 March 17, 2012 (the “Renewal Date”), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Notwithstanding the
foregoing, the entire unpaid principal amount of the Existing Term Loan,
together with all accrued and unpaid interest thereon and all other Obligations
with respect thereto, shall be due and payable on the Existing Term Loan
Maturity Date, unless this Agreement and the other Financing Agreements are
sooner terminated pursuant to the terms hereof. Agent may, at its option (or
shall at the direction of any Revolving Loan Lender in writing received by
Agent at least sixty (60) days prior to the Renewal Date or the anniversary of
any Renewal Date, as the case may be), terminate this Agreement and the other
Financing Agreements, or Borrowers may terminate this Agreement and the other
Financing Agreements, in each case, 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 still in effect on such date, if any, must be
terminated simultaneously. In addition, Borrowers may terminate this Agreement 

 

126

 

at any time upon ten (10) days
prior written notice to Agent (which notice shall be irrevocable) and Agent
may, at its option, and shall at the direction of Required Revolving Loan Lenders,
terminate this Agreement at any time on or after the occurrence and during the
continuance of an Event of Default, subject to any cure periods specified in
Section 10.1 hereof. Upon the Renewal Date or any other effective date of
termination of the Financing Agreements, Borrowers shall pay to Agent all
outstanding and unpaid Obligations (other than contingent indemnification
obligations and other contingent Obligations which expressly survive the
termination of this Agreement and the other Financing Agreements) and shall
furnish cash collateral to Agent (or at Agent’s option, a letter of credit
issued for the account of Borrowers and at Borrowers’ expense, in form and
substance satisfactory to Agent, by an issuer acceptable to Agent and payable
to Agent as beneficiary) in such amounts as Agent determines are reasonably
necessary to secure Agent, Lenders and any Revolving Lender that is an issuing
bank from loss, cost, damage or expense, including attorneys’ fees and
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 Agent or any
Lender has not yet received final payment and any continuing obligations of
Agent or any Lender pursuant to any Deposit Account Control Agreement. The
amount of such cash collateral (or letter of credit, as Agent may determine) as
to any Letter of Credit Accommodations shall be in the amount equal to one
hundred five  (105%) percent of the
amount of the Letter of Credit Accommodations plus the amount of any fees and
expenses payable in connection therewith through the end of the latest
expiration date of the letters of credit giving rise to such Letter of Credit
Accommodations. Such payments in respect of the Obligations and cash collateral
shall be remitted by wire transfer in Federal funds to the Agent Payment
Account or such other bank account of Agent, as Agent 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
Agent Payment Account or other bank account designated by Agent are received in
such bank account later than 12:00 noon, New York time.

 

(b)           No termination of the
Revolving Loan Facility, this Agreement or the other Financing Agreements shall
relieve or discharge any Borrower or any Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Agent’s continuing security interest in the Collateral and the rights and
remedies of Agent and Lenders 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 and Lenders have no further obligations
hereunder (following which all securing interests, liens and the like shall be
released). Accordingly, each Borrower and Guarantor waives any rights it may
have under the UCC to demand the filing of termination statements with respect
to the Collateral and Agent shall not be required to send such termination
statements to any Borrower or Guarantor, or to file them with any filing
office, unless and until this Agreement and all Total Commitments of all
Lenders shall have been terminated in accordance with its terms and all
Obligations paid and satisfied in full in immediately available funds.

 

14.2         Interpretative Provisions.

 

(a)           All terms used herein which
are defined in Article 1, Article 8 or Article 9 of the UCC shall have the
meanings given therein unless otherwise defined in this 

 

127

 

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 any
Borrower, any Guarantor, any Obligor, Agent and any 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 and any of the other Financing Agreements shall refer to this
Agreement and such Financing Agreement as a whole and not any particular
provision hereof or thereof and as this Agreement or such Financing Agreements
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

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

 

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

 

(g)           All references to the term
“good faith” used herein when applicable to Agent or any 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 Agent or any Lender alleged by Borrowers
at any time.

 

(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 and Guarantors most recently received by Agent 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
in this Agreement 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 

 

128

 

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 Agent and the other parties, and are the products of all
parties. Accordingly, this Agreement and the other Financing Agreements shall
not be construed against Agent or Lenders merely because of Agent’s or any
Lender’s involvement in their preparation.

 

14.3         Notices.  Except as otherwise provided herein, 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 following
addresses (or to such other address as any party may designate by notice in
accordance with this Section):

 

	
   

  	
  If to any Borrower or Guarantor:

  	
   

  	
  Lerner New York, Inc.

  
	
   

  	
   

  	
   

  	
  450 West 33rd Street

  
	
   

  	
   

  	
   

  	
  New York, NY 10001

  
	
   

  	
   

  	
   

  	
  Attention: Chief Financial Officer

  
	
   

  	
   

  	
   

  	
  Telephone No.: (212) 884-2110

  
	
   

  	
   

  	
   

  	
  Telecopy No.: (212) 884-2103

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  	
   

  	
  Kirkland & Ellis LLP

  
	
   

  	
   

  	
   

  	
  Citigroup Center

  
	
   

  	
   

  	
   

  	
  153 East 53rd Street

  
	
   

  	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
   

  	
  Attention: Binta Niambi Brown, Esq.

  
	
   

  	
   

  	
   

  	
  Telephone No.: (212) 446-4800

  
	
   

  	
   

  	
   

  	
  Telecopy No.: (212) 446-4900

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to Agent:

  	
   

  	
  Wachovia Bank, National Association, as Agent

  
	
   

  	
   

  	
   

  	
  1133 Avenue of the Americas

  
	
   

  	
   

  	
   

  	
  New York, New York 10036

  
	
   

  	
   

  	
   

  	
  Attention:Portfolio Manager-Lerner New York, Inc.

  
	
   

  	
   

  	
   

  	
  Telephone No.: (212) 545-4280

  
	
   

  	
   

  	
   

  	
  Telecopy No.: (212) 545-4283

  

 

14.4         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 as
though it did not contain the particular provision 

 

129

 

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.

 

14.5         Confidentiality.

 

(a)           Agent and each 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 any Borrower or
Guarantor pursuant to this Agreement which is clearly and conspicuously marked
as confidential at the time such information is furnished by any Borrower or
Guarantor to Agent or such Lender, 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, in connection with any
litigation to which Agent or such Lender is a party, (iii) to any Lender or
Participant (or prospective Lender or Participant) or to any Affiliate of any
Lender so long as such Lender or Participant (or prospective Lender or
Participant) or Affiliate shall have been instructed to treat such information
as confidential in accordance with this Section 14.5, or (iv) to counsel for
Agent or any Lender or Participant (or prospective Lender or Participant).

 

(b)           In the event that Agent or any
Lender receives a request or demand to disclose any confidential information
pursuant to any subpoena or court order, Agent or such Lender, as the case may
be, agrees (i) to the extent permitted by applicable law or if permitted by
applicable law, to the extent Agent or such Lender determines in good faith
that it will not create any risk of liability to Agent or such Lender, Agent or
such Lender will promptly notify Borrowers of such request so that Borrowers
may seek a protective order or other appropriate relief or remedy and (ii) if
disclosure of such information is required, disclose such information and,
subject to reimbursement by Borrowers of Agent’s or such Lender’s expenses,
cooperate with Borrowers in the reasonable efforts to obtain an order or other
reliable assurance that confidential treatment will be accorded to such portion
of the disclosed information which Borrowers so designate, to the extent
permitted by applicable law or if permitted by applicable law, to the extent Agent
or such Lender determines in good faith that it will not create any risk of
liability to Agent or such Lender.

 

(c)           In no event shall this Section
14.5 or any other provision of this Agreement, any of the other Financing
Agreements 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 Guarantor or
any third party or otherwise becomes 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 Agent or
any Lender (or any Affiliate of any Lender) on a non-confidential basis from a
person other than a Borrower or Guarantor, (iii) to require Agent or any Lender
to return any materials furnished by any Borrower or Guarantor to Agent or a
Lender or prevent Agent or a 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 Agent and Lenders under this Section 14.5 shall supersede and
replace the obligations of Agent and Lenders under any confidentiality letter
signed prior to the date hereof.

 

130

 

14.6         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 Agent, Lenders,
Bank Product Providers, Borrowers, Guarantors and their respective successors
and assigns, except that no Borrower or Guarantor may assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Agent and Lenders. Any
such purported assignment without such express prior written consent shall be
void. No Lender may assign its rights and obligations under this Agreement
without the prior written consent of Agent, except as provided in Section 14.7
below. The terms and provisions of this Agreement and the other Financing
Agreements are for the purpose of defining the relative rights and obligations
of Borrowers, Guarantors, Agent and Lenders with respect to the transactions
contemplated hereby and there shall be no third party beneficiaries of any of
the terms and provisions of this Agreement or any of the other Financing
Agreements.

 

14.7         Assignments; Participations.

 

(a)           Each Lender may, with the
prior written consent of Agent, assign all or, if less than all, a portion
equal to at least $10,000,000 in the aggregate for the assigning Lender, of
such rights and obligations under this Agreement to one or more Eligible
Transferees or Approved Funds (but not including for this purpose any
assignments in the form of a participation), each of which assignees shall
become a party to this Agreement as a Lender by execution of an Assignment and
Acceptance; provided, that, such transfer or assignment will not be effective
until:  (i) it is recorded by Agent on
the Register; and (ii) Agent shall have received for its sole account payment
of a processing fee from the assigning Lender or the assignee in the amount of
$5,000. Anything contained in this Section 14.7 hereof to the contrary
notwithstanding, the consent of Borrowers or Agent shall not be required, the
minimum assignment amount shall not be applicable, an Assignment and Acceptance
shall not be required to be delivered to, accepted by or recorded by Agent on
the Register in order to be effective, valid, binding and enforceable and
payments of the processing fee shall not be required if (x) such assignment is
in connection with any merger, consolidation, sale, transfer, or other
disposition of all or any substantial portion of the business or loan portfolio
of a Lender or (y) such assignment is made by Existing Term Loan Lender with
regard to all or any portion of its Existing Term Loan Commitment; provided,
however, that Borrowers and Agent may continue to deal solely and directly with
the assigning Lender in connection with the interest so assigned until such
time as written notice of such assignment shall have been delivered by the
assigning Lender or the assignee to Agent.

 

(b)           Agent, acting for this purpose
only as agent of Borrowers, shall maintain a register of the names and
addresses of Lenders, their Total Commitments and the principal amount of their
Loans (the “Register”); provided, that, in the case of an assignment or
delegation covered by Section 14.7(a) hereof, which is not reflected in the
Register, the assigning Lender shall maintain a comparable register (the
“Lender Register”) on behalf of Borrowers. Agent shall also maintain a copy of
each Assignment and Acceptance delivered to and accepted by it and shall modify
the Register to give effect to each Assignment and Acceptance. The entries in
the Register and Lender Register shall be conclusive and binding for all
purposes, absent manifest error, and Borrowers, Guarantors, Agent and Lenders
may treat each Person whose name is recorded in the Register or Lender Register
as a Lender hereunder for all 

 

131

 

purposes of this Agreement. The
Register and Lender Register shall be available for inspection by Borrowers and
any Lender at any reasonable time and from time to time upon reasonable prior
notice.

 

(c)           If required under Section 14.7
hereof, upon such execution, delivery, acceptance and recording, and otherwise
from and after the effective date specified in each Assignment and Acceptance,
(i) the assignee thereunder shall be a party hereto and to the other Financing
Agreements and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations (including, without limitation, the obligation to participate in
Letter of Credit Accommodations) of a Lender hereunder and thereunder and (ii)
the assigning Lender shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such Assignment and Acceptance, relinquish
its rights and be released from its obligations under this Agreement.

 

(d)           By execution and delivery to
each other of an Assignment and Acceptance, the assignor and assignee
thereunder confirm to and agree with each other and the other parties hereto as
follows:  (i) other than as provided in
such Assignment and Acceptance, the assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
any of the other Financing Agreements or the execution, legality,
enforceability, genuineness, sufficiency or value of this Agreement or any of
the other Financing Agreements furnished pursuant hereto, (ii) the assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Borrower, any Guarantor or any of their
respective Subsidiaries or the performance or observance by any Borrower or any
Guarantor of any of the Obligations; (iii) such assignee confirms that it has
received a copy of this Agreement and the other Financing Agreements, together
with such other documents and information it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance,
(iv) such assignee will, independently and without reliance upon the assigning
Lender, Agent and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Financing Agreements, (v)
such assignee appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement and the other Financing
Agreements as are delegated to Agent by the terms hereof and thereof, together
with such powers as are reasonably incidental thereto, and (vi) such assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement and the other Financing
Agreements are required to be performed by it as a Lender. Agent and Lenders
may furnish any information concerning any Borrower or any Guarantor in the
possession of Agent or any Lender from time to time to assignees and
Participants.

 

(e)           Each Lender may sell
participations to one or more banks or other entities in or to all or a portion
of its rights and obligations under this Agreement and the other Financing
Agreements (including, without limitation, all or a portion of its Total
Commitment and the Loans owing to it and its participation in the Letter of
Credit Accommodations, without the consent of Agent or the other Lenders);
provided, that, (i) such Lender’s obligations under this Agreement (including,
without limitation, its Total Commitment hereunder) and the other Financing
Agreements shall remain unchanged, (ii) such Lender shall remain solely
responsible 

 

132

 

to the other parties hereto for
the performance of such obligations, and Borrowers, the other Lenders and Agent
shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement and the other
Financing Agreements, (iii) the Participant shall not have any rights under
this Agreement or any of the other Financing Agreements (the Participant’s
rights against such Lender in respect of such participation to be those set
forth in the agreement executed by such Lender in favor of the Participant
relating thereto) and all amounts payable by Borrowers or any Guarantor
hereunder (including any amounts payable under Sections 3.3 or 6.4(d) hereof)
shall be determined as if such Lender had not sold such participation.

 

(f)            Nothing in this Agreement
shall prevent or prohibit any Lender from pledging its Loans hereunder to a
Federal Reserve Bank in support of borrowings made by such Lenders from such
Federal Reserve Bank. Borrowers hereby acknowledge that the Lenders and their
Affiliates may sell or securitize the Loans (a “Securitization”) through the
pledge of the Loans as collateral security for loans to the Lenders or their
Affiliates or through the sale of the Loans or the issuance of direct or
indirect interests in the Loans, which loans to the Lenders or their Affiliates
or direct or indirect interests will be rated by Moody’s, Standard & Poor’s
or one or more other rating agencies (the “Rating Agencies”). Borrowers shall
cooperate with the Lenders and their Affiliates to effect the Securitization
including, without limitation, by (a) amending this Agreement and the other
Financing Agreements, and executing such additional documents, as reasonably
requested by the Lenders in connection with the Securitization, provided that
(i) any such amendment or additional documentation does not impose material
additional costs on the Borrowers and (ii) any such amendment or additional
documentation does not materially adversely affect the rights, or materially
increase the obligations, of the Borrowers under the Financing Agreements or
change or affect in a manner adverse to the Borrowers the financial terms of
the Loans, (b) providing such information as may be reasonably requested by the
Lenders in connection with the rating of the Loans or the Securitization, and
(c) providing in connection with any rating of the Loans a certificate (i)
agreeing to indemnify the Lenders and their Affiliates, any of the Rating
Agencies, or any party providing credit support or otherwise participating in
the Securitization (collectively, the “Securitization Parties”) for any losses,
claims, damages or liabilities (the “Liabilities”) to which the Lenders, their
Affiliates or such Securitization Parties may become subject insofar as the
Liabilities arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Financing Agreement or
in any writing delivered by or on behalf of any Borrower or Guarantor to the
Lenders in connection with any Loan Document or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein, or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, and such
indemnity shall survive any transfer by the Lenders or their successors or
assigns of the Loans and (ii) agreeing to reimburse the Lenders and their
Affiliates for any legal or other expenses reasonably incurred by such Persons
in connection with defending the Liabilities.

 

(g)           Borrowers shall assist Agent
or any Lender permitted to sell assignments or participations under this
Section 14.7 in whatever manner reasonably necessary in order to enable or
effect any such assignment or participation, including (but not limited to) the
execution and delivery of any and all agreements, notes and other documents and
instruments as shall be requested and the delivery of informational materials,
appraisals or other documents 

 

133

 

for, and the participation of
relevant management in meetings and conference calls with, potential Lenders or
Participants. Borrowers shall certify the correctness, completeness and
accuracy, in all material respects, of all descriptions of Borrowers and their
affairs provided, prepared or reviewed by Borrowers that are contained in any
selling materials and all other information provided by it and included in such
materials.

 

14.8         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.

 

14.9         USA Patriot Act.  Each Lender subject to the USA PATRIOT Act
(Title III of Pub. L. 107-56 (signed into law October 26, 2001) (the “Act”)
hereby notifies Borrowers and Guarantors that pursuant to the requirements of
the Act, it is required to obtain, verify and record information that identifies
each person or corporation who opens an account and/or enters into a business
relationship with it, which information includes the name and address of
Borrowers and Guarantors and other information that will allow such Lender to
identify such person in accordance with the Act and any other applicable law. Borrowers
and Guarantors are hereby advised that any Loans or Letter of Credit
Accommodations hereunder are subject to satisfactory results of such
verification.

 

14.10       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.

 

15.                                 ACKNOWLEDGMENT AND RESTATEMENT

 

15.1         Existing Obligations.  Each Borrower and Guarantor hereby
acknowledges, confirms and agrees that, as of the close of business on August    ,
2007, Borrowers are indebted to Agent and Lenders in respect of Loans under the
Existing Loan Agreement in the aggregate principal amount of $28,500,000 and
Letter of Credit Accommodations under the Existing Loan Agreement in the
aggregate principal amount of $6,910,000, in each case together with all
interest accrued and accruing thereon (to the extent applicable), and all fees,
costs, expenses and other charges relating thereto, all of which are
unconditionally owing by Borrowers and Guarantors to Agent and Lenders, without
offset, defense or counterclaim of any kind, nature or description whatsoever.

 

134

 

15.2         Acknowledgment of Security
Interests.  Each Borrower and
Guarantor hereby acknowledges, confirms and agrees that Agent, for itself and
the ratable benefit of the Lenders and the Bank Product Providers, shall
continue to have a security interest in and lien upon the Collateral heretofore
granted to Agent pursuant to the Existing Financing Agreements to secure the
Obligations, as well as any Collateral granted to Agent under this Agreement or
under any of the other Financing Agreements or otherwise granted to or held by
Agent or any Lender. The liens and security interests of Agent in the
Collateral shall be deemed to be continuously granted and perfected from the
earliest date of the granting and perfection of such liens and security
interests to Agent, whether under the Existing Financing Agreements, this
Agreement or any of the other Financing Agreements.

 

15.3         Acknowledgment of Security
Interests.  Each Borrower and
Guarantor hereby acknowledges, confirms and agrees that Agent, for itself and
the ratable benefit of the Lenders and the Bank Product Providers.

 

15.4         Existing Financing Agreements.  Each Borrower and Guarantor hereby
acknowledges, confirms and agrees that: (a) the Existing Financing Agreements
have been duly executed and delivered by such Borrower and Guarantor and are in
full force and effect as of the date hereof and (b) the agreements and
obligations of such Borrower and Guarantor contained in the Existing Financing
Agreements constitute the legal, valid and binding obligations of such Borrower
and Guarantor enforceable against each of them in accordance with their
respective terms and such Borrower and Guarantor has no valid defense to the
enforcement of such obligations and (c) Agent, on behalf of Lenders and Bank
Product Providers, is entitled to all of the rights and remedies provided for
in favor of Agent, Lenders and Bank Product Providers in the Existing Financing
Agreements, as amended and restated by this Agreement.

 

15.5         Restatement.  Except as otherwise stated in Section 15.2
hereof and this Section 15.5, as of the date hereof, the terms, conditions,
agreements, covenants, representations and warranties set forth in the Existing
Financing Agreements are hereby amended and restated in their entirety, and as
so amended and restated, replaced and superseded, by the terms, conditions,
agreements, covenants, representations and warranties set forth in this
Agreement and the other Financing Agreements. The amendment and restatement
contained herein shall not, in any manner, be construed to constitute payment
of, or impair, limit, cancel or extinguish, or constitute a novation in respect
of, the Indebtedness and other obligations and liabilities of Borrowers or
Guarantors evidenced by or arising under the Existing Financing Agreements, and
the liens and security interests of Agent, for itself and the ratable benefit
of the Lenders and the Bank Product Providers, in the Collateral (as such term
is defined herein) securing such Indebtedness and other obligations and liabilities,
which shall not in any manner be impaired, limited, terminated, waived or
released, but shall continue in full force and effect in favor of Agent, for
itself and the ratable benefit of the Lenders and the Bank Product Providers. The
principal amount of the Loans and the amount of the Letters of Credit
Accommodations outstanding as of the date hereof under the Existing Financing
Agreements shall be allocated to the Loans and Letter of Credit Accommodations
hereunder in such manner and in such amounts as Agent shall determine.

 

15.6         Release.  Each Borrower and Guarantor, for itself and
its successors and assigns, does hereby remise, release, discharge and hold
Agent, Lenders, Bank Product 

 

135

 

Providers, and their respective
officers, directors, agents and employees and their respective predecessors,
successors and assigns harmless from all claims, demands, debts, sums of money,
accounts, damages, judgments, financial obligations, actions, causes of action,
suits at law or in equity, of any kind or nature whatsoever, whether or not now
existing or known, which any Borrower, any Guarantor or their respective
successors or assigns has had or may now or hereafter claim to have against
Agent, any Lender, any Bank Product Provider or their respective officers,
directors, agents and employees and their respective predecessors, successors
and assigns in any way arising from or connected with the Existing Financing
Agreements or the arrangements set forth therein or transactions thereunder up
to and including the date hereof, except to the extent Borrowers shall notify
Agent in writing of any specific exceptions to charges for interest, fees,
costs and expenses set forth in the most recent monthly statement of Borrowers’
loan accounts sent by Agent to Borrowers prior to the date hereof pursuant to
the Existing Financing Agreements within thirty (30) days after the date
hereof.

 

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BLANK]

 

136

 

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

 

	
   

  	
  BORROWERS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LERNER NEW
  YORK, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   President, Chief Financial Officer and
  Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LERNCO, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JASMINE
  COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GUARANTORS

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NEW YORK
  & COMPANY, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President, Chief Financial
  Officer and Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NEVADA
  RECEIVABLE FACTORING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Secretary

  	
   

  
											

 

 

[SIGNATURES CONTINUED ON NEXT PAGE]

 

Signature Page
to Second Amended and

Restated Loan and Security Agreement

 

 

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

 

	
   

  	
  LERNER NEW
  YORK HOLDING, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President, Chief Financial
  Officer and Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LERNER NEW
  YORK GC, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ASSOCIATED
  LERNER SHOPS OF

  AMERICA, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Ronald W.
  Ristau

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
  AGENT

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WACHOVIA
  BANK, NATIONAL

  ASSOCIATION, as Agent

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Larry
  Forte

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
   Managing Director

  	
   

  	
   

  	
   

  	
   

  
													

 

 

[SIGNATURES CONTINUED ON NEXT PAGE]

 

Signature Page
to Second Amended and

Restated Loan and Security Agreement

 

 

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

	
  LENDERS

  
	
   

  
	
  WACHOVIA
  BANK, NATIONAL ASSOCIATION

  
	
   

  
	
  By:

  	
   /s/ Larry Forte

  	
   

  
	
   

  
	
  Title:

  	
   Managing
  Director

  	
   

  	
   

  
	
   

  
	
   

  
	
  LASALLE
  RETAIL FINANCE, a division of

  LaSalle Business Credit, LLC, as agent for

  LaSalle Bank Midwest, National Association

  
	
   

  
	
  By:

  	
  /s/ Steven
  Friedlander

  	
   

  
	
   

  
	
  Title:

  	
   Senior Vice President

  	
   

  	
   

  
										

 

 

Signature Page
to Second Amended and

Restated Loan and Security AgreementExhibit
10.2

EXECUTION

SECOND AMENDED AND
RESTATED GUARANTEE

THIS SECOND AMENDED AND RESTATED GUARANTEE (“Guarantee”),
dated August 22, 2007, is made by New York & Company, Inc., a Delaware
corporation (“NY&Co”), Lerner New York Holding, Inc., a Delaware
corporation (“Parent”), Nevada Receivable Factoring, Inc., a Nevada corporation
(“Nevada Factoring”) Associated Lerner Shops of America, Inc., a New York
corporation (“Associated Lerner”), and Lerner New York GC, LLC, an Ohio limited
liability company (“Lerner GC” and together with NY&Co, Parent, Nevada
Factoring and Associated Lerner, collectively, “Guarantors” and each a “Guarantor”)
each having an address at 450 West 33rd Street, New York, New York 10001, in favor of
Wachovia Bank, National Association, a national banking association, in its
capacity as agent for the Lenders and the Bank Product Providers (in such
capacity, “Agent”), having an office at 1133 Avenue of the Americas, New York,
New York 10036.

W  I
T  N  E  S  S  E  T  H :

WHEREAS, NY&Co previously guaranteed the
obligations of Lerner New York, Inc. (“Lerner” and together with Lernco, Inc. (“Lernco”)
pursuant to the Amended and Restated Guaranty and Security Agreement, dated as
of March 16, 2004, by and between NY&Co and Agent (as in effect on the date
hereof, the “Existing Guaranty”).

WHEREAS, Lerner, Lernco and Jasmine Company, Inc. (“Jasmine”
and together with Lerner and Lernco, each individually a “Borrower” and
collectively, “Borrowers”), Agent and the persons from time to time party to
the Loan Agreement (as hereinafter defined) as lenders (collectively, “Lenders”),
have amended and restated or are about to amend and restate the existing
financing arrangements of Agent and Lenders. Borrowers and Guarantors pursuant
to which Lenders (or Agent on behalf of Lenders) may make loans and advances
and provide other financial accommodations to Borrowers as set forth in the
Second Amended and Restated Loan and Security Agreement, dated as of the date
hereof, by and among Agent, Lenders, Borrowers and Guarantors (as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the “Loan Agreement”) and other agreements, documents and
instruments referred to therein or at any time executed and/or delivered in
connection therewith or related thereto, including, but not limited to, this
Guarantee (all of the foregoing, together with the Loan Agreement, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, being collectively referred to herein as the “Financing
Agreements”).

WHEREAS, in order to induce Agent and the Lenders to enter into the
Loan Agreement and to continue to make loans and other credit accommodations
under the Loan Agreement, Guarantors desire to amend and restate the Existing
Guaranty in its entirety as set forth herein.

WHEREAS, due to the close business and financial
relationships between Borrowers and each Guarantor, in consideration of the
benefits which will accrue to each Guarantor and as an inducement for and in
consideration of Lenders (or Agent on behalf of Lenders) making loans and
advances and providing other financial accommodations to Borrowers pursuant to
the Loan Agreement and the other Financing Agreements each Guarantor has agreed
to guarantee the payment and performance of the Guaranteed Obligations (as
hereinafter defined) on the terms set

forth herein;

NOW, THEREFORE, in consideration of the premises and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, each Guarantor hereby jointly and severally agrees in
favor of Agent and Lenders as follows:

1.             Guarantee.

(a)           Each
Guarantor absolutely and unconditionally, jointly and severally, guarantees and
agrees to be liable for the full and indefeasible payment and performance when
due of the following (all of which are collectively referred to herein as the “Guaranteed
Obligations”):  (i) all obligations,
liabilities and indebtedness of any kind, nature and description of Borrowers
to Agent or any Lender or any of their Affiliates (including all Obligations
arising under or in connection with any Bank Products), including principal,
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, arising under the Loan
Agreement or any of the other Financing Agreements, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of the Loan Agreement or after the commencement of any case with
respect to any Borrower under the United States Bankruptcy Code or any similar
statute (including, without limitation, 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 any such case and including loans, interest, fees, charges and expenses
related thereto and all other obligations of such Borrower or its successors to
Agent and any Lender arising after the commencement of 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 Agent or any Lender and (ii) all expenses (including,
without limitation, attorneys’ fees and legal expenses) incurred by Agent or
any Lender in connection with the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of any
Borrower’s obligations, liabilities and indebtedness as aforesaid to Agent or
any Lender, the rights of Agent or any Lender in any collateral or under this
Guarantee and all other Financing Agreements or in any way involving claims by
or against Agent or any Lender directly or indirectly arising out of or related
to the relationships between any Borrower, any Guarantor or any other Obligor
(as hereinafter defined) and Agent or any Lender, whether such expenses are
incurred before, during or after the initial or any renewal term of the Loan
Agreement and the other Financing Agreements or after the commencement of any
case with respect to any Borrower or any Guarantor under the United States
Bankruptcy Code or any similar statute.

(b)           This
Guarantee is a guaranty of payment and not of collection.  Each Guarantor agrees that Agent or Lenders
need not attempt to collect any Guaranteed Obligations from any Borrower, any
Guarantor or any other Obligor (as hereinafter defined) or to realize upon any
Collateral (as defined in the Loan Agreement), but may require any Guarantor to
make immediate payment of all of the Guaranteed Obligations to Agent, for the
benefit of Lenders and the Bank Product Providers, when due, whether by
maturity, acceleration or otherwise, or at any time thereafter may apply any
amounts received in respect of the Guaranteed Obligations to any of the
Guaranteed Obligations, in whole or in part (including reasonable attorneys’
fees and legal expenses incurred by Agent or any Lender with respect thereto or
otherwise chargeable to Borrowers or Guarantors) and in such order as Agent may
elect.

 2
 

 

(c)           Payment
by Guarantors shall be made to Agent at the office of Agent from time to time
on demand as Guaranteed Obligations become due. 
Guarantors shall make all payments to Agent on the Guaranteed
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.  One or more successive or concurrent actions
may be brought hereon against any Guarantor either in the same action in which
any Borrower or any other Guarantor or any other Obligor is sued or in separate
actions.  In the event any claim or
action, or action on any judgment, based on this Guarantee is brought against
any Guarantor, each Guarantor agrees not to deduct, set-off, or seek any
counterclaim for or recoup any amounts which are or may be owed by Agent or any
Lender to such Guarantor.

(d)           Notwithstanding
anything to the contrary contained herein, the amount of the Guaranteed
Obligations payable by any Guarantor under this Guarantee shall be the
aggregate amount of the Obligations unless a court of competent jurisdiction
adjudicates each Guarantor’s obligations to be invalid, avoidable or
unenforceable for any reason (including, without limitation, because of any
applicable state,  federal or other law
relating to fraudulent conveyances or transfers), in which case the amount of
the Guaranteed Obligations payable by Guarantors hereunder shall be limited to
the maximum amount that could be guaranteed by Guarantors without rendering
such Guarantors’ Obligations under this Guarantee invalid, avoidable or
unenforceable under such applicable law.

2.             Waivers and Consents.

(a)           Notice
of acceptance of this Guarantee, the making of loans and advances and providing
other financial accommodations to Borrowers and presentment, demand, protest,
notice of protest, notice of nonpayment or default and all other notices to
which any Borrower or any Guarantor is entitled are hereby waived by each
Guarantor.  Each Guarantor also waives
notice of and hereby consents to, (i) any amendment, modification, waiver,
supplement, extension, renewal, or restatement of the Loan Agreement and any of
the other Financing Agreements, including, without limitation, extensions of
time of payment of or increase or decrease in the amount of any of the
Guaranteed Obligations, the interest rate, fees, other charges, or any Collateral,
and the guarantee made herein shall apply to the Loan Agreement and the other
Financing Agreements and the Guaranteed Obligations as so amended, modified,
supplemented, renewed, restated or extended, increased or decreased, (ii) the
taking, exchange, surrender and releasing of Collateral or guarantees now or at
any time held by or available to Agent for itself and the benefit of Lenders
for the obligations of any Borrower, Guarantor or any other party at any time
liable on or in respect of the Guaranteed Obligations or who is the owner of
any property which is security for the Guaranteed Obligations (individually, an
“Obligor” and collectively, the “Obligors”), including, without limitation, the
surrender or release by Agent of any one Guarantor hereunder, (iii) the
exercise of, or refraining from the exercise of any rights against any
Borrower, any Guarantor or any other Obligor or any Collateral, (iv) the
settlement, compromise or release of, or the waiver of any default with respect
to, any of the Guaranteed Obligations and (v) any financing by Agent and/or any
Lender of any Borrower under Section 364 of the United States Bankruptcy Code
or consent to the use of cash collateral by Agent and/or Lenders under Section
363 of the United States Bankruptcy Code. 
Each Guarantor agrees that the amount of the Guaranteed Obligations
shall not be diminished and the liability of Guarantors hereunder shall not be
otherwise impaired or affected by any of the foregoing.

 3
 

 

(b)           No
invalidity, irregularity or unenforceability of all or any part of the
Guaranteed Obligations shall affect, impair or be a defense to this Guarantee,
nor shall any other circumstance which might otherwise constitute a defense
available to or legal or equitable discharge of any Borrower in respect of any
of the Guaranteed Obligations, or any one Guarantor in respect of this
Guarantee, affect, impair or be a defense to this Guarantee.  Without limitation of the foregoing, the
liability of Guarantors hereunder shall not be discharged or impaired in any
respect by reason of any failure by Agent or any Lender to perfect or continue
perfection of any lien or security interest in any collateral or any delay by
Agent or any Lender in perfecting any such lien or security interest.  As to interest, fees and expenses, whether
arising before or after the commencement of any case with respect to any
Borrower under the United States Bankruptcy Code or any similar statute, each
Guarantor shall be liable therefor, even if such Borrower’s liability for such
amounts does not, or ceases to, exist by operation of law.  Each Guarantor acknowledges that Agent and
Lenders have not made any representations to any Guarantor with respect to any
Borrower, any other Obligor or otherwise in connection with the execution and
delivery by Guarantors of this Guarantee and such Guarantors are not in any
respect relying upon Agent or any Lender or any statements by Agent or any
Lender in connection with this Guarantee.

(c)           Unless
and until the indefeasible payment and satisfaction in full of all of the
Guaranteed Obligations in immediately available funds and the termination of
the financing arrangements of Agent and Lenders with Borrowers, to the fullest
extent permitted by law, each Guarantor hereby irrevocably and unconditionally
waives and relinquishes (i) all statutory, contractual, common law, equitable
and all other claims against any Borrower, any Collateral for the Guaranteed
Obligations or other assets of any Borrower or any other Obligor, for
subrogation, reimbursement, exoneration, contribution, indemnification, setoff
or other recourse in respect to sums paid or payable to Agent or any Lender by
each Guarantor hereunder and (ii) any and all other benefits which any
Guarantor might otherwise directly or indirectly receive or be entitled to
receive by reason of any amounts paid by or collected or due from Guarantors,
Borrowers or any other Obligor upon the Guaranteed Obligations or realized from
their property.  The foregoing waiver of
rights is made in favor of Agent, the Lenders, and their respective successors
and assigns only and shall not be deemed a waiver of such rights for the
benefit of any other creditor of Borrower or any other Obligor.

3.             Subordination.  Payment of all amounts now or hereafter owed
to any Guarantor by any Borrower or any other Obligor is hereby subordinated in
right of payment to the indefeasible payment in full of the Guaranteed
Obligations and all such amounts and any security and guarantees therefor are
hereby assigned to Agent as security for the Guaranteed Obligations.

4.             Acceleration.  Notwithstanding anything to the contrary
contained herein or any of the terms of any of the other Financing Agreements,
the liability of Guarantors for the entire Guaranteed Obligations shall mature
and become immediately due and payable, even if the liability of any Borrower
or any other Obligor therefor does not, upon the occurrence of any act,
condition or event which constitutes an Event of Default as such term is
defined in the Loan Agreement.

5.             Account Stated. The books
and records of Agent showing the account between Agent and Borrower shall be
admissible in evidence in any action or proceeding against or involving
Guarantors as prima facie proof of the items therein set forth, and the monthly

 4
 

statements of Agent
rendered to Borrower, to the extent to which no written objection is made
within thirty (30) days from the date of sending thereof to Borrower, shall be
deemed conclusively correct and constitute an account stated between Agent and
Borrower and be binding on Guarantors.

6.             Termination.  This Guarantee is continuing, unlimited,
absolute and unconditional.  All
Guaranteed Obligations shall be conclusively presumed to have been created in
reliance on this Guarantee.  Each
Guarantor shall continue to be liable hereunder until one of Agent’s officers
actually receives a written termination notice from a Guarantor sent to Agent
at its address set forth above by certified mail, return receipt requested and
thereafter as set forth below.  Such
notice received by Agent from any one Guarantor shall not constitute a
revocation or termination of this Guarantee as to any other Guarantor.  Revocation or termination hereof by any
Guarantor shall not affect, in any manner, the rights of Agent or any
obligations or duties of any Guarantor (including any Guarantor which may have
sent such notice) under this Guarantee with respect to (a) Guaranteed
Obligations which have been created, contracted, assumed or incurred prior to
the receipt by Agent of such written notice of revocation or termination as
provided herein, including, without limitation, (i) all amendments, extensions,
renewals and modifications of such Guaranteed Obligations (whether or not
evidenced by new or additional agreements, documents or instruments executed on
or after such notice of revocation or termination), (ii) all interest, fees and
similar charges accruing or due on and after revocation or termination, and
(iii) all attorneys’ fees and legal expenses, costs and other expenses paid or
incurred on or after such notice of revocation or termination in attempting to
collect or enforce any of the Guaranteed Obligations against Borrowers,
Guarantors or any other Obligor (whether or not suit be brought), or (b)
Guaranteed Obligations which have been created, contracted, assumed or incurred
after the receipt by Agent of such written notice of revocation or termination
as provided herein pursuant to any contract entered into by Agent or any Lender
prior to receipt of such notice.  The
sole effect of such revocation or termination by any Guarantor shall be to
exclude from this Guarantee the liability of such Guarantor for those
Guaranteed Obligations arising after the date of receipt by Agent of such
written notice which are unrelated to Guaranteed Obligations arising or
transactions entered into prior to such date. 
Without limiting the foregoing, this Guarantee may not be terminated and
shall continue so long as the Loan Agreement shall be in effect (whether during
its original term or any renewal, substitution or extension thereof).

7.             Reinstatement.  If after receipt of any payment of, or
proceeds of Collateral applied to the payment of, any of the Guaranteed
Obligations, Agent or any Lender or Bank Product Provider is required to
surrender or return such payment or proceeds to any Person for any reason, then
the Guaranteed Obligations intended to be satisfied by such payment or proceeds
shall be reinstated and continue and this Guarantee shall continue in full
force and effect as if such payment or proceeds had not been received by Agent
or such Lender or Bank Product Provider. 
Each Guarantor shall be liable to pay to Agent and each Lender, and does
indemnify and hold Agent and such Lender or Bank Product Provider harmless for
the amount of any payments or proceeds surrendered or returned.  This Section 7 shall remain effective
notwithstanding any contrary action which may be taken by Agent or any Lender
or Bank Product Provider in reliance upon such payment or proceeds.  This Section 7 shall survive the termination
or revocation of this Guarantee.

 5
 

 

8.             Amendments and Waivers.  Neither this Guarantee 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
Agent and by the Guarantors.  Agent 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 Agent.  Any such waiver shall be enforceable only to
the extent specifically set forth therein. 
A waiver by Agent 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 Agent would otherwise have on any future occasion, whether similar
in kind or otherwise.

9.             Corporate Existence, Power and
Authority.  Each Guarantor is a
corporation duly organized and in good standing under the laws of its state or
other jurisdiction of incorporation and is duly qualified as a foreign
corporation and in good standing in all states 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 the financial
condition, results of operation or businesses of any Guarantor or the rights of
Agent hereunder or under any of the other Financing Agreements.  The execution, delivery and performance of
this Guarantee is within the corporate powers of each Guarantor, have been duly
authorized and are not in contravention of law or the terms of the certificates
of incorporation, by laws, or other organizational documentation of any
Guarantor, or any indenture, agreement or undertaking to which any Guarantor is
a party or by which any Guarantor or its property are bound.  This Guarantee constitutes the legal, valid
and binding obligation of each Guarantor enforceable in accordance with its
terms.  Any one Guarantor signing this
Guarantee shall be bound hereby whether or not any other Guarantor or any other
person signs this Guarantee at any time.

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

(a)           The
validity, interpretation and enforcement of this Guarantee and any dispute
arising out of the relationship between any Guarantor and Agent or any Lender,
whether in contract, tort, equity or otherwise, shall be governed by the internal
laws of the State of New York, but excluding any principles of conflicts of law
or other rule of law that would cause the application of the law of any
jurisdiction other than the laws of the State of New York.

(b)           Each
Guarantor hereby irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York for New York County
and the United States District Court for the Southern District of New York,
whichever Agent may elect, and waives any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Guarantee or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of any Guarantor and Agent or any Lender
in respect of this Guarantee 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
agrees that any dispute arising out of the relationship between any Guarantor
or any Borrower and Agent or any Lender or the conduct of any such persons in
connection with this Guarantee, the other Financing Agreements or otherwise
shall be heard only in the courts described above (except that Agent and
Lenders shall have the right to bring any action or proceeding against any
Guarantor or its property in the courts of any other jurisdiction which Agent
deems necessary or appropriate in order to realize

 6
 

on any collateral at any time granted by any Borrower or any Guarantor
to Agent or any Lender or to otherwise enforce its rights against any Guarantor
or its property).

(c)           Each
Guarantor hereby waives personal service of any and all process upon it and
consents that all such service of process may be made by certified mail (return
receipt requested) directed to its address set forth in Section 11 hereof and
service so made shall be deemed to be completed five (5) days after the same
shall have been so deposited in the U.S. mails, or, at Agent’s option, by
service upon any Guarantor in any other manner provided under the rules of any
such courts.  Within thirty (30) days
after such service, any Guarantor so served shall appear in answer of such
process, failing which such Guarantor shall be deemed in default and judgment
may be entered by Agent against such Guarantor for the amount of the claim and
other relief requested.

(d)           EACH
GUARANTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (i) ARISING UNDER THIS GUARANTEE OR ANY OF THE OTHER
FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL
TO THE DEALINGS OF ANY OF GUARANTORS AND AGENT OR ANY LENDER IN RESPECT OF THIS
GUARANTEE 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. 
EACH GUARANTOR 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 ANY GUARANTOR, ANY LENDER OR AGENT MAY FILE AN ORIGINAL COUNTERPART OF A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
GUARANTORS, LENDERS AND AGENT TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

(e)           Agent
and Lenders shall not have any liability to Guarantors (whether in tort,
contract, equity or otherwise) for losses suffered by Guarantors in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Guarantee, 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 Agent or such Lender that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct.  In any such litigation,
Agent and Lenders 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 the Loan Agreement and the other
Financing Agreements.

11.           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 following addresses (or to such other address as
any party may designate by notice in accordance with this Section):

	
  If to a Guarantor:

  	
   

  	
  Lerner New York Holding, Inc.

  

 

 7
 

 

	
  

  	
   

  	
  450 West 33rd Street

  
	
   

  	
   

  	
  New York, New
  York 10001

  
	
   

  	
   

  	
  Attention: Chief
  Financial Officer

  
	
   

  	
   

  	
  Telephone No.:
  (212) 884-2110

  
	
   

  	
   

  	
  Telecopy No.:
  (212) 884-2103

  
	
   

  	
   

  	
   

  
	
  If to Agent and
  Lender:

  	
   

  	
  Wachovia Bank, National Association, as Agent

  
	
   

  	
   

  	
  1133 Avenue of
  the Americas

  
	
   

  	
   

  	
  New York, New
  York 10036

  
	
   

  	
   

  	
  Attention:
  Portfolio Manager

  
	
   

  	
   

  	
  Telephone No.:
  (212) 545-4280

  
	
   

  	
   

  	
   

  

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

13.           Entire Agreement.  This Guarantee represents the entire
agreement and understanding of this parties concerning the subject matter
hereof, and supersedes all other prior agreements, understandings, negotiations
and discussions, representations, warranties, commitments, proposals, offers
and contracts concerning the subject matter hereof, whether oral or written.

14.           Successors and Assigns.  This Guarantee, the other Financing
Agreements and any other document referred to herein or therein shall be
binding upon each Guarantor and their respective successors and assigns and
shall inure to the benefit of Agent and each Lender and their respective
successors, endorsees, transferees and assigns. 
The liquidation, dissolution or termination of any Guarantor shall not
terminate this Guarantee as to such entity or as to any of the other
Guarantors.

15.           Construction.

(a)           All
references to the term “Guarantors” wherever used herein shall mean each and
all of Guarantors and their respective successors and assigns, individually and
collectively, jointly and severally (including, without limitation, any
receiver, trustee or custodian for any of Guarantors or any of their respective
assets or any of Guarantors in its capacity as debtor or debtor-in-possession
under the United States Bankruptcy Code). 
All references to the term “Lender” wherever used herein shall mean
Lender and its successors and assigns and all references to the term “Borrower”
wherever used herein shall mean Borrower and its successors and assigns
(including, without limitation, any receiver, trustee or custodian for Borrower
or any of its assets or Borrower in its capacity as debtor or
debtor-in-possession under the United States Bankruptcy Code).  All references to the term “Person” or “person”
wherever used herein shall mean any individual, sole proprietorship,
partnership, corporation (including, without limitation, any corporation which
elects subchapter S status under the Internal Revenue Code of 1986, as
amended), limited liability company, limited liability partnership, business
trust, unincorporated association, joint stock corporation, trust, joint venture
or other entity or

 8
 

any government or any agency or instrumentality of political
subdivision thereof.  All references to
the plural shall also mean the singular and to the singular shall also mean the
plural.

(b)           Capitalized
terms not otherwise defined herein shall have the respective meanings ascribed
thereto in the Loan Agreement.

16.           Acknowledgment and Restatement.

(a)           Each
Guarantor hereby acknowledges, confirms and agrees that Guarantors are indebted
to Agent and Lenders in respect of any obligations, liabilities or indebtedness
for loans, advances and letter of credit accommodations to Borrowers under the
Existing  Loan Agreement, the
Existing  Guaranty or the other Existing  Financing Agreements, together with all
interest accrued and accruing thereon, and all fees, costs, expenses and other
charges relating thereto, all of which are unconditionally owing by Guarantors
to Agent without offset, defense, or counterclaim of any kind, nature or
description whatsoever. Each Guarantor hereby ratifies, assents, adopts and
agrees to pay all of the Obligations arising before, on or after the date
hereof.

(b)           Each
Guarantor hereby acknowledges, confirms and agrees that Agent has and shall
continue to have, for itself and the benefit of Lenders, valid, enforceable and
perfected first priority security interests in and liens upon all of the
Collateral heretofore granted to Agent 
pursuant to the Existing  Guaranty
to secure all of the Obligations as amended and restated pursuant to the Loan
Agreement subject only to liens permitted under the Loan Agreement and the
other Financing Agreements.

(c)           Each
Guarantor hereby acknowledges, confirms and agrees that: (i) the Existing  Guaranty has been duly executed and delivered
by Guarantors and is in full force and effect as of the date hereof; (ii) the
agreements and obligations of Guarantors contained in the Existing  Guaranty constitute legal, valid and binding
obligations of Guarantors enforceable against it in accordance with the terms
thereof, and Guarantors have no valid defense, offset or counterclaim to the
enforcement of such obligations; and (iii) Agent and Lenders are entitled to
all of the rights, remedies and benefits provided for in the Existing Guaranty.

(d)           Except
as otherwise stated in Section 16(b) hereof and in this Section 16(d), as of
the date hereof, the terms, conditions, agreements, covenants, representations
and warranties set forth in the Existing 
Guaranty are hereby amended and restated in their entirety, and as so
amended and restated, are replaced and superseded by the terms, conditions
agreements, covenants, representations and warranties set forth in this
Agreement, except that nothing herein shall impair or adversely affect the
continuation of the liability of Guarantors for the Obligations or the security
interests and liens heretofore granted, pledged or assigned to Agent for itself
and the benefit of Lenders.  The
amendment and restatement contained herein shall not, in any manner, be
construed to constitute payment of, or impair, limit, cancel or extinguish, or
constitute a novation in respect of, the indebtedness and other obligations and
liabilities of Guarantors evidenced by or arising under the Existing Guaranty
and any of the other Existing  Financing
Agreements to which Guarantors are a party, and the liens and security
interests securing such indebtedness and other obligations and liabilities
shall not in any manner be impaired, limited, terminated, waived or released.

 9
 

 

[REMAINDER OF THIS
PAGE INTENTIONALLY LEFT BLANK]

 10
 

IN WITNESS WHEREOF, each Guarantor has executed and
delivered this Guarantee as of the day and year first above written.

 

	
   

  	
   

  	
  NEW YORK & COMPANY, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Ronald
  Ristau

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  President, Chief
  Financial Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  NEVADA
  RECEIVABLE FACTORING, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Ronald
  Ristau

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Secretary

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LERNER NEW YORK
  HOLDING, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Ronald
  Ristau

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  President, Chief
  Financial Officer and Secretary

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  LERNER NEW YORK
  GC, LLC

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Ronald
  Ristau

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  President

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ASSOCIATED
  LERNER SHOPS OF AMERICA, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
  /s/ Ronald Ristau

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
  Secretary

  

 

 

[SIGNATURES CONTINUE ON
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 11
 

[SIGNATURES CONTINUED
FROM PREVIOUS PAGE]

 

 

ACKNOWLEDGED AND AGREED:

WACHOVIA BANK, NATIONAL ASSOCIATION,  as Agent

 

	
  By:

  	
   

  	
  /s/ Laurence Forte

  	
   

  	
   

  
	
  Name:

  	
   

  	
  Laurence Forte

  	
   

  	
   

  
	
  Title:

  	
   

  	
  Managing
  Director

  	
   

  	
   

  

 

 

 12

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