Document:

EX-10.129

Exhibit 10.129

AMENDMENT NO. 11

TO

FINANCING AGREEMENT

     AMENDMENT NO. 11 TO FINANCING AGREEMENT (this “Amendment”) is entered into as of
September 2, 2008, by and among CYNTHIA STEFFE ACQUISITION, LLC, a New York limited liability
company (“CS Acquisition”), S.L. DANIELLE ACQUISITION, LLC, a New York limited liability
company (“Danielle Acquisition”), BERNARD CHAUS, INC. a New York corporation
(“Chaus” and together with CS Acquisition and Danielle Acquisition, collectively, the
“Company”) and THE CIT GROUP/COMMERCIAL SERVICES, INC. (“CIT”) as agent (in such
capacity, “Agent”) for itself and the various other financial institutions (together with
CIT, collectively, the “Lenders”) named in or which hereafter become a party to the
Financing Agreement (as hereafter defined).

BACKGROUND

     The Company, Agent and Lenders are parties to a Financing Agreement dated as of September 27,
2002 (as amended, modified, restated or supplemented from time to time, the “Financing
Agreement”) pursuant to which Agent and Lenders provide financial accommodations to Company.

     The Company has requested that Agent and Lenders amend the Financing Agreement as hereinafter
provided, and Agent on behalf of Lenders is willing to do so on the terms and conditions set forth
herein.

     NOW, THEREFORE, in consideration of any loan or advance or grant of credit heretofore or
hereafter made to or for the account of Company by Agent and Lenders, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:

     1. Definitions. All capitalized terms not otherwise defined herein shall have the
meanings given to them in the Financing Agreement.

     2. Amendments to Financing Agreement. Subject to satisfaction of the conditions
precedent set forth in Section 4 below, the Financing Agreement is hereby amended as follows:

          (a) Sub-clause (a) of Paragraph 7.10 of Section 7 of the Financing Agreement is hereby amended
by deleting the amount “$7,800,000” set forth in the table appearing in said subsection for the
fiscal quarter ending June 30, 2008 and inserting the amount “$7,100,000” in said table in lieu
thereof.

          (b) Sub-clause (f) of Paragraph 7.10 of Section 7 of the Financing Agreement is hereby amended
by deleting the amount “($1,700,000)” set forth in the table appearing in said subsection for the
fiscal quarter ending June 30, 2008 and inserting the amount “($1,900,000)” in said table in lieu
thereof.

 

 

     3. Conditions of Effectiveness. This Amendment shall become effective as of the date
hereof upon satisfaction of the following conditions:

          (a) Agent’s receipt of four (4) copies of this Amendment duly executed by the Company and
Agent; and

          (b) Agent shall have received such other certificates, instruments, documents and agreements
as may reasonably be required by Agent or its counsel, each of which shall be in form and substance
satisfactory to Agent and its counsel.

     4. Representations and Warranties. Company hereby represents and warrants as follows:

          (a) This Amendment and the Financing Agreement, as modified hereby, constitute legal, valid
and binding obligations of Company and are enforceable against Company in accordance with their
respective terms.

          (b) Company hereby reaffirms all covenants, representations and warranties made in the
Financing Agreement as amended herein are true and correct in all material respects and agrees that
all such covenants, representations and warranties, as applicable, shall be deemed to have been
remade as of the effective date of this Amendment (except to the extent of changes resulting from
transactions contemplated or permitted by the Financing Agreement and the other Loan Documents and
except to the extent that such representations and warranties relate expressly to an earlier date).

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

          (d) As of the date hereof, Company has no defense, counterclaim or offset with respect to the
Financing Agreement.

     5. Governing Law. This Amendment shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns and shall be governed by and
construed in accordance with the laws of the State of New York without regard to any conflicts of
laws principles thereto that would call for the application of the laws of any other jurisdiction.

     6. Headings. Section headings in this Amendment are included herein for convenience
of reference only and shall not constitute a part of this Amendment for any other purpose.

     7. Counterparts, Facsimile Signatures. This Amendment may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed an original and all of which
taken together shall be deemed to constitute one and the same agreement. Any signature delivered
by a party by facsimile or electronic transmission shall be deemed to be an original signature
hereto.

     8. Effect on the Financing Agreement.

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

          (b) Except as specifically modified hereby, the Financing Agreement, and all other documents,
instruments and agreements executed and/or delivered in connection therewith, shall remain in full
force and effect, and are hereby ratified and confirmed.

          (c) The execution, delivery and effectiveness of this Amendment shall not operate as a waiver
of any right, power or remedy of Agent or any Lender, nor constitute a waiver of any provision of
the Financing Agreement, or any other documents, instruments or agreements executed and/or
delivered under or in connection therewith.

          (d) The security interests and liens and rights securing payment of the Obligations are hereby
ratified and confirmed by the Company in all respects.

[Signature page follows]

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     IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first written
above.

	 	 	 	 	 
	 	CYNTHIA STEFFE ACQUISITION, LLC

 	 
	 	By:  	/s/ Barton Heminover
 	 
	 	 	Name:  	Barton Heminover 	 
	 	 	Title:  	Chief Financial Officer 	 
	 
	 	 	 	 	 
	 	S.L. DANIELLE ACQUISITION, LLC

 	 
	 	By:  	/s/Barton Heminover
 	 
	 	 	Name:  	Barton Heminover 	 
	 	 	Title:  	Chief  Financial Officer 	 
	 
	 	 	 	 	 
	 	BERNARD CHAUS, INC.

 	 
	 	By:  	/s/ Barton Heminover
 	 
	 	 	Name:  	Barton Heminover 	 
	 	 	Title:  	Chief Financial Officer 	 
	 
	 	 	 	 	 
	 	THE CIT GROUP/COMMERCIAL SERVICES,
INC., as Agent and a Lender
 	 
	 	By:  	Kevin J. Winsch
 	 
	 	 	Name:  	Kevin J. Winsch 	 
	 	 	Title:  	Senior Vice President 	 
	 

 

 

GUARANTOR ACKNOWLEDGEMENT

     Each of the undersigned hereby acknowledges and agrees that, notwithstanding the execution of
the foregoing Amendment, the consummation of the amendments and transactions contemplated thereby,
(i) all of the terms and conditions, representations and covenants contained in the undersigned’s
respective Guaranties and Security Agreements are and shall remain in full force and effect in
accordance with their respective terms and (ii) the security interests and liens theretofore
granted, pledged and/or assigned under the Security Agreements as security for the Obligations
shall not be impaired, limited or affected in any manner whatsoever by reason of Amendment.

	 	 	 	 	 
	 	BERNARD CHAUS INTERNATIONAL

(HONG KONG), INC.

 	 
	 	By:  	 /s/
Barton Heminover	 
	 	 	Name:  	 Barton Heminover	 
	 	 	Title:  	 Chief Financial Officer	 
	 
	 	 	 	 	 
	 	BERNARD CHAUS INTERNATIONAL

(KOREA), INC.

 	 
	 	By:  	 /s/
Barton Heminover	 
	 	 	Name:  	 Barton Heminover	 
	 	 	Title:  	 Chief Financial Officer	 
	 
	 	 	 	 	 
	 	CHAUS RETAIL, INC.

 	 
	 	By:  	 /s/
Barton Heminover	 
	 	 	Name:  	 Barton Heminover	 
	 	 	Title:  	 Chief Financial Officer	 
	 
	 	 	 	 	 
	 	BERNARD CHAUS INTERNATIONAL

(TAIWAN), INC.

 	 
	 	By:  	 /s/
Barton Heminover	 
	 	 	Name:  	 Barton Heminover	 
	 	 	Title:  	 Chief Financial OfficerEX-10.130

Exhibit 10.130

AMENDED AND RESTATED FINANCING AGREEMENT

The CIT Group/Commercial Services, Inc.

(as Agent and Lender)

and

Bernard Chaus, Inc.

Cynthia Steffe Acquisition, LLC

and

S.L. Danielle Acquisition, LLC

(as Borrowers)

Dated: As of September 18, 2008

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	SECTION 1.
	 	Definitions	 	 	2	 
	SECTION 2.
	 	Conditions Precedent	 	 	18	 
	SECTION 3.
	 	Revolving Loans	 	 	22	 
	SECTION 4.
	 	[Reserved]	 	 	28	 
	SECTION 5.
	 	Letters of Credit	 	 	28	 
	SECTION 6.
	 	Collateral	 	 	30	 
	SECTION 7.
	 	Representations, Warranties and Covenants	 	 	33	 
	SECTION 8.
	 	Interest, Fees and Expenses	 	 	43	 
	SECTION 9.
	 	Powers	 	 	49	 
	SECTION 10.
	 	Events of Default and Remedies	 	 	50	 
	SECTION 11.
	 	Termination	 	 	53	 
	SECTION 12.
	 	Miscellaneous	 	 	54	 
	SECTION 13.
	 	Agreement between the Lenders	 	 	56	 
	SECTION 14.
	 	Agency	 	 	58	 
	SECTION 15.
	 	Borrowing Agent	 	 	63	 
	 
	 	 	 	 	 	 

EXHIBITS

	 	 	 
	Exhibit B

	 	Form of Revolving Loan Promissory Note
	Exhibit C

	 	Form of Assignment and Transfer Agreement
	Exhibit D

	 	Form of Borrowing Base Certificate
	Exhibit E

	 	Form of Opinion

SCHEDULES

	 	 	 
	Schedule 1

	 	Collateral Information

i

 

THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation, with offices located at 11 West
42nd Street, New York, New York 10036 (hereinafter “CIT”), and CIT as agent for the
lenders (the “Agent”), and any other party which now or hereafter becomes a lender hereunder
pursuant to Section 13 hereof (individually a “Lender” and collectively the “Lenders”) are pleased
to confirm the terms and conditions under which the Lenders, acting through the Agent shall make
revolving loans and other financial accommodations to BERNARD CHAUS, INC., a New York corporation
(“Chaus”), S.L. DANIELLE ACQUISITION, LLC, a New York limited liability company (“Danielle
Acquisition”) and CYNTHIA STEFFE ACQUISITION, LLC, a New York limited liability company (“CS
Acquisition”) and together with Chaus and Danielle Acquisition, individually, a “Company” and
collectively, the “Companies”, each with a principal place of business at 800 Secaucus Road,
Secaucus, New Jersey 07094.

WHEREAS, the Companies, Agent and Lenders are parties to a Financing Agreement (as amended through
the date hereof, the “Original Financing Agreement”) dated as of September 27, 2002 (the “Original
Closing Date”) and related agreements and documents pursuant to which CIT extended to the Companies
a Revolving Line of Credit in the amount of up to $40,000,000 of which $17,451,846.79 remains
outstanding and a Term Loan in the original amount of $10,500,000 of which $1,805,100.00 remains
outstanding (the “Original Term Loan”); and

WHEREAS, the Original Financing Agreement is scheduled to mature on October 1, 2008; and

WHEREAS, the Companies have requested that Agent and Lenders (i) renew the credit facility for an
additional three years, (ii) make certain modifications to the terms and conditions set forth in
the Original Financing Agreement and (iii) make certain financial accommodations as herein set
forth; and

WHEREAS, under the terms and conditions hereof the Agent and Lenders have agreed to amend and
restate the Original Financing Agreement all as provided herein.

NOW THEREFORE, in consideration of the mutual covenants and undertakings herein contained, the
Companies, Agent and Lenders hereby agree as follows:

AMENDMENT AND RESTATEMENT

As of the date of this Amended and Restated Financing Agreement among the Companies, Agent and
Lenders (the “Financing Agreement”), the terms, conditions, covenants, agreements,
representations and warranties contained in the Original Financing Agreement shall be deemed
amended and restated in their entirety as follows and the Original Financing Agreement shall be
consolidated with and into and superseded by this Financing Agreement without breaking continuity;
provided, however, that nothing contained in this Financing Agreement shall impair,
limit or affect the security interests heretofore granted, pledged and or assigned to Agent as
security for the Obligations under the Original Financing Agreement and this Financing Agreement
does not constitute a novation of the Original Financing Agreement or the security interests
granted in connection therewith.

 

SECTION 1. Definitions.

Accounts shall mean any and all of the Companies’ now existing and future: (a) accounts (as
defined in the UCC), and any and all other receivables (whether or not specifically listed on
schedules furnished to the Agent), including, without limitation, all accounts created by, or
arising from, all of the Companies’ sales, leases, rentals of goods or renditions of services to
its customers, including but not limited to, those accounts arising under any of the Companies’
trade names or styles, or through any of the Companies’ divisions; (b) any and all instruments,
documents, chattel paper (including electronic chattel paper) (all as defined in the UCC); (c)
unpaid seller’s or lessor’s rights (including rescission, replevin, reclamation, repossession and
stoppage in transit) relating to the foregoing or arising therefrom; (d) rights to any goods
represented by any of the foregoing, including rights to returned, reclaimed or repossessed goods;
(e) reserves and credit balances arising in connection with or pursuant hereto; (f) guarantees,
supporting obligations, payment intangibles and letter of credit rights (all as defined in the
UCC); (g) insurance policies or rights relating to any of the foregoing; (h) general intangibles
pertaining to any and all of the foregoing (including all rights to payment, including those
arising in connection with bank and non-bank credit cards), and including books and records and any
electronic media and software thereto; (i) notes, deposits or property of account debtors securing
the obligations of any such account debtors to the Companies; and (j) cash and non-cash proceeds
(as defined in the UCC) of any and all of the foregoing.

Anniversary Date shall mean September 18, 2011 and September 18 in every year thereafter.

Anti-Terrorism Laws shall mean any and all laws, regulations, rules, orders, etc. in
effect from time to time relating to anti-money laundering and terrorism, including, without
limitation, Executive Order No. 13224 (effective September 24, 2001) and the USA Patriot Act.

Applicable Margin for each type of loan shall mean the applicable percentage specified
below:

	 	 	 
	APPLICABLE MARGIN FOR BASE	 	APPLICABLE MARGIN FOR LIBOR
	RATE LOANS	 	LOANS
	0.50%
	 	3.00%

Assignment and Transfer Agreement — shall mean the Assignment and Transfer Agreement in
the form of Exhibit C hereto.

Assignment of Factoring Proceeds Agreement shall mean the Intercreditor Agreement and
Assignment of Factoring Proceeds dated as of the Closing Date, among Factor, the Agent and the
Companies.

Availability shall mean, at any time, the amount by which (a) the lesser of the Revolving
Credit Limit or the Borrowing Base at such time exceeds (b) the sum at such time of the outstanding
balance of the Revolving Loan Account plus the undrawn amount of all outstanding Letters of
Credit.

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Availability Reserve shall mean the sum of: (a) (i) three (3) months rental payments or
similar charges for any of the Companies’ leased premises which contain material amounts of
Collateral for which the Companies have not delivered to the Agent a landlord’s waiver in form and
substance reasonably satisfactory to the Agent, plus (ii) three (3) months estimated payments plus
any other fees or charges owing by the Companies to any applicable warehousemen or third party
processor (as determined by the Agent in its reasonable business judgment), provided that any of
the foregoing amounts shall be adjusted from time to time hereafter upon (x) the opening or closing
of a Collateral location and/or (y) any change in the amount of rental, storage or processor
payments or similar charges; provided, however, that the foregoing amount, as it
relates to any Collateral location, shall be reduced to zero upon delivery to the Agent of
acceptable landlord waivers for such Collateral location; (b) any reserve which the Agent may
reasonably require from time to time pursuant to the express terms of this Financing Agreement, (c)
any reserve established by CIT under the Factoring Agreement, (d) Ledger Debt and (e) such other
reserves against Availability as Agent deems necessary in the exercise of its reasonable business
judgment as a result of (i) negative forecasts and/or trends in the Companies’ business, industry,
prospects, profits, operations or financial condition or (ii) other issues, circumstances or facts
that could otherwise negatively impact any Company or its business, prospects, profits, operations,
industry, financial condition or assets.

Base Rate shall mean the rate of interest per annum announced by JPMorgan Chase Bank, N.A.
(or its successor) from time to time as its prime rate in effect at its principal office in New
York City, which rate is not intended to be the lowest rate of interest charged by JPMorgan Chase
Bank to its borrowers.

Base Rate Loans shall mean any loans or advances pursuant to this Financing Agreement made
or maintained at a rate of interest based upon the Base Rate.

Blocked Person shall mean any Person: (i) listed in the annex to Executive Order No.
13224, (ii) owned or controlled by, or acting for or on behalf of, any Person listed in the annex
to Executive Order No. 13224, (iii) with which CIT is prohibited from dealing or otherwise
engaging in any transaction by any Anti-Terrorism Law, (iv) that commits, threatens or conspires to
commit or supports “terrorism” as defined in Executive Order No. 13224, (v) a Person that is named
a “specially designated national” or “blocked person” on the most current list published by OFAC or
other similar list, (vi) a Person that is named a “denied person” on the most current list
published by the U.S. Commerce Department, or (vii) (A) an agency of the government of a
Sanctioned Country, (B) an organization controlled by a Sanctioned Country, or (C) a Person
resident in a Sanctioned Country to the extent subject to a sanctions program administered by OFAC.

Borrowing Agent shall mean Bernard Chaus, Inc.

Borrowing Base shall mean the sum of (a) eighty-five percent (85%) of the Companies’
aggregate outstanding Eligible Accounts Receivable, provided that should dilution of the Borrower’s
Trade Accounts Receivable, as determined by Agent, be equal to or exceed 12% in any rolling twelve
month period, then such percentage shall be reduced by one percent (1%) with every one percent (1%)
increase in dilution over 12%, plus (b) the lesser of (i) fifty percent (50%) of the
aggregate value of the Companies’ Eligible Inventory, valued at the lower of cost or

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market, on a first in, first out basis, or (ii) the Inventory Loan Cap, plus (c) fifty percent
(50%) of the aggregate amount of outstanding Eligible Documentary Letters of Credit, less
(d) any applicable Availability Reserves, less (e) the Special Reserve.

Borrowing Base Certificate shall mean a certificate to be executed and delivered from time
to time by the Companies in the form attached to this Financing Agreement as Exhibit D.

Business Day shall mean any day on which the Agent and JPMorgan Chase Bank are open for
business.

Capital Expenditures shall mean, for any period, the aggregate expenditures of the
Companies during such period on account of, property, plant, equipment or similar fixed assets
that, in conformity with GAAP, are required to be reflected in the balance sheet of the Companies.

Capital Lease shall mean any lease of property (whether real, personal or mixed) which, in
conformity with GAAP, is accounted for as a capital lease or a Capital Expenditure in the balance
sheet of the Companies.

CIT’s System shall mean CIT’s ACAR or other interest-based loan accounting and reporting
system.

Client Risk Accounts shall have the meaning set forth in the Factoring Agreement.

Closing Date shall mean the date that this Financing Agreement has been duly executed by
the parties hereto and delivered to the Agent.

Collateral shall mean all assets of each Company, including, without limitation, present
and future Accounts, Equipment, Inventory and other Goods, Documents of Title, General Intangibles,
Investment Property, Real Estate and Other Collateral.

Commitment shall mean each Lender’s commitment in accordance with this Financing Agreement
to make Revolving Loans (the “Revolving Credit Commitment”), in the amount of their respective pro
rata share set forth in schedules prepared by the Agent or the Assignment and Transfer Agreement
executed by each such Lender.

Consolidated Balance Sheet shall mean a consolidated balance sheet for the Chaus and its
Subsidiaries, eliminating all intercompany transactions and prepared in accordance with GAAP.

Copyrights shall mean all present and hereafter acquired copyrights, copyright
registrations, recordings, applications, designs, styles, licenses, marks, prints and labels
bearing any of the foregoing, all reissues and renewals thereof, all licenses thereof, all other
general intangible, intellectual property and other rights pertaining to any of the foregoing,
together with the goodwill associated therewith, and all income, royalties and other Proceeds of
any of the foregoing.

Default shall mean any event specified in Section 10 hereof, which with the passage of time
or giving of notice or both would constitute an Event of Default.

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Default Rate of Interest shall mean a rate of interest per annum on any Obligations
hereunder, equal to the sum of: (a) two percent (2%) and (b) the applicable increment over the Base
Rate (as set forth in paragraph 8.1 hereof) plus the Base Rate, or the applicable increment over
the LIBOR Rate (as set forth in paragraph 8.13 hereof) plus the LIBOR Rate, which the Agent shall
be entitled to charge the Companies on all Obligations due the Agent on behalf of the Lenders by
the Companies, as further set forth in Paragraph 10.2 of Section 10 of this Financing Agreement.

Depository Accounts shall mean the collection accounts, which are subject to the Agent’s
instructions, as specified in Paragraph 3.4 of Section 3 of this Financing Agreement.

Documents of Title shall mean all present and future documents (as defined in the UCC), and
any and all warehouse receipts, bills of lading, shipping documents, chattel paper, instruments and
similar documents, all whether negotiable or not and all goods and Inventory relating thereto and
all cash and non-cash proceeds of the foregoing.

Due From Factor Accounts Receivable shall mean amounts due from Factor with respect to
Trade Accounts Receivable which are purchased in each case by Factor under the Factoring Agreement
and are and continue to be subject to the Assignment of Factoring Proceeds Agreement and which are
and continue to be credit approved by Factor, not charged back to the Companies thereunder nor
subject to any reserves thereunder. In addition (but without duplication of the foregoing), Trade
Accounts Receivable that are purchased and not credit approved by Factor under the relevant
Factoring Agreement may be deemed Eligible Accounts Receivable if such Trade Accounts Receivable
are subject to a valid, exclusive (but for the Liens of Factor), first priority perfected security
interest in favor of the Agent (subject only to the Lien of the Factor), for the benefit of the
Agent and the Lenders, and conform to the warranties contained herein and which, at all times,
continue to be acceptable to the Agent in the exercise of its reasonable business judgment, less,
without duplication, the sum of:

     (a) actual returns, disputes, discounts, claims, credits and allowances of any nature (whether
issued, owing, granted, claimed or outstanding), plus

     (b) reserves for such Trade Accounts Receivable that arise from, or are subject to or include:
(i) sales to the United States of America, any state or other governmental entity or to any agency,
department or division thereof, except for any such sales as to which the Companies have complied
with the Assignment of Claims Act of 1940 or any other applicable statute, rules or regulation to
the Agent’s satisfaction in the exercise of its reasonable business judgment; (ii) foreign sales,
other than sales which otherwise comply with all of the other criteria for eligibility hereunder
and are (x) secured by letters of credit (in form and substance satisfactory to the Agent) issued
or confirmed by, and payable at, banks acceptable to the Agent having a place of business in the
United States of America, or (y) to customers residing in Canada, provided that such
Accounts are payable in United States Dollars; (iii) Client Risk Accounts that remain unpaid more
than of ninety (90) days from invoice date; (iv) contra accounts; (v) sales to any Company or other
Person affiliated with any Company or any subsidiary of any Company; (vi) bill and hold (deferred
shipment) or consignment sales; (vii) sales to any customer which is either (w) insolvent, (x) the
debtor in any bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, (y) negotiating, or has called a meeting of its
creditors for purposes of negotiating, a compromise of its debts, or (z) financially

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unacceptable to the Agent or has a credit rating unacceptable to the Agent; (viii) with
respect to Client Risk Accounts, all sales to any customer if fifty percent (50%) or more of the
aggregate dollar amount of all outstanding invoices to such customer are unpaid more than the
earlier of ninety (90) days from invoice date; and (ix) sales to any customer and/or its affiliates
to the extent the aggregate outstanding amount of such sales at any time exceed forty percent (40%)
or more of all Eligible Accounts Receivable at such time; (x) pre-billed receivables and
receivables arising from progress billings; and (xi) sales not payable in United States currency,
with respect to Client Risk Accounts; plus

     (c) reserves against Trade Accounts Receivable as the Agent deems necessary in the exercise of
its reasonable business judgment and which are customary either in the commercial finance industry
or in the lending practices of the Agent or the Lenders; plus

     (d) Trade Accounts Receivable (i) with respect to which any check or other instrument of
payment has been returned uncollected for any reason; (ii) that do not comply in all material
respects with the requirements of all applicable laws and regulations; and (iii) which represent a
sale on a bill-and-hold, guaranteed sale, sale-and-return, consignment which is billed prior to
actual sale to the end user, cash-on-delivery or any other repurchase or return basis.

Early Termination Date shall mean the date on which the Companies terminate this Financing
Agreement or the Revolving Line of Credit which date is prior to an Anniversary Date.

Early Termination Fee shall (a) mean the fee the Agent on behalf of the Lenders is entitled
to charge the Companies in the event the Companies voluntarily terminate the Revolving Line of
Credit or this Financing Agreement on a date prior to an Anniversary Date; and (b) equal (x) 2.0%
of the Revolving Credit Limit if the Early Termination Date occurs on or before one (1) year from
the Closing Date, (y) 1% of the Revolving Credit Limit if the Early Termination Date occurs after
one (1) year from the Closing Date but on or before two (2) years from the Closing Date; and (z)
0.50% of the Revolving Credit Limit if the Early Termination Date occurs after two (2) years from
the Closing Date; provided, however, no Early Termination Fee shall be payable in
the event the Companies voluntarily terminate the Revolving Line of Credit or this Financing
Agreement within 120 days of the Anniversary Date.

EBITDA shall mean, in any period, the consolidated earnings of Chaus and its Subsidiaries
before all (i) interest and tax obligations, (ii) depreciation and (iii) amortization for said
period, all determined in accordance with GAAP on a consistent basis with the latest audited
consolidated financial statements of Chaus and its Subsidiaries, but excluding the effect of
extraordinary and/or non-reoccurring gains or losses for such period.

Eligible Accounts Receivable shall mean, as to any Company, the gross amount of such
Company’s (i) Due from Factor Account Receivables plus (i) solely from the Closing Date
through and including the Factoring Takeover Date, without duplication of any Due from Factor
Account Receivables, the amount of such Company’s Eligible Trade Accounts Receivable.

Eligible Assignee shall mean (i) a Lender; (ii) an Affiliate of a Lender; (iii) any Person
which purchases a controlling interest in the assets or equity of a Lender or otherwise succeeds to
the business of a Lender, (iv) a commercial bank organized under the laws of the United States of
America, or any State thereof, and having total assets in excess of $500,000,000; (v) a savings

6

 

association or savings bank organized under the laws of the United States of America, or any State
thereof, and having total assets in excess of $500,000,000; (vi) a commercial bank organized under
the laws of any other country that is a member of the Organization for Economic Cooperation and
Development (“OECD”) or has included special lending arrangements with the International Monetary
Fund associated with its General Arrangements to Borrower or of the Cayman Islands, or a political
subdivision of any such country, and having total assets in excess of $500,000,000, so long as such
bank is acting through a branch or agency located in the United States of America; (vii) the
central bank of any country that is a member of the OECD; and (viii) a finance company, insurance
company or other financial institution or fund (whether a corporation, partnership, trust or other
entity) that is engaged in making, purchasing or otherwise investing in commercial loans (of a size
similar to the Loans) in the ordinary course of its business and having total assets in excess of
$500,000,000; provided, however, that neither any Company nor any Affiliate of any
Company shall qualify as an Eligible Assignee under this definition.

Eligible Documentary Letters of Credit shall mean documentary Letters of Credit covering
the Companies’ Eligible Inventory consisting of finished goods Inventory being imported by the
Companies to the United States.

Eligible Inventory shall mean the gross amount of the Companies’ Inventory that is subject
to a valid, first priority and perfected security interest in favor of the Agent, on behalf of the
Lenders, subject to no other Liens (except Permitted Encumbrances) and which conforms to the
warranties contained herein and which, at all times, continues to be acceptable to the Agent in the
exercise of its reasonable business judgment, less, without duplication, any (a) work-in-process,
(b) supplies, (c) Inventory not present in the United States of America (except as set forth in
paragraph (e) below), (d) Inventory returned or rejected by the Companies’ customers (other than
goods that are undamaged and resalable in the normal course of business) and goods to be returned
to the Companies’ suppliers, any (e) Inventory in transit to third parties (other than finished
goods Inventory in transit to such Company’ agents or warehouses and with respect to which the
following criteria have been satisfied in the sole judgment of Agent: (i) title with respect to
such Inventory has passed to Companies, (ii) such Inventory is insured against types of loss,
damage, hazards and risks, and in amounts, satisfactory to Agent in its discretion, (iii) such
Inventory has been paid for or purchased under a documentary Letter of Credit which has been
consigned to Agent in a manner satisfactory to Agent and (iv) Agent shall have in its possession
(1) all negotiable bills of lading and other documents of title with respect to such Inventory
properly endorsed and (2) all non-negotiable bills of lading and other documents of title with
respect to such Inventory issued in Agent’s name), or in the possession of a warehouseman, bailee,
third party processor, or other third party, unless such warehouseman, bailee or third party has
executed a notice of security interest agreement (in form and substance satisfactory to the Agent)
and the Agent shall have a first priority perfected security interest in such Inventory, and (f)
less any reserves required by the Agent in its reasonable discretion, including without limitation
for special order goods, discontinued, slow-moving and obsolete Inventory, market value declines,
bill and hold (deferred shipment), consignment sales, shrinkage and any applicable customs,
freight, duties and Taxes.

Eligible Trade Accounts Receivables shall mean the Trade Accounts Receivable of a Company
that are subject to a valid, first priority and perfected security interest in favor of the Agent,
for

7

 

the benefit of the Agent and the Lenders, and conform to the warranties contained herein and which,
at all times, continue to be acceptable to the Agent in the exercise of its reasonable business
judgment, less, without duplication, the sum of:

     (a) actual returns, discounts, claims, credits and allowances of any nature (whether issued,
owing, granted, claimed or outstanding), plus

     (b) reserves for such Trade Accounts Receivable that arise from, or are subject to or include:
(i) sales to the United States of America, any state or other governmental entity or to any agency,
department or division thereof, except for any such sales as to which the Companies have complied
with the Assignment of Claims Act of 1940 or any other applicable statute, rules or regulation to
the Agent’s satisfaction in the exercise of its reasonable business judgment; (ii) foreign sales,
other than sales which otherwise comply with all of the other criteria for eligibility hereunder
and are (x) secured by letters of credit (in form and substance satisfactory to the Agent) issued
or confirmed by, and payable at, banks acceptable to the Agent having a place of business in the
United States of America, or (y) to customers residing in Canada, provided that such Accounts are
payable in United States Dollars; (iii) Accounts that remain unpaid more than the earlier of ninety
(90) days from invoice date; (iv) contra accounts; (v) sales to any Company or other Person
affiliated with any Company or any subsidiary of any Company; (vi) bill and hold (deferred
shipment) or consignment sales; (vii) sales to any customer which is either (w) insolvent, (x) the
debtor in any bankruptcy, insolvency, arrangement, reorganization, receivership or similar
proceedings under any federal or state law, (y) negotiating, or has called a meeting of its
creditors for purposes of negotiating, a compromise of its debts, or (z) financially unacceptable
to the Agent or has a credit rating unacceptable to the Agent; (viii) all sales to any customer if
fifty percent (50%) or more of the aggregate dollar amount of all outstanding invoices to such
customer are unpaid more than the earlier of ninety (90) days from invoice date or sixty (60) days
from due date; (ix) sales to any customer and/or its affiliates to the extent the aggregate
outstanding amount of such sales at any time exceed forty percent (40%) or more of all Eligible
Accounts Receivable at such time; (x) pre-billed receivables and receivables arising from progress
billings; and (xi) sales not payable in United States currency; plus

     (c) reserves against Trade Accounts Receivable as the Agent deems necessary in the exercise of
its reasonable business judgment and which are customary either in the commercial finance industry
or in the lending practices of the Agent or the Lenders; plus

     (d) Trade Accounts Receivable (i) with respect to which any check or other instrument of
payment has been returned uncollected for any reason; (ii) that do not comply in all material
respects with the requirements of all applicable laws and regulations; and (iii) which represent a
sale on a bill-and-hold, guaranteed sale, sale-and-return, consignment which is billed prior to
actual sale to the end user, cash-on-delivery or any other repurchase or return basis.

Equipment shall mean all present and hereafter acquired equipment (as defined in the UCC)
which is owned by the Companies, including, without limitation, all machinery, equipment,
furnishings and fixtures, and all additions, substitutions and replacements thereof, wherever
located, together with all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto and all proceeds thereof of whatever sort.

8

 

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

Eurocurrency Reserve Requirements for any day, as applied to a LIBOR Loan, shall mean the
aggregate (without duplication) of the maximum rates of reserve requirements (expressed as a
decimal fraction) in effect with respect to the Agent and/or any present or future Lender or
participant on such day (including, without limitation, basic, supplemental, marginal and emergency
reserves under Regulation D or any other applicable regulations of the Board of Governors of the
Federal Reserve System or other governmental authority having jurisdiction with respect thereto, as
now and from time to time in effect, dealing with reserve requirements prescribed for Eurocurrency
funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of such Board)
maintained by the Agent and/or any such Lenders or participants (such rate to be adjusted to the
nearest one sixteenth of one percent (1/16 of 1%) or, if there is not a nearest one sixteenth of
one percent (1/16 of 1%), to the next higher one sixteenth of one percent (1/16 of 1%)).

Event(s) of Default shall have the meaning provided for in Section 10 of this Financing
Agreement.

Factor shall mean The CIT Group/Commercial Services, Inc. in its capacity as Factor
pursuant to the Factoring Agreement. Notwithstanding anything to the contrary contained herein or
in any other Loan Document, any reference herein or in any other Loan Document to “Factor” shall
not include CIT in its capacity as “Agent” or “Lender” and any reference herein or in any Loan
Document to “Agent” or “Lender” shall not include CIT in its capacity as “Factor”.

Factored Accounts shall mean Accounts which are factored pursuant to the Factoring
Agreement.

Factoring Agreement shall mean, that certain Amended and Restated Factoring Agreement dated
as of the Closing Date by and among the Companies and CIT, as such agreement may be amended,
modified and supplemented from time to time.

Factoring Takeover Date shall mean October 15, 2008.

Fiscal Quarter shall mean, with respect to the Companies, each three (3) month period
ending December 31, March 31, June 30 and September 30 of each Fiscal Year.

Fiscal Year shall mean each twelve (12) month period commencing on July 1 of each year and
ending on the following June 30.

Fixed Charge Coverage Ratio shall mean, for the relevant period, the ratio determined by
dividing EBITDA by the sum of (a) all interest obligations paid or due, (b) Capital Expenditures
actually incurred, and (c) all federal, state and local income tax expenses due and payable.

GAAP shall mean generally accepted accounting principles in the United States of America as
in effect from time to time and for the period as to which such accounting principles are to apply,
provided that in the event the Companies modify their accounting principles and procedures as
applied as of the Closing Date, the Companies shall provide to the Agent and the Lenders such

9

 

statements of reconciliation as shall be in form and substance reasonably acceptable to the Agent.

General Intangibles shall mean all of the Companies’ present and hereafter acquired general
intangibles (as defined in the UCC), and shall include, without limitation, all present and future
right, title and interest in and to: (a) all Trademarks, tradenames, corporate names, business
names, logos and any other designs or sources of business identities, (b) Patents, together with
any improvements on said Patents, utility models, industrial models, and designs, (c) Copyrights,
(d) trade secrets, (e) licenses, permits and franchises, (f) all applications with respect to the
foregoing, (g) all right, title and interest in and to any and all extensions and renewals, (h)
goodwill with respect to any of the foregoing, (i) any other forms of similar intellectual
property, (j) all customer lists, distribution agreements, supply agreements, blueprints,
indemnification rights and tax refunds, together with all monies and claims for monies now or
hereafter due and payable in connection with any of the foregoing or otherwise, and all cash and
non-cash proceeds thereof, including, without limitation, the proceeds or royalties of any
licensing agreements between any Company and any licensee of any General Intangibles of any
Company.

Goods shall mean all present and hereafter acquired goods (as defined in the UCC) and all
proceeds thereof.

Guaranties shall mean the guaranty documents executed and delivered by the Guarantors
guaranteeing the Obligations.

Guarantors shall mean (i) Bernard Chaus International (Hong Kong), Inc., a Delaware
corporation, (ii) Bernard Chaus International (Korea), Inc., a Delaware corporation and (iii)
Bernard Chaus International (Taiwan), Inc., a Delaware corporation.

Indebtedness shall mean, without duplication, all liabilities, contingent or otherwise,
which are any of the following: (a) obligations in respect of borrowed money or for the deferred
purchase price of property, services or assets, other than Inventory, or (b) lease obligations
which, in accordance with GAAP, have been, or which should be capitalized.

Insurance Proceeds shall mean proceeds or payments from an insurance carrier with respect
to any loss, casualty or damage to Collateral.

Interest Expense shall mean the total interest obligations (paid or accrued) of the
Companies determined in accordance with GAAP, on a consistent basis with the latest audited
statements of the Companies.

Interest Period shall mean:

     (a) with respect to any initial request by the Companies for a LIBOR Loan, a one month, two
month or three month period commencing on the borrowing or conversion date with respect to a LIBOR
Loan and ending one, two or three months thereafter, as applicable; and

     (b) thereafter with respect to any continuation of, or conversion to, a LIBOR Loan, at the
option of the Companies, any one month, two month or three month period commencing on

10

 

the last day of the immediately preceding Interest Period applicable to such LIBOR Loan and
ending one, two or three months thereafter, as applicable;

provided that, the foregoing provisions relating to Interest Periods are subject to the
following:

(i) if any Interest Period would otherwise end on a day which is not a Working Day, that
Interest Period shall be extended to the next succeeding Working Day, unless the result of
such extension would extend such payment into another calendar month in which event such
Interest Period shall end on the immediately preceding Working Day;

(ii) any Interest Period that begins on the last Working Day of a calendar month (or on a
day for which there is no numerically corresponding day in the calendar month, at the end of
such Interest Period) shall end on the last Working Day of a calendar month; and

(iii) for purposes of determining the availability of Interest Periods, such Interest
Periods shall be deemed available if (x) JPMorgan Chase Bank quotes an applicable rate or
the Agent determines LIBOR, as provided in the definition of LIBOR, (y) the LIBOR determined
by JPMorgan Chase Bank or the Agent will adequately and fairly reflect the cost of
maintaining or funding its loans bearing interest at LIBOR, for such Interest Period, and
(z) such Interest Period will end on or before the earlier of Anniversary Date or the last
day of the then current term of this Financing Agreement. If a requested Interest Period
shall be unavailable in accordance with the foregoing sentence, the Companies shall continue
to pay interest on the Obligations at the applicable per annum rate based upon the Base
Rate.

Inventory shall mean all of the Companies’ present and hereafter acquired inventory (as
defined in the UCC) and including, without limitation, all merchandise, inventory and goods, and
all additions, substitutions and replacements thereof, wherever located, together with all goods
and materials used or usable in manufacturing, processing, packaging or shipping same in all stages
of production from raw materials through work-in-process to finished goods — and all proceeds
thereof of whatever sort.

Inventory Loan Cap shall mean the lesser of (i) $12,000,000 or (ii) the amount of Revolving
Loans made against the value of Eligible Accounts Receivable.

Investment Property shall mean all now owned and hereafter acquired investment property (as
defined in the UCC) together will all stock and other equity interest in any Company’s subsidiaries
and all proceeds thereof.

Issuer shall mean the financial institution issuing Letters of Credit for the Companies.

Ledger Debt shall mean any Indebtedness for goods or services purchased or obtained by the
Companies from any party whose Accounts are factored or financed by CIT.

Letters of Credit shall mean all letters of credit issued with the assistance of the Agent,
on behalf of the Lenders, in accordance with Section 5 hereof by the Issuer for or on behalf of the
Companies.

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Letter of Credit Guaranty shall mean the guaranty delivered by the Agent, on behalf of the
Lenders, to the Issuer of the Companies’ reimbursement obligations under the Issuer’s reimbursement
agreement, application for Letter of Credit or other like document.

Letter of Credit Guaranty Fee shall mean the fee the Agent, on behalf of the Lenders, may
charge the Companies under Paragraph 8.3 of Section 8 of this Financing Agreement for: (a) issuing
a Letter of Credit Guaranty, and/or (b) otherwise aiding the Companies in obtaining Letters of
Credit, all pursuant to Section 5 hereof.

Letter of Credit Sub-Line shall mean the commitment of the Lenders to assist the Companies
in obtaining Letters of Credit, pursuant to Section 5 hereof, in an aggregate amount not to exceed
$12,000,000.

Leverage Ratio shall mean the ratio determined by dividing Total Liabilities by Tangible
Net Worth.

LIBOR shall mean, at any time of determination, and subject to availability, for each
applicable Interest Period, a variable rate of interest equal to: (a) at the Agent’s election (i)
the applicable LIBOR quoted to the Agent by JPMorgan Chase Bank (or any successor thereof), or (ii)
the rate of interest determined by the Agent at which deposits in U.S. dollars are offered for the
relevant Interest Period based on information presented on Telerate Systems at Page 3750 as of
11:00 A.M. (London time) on the day which is two (2) Business Days prior to the first day of such
Interest Period, provided that, if at least two such offered rates appear on the
Telerate System at Page 3750 in respect of such Interest Period, the arithmetic mean of all such
rates (as determined by the Agent) will be the rate used; divided by (b) a number equal to 1.0
minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of
Eurocurrency Reserve Requirements in effect on the day which is two (2) Business Days prior to the
beginning of such Interest Period.

LIBOR Lending Office with respect to the Agent, shall mean the office of JPMorgan Chase
Bank, or any successor thereof, maintained at 270 Park Avenue, New York, NY 10017 or such other
office identified by JPMorgan Chase Bank from time to time.

LIBOR Loan shall mean any loans made pursuant to this Financing Agreement which are made or
maintained at a rate of interest based upon LIBOR, provided that (i) no Default or Event of Default
has occurred hereunder, which has not been waived in writing by the Required Lenders, and (ii) no
LIBOR Loan shall be made with an Interest Period that ends subsequent to an Anniversary Date or any
applicable Early Termination Date.

Line of Credit shall mean the aggregate commitment of the Lenders to (a) make Revolving
Loans pursuant to Section 3 of this Financing Agreement and (b) assist the Companies in opening
Letters of Credit pursuant to Section 5 of this Financing Agreement in the aggregate amount not to
exceed the Revolving Credit Limit; provided that nothing herein shall be deemed to increase any
Lenders commitment hereunder, and which commitment shall be set forth in the applicable schedules
maintained by the Agent or the Assignment and Transfer Agreements executed by such Lender.

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Line of Credit Fee shall: (a) mean the fee due the Agent at the end of each month for the
Line of Credit, and (b) be determined by multiplying the difference between (i) the Revolving Line
of Credit, and (ii) the sum, for said month, of (x) the average daily balance of Revolving Loans
plus (y) the average daily balance of Letters of Credit outstanding for said month, by
three-eighths of one percent (3/8%) per annum for the number of days in said month.

Loan Documents shall mean this Financing Agreement, the Promissory Note, the Guaranties,
the other closing documents and any other ancillary loan and security agreements executed from time
to time in connection with the Original Financing Agreement, this Financing Agreement, and/or the
Factoring Agreement, all as may be renewed, amended, extended, increased or supplemented from time
to time.

Loan Facility Fee shall mean the fee payable to the Agent and the Lenders (as applicable)
in accordance with, and pursuant to, the provisions of Paragraph 8.8 of Section 8 of this Financing
Agreement.

Obligations shall mean all loans, advances and extensions of credit made or to be made by
the Agent and/or the Lenders to the Companies, or to others for the Companies’ account (including,
without limitation, all Revolving Loans and Letter of Credit Guaranties); any and all indebtedness
and obligations which may at any time be owing by the Companies to the Agent and/or the Lenders
howsoever arising, whether now in existence or incurred by the Companies from time to time
hereafter; whether principal, interest, fees, costs, expenses or otherwise; whether secured by
pledge, lien upon or security interest in any of the Companies’ Collateral, assets or property or
the assets or property of any other Person; whether such indebtedness is absolute or contingent,
joint or several, matured or unmatured, direct or indirect and whether the Companies are liable to
the Agent and/or the Lenders for such indebtedness as principal, surety, endorser, guarantor or
otherwise. Obligations shall also include indebtedness owing to the Agent and/or the Lenders by
the Companies under any Loan Document, the Factoring Agreement or under any other agreement or
arrangement now or hereafter entered into between any Company and the Agent and/or the Lenders;
indebtedness or obligations incurred by, or imposed on, the Agent and/or the Lenders as a result of
environmental claims arising out of any Company’s operations, premises or waste disposal practices
or sites in accordance with paragraph 7.7 hereof; any Company’s liability to the Agent and/or the
Lenders as maker or endorser of any promissory note or other instrument for the payment of money;
any Company’s liability to the Agent and/or the Lenders under any instrument of guaranty or
indemnity, or arising under any guaranty, endorsement or undertaking which the Agent and/or the
Lenders may make or issue to others for such Company’s account, including any Letter of Credit
Guaranty or other accommodation extended by CIT with respect to applications for Letters of Credit,
the Agent’s and/or the Lenders’ acceptance of drafts or the Agent’s and/or the Lenders’ endorsement
of notes or other instruments for the Companies’ account and benefit and Ledger Debt.

Operating Leases shall mean all leases of property (whether real, personal or mixed) other
than Capital Leases.

Original Closing Date shall have the meaning provided for such term in the Recital to this
Agreement.

13

 

Original Financing Agreement shall have the meaning provided for such term in the Recital
to this Agreement.

Original Term Loan shall have the meaning provided for such term in the Recital to this
Agreement.

Other Collateral shall mean all now owned and hereafter acquired lockbox, blocked account
and any other deposit accounts maintained with any bank or financial institutions into which the
proceeds of Collateral are or may be deposited; all other deposit accounts and all Investment
Property; all cash and other monies and property in the possession or control of the Agent and/or
any of the Lenders; all books, records, ledger cards, disks and related data processing software at
any time evidencing or containing information relating to any of the Collateral described herein or
otherwise necessary or helpful in the collection thereof or realization thereon; and all cash and
non-cash proceeds of the foregoing.

Out-of-Pocket Expenses shall mean all of the Agent’s (and the Lenders upon the occurrence
of an Event of Default which is not waived by the Required Lenders) present and future
out-of-pocket expenses actually incurred relative to this Financing Agreement or any other Loan
Documents, whether incurred heretofore or hereafter, which expenses shall include, but shall not be
duplicative of any other fees or expenses set forth in this Agreement, without being limited to:
the cost of record searches, all out-of-pocket costs and expenses incurred by the Agent in opening
bank accounts, depositing checks, receiving and transferring funds, and wire transfer charges, any
charges imposed on the Agent due to returned items and “insufficient funds” of deposited checks and
the Agent’s standard fees relating thereto, any amounts paid by, incurred by or charged to, the
Agent and/or the Lenders by the Issuer under a Letter of Credit Guaranty or the Companies’
reimbursement agreement, application for Letters of Credit or other like document which pertain
either directly or indirectly to such Letters of Credit, and the Agent’s standard fees relating to
the Letters of Credit and any drafts thereunder, travel, lodging and similar expenses of the
Agent’s personnel in connection with inspecting and monitoring the Collateral from time to time
hereunder, any applicable reasonable counsel fees and disbursements, fees and taxes relative to the
filing of financing statements, all expenses, costs and fees set forth in Paragraph 10.3 of Section
10 of this Financing Agreement.

Overadvances shall mean the amount by which (a) the sum of all outstanding Revolving Loans,
Letters of Credit and advances made hereunder exceed (b) the Borrowing Base.

Patents shall mean all of the Companies’ present and hereafter acquired patents, patent
applications, registrations, any reissues or renewals thereof, licenses, any inventions and
improvements claimed thereunder, and all general intangible, intellectual property and patent
rights with respect thereto of the Companies, and all income, royalties, cash and non-cash proceeds
thereof.

Permitted Acquisition shall mean the acquisition by a Company (whether of stock or
substantially all of the assets of a business or business division as a going concern or by means
of a merger or consolidation) which satisfies each of the following conditions: (i) such other
Person shall operate in the same line of business as the Companies, (ii) no Default or Event of
Default shall have occurred and be continuing and none shall exist after giving effect to such
Permitted

14

 

Acquisition, (iii) the Companies shall have furnished the Agent with ten (10) Business Days prior
notice of such intended acquisition and shall have furnished the Agent with (A) a current draft of
the acquisition agreement and other acquisition documents, (B) a summary of any due diligence
undertaken by the Companies in connection with such acquisition subject to customary disclaimers
from advisors to the Companies, (C) appropriate financial statements of the Person which is the
subject of such acquisition to the extent and in the form available to the Companies, (D) pro forma
projected financial statements of the Companies after giving effect to such acquisition, together
with a pro forma compliance certificate with respect to the financial covenants set forth in
Section 7 Paragraph 7.10 of this Financing Agreement for the following twelve (12) month period,
and (E) such other information as the Agent may reasonably require (including, without limitation,
discussions with management of the acquired Person and a review of its books and records), (iv) if
a Company or its Subsidiary shall merge with such other Person, such Company or Subsidiary shall be
the surviving party of such merger, (v) the cash portion of the purchase price for the acquisition
shall be funded solely from equity contributions to the Companies and not from the proceeds of any
Revolving Loans or the incurrence of any Indebtedness (other than Subordinated Debt) or from any
other assets of the Companies, (vi) if such Person shall become a Subsidiary of a Company, such new
Subsidiary shall, in the discretion of the Agent, either become a party hereto (pursuant to
documentation in form and substance satisfactory to the Agent) or execute a guaranty in form and
substance satisfactory to the Agent pursuant to which such new Subsidiary guarantees to the Lenders
and the Agent the payment and performance of the Obligations, (vii) the Companies, and if such
Person becomes a Subsidiary of a Company, such new Subsidiary, shall take such steps as are
necessary to grant to the Agent, for the benefit of the Lenders and the Agent, a legal, valid and
enforceable first priority security interest in all of the assets (including stock) acquired in
connection with such Permitted Acquisition (subject to Permitted Encumbrances), (viii) such
acquisition shall have been approved by a majority of the board of directors (or the equivalent
governing body) of the Person which is the subject of such acquisition and such Person shall not
have announced that it will oppose such acquisition or shall not have commenced any action which
alleges that such acquisition will violate applicable law, and (ix) after giving effect to such
acquisition, the Agent shall be satisfied in its reasonable discretion that, on a pro forma basis
for the twelve months following the consummation of such acquisition and after giving effect
thereto, the Companies shall be in compliance with the financial performance covenants set forth in
Section 7 Paragraph 7.10 of this Financing Agreement, whether or not then applicable.

Permitted Encumbrances shall mean: (a) liens existing on the date hereof on specific items
of Equipment and other liens expressly permitted, or consented to in writing by the Agent and/or
the Required Lenders; (b) Purchase Money Liens; (c) liens of local or state authorities for
franchise or other like Taxes, provided that the aggregate amounts of such liens shall not exceed
$100,000.00 in the aggregate at any one time; (d) statutory liens of landlords and liens of
carriers, warehousemen, bailees, mechanics, materialmen and other like liens imposed by law,
created in the ordinary course of business and for amounts not yet due (or which are being
contested in good faith, by appropriate proceedings or other appropriate actions which are
sufficient to prevent imminent foreclosure of such liens) and with respect to which adequate
reserves or other appropriate provisions are being maintained by the Companies in accordance with
GAAP; (e) deposits made (and the liens thereon) in the ordinary course of business of the Companies
(including, without limitation, security deposits for leases, indemnity bonds, surety bonds and
appeal bonds) in connection with workers’ compensation, unemployment insurance

15

 

and other types of social security benefits or to secure the performance of tenders, bids,
contracts (other than for the repayment or guarantee of borrowed money or purchase money
obligations), statutory obligations and other similar obligations arising as a result of progress
payments under government contracts; (f) easements (including, without limitation, reciprocal
easement agreements and utility agreements), encroachments, minor defects or irregularities in
title, variation and other restrictions, charges or encumbrances (whether or not recorded)
affecting the Real Estate, if applicable, and which in the aggregate (A) do not materially
interfere with the occupation, use or enjoyment by the Companies of its business or property so
encumbered and (B) in the reasonable business judgment of the Agent do not materially and adversely
affect the value of such Real Estate; and (g) liens granted the Agent by the Companies; (h) liens
of judgment creditors provided such liens do not exceed, in the aggregate, at any time, $100,000.00
(other than liens bonded or insured to the reasonable satisfaction of the Agent); (i) tax liens
which are not yet due and payable or which are being diligently contested in good faith by the
Companies by appropriate proceedings, and which liens are not (x) filed on any public records, (y)
other than with respect to Real Estate, senior to the liens of the Agent or (z) for Taxes due the
United States of America or any state thereof having similar priority statutes, as further set
forth in paragraph 7.6 hereof and (j) Liens arising under the Factoring Agreement.

Permitted Indebtedness shall mean (a) current Indebtedness maturing in less than one year
and incurred in the ordinary course of business for raw materials, supplies, equipment, services,
Taxes or labor; (b) the Indebtedness secured by Purchase Money Liens; (c) Indebtedness arising
under the Letters of Credit and this Financing Agreement; (d) deferred Taxes and other expenses
incurred in the ordinary course of business; (e) the Indebtedness arising by and between a Company
and another Company or a Company and a Guarantor to the extent such Guarantor is domiciled in the
United States and Agent has a first priority perfect security interest on all of its assets, (f)
other Indebtedness existing on the date of execution of this Financing Agreement and listed in the
most recent financial statement delivered to the Agent and the Lenders or otherwise disclosed to
the Agent and the Lenders in writing prior to the Closing Date, (g) Subordinated Debt and (h)
Indebtedness of the Companies owed to the seller in any acquisition permitted hereunder
constituting part of the purchase price thereof, or issued to finance any portion of the purchase
price thereof.

Permitted Investments shall mean: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case maturing within ninety (90)
days from the date of acquisition thereof; (b) commercial paper maturing no more than ninety (90)
days from the date issued (i) by any Lender (or its holding company) or (ii) at the time of
acquisition, having a rating of at least A-1 from Standard & Poor’s Rating Services or at least P-1
from Moody’s Investors Service, Inc.; (c) certificates of deposit or bankers’ acceptances maturing
within ninety (90) days from the date of issuance thereof issued by, or repurchase agreements
backed by United States governmental securities from (i) any Lender or (ii) any commercial bank
organized under the laws of the United States of America or any state thereof or the District of
Columbia having combined capital and surplus of not less than $500,000,000 and whose debt
obligations, or those of a holding company of which it is a Subsidiary, are rated not less than A
(or the equivalent rating) by a nationally recognized investment rating agency and not subject to
setoff rights in favor of such bank; and (d) United States money market funds that invest solely in
obligations issued or guaranteed by the United States of America or an agency thereof.

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

Promissory Notes shall mean the note, in the form of Exhibit B attached hereto, delivered
by the Companies to the Agent to evidence the Revolving Loans, pursuant to, and repayable in
accordance with, the provisions of Section 3 of this Financing Agreement.

Purchase Money Liens shall mean liens on any item of Equipment acquired after the date of
this Financing Agreement provided that (a) each such lien shall attach only to the property to be
acquired, (b) a description of the Equipment so acquired is furnished to the Agent and (c) the debt
incurred in connection with such acquisitions shall not exceed, in the aggregate, $250,000 in any
Fiscal Year.

Real Estate shall mean the Companies’ fee interests in its real property.

Required Lenders shall mean the Lenders holding aggregate commitments under this Financing
Agreement in an amount of 51% or more.

Revolving Credit Limit shall mean $30,000,000.

Revolving Line of Credit shall mean the aggregate commitment of the Lenders to make loans
and advances pursuant to Section 3 of this Financing Agreement and issue Letters of Credit
Guaranties pursuant to Section 5 hereof to the Companies, in an aggregate amount not to exceed the
Revolving Credit Limit.

Revolving Loan Account shall mean the account on the Agent’s books, in the Companies’ name,
in which the Companies will be charged with all Obligations under this Financing Agreement.

Revolving Loans shall mean the loans and advances made, from time to time, to or for the
account of the Companies by the Agent, on behalf of the Lenders, pursuant to Section 3 of this
Financing Agreement.

Settlement Date shall mean the date, weekly, and more frequently, at the discretion of the
Agent, upon the occurrence of an Event of Default or a continuing decline or increase of the
Revolving Loans that the Agent and the Lenders shall settle amongst themselves so that (a) the
Agent shall not have, as the Agent, any money at risk and (b) on such Settlement Date the Lenders
shall have a pro rata amount of all outstanding Revolving Loans and Letters of Credit, provided
that each Settlement Date for a Lender shall be a Business Day on which such Lender and its bank
are open for business.

Special Reserve shall mean $2,000,000, provided that the Special Reserve shall equal $0
from January 1, 2009 through and including January 31, 2009.

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Subordinated Debt shall mean all indebtedness of the Companies (and the notes evidencing
such indebtedness) that is subordinated to the prior payment and satisfaction of the Obligations
pursuant to subordination agreements and/or subordination provisions of the respective debt
instruments in each case in form and substance reasonably satisfactory to the Agent.

Subsidiaries shall mean the wholly-owned subsidiaries of any Company.

Tangible Net Worth shall mean at any date of determination, an amount equal to (a) Total
Assets excluding such other assets as are properly classified as intangible assets under GAAP,
minus (b) Total Liabilities, and shall be determined in accordance with GAAP, on a consistent basis
with the latest audited consolidated financial statements of Chaus and its Subsidiaries.

Taxes shall mean all federal, state, municipal and other governmental taxes, levies,
charges, claims and assessments which are or may be due by any Company with respect to its
business, operations, Collateral or otherwise.

Total Assets shall mean total assets determined in accordance with GAAP, on a basis
consistent with the latest audited consolidated financial statements of any Company and its
Subsidiaries.

Total Liabilities shall mean total liabilities determined in accordance with GAAP, on a
basis consistent with the latest audited consolidated financial statements of any Company and its
Subsidiaries.

Trade Accounts Receivable shall mean that portion of any Companies’ Accounts which arises
from the sale of Inventory or the rendition of services in the ordinary course of such Company’
business.

Trademarks shall mean all present and hereafter acquired trademarks, trademark
registrations, recordings, applications, tradenames, trade styles, service marks, prints and labels
(on which any of the foregoing may appear), licenses, reissues, renewals, and any other
intellectual property and trademark rights pertaining to any of the foregoing, together with the
goodwill associated therewith, and all cash and non-cash proceeds thereof.

UCC shall mean the Uniform Commercial Code as the same may be amended and in effect from
time to time in the state of New York.

Working Day shall mean any Business Day on which dealings in foreign currencies and
exchanges between banks may be transacted.

SECTION 2. Conditions Precedent.

     The obligation of the Agent and the Lenders to make the initial loans hereunder is subject to
the satisfaction of, extension of or waiver of (in writing), on or prior to, the Closing Date, the
following conditions precedent:

          (a) Financing Agreement and Other Loan Documents. The Agent shall have received
copies of this Financing Agreement from each of the parties hereto, including from each of the
Companies and the Lenders in sufficient quantities as determined by the Agent, together

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with copies of the Promissory Notes and all Loan Documents necessary to consummate the lending
arrangements contemplated by this Financing Agreement.

          (b) Lien Searches. The Agent shall have received tax lien, judgment lien and Uniform
Commercial Code searches from all jurisdictions reasonably required by the Agent, and such searches
shall verify that the Agent, for the benefit of the Agent and the Lenders, has a first priority
security interest in the Collateral, subject to Permitted Encumbrances.

          (c) Casualty Insurance — The Companies shall have delivered to the Agent evidence
satisfactory to the Agent that casualty insurance policies listing the Agent as additional insured,
loss payee or mortgagee, as the case may be, are in full force and effect, all as set forth in
Paragraph 7.5 of Section 7 of this Financing Agreement.

          (d) UCC Filings — Any financing statements required to be filed in order to create, in
favor of the Agent, on behalf of the Lenders, a first perfected security interest in the
Collateral, subject only to the Permitted Encumbrances, shall have been properly filed in each
office in each jurisdiction required in order to create in favor of the Agent for the benefit of
the Lenders a perfected lien on the Collateral. The Agent shall have received acknowledgment
copies of all such filings (or, in lieu thereof, the Agent shall have received other evidence
satisfactory to the Agent that all such filings have been made) and the Agent shall have received
evidence that all necessary filing fees and all taxes or other expenses related to such filings
have been paid in full.

          (e) Board Resolution — The Agent shall have received a copy of the resolutions of the
Board of Directors or equivalent authority of each of the Companies and the Guarantors (as the case
may be) authorizing the execution, delivery and performance of (i) this Financing Agreement, (ii)
the Guaranties, and (iii) any related agreements, in each case certified by the Secretary or
Assistant Secretary of each Company and the Guarantors (as the case may be) as of the date hereof,
together with a certificate of the Secretary or Assistant Secretary of each Company and the
Guarantors (as the case may be) as to the incumbency and signature of the officers of each Company
and/or the Guarantors executing such Loan Documents and any certificate or other documents to be
delivered by them pursuant hereto, together with evidence of the incumbency of such Secretary or
Assistant Secretary.

          (f) Corporate Organization — The Agent shall have received (i) a copy of the
Certificate of Incorporation or equivalent document of the Companies and the Guarantors certified
by the Secretary of State of the state of its incorporation, and (ii) a copy of the By-Laws or
equivalent document of the Companies certified by the Secretary or Assistant Secretary thereof, all
as amended through the date hereof.

          (g) Officer’s Certificate — The Agent shall have received an executed Officer’s
Certificate of the Companies, satisfactory in form and substance to the Agent, certifying that to
the best of his or her knowledge (i) the representations and warranties contained herein are true
and correct in all material respects on and as of the Closing Date; (ii) the Companies is in
compliance with all of the terms and provisions set forth herein; and (iii) no Default or Event of
Default has occurred.

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          (h) Opinions — Counsel for the Companies and the Guarantors shall have delivered to
the Agent on behalf of the Lenders opinions substantially in the form of Exhibit E hereto
and otherwise satisfactory to the Agent.

          (i) Absence of Default — No Default or Event of Default shall have occurred and be
continuing and, since June 30, 2008, no material adverse change shall have occurred in the
financial condition, business, assets or prospects, of the Companies and its Subsidiaries.

          (j) Legal Restraints/Litigation — As of the Closing Date, there shall be no: (x)
litigation, investigation or proceeding (judicial or administrative) pending or, to the knowledge
of the Companies, threatened against the Companies or the Guarantors or their assets, by any
agency, division or department of any county, city, state or federal government arising out of this
Financing Agreement; (y) injunction, writ or restraining order restraining or prohibiting the
financing arrangements contemplated under this Financing Agreement; or (z) suit, action,
investigation or proceeding (judicial or administrative) pending against the Companies or the
Guarantors or their assets, which, in the opinion of the Agent, if adversely determined, could
reasonably be expected to have a material adverse effect on the business, operation, assets,
financial condition or Collateral of the Companies and/or the Guarantors.

          (k) Examination & Verification; Net Availability; Projections. The Agent shall have
completed and be satisfied with an updated examination and verification of the Accounts, Inventory
and the books and records of the Companies, and such examination shall indicate that (i) no
material adverse change has occurred in the financial condition, business, prospects, profits,
operations or assets of Chaus, the Companies’ Subsidiaries or the Guarantors since June 30, 2007
and (ii) that, after giving effect to all Revolving Loans, advances and extensions of credit to be
made at closing, the Companies shall have an opening additional Availability (which, for the
avoidance of doubt, is calculated by deducting the Special Reserve from the Borrowing Base) of at
least $1,000,000.00, as evidenced by a Borrowing Base Certificate delivered by the Companies to the
Agent as of the Closing Date. It is understood that such requirement contemplates that all debts
and obligations are current, and that all payables are being handled in the normal course of the
Companies’ business and consistent with its past practice. In addition, the Companies shall have
delivered to the Agent, and the Agent shall be satisfied with, balance sheet, income statement,
cash flows and Availability projections for the Companies on a consolidated basis for not less than
twelve (12) months following the Closing Date.

          (l) Depository Accounts; Payment Direction. (i) The Companies or the Agent, on behalf
of the Lenders, shall have established one or more Depository Accounts with respect to the
collection of Accounts and the deposit of proceeds of Collateral, and (ii) the Agent, the
applicable Companies and each depository bank shall have entered into a Depository Account Control
Agreement with respect to each Depository Account.

          (m) Repayment of Term Loan and Accrued Interest. All loans and obligations of the
Companies and the Guarantors with respect to the Original Term Loan, including without limitation
all principal and interest accrued thereon, and all other interest and fees accrued under the
Original Financing Agreement, shall be paid or satisfied in full utilizing the proceeds of the
initial Revolving Loans to be made under this Financing Agreement on the Closing Date.

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          (n) Compliance with Laws — Neither this Financing Agreement nor any of the
transactions contemplated in connection herewith: (i) present any material exposure under any laws
relating to bulk sales, fraudulent conveyances or similar matters, or (ii) could reasonably be
expected to have a material adverse effect on any license agreement of the Companies or any of
their affiliates.

          (o) Guaranties — The Guarantors shall have executed and delivered to the Agent
guaranties, in form acceptable to the Agent, guaranteeing all present and future Obligations of the
Companies.

          (p) Pledge Agreement — The Companies, as the case may be, shall (i) execute and
deliver to the Agent, on behalf of the Lenders, a pledge and security agreement pledging to the
Agent, on behalf of the Lenders, as additional collateral for the Obligations of the Companies not
less than 100% of the issued and outstanding stock of all Subsidiaries of the Companies and, (ii)
deliver to the Agent, on behalf of the Lenders, to the extent such stock is certificated, the stock
certificates evidencing such stock together with duly executed stock powers (undated and in-blank)
with respect thereto, all in form and substance satisfactory to CIT.

          (q) Collateral Assignment of Licenses. Agent shall have received true and correct
copies of all material licensing agreements with respect to Patents, Trademarks and other
intellectual property with respect to which any Company is licensor or licensee.

          (r) Additional Documents — The Companies shall have executed and delivered to the
Agent all Loan Documents necessary to consummate the lending arrangement contemplated between the
Companies, the Agent and the Lenders.

          (s) Disbursement Authorization — The Companies shall have delivered to the Agent all
information necessary for the Agent and the Lenders to issue wire transfer instructions on behalf
of the Companies for the initial and subsequent loans and/or advances to be made under this
Financing Agreement including, but not limited to, disbursement authorizations in form acceptable
to the Agent.

          (t) Schedules — The Companies or their counsel shall provide the Agent with schedules
of: (a) any of the Companies’ and its Subsidiaries (i) Trademarks, (ii) Patents, and (iii)
Copyrights, as applicable and all in such detail as to provide appropriate recording information
with respect thereto, (b) any tradenames, (c) monthly rental payments for any leased premises or
any other premises where any Collateral may be stored or processed, and (d) Permitted Liens, all of
the foregoing in form and substance satisfactory to the Agent.

          (u) Factoring Documentation — Agent shall have received (i) a copy of the Factoring
Agreement executed and delivered by the Companies, (ii) Certified Resolutions and (iii) all other
agreements, documents and instruments executed in connection therewith each in form and substance
satisfactory to Agent. The Companies, CIT as Factor and agent shall have entered into an
Assignment of Factoring Proceeds Agreement in form and substance satisfactory to Agent.

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Upon the execution of this Financing Agreement and the initial disbursement of loans hereunder, all
of the above Conditions Precedent shall have been deemed satisfied except as otherwise set forth
hereinabove or as the Companies and the Agent shall otherwise agree in writing.

     2.1. Conditions to Each Extension of Credit. Subject to the terms of this Financing
Agreement, including without limitation the Agent’s rights pursuant to paragraph 10.2 of Section 10
hereof, the agreement of the Agent on behalf of the Lenders to make any extension of credit
requested to be made by it to the Companies on any date (including without limitation, the initial
extension of credit) is subject to the satisfaction of the following conditions precedent:

          (a) Representations and Warranties — Each of the representations and warranties made
by the Companies in or pursuant to this Financing Agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date, except to the extent
such representation expressly relates to an earlier date.

          (b) No Default — No Default or Event of Default shall have occurred and be continuing
on such date or after giving effect to the extension of credit requested to be made on such date.

          (c) Borrowing Base — Except as may be otherwise agreed to from time to time by the
Agent and the Companies in writing, after giving effect to the extension of credit requested to be
made by the Companies on such date, the aggregate outstanding balance of the Revolving Loans and
outstanding Letters of Credit owing by the Companies will not exceed the lesser of (i) the
Revolving Line of Credit or (ii) the Borrowing Base.

Each borrowing by the Companies hereunder shall constitute a representation and warranty by the
Companies as of the date of such loan or advance that each of the representations, warranties are
true and correct and that the Companies are not then in default under any of the covenants
contained in the Financing Agreement, except as the Companies and the Agent and/or the Required
Lenders shall otherwise agree herein or in a separate writing.

SECTION 3. Revolving Loans

     3.1. (a) The Agent and the Lenders agree, subject to the terms and conditions of this
Financing Agreement, from time to time (but subject to the Agent’s and the Lenders’ right to make
“Overadvances”), to make loans and advances to the Companies on a revolving basis (i.e. subject to
the limitations set forth herein, the Companies may borrow, repay and re-borrow Revolving Loans).
Such requests for loans and advances shall be in amounts not to exceed the lesser of (a) the
Availability or (b) the Revolving Line of Credit. All requests for loans and advances must be
received by an officer of the Agent no later than (i) 11:00 a.m., New York time, of the Business
Day on which any such Base Rate Loans and advances are required or (ii) three (3) Business Days
prior to any requested LIBOR Loan. Should the Agent for any reason honor requests for
Overadvances, any such Overadvances shall be made in the Agent’s sole discretion and subject to any
additional terms the Agent and/or the Required Lenders deem necessary.

          (b) (i) Whenever the Companies request the Agent, on behalf of the Lenders, to make a
Revolving Loan pursuant to this Section 3, it shall give the Agent notice in

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writing or irrevocable telephonic notice confirmed promptly in writing, specifying (A) the
amount to be borrowed, and (B) the requested borrowing date (which shall be a business day and
shall be prior to: the Anniversary Date, and if applicable, any Early Termination Date, or prior to
any effective termination date of this Financing Agreement, all as further set forth herein), and
(C) specify whether the requested Revolving Loan shall bear interest at the Base Rate or at the
LIBOR Rate, as further set forth herein. All requests for loans and advances must be received by
an officer of the Agent no later than 11:00 a.m. New York time on any borrowing date. The
procedure for Revolving Loans to be made on a requested borrowing date may be such other procedure
as is mutually satisfactory to the Companies, the Agent and/or the Lenders. The Agent shall make
loans and advances to the Depository Account of the Companies.

               (ii) Subject to paragraph 14.10 hereof, should the Agent, on behalf of the Lenders, for any
reason honor requests for Overadvances, such Overadvance shall be made in the Agent’s sole
discretion, subject to any additional terms the Agent and/or the Required Lenders deem necessary.
Requests for loans and advances shall be made solely by the Companies and shall be directed solely
to the Agent.

          (c) The Agent shall on any Settlement Date, and upon notice given by the Agent no later than
2:00 P.M. New York time, request each Lender to make, and each Lender hereby agrees to make, a
Revolving Loan in an amount equal to such Lender’s Revolving Credit Commitment percentage
(calculated with respect to the aggregate Revolving Credit Commitments then outstanding) of the
aggregate amount of the Revolving Loans made by the Agent from the preceding Settlement Date to the
date of such notice. Each Lender’s obligation to make the Revolving Loans referred to in
subsection (a) and to make the settlements pursuant to this subsection (c) shall be absolute and
unconditional and shall not be affected by any circumstance, including without limitation (i) any
set-off, counterclaim, recoupment, defense or other right which any such Lender or the Companies
may have against the Agent, the Companies, any other Lender or any other Person for any reason
whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default; (iii) any
adverse change in the condition (financial or otherwise) of the Companies; (iv) any breach of this
Financing Agreement or any other loan document by the Companies or any other Lender; or (v) any
other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.
Without limiting the liability and obligation of each Lender to make such advances, the Companies
authorize the Agent to charge the Companies’ Revolving Loan Account with the Agent to the extent
amounts received from the Lenders are not sufficient to repay in full the amount of any such
deficiency.

          (d) The Companies’ Revolving Loan Obligations hereunder shall be evidenced by the Promissory
Note in the form of Exhibit B attached hereto.

          (e) The Companies shall apply the proceeds of Revolving Loans made on and after the Closing
Date to repay the Original Term Loan under the Original Financing Agreement, pay fees and expenses
of the transactions contemplated hereby and provide for the Companies’ working capital needs.

     3.2. In furtherance of the continuing assignment and security interest in the Companies’
Accounts and Inventory, the Companies will, upon the creation of Accounts and purchase or
acquisition of Inventory, execute and deliver to the Agent in such form and manner

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as the Agent may reasonably require, solely for the Agent’s convenience in maintaining records
of Collateral, such confirmatory schedules of Accounts and Inventory as the Agent may reasonably
request, including, without limitation, weekly schedules of Accounts and Inventory, all in form and
substance satisfactory to the Agent, and such other appropriate reports designating, identifying
and describing the Accounts and Inventory as the Agent may reasonably request, and provided further
that the Agent may request any such information more frequently, from time to time, upon its
reasonable prior request. In addition, upon the Agent’s reasonable request, the Companies shall
provide the Agent with copies of agreements with, or purchase orders from, the Companies’
customers, and copies of invoices to customers, proof of shipment or delivery, access to its
computers, electronic media and software programs associated therewith (including any electronic
records, contracts and signatures) and such other documentation and information relating to said
Accounts and other Collateral as the Agent may reasonably require; provided;
however, at any time that the Factoring Agreement is in effect, the provisions of this
paragraph 3.2 relating to Accounts shall be governed by the Factoring Agreement. Failure to
provide the Agent with any of the foregoing shall in no way affect, diminish, modify or otherwise
limit the security interests granted herein. The Companies hereby authorize the Agent to regard
the Companies’ printed name or rubber stamp signature on assignment schedules or invoices as the
equivalent of a manual signature by one of the Companies’ authorized officers or agents.

     3.3. Each Company hereby represents and warrants that: each Trade Account Receivable is based
on an actual and bona fide sale and delivery of Inventory or rendition of services to its
customers, made by such Company in the ordinary course of its business; the Inventory being sold,
and the Trade Accounts Receivable created, are (except as otherwise provided in the Factoring
Agreement) the exclusive property of such Company and are not and shall not be subject to any lien,
consignment arrangement, encumbrance, security interest or financing statement whatsoever, other
than the Permitted Encumbrances; the invoices evidencing such Trade Accounts Receivable are in the
name of such Company; and the customers of such Company has accepted the Inventory or services, owe
and are obligated to pay the full amounts stated in the invoices according to their terms, without
dispute, offset, defense, counterclaim or contra, except for disputes, allowances and other matters
arising in the ordinary course of business with respect to which such Company has complied with the
notification requirements of Paragraph 3.5 of this Section 3 (if applicable). Each Company
confirms to the Agent that any and all Taxes or fees relating to its business, its sales, the
Accounts or Inventory relating thereto, are its sole responsibility and that same will be paid by
the Companies when due, subject to Paragraph 7.6 of Section 7 of this Financing Agreement, and that
none of said Taxes or fees represent a lien on or claim against the Accounts. The Companies hereby
further represent and warrant that it shall not acquire any Inventory on a consignment basis, nor
co-mingle its Inventory with any of its customers or any other Person (excluding Guarantors),
including pursuant to any bill and hold sale or otherwise, and that its Inventory is marketable to
its customers in the ordinary course of business of the Companies, except as it may otherwise
report in writing to the Agent pursuant to Paragraph 3.5 hereof from time to time. Each Company
warrants and represents that it is a duly and validly existing corporation or limited liability
company, as applicable, and is qualified in all states where the failure to so qualify would have
an adverse effect on the business of such Company or the ability of such Company to enforce
collection of Accounts due from customers residing in that state. Each Company agrees to maintain
such books and records regarding Accounts and Inventory as the Agent may reasonably

24

 

require and agrees that the books and records of each Company will reflect the Agent’s
interest in the Accounts and Inventory. All of the books and records of each Company will be
available to the Agent during normal business hours, including any records handled or maintained
for the Companies by any other company or entity.

     3.4. (a) Until the Agent has advised the Companies to the contrary after the occurrence and
during the continuance of an Event of Default, each Company, at its own expense, will enforce,
collect and receive all amounts owing on the Accounts (other than Factored Accounts) in the
ordinary course of its business and any proceeds it so receives at any time any Obligations, other
than contingent Obligations as to which no claim has been made, are outstanding under this
Financing Agreement shall be subject to the terms hereof, and held on behalf of and in trust for
the Agent on behalf of the Lenders. Such privilege shall terminate at the election of the Agent,
upon the occurrence and during the continuance of an Event of Default, until such Event of Default
is waived in writing by the Required Lenders or cured to the Agents and/or the Required Lenders
satisfaction. Any checks, cash, credit card sales and receipts, notes or other instruments or
property received by the Companies with respect to any Collateral, including Accounts, shall be
held by the Companies in trust for the Agent, on behalf of the Lenders, separate from the
Companies’ own property and funds, and promptly turned over to the Agent with proper assignments or
endorsements by deposit to the Depository Accounts. The Companies shall: (i) indicate on all of
its invoices that funds should be delivered to and deposited in a Depository Account; (ii) direct
all of its account debtors to deposit any and all proceeds of Collateral into the Depository
Accounts; (iii) irrevocably authorize and direct any banks which maintain the initial receipt of
cash, checks and other items to promptly wire transfer all available funds to a Depository Account;
and (iv) advise all such banks of the Agent’s security interest in such funds. The Companies shall
provide the Agent with prior written notice of any and all deposit accounts opened or to be opened
subsequent to the Closing Date. All amounts received by the Agent in payment of Accounts will be
credited to the Revolving Loan Account when the Agent is advised by its bank of its receipt of such
payment at the Agent’s bank account in New York, New York on the Business Day of such advise if
advised no later than 1:00 p.m. EST or on the next succeeding Business Day if so advised after
1:00 p.m. EST. However, the Companies’ Revolving Loan Account will be charged monthly with the
cost of two (2) additional Business Days on all such Collections at the interest rate (based upon
the Base Rate) applicable to Revolving Loans; provided, however, while the Factoring Agreement is
in effect, all items of payment shall be deemed applied as provided in the Factoring Agreement. No
checks, drafts or other instrument received by the Agent shall constitute final payment to the
Agent and/or the Lenders unless and until such instruments have actually been collected;
provided, that upon receipt of any such check, draft or other instrument, Agent and/or
Lenders shall promptly negotiate such instrument.

          (b) The Companies shall, at the direction of Agent, establish and maintain, in their name and
at their expense, lockbox accounts, dominion accounts or deposit accounts with such banks as are
reasonably acceptable to the Agent (collectively the “Blocked Accounts”) into which the Companies
shall promptly cause to be deposited: (i) all proceeds of Collateral received by the Companies,
including all amounts payable to the Companies from credit card issuers and credit card processors,
and (ii) all amounts on deposit in deposit accounts used by the Companies at each of their
locations, all as further provided in Paragraph 3.4(a) above. The banks at which the Blocked
Accounts are established shall enter into an agreement, in form and substance

25

 

satisfactory to the Agent (the “Blocked Account Agreements”), providing that all cash, checks
and items received or deposited in the Blocked Accounts are the property of the Agent, that the
depository bank has no lien upon, or right of set off against, the Blocked Accounts and any cash,
checks, items, wires or other funds from time to time on deposit therein, except as otherwise
provided in the Blocked Account Agreements, and that automatically, on a daily basis the depository
bank will wire, or otherwise transfer, in immediately available funds, all funds received or
deposited into the Blocked Accounts to such bank account as the Agent may from time to time
designate for such purpose. The Companies hereby confirm and agree that all amounts deposited in
such Blocked Accounts and any other funds received and collected by the Agent, whether as proceeds
of Inventory or other Collateral or otherwise, shall be the property of the Agent.

     3.5. Each Company agrees to notify the Agent: (a) of any matters (except for allowances)
affecting the value, enforceability or collectibility of any Account and of all customer disputes,
offsets, defenses, counterclaims, returns (with a value in excess of $25,000 in the aggregate),
rejections and all reclaimed or repossessed merchandise or goods, and of any adverse effect in the
value of its Inventory, in its weekly and monthly collateral reports (as applicable) provided to
the Agent hereunder, in such detail and format as the Agent may reasonably require from time to
time and (b) promptly of any such matters which are material, as a whole, to the Accounts and/or
the Inventory. Each Company agrees to issue credit memoranda promptly (with duplicates to the
Agent upon request after the occurrence and during the continuance of an Event of Default) upon
accepting returns (with a value in excess of $25,000). Upon the occurrence and during the
continuance of an Event of Default (which is not waived in writing by the Required Lenders) and on
notice from the Agent, each Company agrees that all returned, reclaimed or repossessed merchandise
or goods shall be set aside by such Company, marked with the Agent’s name (as secured party) and
held by such Company for the Agent’s account.

     3.6. (a) The Companies have informed the Agent that: (i) in order to increase the efficiency
and productivity of the Companies, the Borrowing Agent has established a centralized cash
management system for the Companies that entails, in part, central disbursement and operating
accounts in which the Borrowing Agent provides the working capital needs of each of the other
Companies and manages and timely pays the accounts payable of each of the other Companies; (ii) the
Borrowing Agent further enhances the operating efficiencies of the other Companies by purchasing,
or causing to be purchased, in the Borrowing Agent’s name for its account, all or substantially all
materials, supplies, inventory and services required by the other Companies, resulting in a
reduction in operating costs of the other Companies; and (iii) all of the Companies presently
engage in an integrated operation that requires financing on an integrated basis, and each Company
expects to benefit from the continued successful performance of such integrated operations.
Therefore, in order to best utilize the borrowing powers of the Companies in the most effective and
cost efficient manner and to avoid adverse effects on the operating efficiencies of Companies and
the existing back-office practices of the Companies, the Companies have requested that all
Revolving Loans and other advances be disbursed solely upon the request of the Borrowing Agent and
to bank accounts managed solely by the Borrowing Agent.

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          (b) The Agent shall maintain a Revolving Loan Account on its books in which the Companies will
be charged with all loans and advances made by the Agent to it or for its account, and with any
other Obligations, including any and all costs, expenses and reasonable attorney’s fees which the
Agent may incur in connection with the exercise by or for the Agent of any of the rights or powers
herein conferred upon the Agent, or in the prosecution or defense of any action or proceeding to
enforce or protect any rights of the Agent in connection with this Financing Agreement, the other
Loan Documents or the Collateral assigned hereunder, or any Obligations owing by the Companies.
The Companies will be credited with all amounts received by the Agent and/or the Lenders from the
Companies or from others for the Companies’ account, including, as above set forth, all amounts
received by the Agent in payment of Accounts, and such amounts will be applied to payment of the
Obligations as set forth herein. In no event shall prior recourse to any Accounts or other
security granted to or by the Companies be a prerequisite to the Agent’s right to demand payment of
any Obligation. Further, it is understood that the Agent and/or the Lenders shall have no
obligation whatsoever to perform in any respect any of the Companies’ contracts or obligations
relating to the Accounts.

     3.7. After the end of each month, the Agent shall promptly send the Companies a statement
showing the accounting for the charges, loans, advances and other transactions occurring between
the Agent and the Companies during that month. Absent manifest error, the monthly statements shall
be deemed correct and binding upon the Companies and shall constitute an account stated between the
Companies and the Agent unless the Agent receives a written statement of the exceptions within
thirty (30) days of the date of the monthly statement.

     3.8. In the event that any requested advance exceeds Availability or that (a) the sum of (i)
the outstanding balance of Revolving Loans and (ii) outstanding balance of Letters of Credit
exceeds (b)(x) the Borrowing Base or (y) the Revolving Line of Credit, any such nonconsensual
Overadvance shall be due and payable to the Agent on behalf of the Lenders immediately upon the
Agent’s demand therefor.

     3.9. Access to CIT’s System. CIT shall provide to the Companies access to CIT’s
System during normal business hours, subject to CIT’s normal charges and rates, for the purposes of
(i) obtaining information regarding loan balances and Availability, and (ii) if permitted by CIT,
making requests for Revolving Loans and submitting borrowing base certificates. Such access shall
be subject to the following terms, in additional to all terms set forth on the website for CIT’s
System;

          (a) CIT shall provide to the Companies an initial password for secured access to CIT’s System.
The Companies shall provide CIT with a list of officers and employees that are authorized from
time to time to access CIT’s System, and the Companies agree to limit access to the password and
CIT’s System to such authorized officers and employees. After the initial access, the Companies
shall be solely responsible for (i) changing and maintaining the integrity of the Companies’
password and (ii) any unauthorized use of the Companies’ password or CIT’s System by the Companies’
officers and employees.

          (b) The Companies shall use CIT’s System and the Companies’ information thereon solely for the
purposes permitted above, and shall not access CIT’s System for the benefit of third parties or
provide any information obtained from CIT’s System to third parties,

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CIT makes no representation that loan balance or Availability information is or will be
available, accurate, complete, correct or current at all times. CIT’s System may be inoperable or
inaccessible from time to time, whether for required website maintenance, upgrades to CIT’s System,
or for other reasons, and in any such event the Companies must obtain loan balance and Availability
information, and (if permitted by CIT) make requests for revolving Loans and submit borrowing base
certificates using other available means.

SECTION 4. [Reserved]

SECTION 5. Letters of Credit

     In order to assist the Companies in establishing or opening Letters of Credit with an Issuer,
the Companies have requested the Agent, on behalf of the Lenders, to join in the applications for
such Letters of Credit, and/or guarantee payment or performance of such Letters of Credit and any
drafts or acceptances thereunder through the issuance of the Letters of Credit Guaranty, thereby
lending the Agent’s credit to the Companies and the Agent has agreed to do so. These arrangements
shall be handled by the Agent subject to the terms and conditions set forth below.

     5.1. Within the Revolving Line of Credit and Availability, the Agent on behalf of the Lenders
shall assist the Companies in obtaining Letter(s) of Credit in an amount not to exceed the
outstanding amount of the Letter of Credit Sub-Line, provided, however, the
aggregate face amount of outstanding standby Letters of Credit shall not exceed $750,000. The
Agent’s assistance for amounts in excess of the limitation set forth herein shall at all times and
in all respects be in the Agent’s sole discretion. It is understood that the term, form and
purpose of each Letter of Credit and all documentation in connection therewith, and any amendments,
modifications or extensions thereof, must be mutually acceptable to the Agent, the Issuer and the
Companies, provided that Letters of Credit shall not be used for the purchase of domestic Inventory
or to secure present or future debt of domestic Inventory suppliers.

     5.2. The Agent shall have the right, without notice to any Company, to charge the Companies’
Revolving Loan Account with the amount of any and all indebtedness, liability or obligation of any
kind incurred by the Agent and/or the Lenders under the Letters of Credit Guaranty at the earlier
of (a) payment by the Agent under the Letters of Credit Guaranty; or (b) the occurrence of an Event
of Default which has not been waived in writing by the Required Lenders. Any amount charged to
Companies’ Revolving Loan Account shall be deemed a Revolving Loan hereunder and shall incur
interest at the rate provided in Paragraph 8.1 of Section 8 of this Financing Agreement.

     5.3. Each Company unconditionally indemnifies the Agent and the Lenders and holds the Agent
and the Lenders harmless from any and all loss, claim or liability incurred by the Agent arising
from any transactions or occurrences relating to Letters of Credit established or opened for the
Companies’ account, the collateral relating thereto and any drafts or acceptances thereunder, and
all Obligations thereunder, including any such loss or claim due to any errors, omissions,
negligence, misconduct or action taken by any Issuer, other than for any such loss, claim or
liability arising out of the gross negligence or willful misconduct by the Agent and/or the Lenders
under the Letters of Credit Guaranty. This indemnity shall survive termination of

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this Financing Agreement. Each Company agrees that any charges incurred by the Agent and/or
the Lenders for the Companies’ account by the Issuer in respect of Letters of Credit, absent
manifest error, shall be conclusive on the Agent and may be charged to the Companies’ Revolving
Loan Account.

     5.4. The Agent shall not be responsible for: (a) the existence, character, quality, quantity,
condition, packing, value or delivery of the goods purporting to be represented by any documents;
(b) any difference or variation in the character, quality, quantity, condition, packing, value or
delivery of the goods from that expressed in the documents; (c) the validity, sufficiency or
genuineness of any documents or of any endorsements thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged; (d) the time,
place, manner or order in which shipment is made; (e) partial or incomplete shipment, or failure or
omission to ship any or all of the goods referred to in the Letters of Credit or documents; (f) any
deviation from instructions; (g) delay, default, or fraud by the shipper and/or anyone else in
connection with the goods or the shipping thereof; or (h) any breach of contract between the
shipper or vendors and any Company.

     5.5. Each Company agrees that any action taken by the Agent and/or the Lenders, if taken in
good faith, or any action taken by any Issuer, under or in connection with the Letters of Credit,
the Letter of Credit Guarantees, the drafts or acceptances, or the Collateral, shall be binding on
each Company and shall not result in any liability whatsoever of CIT to any Company. In
furtherance thereof, the Agent shall have the full right and authority to: (a) clear and resolve
any questions of non-compliance of documents; (b) give any instructions as to acceptance or
rejection of any documents or goods; (c) execute any and all steamship or airways guaranties (and
applications therefore), indemnities or delivery orders; (d) grant any extensions of the maturity
of, time of payment for, or time of presentation of, any drafts, acceptances, or documents; and (e)
agree to any amendments, renewals, extensions, modifications, changes or cancellations of any of
the terms or conditions of any of the applications, Letters of Credit, drafts or acceptances; all
in the Agent’s sole name. The Issuer shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from the Agent, all without any notice to
or any consent from the Companies. Notwithstanding any prior course of conduct or dealing with
respect to the foregoing including amendments and non-compliance with documents and/or the
Companies’ instructions with respect thereto, the Agent may exercise its rights hereunder in its
sole and reasonable judgment. In addition, without the Agent’s express consent and endorsement in
writing, each Company agrees: (a) not to execute any and all applications for steamship or airway
guaranties, indemnities or delivery orders; to grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts, acceptances or documents; or to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any of the terms or
conditions of any of the applications, Letters of Credit, drafts or acceptances; and (b) after the
occurrence of an Event of Default which is not cured within any applicable grace period, if any, or
waived by the Agent, not to (i) clear and resolve any questions of non-compliance of documents, or
(ii) give any instructions as to acceptances or rejection of any documents or goods.

     5.6. Each Company agrees that: (a) any necessary import, export or other licenses or
certificates for the import or handling of the Collateral will have been promptly procured; (b) all
foreign and domestic governmental laws and regulations in regard to the shipment and

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importation of the Collateral, or the financing thereof will have been promptly and fully
complied with in all material respects; and (c) any certificates in that regard that the Agent may
at any time request will be promptly furnished. In connection herewith, each Company warrants and
represents that all shipments made under any such Letters of Credit are in accordance in all
material respects with the laws and regulations of the countries in which the shipments originate
and terminate. Each Company assumes all risk, liability and responsibility for, and agrees to pay
and discharge, all present and future local, state, federal or foreign Taxes, duties, or levies in
respect of such Company’s business operations. Any embargo, restriction, laws, customs or
regulations of any country, state, city, or other political subdivision relating to the Collateral,
where the Collateral is or may be located, or wherein payments are to be made, or wherein drafts
may be drawn, negotiated, accepted, or paid, shall be solely the Companies’ risk, liability and
responsibility.

     5.7. Upon any payments made to the Issuer under the Letter of Credit Guaranty, the Agent on
behalf of the Lenders shall acquire by subrogation, any rights, remedies, duties or obligations
granted or undertaken by the Companies to the Issuer in any application for Letters of Credit, any
standing agreement relating to Letters of Credit or otherwise, all of which shall be deemed to have
been granted to the Agent on behalf of the Lenders and apply in all respects to the Agent and shall
be in addition to any rights, remedies, duties or obligations contained herein.

SECTION 6. Collateral

     6.1. As security for the prompt payment in full of all Obligations, each Company hereby
pledges and grants to the Agent, on behalf of the Lenders, a continuing general lien upon, and
security interest in all of the Collateral.

     6.2. The security interests granted hereunder shall extend and attach to:

          (a) All Collateral which is owned by any Company or in which any Company has any ownership
interest, whether held by such Company or others for its account;

          (b) All Equipment, whether the same constitutes personal property or fixtures, including, but
without limiting the generality of the foregoing, all dies, jigs, tools, benches, molds, tables,
accretions, component parts thereof and additions thereto, as well as all accessories, motors,
engines and auxiliary parts used in connection with, or attached to, the Equipment; and

          (c) All Inventory and any portion thereof which may be returned, rejected, reclaimed or
repossessed by either the Agent or any Company from such Company’s customers, as well as to all
supplies, goods, incidentals, packaging materials, labels and any other items which contribute to
the finished goods or products manufactured or processed by any Company, or to the sale, promotion
or shipment thereof.

     6.3. Each Company agrees to safeguard, protect and hold all Inventory for the Agent’s account
and make no disposition thereof except in the ordinary course of its business of such Company, as
herein provided. Each Company represents and warrants that Inventory will be sold and shipped by
such Company to its customers only in the ordinary course of such Company’s business, and then only
on open account and on terms currently being extended by

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such Company to its customers, provided that, absent the prior written consent of the Agent,
no Company shall sell Inventory on a consignment basis nor retain any lien or security interest in
any sold Inventory. Upon the sale, exchange, or other disposition of Inventory, as herein
provided, the security interest in the Inventory provided for herein shall, without break in
continuity and without further formality or act, continue in, and attach to, all proceeds,
including any instruments for the payment of money, Trade Accounts Receivable, documents of title,
shipping documents, chattel paper and all other cash and non-cash proceeds of such sale, exchange
or disposition. As to any such sale, exchange or other disposition, the Agent shall have all of
the rights of an unpaid seller, including stoppage in transit, replevin, rescission and
reclamation. Each Company hereby agrees to immediately forward any and all proceeds of Collateral
to the Depository Account, and to hold any such proceeds (including any notes and instruments), in
trust for the Agent, on behalf of the Lenders, pending delivery to the Agent.

     6.4. Each Company agrees at its own cost and expense to keep the Equipment in as good and
substantial repair and condition as the same is now or at the time the lien and security interest
granted herein shall attach thereto, reasonable wear and tear excepted, making any and all repairs
and replacements when and where necessary. Each Company also agrees to safeguard, protect and hold
all Equipment in accordance with the terms hereof and subject to the Agent’s security interest.
Absent the Agent’s prior written consent, any sale, exchange or other disposition of any Equipment
shall be made by the Companies in the ordinary course of business and as set forth herein. Each
Company may, in the ordinary course of its business, sell, exchange or otherwise dispose of
obsolete or surplus Equipment provided, however, that: (a) the then value of the Equipment so
disposed of in any Fiscal Year does not exceed $100,000 in the aggregate; and (b) the proceeds of
any such sales or dispositions shall be held in trust by such Company for the Agent and shall be
immediately delivered to the Agent by deposit to the Depository Account, except that the Companies
may retain and use such proceeds to purchase forthwith replacement Equipment which the Companies
determine in their reasonable business judgment to have a collateral value at least equal to the
Equipment so disposed of or sold; provided, however, that the aforesaid right shall automatically
cease upon the occurrence of a Default or an Event of Default which is not waived in writing by the
Agent. Upon the sale, exchange, or other disposition of the Equipment, as herein provided, the
security interest provided for herein shall, without break in continuity and without further
formality or act, continue in, and attach to, all proceeds, including any instruments for the
payment of money, Accounts, documents of title, shipping documents, chattel paper and all other
cash and non-cash proceeds of such sales, exchange or disposition. As to any such sale, exchange
or other disposition, the Agent and the Lenders shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, rescission and reclamation.

     6.5. The rights and security interests granted to the Agent and the Lenders hereunder are to
continue in full force and effect, notwithstanding the fact that the Revolving Loan Account may
from time to time be temporarily in a credit position, until the final payment in full to the Agent
of all Obligations other than contingent Obligations as to which no claim has been made and the
termination of this Financing Agreement. Any delay, or omission by the Agent to exercise any right
hereunder shall not be deemed a waiver thereof, or be deemed a waiver of any other right, unless
such waiver shall be in writing and signed by the Agent. A waiver on any one occasion shall not be
construed as a bar to, or waiver of, any right or remedy on any future occasion.

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     6.6. Notwithstanding the Agent’s security interest in the Collateral and to the extent that
the Obligations are now or hereafter secured by any assets or property other than the Collateral or
by the guarantee, endorsement, assets or property of any other Person, the Agent shall have the
right in its sole discretion to determine which rights, liens, security interests or remedies the
Agent shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other
action with respect to, without in any way modifying or affecting any of them, or any of the
Agent’s and/or the Lenders’ rights hereunder.

     6.7. Any balances to the credit of the Companies and any other property or assets of the
Companies in the possession or control of the Agent and/or the Lenders may be held by the Agent as
security for any Obligations and applied in whole or partial satisfaction of such Obligations when
due. The liens and security interests granted herein, and any other lien or security interest the
Agent and/or the Lenders may have in any other assets of the Companies, shall secure payment and
performance of all now existing and future Obligations. The Agent may, in its discretion, charge
any or all of the Obligations to the Revolving Loan Account when due.

     6.8. The Companies possess all General Intangibles and rights thereto necessary to conduct
their business substantially as conducted as of the Closing Date and the Companies shall maintain
their rights in, and the value of, the foregoing in the ordinary course of their business,
including, without limitation, by making timely payment with respect to any applicable licensed
rights. The Companies shall deliver to the Agent, and/or shall cause the appropriate party to
deliver to the Agent, from time to time such pledge or security agreements with respect to General
Intangibles (now or hereafter acquired) of the Companies and their Subsidiaries as the Agent shall
require to obtain valid first liens thereon. In furtherance of the foregoing, the Companies shall
provide timely notice to the Agent of any additional Patents, Trademarks, tradenames, service
marks, Copyrights, brand names, trade names, logos and other trade designations acquired or applied
for subsequent to the Closing Date and the Companies shall execute such documentation as the Agent
may reasonably require to obtain and perfect its lien thereon. The Companies hereby confirm that
they shall deliver, or cause to be delivered, any pledged stock issued subsequent to the Closing
Date to the Agent in accordance with the applicable terms of the Pledge Agreement and prior to such
delivery, shall hold any such stock in trust for the Agent. Except as set forth on Schedule 6.8
hereof, each Company hereby irrevocably grants to the Agent a royalty-free, non-exclusive license
in the General Intangibles, including tradenames, Trademarks, Copyrights, Patents, licenses, and
any other proprietary and intellectual property rights and any and all right, title and interest in
any of the foregoing to the extent such Company is permitted to do so, for the sole purpose, upon
the occurrence and during the continuance of an Event of Default, of the right to: (i) advertise
for sale and sell or transfer any Inventory bearing any of the General Intangibles, and (ii) make,
assemble, prepare for sale or complete, or cause others to do so, any applicable raw materials or
Inventory bearing any of the General Intangibles, including use of the Equipment and Real Estate
for the purpose of completing the manufacture of unfinished goods, raw materials or work-in-process
comprising Inventory, and apply the proceeds thereof to the Obligations hereunder, all as further
set forth in this Financing Agreement and irrespective of the Agent’s lien and perfection in any
General Intangibles.

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     6.9. Reference is hereby made to the other Loan Documents for additional representations,
covenants and other agreements of the Companies regarding the Collateral covered by such Loan
Documents. To the extent any of the Loan Documents is not otherwise amended and/or amended and
restated on the Closing Date, or specifically terminated, each of the Companies party thereto
hereby ratifies, confirms and acknowledges each of representations, covenants and other agreements
of the Companies regarding the Collateral covered by such Loan Documents as of the Closing Date.

SECTION 7. Representations, Warranties and Covenants

     7.1. The Companies hereby warrant, represent and covenant that: (a) the fair value of the
Total Assets exceeds the book value of the Total Liabilities; (b) the Companies are generally able
to pay their debts as they become due and payable; and (c) the Companies do not have unreasonably
small capital to carry on their business as it is currently conducted absent extraordinary and
unforeseen circumstances. All financial statements of the Companies furnished to the Agent present
fairly, in all material respects, the financial condition of the Companies as of the date of such
financial statements. The Companies further warrant and represent that: (i) Schedule 1 hereto
correctly and completely sets forth the Companies’ (A) chief executive office, (B) Collateral
locations, (C) tradenames, and (D) all the other information listed on said Schedule; (ii) except
for the Permitted Encumbrances, after filing of financing statements in the applicable filing
clerks office at the locations set forth in Schedule 1, this Financing Agreement creates a valid,
perfected and first priority security interest in the Collateral and the security interests granted
herein constitute and shall at all times constitute the first and only liens on the Collateral;
(iii) except for the Permitted Encumbrances, the Companies are, or will be, at the time additional
Collateral is acquired by them, the absolute owner of the Collateral with full right to pledge,
sell, consign, transfer and create a security interest therein, free and clear of any and all
claims or liens in favor of others; (iv) the Companies will, at their expense, forever warrant and,
at the Agent’s request, defend the same from any and all claims and demands of any other Person
other than a holder of a Permitted Encumbrance; (v) the Companies will not grant, create or permit
to exist, any lien upon, or security interest in, the Collateral, or any proceeds thereof, in favor
of any other Person other than the holders of the Permitted Encumbrances; and that the Equipment
does not comprise a part of the Inventory of the Companies; and (vi) the Equipment is and will only
be used by the Companies in their business and will not be held for sale or lease, or removed from
its premises, or otherwise disposed of by the Companies except as otherwise permitted in this
Financing Agreement.

     7.2. Each Company agrees to maintain books and records pertaining to the Collateral in such
detail, form and scope as Agent shall reasonably require. The Companies agree that the Agent or its
agents, and any of the Lenders who may wish to accompany the Agent at their own cost and expense
may enter upon the Companies’ premises at any time during normal business hours, and from time to
time in its reasonable business judgment, for the purpose of inspecting the Collateral and any and
all records pertaining thereto. The Companies agree to afford the Agent thirty (30) days prior
written notice of any change in the location of any Collateral, other than to locations, that as of
the Closing Date, are known to the Agent. The Companies are also to advise the Agent promptly, in
sufficient detail, of any material adverse change relating to the type, quantity or quality of the
Collateral or on the security interests granted to the Agent therein.

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     7.3. The Companies agree to: execute and deliver to the Agent, from time to time, solely for
the Agent’s convenience in maintaining a record of the Collateral, such written statements, and
schedules as the Agent may reasonably require, designating, identifying or describing the
Collateral. The Companies’ failure, however, to promptly give the Agent such statements, or
schedules shall not affect, diminish, modify or otherwise limit the Agent’s and/or the Lenders’
security interests in the Collateral.

     7.4. The Companies agree to comply in all material respects with the requirements of all state
and federal laws in order to grant to the Agent valid and perfected first security interests in the
Collateral, subject only to the Permitted Encumbrances. The Agent is hereby authorized by the
Companies to file (including pursuant to the applicable terms of the UCC) from time to time any
financing statements, continuations or amendments covering the Collateral. The Companies hereby
consent to and ratifies any and all execution and/or filing of financing statements on or prior to
the Closing Date by the Agent. The Companies agree to do whatever the Agent may reasonably
request, from time to time, by way of: (a) filing notices of liens, financing statements,
amendments, renewals and continuations thereof; (b) cooperating with the Agent’s agents and
employees; (c) keeping Collateral records; (d) transferring proceeds of Collateral to the Agent’s
possession; and (e) performing such further acts as the Agent and/or the Lenders may reasonably
require in order to effect the purposes of this Financing Agreement, including but not limited to
obtaining control agreements with respect to deposit accounts and/or Investment Property.

     7.5. (a) The Companies agree to maintain insurance on its Equipment and Inventory under such
policies of insurance, with such insurance companies, in such reasonable amounts and covering such
insurable risks as are at all times reasonably satisfactory to the Agent. All policies covering
the Equipment and Inventory are, subject to the rights of any holders of Permitted Encumbrances
holding claims senior to the Agent, to be made payable to the Agent, on behalf of the Lenders, in
case of loss, under a standard non-contributory “mortgagee”, “lender” or “secured party” clause and
are to contain such other provisions as the Agent may require to fully protect the Agent’s interest
in the Inventory and Equipment and to any payments to be made under such policies. All original
policies or true copies thereof are to be delivered to the Agent, premium prepaid, with the loss
payable endorsement in the Agent’s favor, and shall provide for not less than thirty (30) days
prior written notice to the Agent of the exercise of any right of cancellation. At the Companies’
request, or if the Companies fail to maintain such insurance, the Agent may arrange for such
insurance, but at the Companies’ expense and without any responsibility on the Agent’s part for:
(i) obtaining the insurance; (ii) the solvency of the insurance companies; (iii) the adequacy of
the coverage; or (iv) the collection of claims. Upon the occurrence of an Event of Default which
is not waived in writing by the Required Lenders , the Agent shall, subject to the rights of any
holders of Permitted Encumbrances holding claims senior to the Agent, have the sole right, and at
its option, in the name of the Agent or the Companies, to file claims under any insurance policies,
to receive, receipt and give acquittance for any payments that may be payable thereunder, and to
execute any and all endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any claims under any
such insurance policies.

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          (b) (i) In the event of any loss or damage by fire or other casualty, insurance proceeds
relating to Inventory shall be applied to the Obligations in such order as the Agent may elect;

               (ii) In the event any part of the Companies’ Equipment is damaged by fire or other casualty and
the Insurance Proceeds for such damage or other casualty is less than or equal to $100,000.00, the
Agent shall promptly apply such Proceeds to reduce the Companies’ outstanding balance in the
Revolving Loan Account. Upon the occurrence of a Default or Event of Default, such Insurance
Proceeds may be applied to the Obligations in such order as the Agent may elect;

               (iii) Absent the occurrence of an Event of Default (which has not been waived in writing by the
Required Lenders), and provided that (x) the Companies have sufficient business interruption
insurance to replace the lost profits of any of the Companies’ facilities, and (y) the Insurance
Proceeds are in excess of $100,000.00, the Companies may elect (by delivering written notice to the
Agent) to replace, repair or restore such Equipment to substantially the equivalent condition prior
to such fire or other casualty as set forth herein. If the Companies do not, or cannot, elect to
use the Insurance Proceeds as set forth above, the Agent may, subject to the rights of any holders
of Permitted Encumbrances holding claims senior to the Agent, apply the Insurance Proceeds to the
payment of the Obligations in such manner and in such order as the Agent may reasonably elect; and

               (iv) If the Companies elect to use the Insurance Proceeds for the repair, replacement or
restoration of any Equipment, and there is then no Event of Default, (x) Insurance Proceeds for any
loss in excess of $100,000.00 on Equipment and/or Real Estate will be applied to the reduction of
the Revolving Loans and (y) the Agent may set up an Availability Reserve for an amount equal to
said Insurance Proceeds. The Availability Reserve will be reduced dollar-for-dollar upon receipt
of non-cancelable executed purchase orders, delivery receipts or contracts for the replacement,
repair or restoration of Equipment and disbursements in connection therewith.

          (c) In the event the Companies fail to provide the Agent with timely evidence, acceptable to
the Agent, of its maintenance of insurance coverage required pursuant to paragraph 7.5(a) above,
the Agent may purchase, at the Companies’ expense, insurance to protect the Agent’s interests in
the Collateral. The insurance acquired by the Agent may, but need not, protect the Companies’
interest in the Collateral, and therefore such insurance may not pay claims which the Companies may
have with respect to the Collateral or pay any claim which may be made against the Companies in
connection with the Collateral. In the event the Agent purchases, obtains or acquires insurance
covering all or any portion of the Collateral, the Companies shall be responsible for all of the
applicable costs of such insurance, including premiums, interest (at the applicable Base Rate for
Revolving Loans set forth in paragraph 8.1 of Section 8 hereof), fees and any other charges with
respect thereto, until the effective date of the cancellation or the expiration of such insurance.
The Agent may charge all of such premiums, fees, costs, interest and other charges to the
Companies’ Revolving Loan Account. The Companies hereby acknowledge that the costs of the premiums
of any insurance acquired by the Agent may exceed the costs of insurance which the Companies may be
able to purchase on its own. In the event that the Agent purchases such insurance, the Agent will
notify the Companies

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of said purchase within thirty (30) days of the date of such purchase. If, within thirty (30)
days after the date of such notice, the Companies provides the Agent with proof that the Companies
had the insurance coverage required pursuant to 7.5(a) above (in form and substance satisfactory to
the Agent) as of the date on which the Agent purchased insurance and the Companies continued at all
times to have such insurance, then the Agent agrees to cancel the insurance purchased by the Agent
and credit the Companies’ Revolving Loan Account with the amount of all costs, interest and other
charges associated with any insurance purchased by the Agent, including with any amounts previously
charged to the Revolving Loan Account.

     7.6. The Companies agree to pay, when due, all Taxes, including sales taxes, assessments,
claims and other charges lawfully levied or assessed upon the Companies or the Collateral unless
such Taxes are being diligently contested in good faith by the Companies by appropriate proceedings
and adequate reserves are established in accordance with GAAP. Notwithstanding the foregoing, if
any lien shall be filed or claimed thereunder (a) for Taxes due the United States of America, or
(b) which in the Agent’s reasonable opinion might create a valid obligation having priority over
the rights granted to the Agent herein (exclusive of Real Estate), such lien shall not be deemed to
be a Permitted Encumbrance hereunder and the Companies shall immediately pay such tax and remove
the lien of record. If the Companies fail to do so promptly, then at the Agent’s election, the
Agent may (i) create an Availability Reserve in such amount as it may deem appropriate in its
business judgment, or (ii) upon the occurrence and during the continuance of a Default or Event of
Default, imminent risk of seizure, filing of any priority lien, forfeiture, or sale of the
Collateral, pay Taxes on the Companies’ behalf, and the amount thereof shall be an Obligation
secured hereby and due on demand.

     7.7. The Companies: (a) agree to comply with all acts, rules, regulations and orders of any
legislative, administrative or judicial body or official, which the failure to comply with would
have a material and adverse impact on the Collateral, or any material part thereof, or on the
business or operations of the Companies, provided that the Companies may contest any acts, rules,
regulations, orders and directions of such bodies or officials in any reasonable manner which will
not, in the Agent’s reasonable opinion, materially and adversely effect the Agent’s and/or the
Lender’s rights or priority in the Collateral; (b) agrees to comply with all environmental
statutes, acts, rules, regulations or orders as presently existing or as adopted or amended in the
future, applicable to the Collateral, the ownership and/or use of its real property and operation
of its business, which the failure to comply with would have a material and adverse impact on the
Collateral, or any material part thereof, or on the operation of the business of the Companies; and
(c) shall not be deemed to have breached any provision of this Paragraph 7.7 if (i) the failure to
comply with the requirements of this Paragraph 7.7 resulted from good faith error or innocent
omission, (ii) the Companies promptly commences and diligently pursues a cure of such breach, and
(iii) such failure is cured within (30) days following the Companies’ receipt of notice of such
failure, or if such cannot in good faith be cured within thirty (30) days, then such breach is
cured within a reasonable time frame based upon the extent and nature of the breach and the
necessary remediation, and in conformity with any applicable consent order, consensual agreement
and applicable law.

     7.8. Until termination of this Financing Agreement and payment and satisfaction of all
Obligations due hereunder other than contingent Obligations as to which no claims have been made,
the Companies agree that, unless the Agent shall have otherwise consented in writing, the

36

 

Companies will furnish to the Agent and each Lender: (a) within ninety (90) days after the end
of each Fiscal Year of the Companies or within one hundred and five (105) days after the end of a
Fiscal Year if the Companies shall have filed for an extension with the Securities Exchange
Commission under Rule 12b-25 (or comparable rule) of the rules and regulations adopted under the
Securities Act of 1934, as amended (an “Extension”)), an audited Consolidated Balance Sheet, as at
the close of such year, and statements of profit and loss, cash flow and reconciliation of surplus
of the Chaus and its Subsidiaries for such year, audited by independent public accountants selected
by the Companies and satisfactory to the Agent; (b) within forty-five (45) days after the end of
each Fiscal Quarter if no Extension has been filed, or within fifty (50) days after the end of each
Fiscal Quarter if an Extension has been filed, a Consolidated Balance Sheet as at the end of such
period and statements of profit and loss, cash flow and surplus of the Chaus and its Subsidiaries,
certified by an authorized financial or accounting officer of the Borrowing Agent; (c) within
thirty (30) days after the end of each month of such month is not also a month at the end of a
Fiscal Quarter and within forty-five (45) days after the end of each month if such month is also a
month at the end of a Fiscal Quarter, a Consolidated Balance Sheet as at the end of such period and
statements of profit and loss, cash flow and surplus of the Companies and all Subsidiaries for such
period, certified by an authorized financial or accounting officer of the Borrowing Agent; (d)
within sixty (60) days prior to the beginning of the Companies’ fiscal year, a month by month
projected operating budget and annual cash flow projections for such Fiscal Year in form reasonably
satisfactory to Agent, (e) from time to time, such further information regarding the business
affairs and financial condition of the Chaus and its Subsidiaries as the Agent may reasonably
request, including, without limitation the accountant’s management practice letter and (ii) annual
cash flow projections in form satisfactory to the Agent, (f) on the 7th day of each
month (but more frequently upon Agent’s reasonable request), a borrowing base certificate in form
and substance satisfactory to Agent, certified by the treasurer or chief financial officer of the
Borrowing Agent (or any other authorized officer satisfactory to Agent), together with such
confirmatory schedules of Trade Accounts and Inventory (in form and substance satisfactory to
Agent) as Agent reasonably may request and (g) at least once each week (but more frequently upon
Agent’s reasonable request), a summary of Inventory (containing such detail from the Companies’
perpetual inventory as Agent may require) as of the last Business Day of the preceding week,
together with information sufficient to allow Agent to update the amount of ineligible Inventory.
CIT, in its sole discretion, may permit the Companies to access CIT’s System for the purpose (in
addition to those set forth elsewhere in this Agreement) of completing and submitting borrowing
base certificates when required hereunder. Each financial statement which the Companies is
required to submit hereunder must be accompanied by an officer’s certificate, signed by the
President, Vice President, Controller, Chief Financial Officer or Treasurer, pursuant to which any
one such officer must certify that: (x) the financial statement(s) fairly present(s) in all
material respects the Companies’ financial condition as of the end of any particular accounting
period, as well as the Companies’ operating results during such accounting period, subject to
year-end audit adjustments; and (y) during the particular accounting period: (A) there has been no
Default or Event of Default under this Financing Agreement, provided, however, that if any
such officer has knowledge that any such Default or Event of Default, has occurred during such
period, the existence of and a detailed description of same shall be set forth in such officer’s
certificate; (B) the Companies have not received any notice of cancellation with respect to its
property insurance policies; (C) the Companies have not received any notice that could result in a
material adverse effect on the

37

 

value of the Collateral taken as a whole; and (D) the exhibits attached to such financial
statement(s) constitute detailed calculations showing compliance with all financial covenants
contained in this Financing Agreement.

     7.9. Until termination of the Financing Agreement and payment and satisfaction of all
Obligations hereunder other than contingent Obligations as to which no claims have been made, the
Companies agree that, without the prior written consent of the Agent, except as otherwise herein
provided, the Companies will not:

          (a) Mortgage, assign, pledge, transfer or otherwise permit any lien, charge, security
interest, encumbrance or judgment, (whether as a result of a purchase money or title retention
transaction, or other security interest, or otherwise) to exist on any of the Companies’ Collateral
or any other assets, whether now owned or hereafter acquired, except for the Permitted
Encumbrances;

          (b) Incur or create any Indebtedness other than the Permitted Indebtedness;

          (c) Sell, lease, assign, transfer or otherwise dispose of (i) Collateral, except as otherwise
specifically permitted by this Financing Agreement, or (ii) either all or substantially all of the
Companies’ assets, which do not constitute Collateral;

          (d) Merge, consolidate or otherwise alter or modify its corporate name, principal place of
business, structure, or existence, re-incorporate or re-organize, or enter into or engage in any
operation or activity materially different from that presently being conducted by the Companies,
except that the Companies may change their corporate name or address; provided that: (i) the
Companies shall give the Agent thirty (30) days prior written notice thereof and (ii) the Companies
shall execute and deliver, prior to or simultaneously with any such action, any and all documents
and agreements requested by the Agent to confirm the continuation and preservation of all security
interests and liens granted to the Agent hereunder;

          (e) Assume, guarantee, endorse, or otherwise become liable upon the obligations of any Person,
except (i) by the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, or (ii) with respect to the obligations of Chaus
as co-obligor with CS Acquisition under that certain Assignment and Assumption Agreement dated as
of January 1, 2004 among CS Acquisition, Chaus and Adler Holdings II, LLC.

          (f) Declare or pay any dividend or distributions of any kind on, or purchase, acquire, redeem
or retire, any of the capital stock or equity interest, of any class whatsoever, whether now or
hereafter outstanding;

          (g) (i) Create any new subsidiary, (ii) make any advance (other than advances for expenses in
the ordinary course of business) or loan to, or any investment in, any Person or other entity or
(iii) acquire all or substantially all of the stock or assets of any Person or other entity in each
case other than (A) intercompany loans among Chaus, Danielle Acquisition and/or CS Acquisition
which otherwise constitute Permitted Indebtedness, (B) a Permitted Acquisition or (C) a Permitted
Investment; or

38

 

          (h) (i) Enter into any transaction, including, without limitation, any purchase, sale, lease,
loan or exchange of property, with any officer, director, parent (direct or indirect), subsidiary
(direct or indirect) or other Person that is an affiliate of the Company, any Guarantor or any
subsidiary of the Companies, unless (x) such transaction otherwise complies with the provisions of
this Agreement, (y) such transaction is for the sale of goods or services rendered in the ordinary
course of business and pursuant to the reasonable requirements of the Companies, any Guarantor or
any subsidiary of the Companies, as the case may be, and upon fair and reasonable terms, no less
favorable to such entity than such entity could obtain in a comparable arms length transaction with
an unrelated third party, and (z) no Event of Default shall have occurred and remain outstanding at
the time such transaction occurs, or would occur after giving effect to such transaction; provided,
however, any Company or any Guarantor domiciled in the United States (a “Domestic Guarantor”) may
enter into affiliate transactions with another Company or Domestic Guarantor so long as no Default
or Event of Default shall have occurred and remain outstanding, and (ii) pay any management,
consulting or other similar fees to any Person affiliated with the Companies other than
compensation arrangements made on an arm’s-length basis and approved by the Compensation Committee
of the Companies; or

          (i) Make any payment of the principal of, or interest on, any Subordinated Debt, or purchase,
acquire or redeem any of the Subordinated Debt, unless (x) such payment, purchase, acquisition or
redemption is expressly permitted by the terms of the applicable subordination agreement and (y) no
Default or Event of Default shall have occurred and remain outstanding on the date on which such
payment or transaction occurs, or would occur as a result thereof.

     7.10. Until termination of the Financing Agreement and payment and satisfaction in full of all
Obligations hereunder other than contingent Obligations as to which no claim has been made, the
Companies shall comply with the following financial covenants:

          (a) maintain at the end of each Fiscal Quarter ending below a Tangible Net Worth of not less
than the amount set forth below for the applicable period:

	 	 	 	 	 
	Fiscal Quarter	 	Tangible Net Worth
	September 30, 2008
	 	$	6,000,000	 
	December 31, 2008
	 	$	4,000,000	 
	March 31, 2009
	 	$	5,000,000	 
	June 30, 2009
	 	$	4,000,000	 
	September 30, 2009
	 	$	4,000,000	 
	December 31, 2009
	 	$	4,000,000	 
	March 31, 2010
	 	$	4,000,000	 
	June 30, 2010
	 	$	4,000,000	 
	September 30, 2010
	 	$	4,000,000	 
	December 31, 2010
	 	$	4,000,000	 
	March 31, 2011
	 	$	4,000,000	 
	June 30, 2011
	 	$	4,000,000	 
	September 30, 2011 and the last day of each Fiscal
Quarter ended thereafter
	 	$	4,000,000	 

39

 

          (b) maintain EBITDA of at least the amounts set forth below for any test period ending on the
last day of each Fiscal Quarter set forth below:

	 	 	 	 	 
	Fiscal Quarter	 	EBITDA
	3 months ending September 30, 2008
	 	$	(300,000	)
	6 months ending December 31, 2008
	 	$	(1,822,000	)
	9 months ending March 31, 2009
	 	$	(100,000	)
	12 months ending June 30, 2009
	 	$	(700,000	)
	3 months ending September 30, 2009
	 	$	500,000	 
	6 months ending December 31, 2009
	 	$	1,000,000	 
	9 months ending March 31, 2010
	 	$	1,500,000	 
	12 months ending June 30, 2010
	 	$	2,000,000	 
	3 months ending September 30, 2010 and for the 3 months
ending on each September 30 thereafter
	 	$	500,000	 
	6 months ending December 31, 2010 and for the 6 months ending
each December 31 thereafter
	 	$	1,000,000	 
	9 months ending March 31, 2011 and for the 9 months ending
each March 31 thereafter
	 	$	1,500,000	 
	12 months ending June 30, 2011 and for the 12 months ending
each June 30 thereafter
	 	$	2,000,000	 

               The foregoing ratio shall be calculated on a rolling four quarter average.

          (c) maintain at the end of each Fiscal Quarter set forth below a Leverage Ratio of not more
than the ratio set forth below for the applicable period:

	 	 	 	 	 
	Fiscal Quarter	 	Ratio
	September 30, 2008
	 	 	5.70 to 1  	 
	December 31, 2008
	 	 	5.20 to 1.0	 
	March 31, 2009
	 	 	5.80 to 1.0	 
	June 30, 2009
	 	 	5.70 to 1.0	 
	September 30, 2009
	 	 	5.70 to 1.0	 
	December 31, 2009
	 	 	5.70 to 1.0	 
	March 31, 2010
	 	 	5.70 to 1.0	 
	June 30, 2010
	 	 	5.70 to 1.0	 
	September 30, 2010
	 	 	5.70 to 1.0	 
	December 31, 2010
	 	 	5.70 to 1.0	 

40

 

	 	 	 	 	 
	Fiscal Quarter	 	Ratio
	March 31, 2011
	 	 	5.70 to 1.0	 
	June 30, 2011
	 	 	5.70 to 1.0	 
	September 30, 2011 and the last day of each Fiscal Quarter
ended thereafter
	 	 	5.70 to 1.0	 

          (d) without the prior written consent of the Agent, the Companies will not:

               (i) enter into any Operating Lease if after giving effect thereto the aggregate obligations
with respect to Operating Leases of the Companies during any Fiscal Year would exceed $3,750,000.

               (ii) contract for, purchase, make expenditures for, lease pursuant to a Capital Lease or
otherwise incur obligations with respect to Capital Expenditures in the aggregate amount in excess
of $1,000,000 (whether subject to a security interest or otherwise) during any Fiscal Year.

     7.11. The Companies agree to advise the Agent in writing of: (a) all expenditures (actual or
anticipated) in excess of $150,000.00 from the budgeted amount therefor in any Fiscal Year for (i)
environmental clean-up, (ii) environmental compliance or (iii) environmental testing and the impact
of said expenses on the Companies’ working capital; and (b) to the extent such liability would have
a material adverse effect on any Company, any notices the Companies receive from any local, state
or federal authority advising the Companies of any environmental liability (real or potential)
stemming from the Companies’ operations, their premises, their waste disposal practices, or waste
disposal sites used by the Companies and to provide the Agent with copies of all such notices if so
required.

     7.12. The Companies hereby agree to indemnify and hold harmless the Agent and its officers,
directors, employees, attorneys and agents (each an “Indemnified Party”) from, and holds each of
them harmless against, any and all losses, liabilities, obligations, claims, actions, damages,
costs and expenses (including reasonable attorney’s fees) and any payments made by the Agent
pursuant to any indemnity provided by the Agent with respect to or to which any Indemnified Party
is subject insofar as such losses, liabilities, obligations, claims, actions, damages, costs, fees
or expenses with respect to the Loan Documents, including without limitation those which may arise
from or relate to: (a) the Depository Account, the Blocked Accounts, the lockbox and/or any other
depository account and/or the agreements executed in connection therewith, and (b) any and all
claims or expenses asserted against the Agent as a result of any environmental pollution, hazardous
material or environmental clean-up relating to the Real Estate; or any claim or expense which
results from the Companies’ operations (including, but not limited to, the Companies’ off-site
disposal practices) and use of the Real Estate, which the Agent may sustain or incur (other than
solely as a result of the physical actions of the Agent on the Companies’ premises which are
determined to constitute gross negligence or willful misconduct by a court of competent
jurisdiction), all whether through the alleged or actual negligence of such Person or otherwise,
except and to the extent that the same results solely from the gross negligence or willful
misconduct of such Indemnified Party as finally determined by a court of competent jurisdiction.
The Companies hereby agree that this indemnity shall survive termination of this Financing
Agreement, as well as payments of

41

 

Obligations which may be due hereunder. The Agent may, in its sole business judgment,
establish such Availability Reserves with respect thereto as it may deem advisable under the
circumstances and, upon any termination hereof, hold such reserves as cash reserves for any such
contingent liabilities.

     7.13. Without the prior written consent of Agent, each Company agrees that it will not enter
into any transaction, including, without limitation, any purchase, sale, lease, loan or exchange of
property with any affiliate of any Company (other than a wholly-owned Subsidiary of the Companies),
provided that, except as otherwise set forth in this Financing Agreement, the Companies may enter
into sale and service transactions in the ordinary course of its business and pursuant to the
reasonable requirements of the Companies, and upon standard terms and conditions and fair and
reasonable terms, no less favorable to the Companies than the Companies could obtain in a
comparable arms length transaction with an unrelated third party, provided further that no Default
or Event of Default exists or will occur hereunder prior to and after giving effect to any such
transaction.

     7.14. Each Companies hereby (a) represents that Chaus Specialists, Inc. is an inactive
corporation and has no material assets (the “Inactive Subsidiary”), and (b) agrees to dissolve the
corporate existence of the Inactive Subsidiary by not later than December 31, 2008. Each Company
further represents and warrants that Chaus Retail, Inc. has been dissolved.

     7.15. The Companies shall maintain life insurance on Josephine Chaus (the “JC Life Insurance
Policy”) in the amount of not less than $10,000,000 and shall assign the JC Life Insurance Policy
to the Agent (in form and substance satisfactory to the Agent) all rights under the Life Insurance
Policy as additional collateral for the Obligations (the “JC Life Insurance Assignments”). In the
event of a collection upon the life insurance policy, the proceeds thereof up to $10,000,000 shall
be applied to the Obligations in such order as Agent shall determine in its reasonable discretion.
Should the Agent collect more than $10,000,000 with respect to the JC Insurance Policy, the Agent
and Lenders shall return to the Companies that portion of the proceeds which exceeds $10,000,000.

     7.16. From time to time upon the request of Agent, which, if no default or Event of Default
shall have occurred and be continuing, shall be limited to once per year, the Companies agree to
permit Agent to perform appraisals of the Companies’ Inventory, Equipment, Intellectual Property
and Real Estate covered by a mortgage or deed of trust in favor of Agent. The Companies agree to
reimburse Agent for the costs and expenses relating to all such appraisals. All appraisals shall
be performed by qualified appraisers selected by Agent. To the extent that the Companies are
required by this Section 7.16 to reimburse Agent for Agent’s costs and expenses relating to
appraisals, such costs and expenses shall constitute Out-of-Pocket Expenses.

     7.17. The Companies: (i) are familiar with all applicable Anti-Terrorism Laws; (ii)
acknowledges that its transactions are subject to applicable Anti-Terrorism Laws; (iii) will comply
in all material respects with all applicable Anti-Terrorism Laws, including, if appropriate, the
USA Patriot Act; (iv) acknowledges that CIT’s performance hereunder is also subject to CIT’s
compliance with all applicable Anti-Terrorism Laws, including the USA Patriot Act; (v) and, to the
Companies’ knowledge, their affiliates are not Blocked Persons; (vi)

42

 

acknowledges that CIT will not conduct business with any Blocked Person; (vii) will not (a)
conduct any business or engage in any transaction or dealing with any Blocked Person, including,
without limitation, the making or receiving of any contribution of funds, goods or services to or
for the benefit of any Blocked Person, (b) deal in, or otherwise engage in any transaction relating
to, any property or interests in property blocked pursuant to Executive Order No. 13224 or other
Anti-Terrorism Law, or (c) engage in or conspire to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in Executive Order No. 13224 or other Anti-Terrorism Law; (viii) shall provide to CIT
all such information about the Companies’ ownership, officers, directors, business structure and,
to the extent not prohibited by applicable law or agreement, customers, as CIT may reasonably
require; and (ix) will take such other action as CIT may reasonably request in connection with its
obligations described in clause (iv) above.

     7.18. To the extent not received by the Agent prior to the Closing Date, the Companies shall
use commercially reasonable efforts to obtain licensor consent letters from each licensor listed on
Schedule 7.18, each in form and substance satisfactory to Agent. In the event that any
such licensor consent is not obtained, the Agent may, at its option, reduce Eligible Inventory by
up to the gross amount of the Companies’ Inventory related to such unobtained licensor consent;
provided, however notwithstanding the foregoing Agent shall not reduce Eligible
Inventory subject to the Kenneth Cole Productions (KIC), Inc. (“Kenneth Cole”) license so long as
Agent obtains a satisfactory licensor consent letter from Kenneth Cole by not later than November
15, 2008.

SECTION 8. Interest, Fees and Expenses

     8.1. (a) Interest on the Revolving Loans shall be payable monthly as of the end of each month.
Base Rate Loans shall be at a rate equal to the sum of the Base Rate plus the Applicable Margin
with respect to Revolving Loans which are Base Rate Loans per annum on the average of the net
balances owing by the Companies to the Agent in the Revolving Loan Account at the close of each day
during such month. Any change in the rate of interest hereunder due to a change in the Base Rate
will take effect as of the first of the month following such change in the JPMorgan Chase Prime
Rate. The rate hereunder for Base Rate Loans shall be calculated based on a 360-day year. The
Agent shall be entitled to charge the Companies’ Revolving Loan Account at the rate provided for
herein when due until all Obligations have been paid in full.

          (b) Upon and after the occurrence and during the continuance of an Event of Default and the
giving of any required notice by the Agent in accordance with the provisions of Section 10,
Paragraph 10.2 hereof, all Obligations shall bear interest at the Default Rate of Interest.

     8.2. [Reserved]

     8.3. In consideration of the Letter of Credit Guaranty of the Agent, the Companies shall pay
the Agent the Letter of Credit Guaranty Fee which shall be an amount equal to (a) one-eighth of one
percent (1/8%) on the face amount of each documentary Letter of Credit payable upon issuance
thereof, (b) one-eighth of one percent (1/8%) on the average daily face amount of

43

 

each documentary Letter of Credit, payable monthly in arrears on the first day of each month
and calculated on the basis of a 360 day year for the actual number of days elapsed and (c)
one-quarter of one percent (1/4%) per month, on the face amount of each standby Letter of Credit
less the amount of any and all amounts previously drawn under such standby Letter of Credit.

     8.4. Any and all charges, fees, commissions, costs and expenses charged to the Agent for the
Companies’ account by any Issuer in connection with, or arising out of, Letters of Credit or out of
transactions relating thereto will be charged to the Revolving Loan Account in full when charged
to, or paid by the Agent, or as may be due upon any termination of this Financing Agreement hereof,
and when made by any such Issuer shall be conclusive on the Agent.

     8.5. The Companies shall reimburse or pay the Agent, as the case may be, for all Out-of-Pocket
Expenses.

     8.6. On the first day of each month, the Companies agree to pay to Agent the Line of Credit
Fee in arrears. Such Line of Credit Fee shall be calculated bared on a 360-day year and actual
days elapsed.

     8.7. On the first day of each month, interest at the rate set forth in Section 8.1 (or Section
8.2, if applicable) hereof shall be charged for the aggregate number of Collection Days for all
deposits during the immediately preceding month. For purposes hereof, “Collection Days” shall mean
a period of two (2) Business Days after the deposit of proceeds of Collateral or other monies into
CIT’s Bank Account.

     8.8. To induce the Agent to enter into this Financing Agreement and to extend to the Companies
the Revolving Loan and Letters of Credit Guaranties, the Companies shall pay to the Agent a Loan
Facility Fee in the amount of $50,000.00 payable upon execution of this Financing Agreement.

     8.9. The Companies shall pay (i) the Collateral Management Fee, (ii) Agent’s standard fees for
the use of CIT’s in-house legal department and facilities in documenting, in whole or in part, the
initial transaction solely on behalf of Agent, plus Agent’s standard fees for the use of CIT’s
in-house legal department relating to any and all modifications, waivers, releases, legal file
reviews or additional collateral with respect to this Agreement, the Collateral and/or the
Obligations, and (iii) Agent’s standard charges for each wire transfer made by Agent to or for the
benefit of the Companies (currently $35 per wire), provided that such standard charges may be
increased by Agent from time to time and (v) Agent’s standard charges and fees for the Agent’s
personnel used by the Agent for reviewing the books and records of the Companies and for verifying,
testing, protecting, safeguarding, preserving or disposing of all or any part of the Collateral
(which fees shall be in addition to any Out-of-Pocket Expenses, but in no event shall be
duplicative of any other fees or expenses set forth in this Agreement or the Loan Documents). Such
charges shall be due and payable in accordance with Agent’s standard practices, as in effect from
time to time.

     8.10. The Companies hereby authorize the Agent to charge the Revolving Loan Account with the
amount of all payments due hereunder as such payments become due. The Companies confirm that any
charges which the Agent may so make to the Revolving Loan

44

 

Account as herein provided will be made as an accommodation to the Companies and solely at the
Agent’s discretion.

     8.11. In the event that the Agent or any participant hereunder (or any financial institution
which may from time to time become a participant or lender hereunder) shall have determined in the
exercise of its reasonable business judgment that, subsequent to the Closing Date, any change in
applicable law, rule, regulation or guideline regarding capital adequacy, or any change in the
interpretation or administration thereof, or compliance by the Agent or such participant with any
new request or directive regarding capital adequacy (whether or not having the force of law) of any
such authority, central bank or comparable agency, has or would have the effect of reducing the
rate of return on the Agent’s or such participant’s capital as a consequence of its obligations
hereunder to a level below that which the Agent or such participant could have achieved but for
such adoption, change or compliance (taking into consideration the Agent or such participant’s
policies with respect to capital adequacy) by an amount reasonably deemed by the Agent or such
participant to be material, then, from time to time, the Companies shall pay no later than five (5)
days following written notice to the Companies, to the Agent or such participant such additional
amount or amounts as will compensate the Agent’s or such participant’s for such reduction. In
determining such amount or amounts, the Agent or such participant may use any reasonable averaging
or attribution methods. The protection of this Paragraph 8.10 shall be available to the Agent or
such participant regardless of any possible contention of invalidity or inapplicability with
respect to the applicable law, regulation or condition. A certificate of the Agent or such
participant setting forth such amount or amounts as shall be necessary to compensate the Agent or
such participant with respect to this Section 8 and the calculation thereof when delivered to the
Companies shall be conclusive on the Companies absent manifest error. Notwithstanding anything in
this paragraph to the contrary, in the event the Agent or such participant has exercised its rights
pursuant to this paragraph, and subsequent thereto determines that the additional amounts paid by
the Companies in whole or in part exceed the amount which the Agent or such participant actually
required to be made whole, the excess, if any, shall be returned to the Companies by the Agent or
such participant.

     8.12. In the event that any applicable law, treaty or governmental regulation, or any change
therein or in the interpretation or application thereof, or compliance by the Agent or such
participant with any request or directive (whether or not having the force of law) from any central
bank or other financial, monetary or other authority, shall:

          (a) subject the Agent or such participant to any tax of any kind whatsoever with respect to
this Financing Agreement or change the basis of taxation of payments to the Agent or such
participant of principal, fees, interest or any other amount payable hereunder or under any other
documents (except for changes in the rate of tax on the overall net income of the Agent or such
participant by the federal government or the jurisdiction in which it maintains its principal
office);

          (b) impose, modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of, advances or loans by, or
other credit extended by the Agent or such participant by reason of or in respect to

45

 

this Financing Agreement and the Loan Documents, including (without limitation) pursuant to
Regulation D of the Board of Governors of the Federal Reserve System; or

          (c) impose on the Agent or such participant any other condition with respect to this Financing
Agreement or any other document, and the result of any of the foregoing is to increase the cost to
the Agent or such participant of making, renewing or maintaining its loans hereunder by an amount
that the Agent or such participant deems to be material in the exercise of its reasonable business
judgment or to reduce the amount of any payment (whether of principal, interest or otherwise) in
respect of any of the loans by an amount that the Agent or such participant deems to be material in
the exercise of its reasonable business judgment, then, in any case the Companies shall pay the
Agent or such participant, within five (5) days following its written notice, such additional cost
or such reduction, as the case may be. The Agent or such participant shall certify the amount of
such additional cost or reduced amount to the Companies and the calculation thereof and such
certification shall be conclusive upon the Companies absent manifest error. Notwithstanding
anything in this paragraph to the contrary, in the event the Agent or such participant has
exercised its rights pursuant to this paragraph, and subsequent thereto determine that the
additional amounts paid by the Companies in whole or in part exceed the amount which the Agent or
such participant actually required pursuant hereto, the excess, if any, shall be returned to the
Companies by the Agent or such participant.

     8.13. The Companies may request LIBOR Loans on the following terms and conditions:

          (a) The Companies may elect, subsequent to the Closing Date and from time to time thereafter
(i) to request any loan made hereunder to be a LIBOR Loan as of the date of such loan or (ii) to
convert Base Rate Loans to LIBOR Loans, and may elect from time to time to convert LIBOR Loans to
Base Rate Loans by giving the Agent at least three (3) Business Days’ prior irrevocable notice of
such election, provided that any such conversion of LIBOR Loans to Base Rate Loans shall
only be made, subject to the second following sentence, on the last day of an Interest Period with
respect thereto. Should the Companies elect to convert Base Rate Loans to LIBOR Loans, it shall
give the Agent at least four Business Days’ prior irrevocable notice of such election. If the last
day of an Interest Period with respect to a loan that is to be converted is not a Business Day or
Working Day, then such conversion shall be made on the next succeeding Business Day or Working Day,
as the case may be, and during the period from such last day of an Interest Period to such
succeeding Business Day, as the case may be, such loan shall bear interest as if it were an Base
Rate Loan. The aggregate amount of all LIBOR Loans shall not exceed $20,000,000 at any time
outstanding. The Agent shall be entitled to charge the Companies a $500 fee upon the first
effective day of any such election for a LIBOR Loan.

          (b) Any LIBOR Loans may be continued as such upon the expiration of an Interest Period,
provided the Companies so notifies the Agent, at least three (3) Business Days’ prior to
the expiration of said Interest Period, and provided further that no LIBOR Loan may be
continued as such upon the occurrence and during the continuance of any Default or Event of Default
under this Financing Agreement, but shall be automatically converted to a Base Rate Loan on the
last day of the Interest Period during which occurred such Default or Event of Default. Absent
such notification, LIBOR Rate Loans shall convert to Base Rate Loans on the last day of the
applicable Interest Period. Each notice of election, conversion or continuation

46

 

furnished by the Companies pursuant hereto shall specify whether such election, conversion or
continuation is for a one, two, or three month period. Notwithstanding anything to the contrary
contained herein, the Agent (or any participant, if applicable) shall not be required to purchase
United States Dollar deposits in the London interbank market or from any other applicable LIBOR
Rate market or source or otherwise “match fund” to fund LIBOR Rate Loans, but any and all
provisions hereof relating to LIBOR Rate Loans shall be deemed to apply as if the Agent (and any
participant, if applicable) had purchased such deposits to fund any LIBOR Rate Loans.

          (c) The Borrowing Agent, on behalf of the Company may request a LIBOR Loan, convert any Base
Rate Loan or continue any LIBOR Loan provided there is then no Default or Event of Default in
effect.

     8.14. (a) The LIBOR Loans shall bear interest for each Interest Period with respect thereto on
the unpaid principal amount thereof at a rate per annum equal to the sum of LIBOR determined for
each Interest Period in accordance with the terms hereof plus the Applicable Margin with respect to
Revolving Loans, respectively which are LIBOR Rate Loans.

          (b) If all or a portion of the outstanding principal amount of the Obligations shall not be
paid when due (whether at the stated maturity, by acceleration or otherwise), such outstanding
amount, to the extent it is a LIBOR Loan, shall be converted to a Base Rate Loan at the end of the
last Interest Period therefor.

          (c) Any LIBOR election must be for at least $1,000,000 and if greater, in integral multiples
of $500,000, and the Companies may not have more than three (3) LIBOR Loans outstanding at any
given time. Elections for LIBOR Loans shall be irrevocable once made. If any condition for a
LIBOR election is not satisfied, then the requested new loan (or continuation of an existing LIBOR
Loan) shall be made to the Companies as a Base Rate Loan.

     8.15. (a) Interest in respect of the LIBOR Loans shall be calculated on the basis of a 360 day
year and shall be payable as of the end of each month.

          (b) The Agent shall, at the request of the Borrowing Agent, deliver to the Companies a
statement showing the quotations given by The JPMorgan Chase Bank, N.A. and the computations used
in determining any interest rate pursuant to Paragraph 8.13 of Section 8 hereof.

     8.16. As further set forth in paragraph 8.11 above, in the event that the Agent (or any
financial institution which may become a participant hereunder) shall have determined in the
exercise of its reasonable business judgment (which determination shall be conclusive and binding
upon the Companies) that by reason of circumstances affecting the interbank LIBOR market, adequate
and reasonable means do not exist for ascertaining LIBOR applicable for any Interest Period with
respect to: (a) a proposed loan that the Companies have requested be made as a LIBOR Loan; (b) a
LIBOR Loan that will result from the requested conversion of a Base Rate Loan into a LIBOR Loan; or
(c) the continuation of LIBOR Loans beyond the expiration of the then current Interest Period with
respect thereto, the Agent shall forthwith give written notice of such determination to the
Companies at least one day prior to, as the case may be, the requested borrowing date for such
LIBOR Loan, the conversion date of such Base Rate Loan or

47

 

the last day of such Interest Period. If such notice is given (i) any requested LIBOR Loan
shall be made as a Base Rate Loan, (ii) any Base Rate Loan that was to have been converted to a
LIBOR Loan shall be continued as a Base Rate Loan, and (iii) any outstanding LIBOR Loan shall be
converted, on the last day of then current Interest Period with respect thereto, to a Base Rate
Loan. Until such notice has been withdrawn by the Agent, no further LIBOR Loan shall be made nor
shall the Companies have the right to convert a Base Rate Loan to a LIBOR Loan.

     8.17. If any payment on a LIBOR Loan becomes due and payable on a day other than a Business
Day or Working Day, the maturity thereof shall be extended to the next succeeding Business Day or
Working Day unless the result of such extension would be to extend such payment into another
calendar month in which event such payment shall be made on the immediately preceding Business Day
or Working Day.

     8.18. Notwithstanding any other provisions herein, if any law, regulation, treaty or directive
or any change therein or in the interpretation or application thereof, shall make it unlawful for
the Agent to make or maintain LIBOR Loans as contemplated herein, the then outstanding LIBOR Loans,
if any, shall be converted automatically to Base Rate Loans as of the end of such month, or within
such earlier period as required by law. The Companies hereby agree promptly to pay the Agent, upon
demand, any additional amounts necessary to compensate the Agent for any costs incurred by the
Agent in making any conversion in accordance with this Section 8 including, but not limited to, any
interest or fees payable by the Agent to lenders of funds obtained by the Agent in order to make or
maintain LIBOR Loans hereunder.

     8.19. The Companies agree to indemnify and to hold the Agent (including any participant)
harmless from any loss or expense which the Agent or such participant may sustain or incur as a
consequence of: (a) Default by the Companies in payment of the principal amount of or interest on
any LIBOR Loans, as and when the same shall be due and payable in accordance with the terms of this
Financing Agreement, including, but not limited to, any such loss or expense arising from interest
or fees payable by the Agent or such participant to lenders of funds obtained by either of them in
order to maintain the LIBOR Loans hereunder; (b) default by the Companies in making a borrowing or
conversion after the Companies have given a notice in accordance with Paragraph 8.12 of Section 8
hereof; (c) any prepayment of LIBOR Loans on a day which is not the last day of the Interest Period
applicable thereto, including, without limitation, prepayments arising as a result of the
application of the proceeds of Collateral to the Revolving Loans; and (d) default by the Companies
in making any prepayment after the Companies have given notice to the Agent thereof. The
determination by the Agent of the amount of any such loss or expense, when set forth in a written
notice to the Companies, containing the Agent’s calculations thereof in reasonable detail, shall be
conclusive on the Companies in the absence of manifest error. Calculation of all amounts payable
under this paragraph with regard to LIBOR Loans shall be made as though the Agent had actually
funded the LIBOR Loans through the purchase of deposits in the relevant market and currency, as the
case may be, bearing interest at the rate applicable to such LIBOR Loans in an amount equal to the
amount of the LIBOR Loans and having a maturity comparable to the relevant interest period;
provided, however, that the Agent may fund each of the LIBOR Loans in any manner
the Agent sees fit and the foregoing assumption shall be used only for calculation of amounts
payable under this paragraph. In addition, notwithstanding anything to the contrary contained
herein, the Agent shall apply all proceeds of Collateral and all other amounts received by it from

48

 

or on behalf of the Companies (i) initially to the Base Rate Loans and (ii) subsequently to
LIBOR Loans; provided, however, (x) upon the occurrence and during the continuance
of an Event of Default or (y) in the event the aggregate amount of outstanding LIBOR Rate Loans
exceeds Availability or the applicable maximum levels set forth therefor, the Agent may apply all
such amounts received by it to the payment of Obligations in such manner and in such order as the
Agent may elect in its reasonable business judgment. In the event that any such amounts are
applied to Revolving Loans which are LIBOR Loans, such application shall be treated as a prepayment
of such loans and the Agent shall be entitled to indemnification hereunder. This covenant shall
survive termination of this Financing Agreement and payment of the outstanding Obligations.

     8.20. Notwithstanding anything to the contrary in this Agreement, in the event that, by reason
of any Regulatory Change (for purposes hereof “Regulatory Change” shall mean, with respect to the
Agent, any change after the date of this Financing Agreement in United States federal, state or
foreign law or regulations (including, without limitation, Regulation D) or the adoption or making
after such date of any interpretation, directive or request applying to a class of banks including
the Agent of or under any United States federal, state or foreign law or regulations (whether or
not having the force of law and whether or not failure to comply therewith would be unlawful), the
Agent either (a) incurs any material additional costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of such bank which
includes deposits by reference to which the interest rate on LIBOR Loans is determined as provided
in this Financing Agreement or a category of extensions of credit or other assets of the Agent
which includes LIBOR Loans, or (b) becomes subject to any material restrictions on the amount of
such a category of liabilities or assets which it may hold, then, if the Agent so elects by notice
to the Companies, the obligation of the Agent to make or continue, or to convert Base Rate Loans
into LIBOR Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect.

     8.21. For purposes of this Financing Agreement and Section 8 thereof, any reference to the
Agent shall include any financial institution which may become a participant or co-lender
subsequent to the Closing Date.

SECTION 9. Powers

     The Companies hereby constitute the Agent, or any Person or agent the Agent may designate, as
its attorney-in-fact, at the Companies’ cost and expense, to exercise all of the following powers,
which being coupled with an interest, shall be irrevocable until all Obligations to the Agent have
been paid in full:

          (a) To receive, take, endorse, sign, assign and deliver, all in the name of the Agent or the
Companies, any and all checks, notes, drafts, and other documents or instruments relating to the
Collateral;

          (b) To receive, open and dispose of all mail addressed to the Companies and to notify postal
authorities to change the address for delivery thereof to such address as the Agent may designate;

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          (c) To request from customers indebted on Accounts at any time, in the name of the Agent
information concerning the amounts owing on the Accounts;

          (d) To request from customers indebted on Accounts at any time, in the name of the Companies,
in the name of certified public accountant designated by the Agent or in the name of the Agent’s
designee, information concerning the amounts owing on the Accounts;

          (e) To transmit to customers indebted on Accounts notice of the Agent’s interest therein and
to notify customers indebted on Accounts to make payment directly to the Agent for the Companies’
account; and

          (f) To take or bring, in the name of the Agent or the Companies, all steps, actions, suits or
proceedings deemed by the Agent necessary or desirable to enforce or effect collection of the
Accounts.

Notwithstanding anything hereinabove contained to the contrary, the powers set forth in (b), (c),
(e) and (f) above may only be exercised after the occurrence of an Event of Default and until such
time as such Event of Default is waived in writing by the Agent.

SECTION 10. Events of Default and Remedies

     10.1. Notwithstanding anything hereinabove to the contrary, the Agent may terminate this
Financing Agreement immediately upon the occurrence of any of the following Events of Default:

          (a) cessation of the business of any Company or the calling of a meeting of the creditors of
any Company for purposes of compromising the debts and obligations of such Company;

          (b) the failure of any Company to generally meet its debts as they mature;

          (c) (i) the commencement by any Company of any bankruptcy, insolvency, arrangement,
reorganization, receivership or similar proceedings under any federal or state law; (ii) the
commencement against any Company, of any bankruptcy, insolvency, arrangement, reorganization,
receivership or similar proceeding under any federal or state law by creditors of any Company,
provided that such Default shall not be deemed an Event of Default if such proceeding is
controverted within ten (10) days and dismissed and vacated within thirty (30) days of
commencement, except in the event that any of the actions sought in any such proceeding shall occur
or such Company shall take action to authorize or effect any of the actions in any such proceeding;
or (iii) the commencement (x) by any Company’s Subsidiaries, or any one of them, of any bankruptcy,
insolvency, arrangement, reorganization, receivership or similar proceeding under any applicable
state law, or (y) against any Company’s Subsidiaries, or any one of them, of any involuntary
bankruptcy, insolvency, arrangement, reorganization, receivership or similar proceeding under
applicable law, provided that such Default shall not be deemed an Event of Default if such
proceeding is controverted within ten (10) days and dismissed or vacated within thirty (30) days of
commencement, except in the event that any of the actions sought in any such proceeding shall occur
or any Company’s Subsidiaries, or any one of them, shall take action to authorize or effect any of
the actions in any such proceeding;

50

 

          (d) breach by any Company in any material respect of any warranty, representation or covenant
contained herein (other than those referred to in sub-paragraph (e) below) or in any other Loan
Documents or the Factoring Agreement, provided that such Default by any Company of any of the
warranties, representations or covenants referred in this clause (d) shall not be deemed to be an
Event of Default unless and until such Default shall remain unremedied to the Agent’s satisfaction
for a period of ten (10) days from the date of such breach;

          (e) breach by any Company in any material respect of any warranty, representation or covenant
of Paragraphs 3.3 (other than the fourth sentence of Paragraph 3.3) and 3.4 of Section 3 hereof;
Paragraphs 6.3 and 6.4 (other than the first sentence of Paragraph 6.4) of Section 6 hereof;
Paragraphs 7.1, 7.5, 7.6, and 7.8 through 7.14 hereof and Paragraphs 4, 5, 6, 7, and 10 of the
Security Agreement-Accounts, Inventory, General Intangibles, Equipment and Other Collateral;

          (f) failure of any Company to pay any of the Obligations within five (5) Business Days of the
due date thereof, provided that nothing contained herein shall prohibit the Agent from charging
such amounts to the Revolving Loan Account on the due date thereof;

          (g) any Company shall (i) engage in any “prohibited transaction” as defined in ERISA, (ii)
have any “accumulated funding deficiency” as defined in ERISA, (iii) have any “reportable event” as
defined in ERISA, (iv) terminate any “plan”, as defined in ERISA or (v) be engaged in any
proceeding in which the Pension Benefit Guaranty Corporation shall seek appointment, or is
appointed, as trustee or administrator of any “plan”, as defined in ERISA, and with respect to this
sub-paragraph (h) such event or condition (x) remains uncured for a period of thirty (30) days from
date of occurrence and (y) could, in the reasonable opinion of the Agent, subject such Company to
any tax, penalty or other liability material to the business, operations or financial condition of
such Company;

          (h) the occurrence of any default or event of default (after giving effect to any applicable
grace or cure periods) under any instrument or agreement evidencing any Indebtedness of any Company
having a principal amount in excess of $250,000;

          (i) The takeover process with respect to the Accounts of each Company under the Factoring
Agreement shall fail to be completed by the Factoring Takeover Date; or

          (j) the occurrence of any default or event of default (after giving effect to any grace or
cure periods) under the Factoring Agreement or Factoring Agreement shall terminate for any reason
or the parties shall fail to operate thereunder.

     10.2. Upon the occurrence and during the continuance of an Event of Default, the Agent in its
sole discretion may, or upon the written direction of the Required Lenders the Agent shall, declare
that, the making of all future loans, advances and extensions of credit provided for in Sections 3,
4 and 5 of this Financing Agreement shall be thereafter in the Agent’s or the Required Lenders’
sole discretion, and the obligation of the Agent and/or the Lenders to make Revolving Loans, open
Letters of Credit and provide Letters of Credit Guaranties, shall cease unless such Default or
Event of Default is waived in writing by the Required Lenders or cured to the Agent’s or the
Required Lenders’ satisfaction in the exercise of the Agent’s and the Lenders’

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reasonable judgment. Upon the occurrence and during the continuance of an Event of Default,
the Agent in its sole discretion may, or upon the written direction of the Required Lenders the
Agent shall, declare that: (a) all Obligations shall become immediately due and payable; (b) the
Agent may charge the Companies the Default Rate of Interest on all then outstanding or thereafter
incurred Obligations in lieu of the interest provided for in Section 8 of this Financing Agreement,
provided that, with respect to this clause “(b)” the Agent has given the Companies written notice
of the Event of Default, provided further however, that no notice is required if the Event of
Default is the Event listed in Paragraph 10.1(c) of this Section 10; and (c) the Agent may
immediately terminate this Financing Agreement upon notice to the Companies; provided, however,
that upon the occurrence of an Event of Default listed in Paragraph 10.1(c) of this Section 10,
this Financing Agreement shall automatically terminate and all Obligations shall become due and
payable, without any action, declaration, notice or demand by the Agent. The exercise of any
option is not exclusive of any other option, which may be exercised at any time by the Agent.

     10.3. Immediately upon the occurrence and during the continuance of any Event of Default, the
Agent may, to the extent permitted by law: (a) remove from any premises where same may be located
any and all books and records, computers, electronic media and software programs associated with
any Collateral (including any electronic records, contracts and signatures pertaining thereto),
documents, instruments, files and records, and any receptacles or cabinets containing same,
relating to the Accounts, or the Agent may use, at the Companies’ expense, such of the Companies’
personnel, supplies or space at the Companies’ places of business or otherwise, as may be necessary
to properly administer and control the Accounts or the handling of collections and realizations
thereon; (b) bring suit, in the name of the Companies or the Agent, and generally shall have all
other rights respecting said Accounts, including without limitation the right to: accelerate or
extend the time of payment, settle, compromise, release in whole or in part any amounts owing on
any Accounts and issue credits in the name of the Companies or the Agent; (c) sell, assign and
deliver the Collateral and any returned, reclaimed or repossessed Inventory, at public or private
sale, for cash, on credit or otherwise, at the Agent’s sole option and discretion, and the Agent
may bid or become a purchaser at any such sale, free from any right of redemption, which right is
hereby expressly waived by the Companies; (d) foreclose the security interests in the Collateral
created herein or by the Loan Documents by any available judicial procedure, or to take possession
of any or all of the Collateral, including any Inventory, Equipment and/or Other Collateral without
judicial process, and to enter any premises where any Inventory and Equipment and/or Other
Collateral may be located for the purpose of taking possession of or removing the same; and (e)
exercise any other rights and remedies provided in law, in equity, by contract or otherwise. The
Agent shall have the right, without notice or advertisement, to sell, lease, or otherwise dispose
of all or any part of the Collateral, whether in its then condition or after further preparation or
processing, in the name of the Companies or the Agent, or in the name of such other party as the
Agent may designate, either at public or private sale or at any broker’s board, in lots or in bulk,
for cash or for credit, with or without warranties or representations (including but not limited to
warranties of title, possession, quiet enjoyment and the like), and upon such other terms and
conditions as the Agent in its sole discretion may deem advisable, and the Agent shall have the
right to purchase at any such sale. If any Inventory and Equipment shall require rebuilding,
repairing, maintenance or preparation, the Agent shall have the right, at its option, to do such of
the aforesaid as is necessary, for the purpose of putting the Inventory and Equipment in such

52

 

saleable form as the Agent shall deem appropriate and any such costs shall be deemed an
Obligation hereunder. Any action taken by CIT pursuant to this paragraph shall not affect
commercial reasonableness of the sale. The Companies agree, at the request of the Agent, to
assemble the Inventory and Equipment and to make it available to the Agent at premises of the
Companies or elsewhere and to make available to the Agent the premises and facilities of the
Companies for the purpose of the Agent’s taking possession of, removing or putting the Inventory
and Equipment in saleable form. If notice of intended disposition of any Collateral is required by
law, it is agreed that ten (10) days notice shall constitute reasonable notification and full
compliance with the law. The net cash proceeds resulting from the Agent’s exercise of any of the
foregoing rights, (after deducting all charges, costs and expenses, including reasonable attorneys’
fees) shall be applied by the Agent to the payment of the Obligations, whether due or to become
due, in such order as the Agent may elect, and the Companies shall remain liable to the Agent for
any deficiencies, and the Agent in turn agrees to remit to the Companies or its successors or
assigns, any surplus resulting therefrom. The enumeration of the foregoing rights is not intended
to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights,
all of which shall be cumulative. The Companies hereby indemnifies the Agent and holds the Agent
harmless from any and all out-of-pocket costs, expenses, claims, liabilities, Out-of-Pocket
Expenses or otherwise, incurred or imposed on the Agent by reason of the exercise of any of its
rights, remedies and interests hereunder, including, without limitation, from any sale or transfer
of Collateral, preserving, maintaining or securing the Collateral, defending its interests in
Collateral (including pursuant to any claims brought by the Companies, the Companies as
debtor-in-possession, any secured or unsecured creditors of the Companies, any trustee or receiver
in bankruptcy, or otherwise), and the Companies hereby agree to so indemnify and hold the Agent
harmless, absent the Agent’s gross negligence or willful misconduct as finally determined by a
court of competent jurisdiction. The foregoing indemnification shall survive termination of this
Financing Agreement until such time as all Obligations (including the foregoing) have been finally
and indefeasibly paid in full. In furtherance thereof the Agent, may establish such reserves for
Obligations hereunder (including any contingent Obligations) as it may deem advisable in its
reasonable business judgment. Any applicable mortgage(s), deed(s) of trust or assignment(s) issued
to the Agent on the Real Estate shall govern the rights and remedies of the Agent thereto.

SECTION 11. Termination

     11.1. Except as otherwise permitted herein, the Agent may terminate this Financing Agreement
only as of the initial or any subsequent Anniversary Date and then only by giving the Companies at
least sixty (60) days prior written notice of termination. Notwithstanding the foregoing the Agent
may terminate the Financing Agreement immediately upon the occurrence of an Event of Default,
provided, however, that if the Event of Default is an event listed in Paragraph
10.1(c) of Section 10 of this Financing Agreement, this Financing Agreement shall terminate in
accordance with paragraph 10.2 of Section 10. This Financing Agreement, unless terminated as
herein provided, shall automatically continue from Anniversary Date to Anniversary Date. The
Companies may terminate this Financing Agreement at any time upon sixty (60) days’ prior written
notice to the Agent, provided that the Companies pay to the Agent immediately on demand an Early
Termination Fee, if applicable. All Obligations shall become due and payable as of any termination
hereunder or under Section 10 hereof and, pending a final accounting, the Agent may withhold any
balances in the Companies’ account (unless supplied

53

 

with an indemnity or letter of credit satisfactory to the Agent) to cover all of the
Obligations, whether absolute or contingent, including, but not limited to, cash reserves for any
contingent Obligations, including an amount of 110% of the face amount of any outstanding Letters
of Credit. All of the Agent’s rights, liens and security interests shall continue after any
termination until all Obligations have been paid and satisfied in full.

     11.2. This Agreement shall automatically terminate simultaneously with the termination of the
Factoring Agreement.

SECTION 12. Miscellaneous

     12.1. The Companies hereby waive diligence, notice of intent to accelerate, notice of
acceleration, demand, presentment and protest and any notices thereof as well as notice of
nonpayment. No delay or omission of the Agent or the Companies to exercise any right or remedy
hereunder, whether before or after the happening of any Event of Default, shall impair any such
right or shall operate as a waiver thereof or as a waiver of any such Event of Default. No single
or partial exercise by the Agent of any right or remedy precludes any other or further exercise
thereof, or precludes any other right or remedy.

     12.2. This Financing Agreement and the Loan Documents executed and delivered in connection
therewith constitute the entire agreement between the Companies and the Agent; supersede any prior
agreements (other than the Original Financing Agreement and the Loan Documents as defined therein,
except to the extent each has been amended and restated as contemplated hereunder); can be changed
only by a writing signed by both the Companies and the Agent; and shall bind and benefit the
Companies and the Agent and their respective successors and assigns.

     12.3. In no event shall the Companies, upon demand by the Agent for payment of any
Indebtedness relating hereto, by acceleration of the maturity thereof, or otherwise, be obligated
to pay interest and fees in excess of the amount permitted by law. Regardless of any provision
herein or in any agreement made in connection herewith, the Agent shall never be entitled to
receive, charge or apply, as interest on any indebtedness relating hereto, any amount in excess of
the maximum amount of interest permissible under applicable law. If the Agent ever receives,
collects or applies any such excess, it shall be deemed a partial repayment of principal and
treated as such; and if principal is paid in full, any remaining excess shall be refunded to the
Companies. This paragraph shall control every other provision hereof, the Loan Documents and of
any other agreement made in connection herewith.

     12.4. If any provision hereof or of any other agreement made in connection herewith is held to
be illegal or unenforceable, such provision shall be fully severable, and the remaining provisions
of the applicable agreement shall remain in full force and effect and shall not be affected by such
provision’s severance. Furthermore, in lieu of any such provision, there shall be added
automatically as a part of the applicable agreement a legal and enforceable provision as similar in
terms to the severed provision as may be possible.

     12.5. THE COMPANIES, THE LENDERS AND THE AGENT EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING

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ARISING OUT OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER. THE COMPANY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED. IN NO EVENT WILL THE AGENT BE LIABLE FOR
LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.

     12.6. Except as otherwise herein provided, any notice or other communication required
hereunder shall be in writing (provided that, any electronic communications from the Companies with
respect to any request, transmission, document, electronic signature, electronic mail or facsimile
transmission shall be deemed binding on the Companies for purposes of this Financing Agreement,
provided further that any such transmission shall not relieve the Companies from any other
obligation hereunder to communicate further in writing), and shall be deemed to have been validly
served, given or delivered when hand delivered or sent by facsimile (with confirmation of receipt),
or three days after deposit in the United State mails, with proper first class postage prepaid and
addressed to the party to be notified or to such other address as any party hereto may designate
for itself by like notice, as follows:

	 	 	 
	(A)

	 	if to CIT, at:
	 
	 	 
	 

	 	The CIT Group/Commercial Services, Inc.
	 

	 	11 West 42nd Street
	 

	 	New York, New York 10036
	 

	 	Attn:      Regional Credit Manager
	 

	 	Fax:       212-461-5347
	 
	 	 
	(B)

	 	if to the Companies at:
	 
	 	 
	 

	 	Bernard Chaus, Inc.
	 

	 	530 Seventh Avenue
	 

	 	New York, New York 10018
	 

	 	Attn:      Barton Heminover
	 

	 	Fax:       212-869-4646
	 
	 	 
	 

	 	With a courtesy copy of any material notice to the Companies’ counsel at:
	 
	 	 
	 

	 	Dechert LLP
	 

	 	1095 Avenue of the Americas
	 

	 	New York, New York 10036-6797
	 

	 	Attn:      Martin Nussbaum
	 

	 	Fax:       1-212-698-3599

provided, however, that the failure of the Agent to provide the Companies’ counsel with a copy of
such notice shall not invalidate any notice given to the Companies and shall not give the Companies
any rights, claims or defenses due to the failure of the Agent to provide such additional notice.

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     12.7. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS FINANCING AGREEMENT AND THE OTHER
LOAN DOCUMENTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT
ANY OTHER LOAN DOCUMENT INCLUDES AN EXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER
JURISDICTION.

SECTION 13. Agreement between the Lenders

     13.1. (a) The Agent, for the account of the Lenders, shall disburse all loans and advances to
the Companies and shall handle all collections of Collateral and repayment of Obligations. It is
understood that for purposes of advances to the Companies and for purposes of this Section 13 the
Agent is using the funds of the Agent.

          (b) Unless the Agent shall have been notified in writing by any Lender prior to any advance to
the Companies that such Lender will not make the amount which would constitute its share of the
borrowing on such date available to the Agent, the Agent may assume that such Lender shall make
such amount available to the Agent on a Settlement Date, and the Agent may, in reliance upon such
assumption, make available to the Companies a corresponding amount. A certificate of the Agent
submitted to any Lender with respect to any amount owing under this subsection shall be conclusive,
absent manifest error. If such Lender’s share of such borrowing is not in fact made available to
the Agent by such Lender on the Settlement Date, the Agent shall be entitled to recover such amount
with interest thereon at the rate per annum applicable to Revolving Loans hereunder, on demand,
from the Companies without prejudice to any rights which the Agent may have against such Lender
hereunder. Nothing contained in this subsection shall relieve any Lender which has failed to make
available its ratable portion of any borrowing hereunder from its obligation to do so in accordance
with the terms hereof. Nothing contained herein shall be deemed to obligate the Agent to make
available to the Companies the full amount of a requested advance when the Agent has any notice
(written or otherwise) that any of the Lenders will not advance its ratable portion thereof.

     13.2. On the Settlement Date, the Agent and the Lenders shall each remit to the other, in
immediately available funds, all amounts necessary so as to ensure that, as of the Settlement Date,
the Lenders shall have their proportionate share of all outstanding Obligations.

     13.3. The Agent shall forward to each Lender, at the end of each month, a copy of the account
statement rendered by the Agent to the Companies.

     13.4. The Agent shall, after receipt of any interest and fees earned under this Financing
Agreement, promptly remit to the Lenders: (a) their pro rata portion of all fees, provided,
however, that the Lenders (other than CIT in its role as the Agent) shall receive their share of
the Loan Facility Fee in accordance with their respective agreements with the Agent; or (b)
interest computed at the rate and as provided for in Section 8 of this Financing Agreement on all
outstanding amounts advanced by the Lenders on each Settlement Date, prior to adjustment, that are
subsequent to the last remittance by the Agent to the Lenders of the Companies’ interest.

     13.5. (a) The Lenders may sell participations in the loans and other extensions of credit made
and to be made to the Companies hereunder to any Person. The Companies

56

 

acknowledges that in selling such participations, the Lenders may grant to participants
certain rights to consent to waivers, amendments and other actions with respect to this Financing
Agreement, provided that the consent of any participant shall be limited solely to matters
as to which all Lenders must consent under Section 14.10 hereof. Except for the consent
rights set forth above, no participant shall have any rights as a Lender hereunder, and
notwithstanding the sale of any participation by a Lender, such Lender shall remain solely
responsible to the other parties hereto for the performance of such Lender’s obligations hereunder,
and the Companies, the Agent and the other Lenders may continue to deal solely with such Lender
with respect to all matters relating to this Financing Agreement and the transactions contemplated
hereby. In addition, all amounts payable under this Financing Agreement to a Lender which sells a
participation in accordance with this paragraph shall continue to be paid directly to such Lender.

          (b) The Lenders may assign all or any portion of their respective rights and obligations under
this Financing Agreement to any Eligible Assignee, provided that (i) the principal amount
of loans assigned to any institution shall not be less than $5,000,000, and (ii) the assignor of
such right and obligations shall pay to the Agent an assignment processing and recording fee of
Five Thousand Dollars ($5,000.00) for the Agent’s own account and (iii) after the occurrence and
during the continuance of an Event of Default, the Lenders may assign all or any portion of their
respective rights and obligations under this Financing Agreement to any Person without regard to
whether such Person is an Eligible Assignee. Each assignment of a Commitment hereunder must be
made pursuant to an Assignment and Transfer Agreement. From and after the effective date of an
Assignment and Transfer Agreement, (i) the assignee thereunder shall become a party to this
Financing Agreement and, to the extent that rights and obligations hereunder have been assigned to
such assignee pursuant to such assignment, shall have all rights and obligations of a Lender
hereunder, and (ii) the assigning Lender, to the extent that rights and obligations hereunder have
been assigned by such Lender pursuant to such assignment, shall relinquish its rights and be
released from its obligations under this Financing Agreement. No Lender may assign its interest in
the loans and advances and extensions of credit hereunder without the prior written consent of the
Agent.

          (c) The Companies authorize each Lender to disclose to any such participant or assignee (each,
a “Transferee”) and any prospective Transferee any and all financial information in such
Lender’s possession concerning the Companies and their affiliates which has been delivered to such
Lender by or on behalf of the Companies pursuant to this Agreement or which has been delivered to
such Lender by or on behalf of the Companies in connection with such Lender’s credit evaluation of
the Companies and their affiliates prior to entering into this Agreement, provided that such
Transferee agrees to hold such information in confidence in the ordinary course of its business.

          (d) At the request of Agent from time to time both before and after the Closing Date, the
Companies will assist Agent in the syndication of the credit facility provided pursuant to this
Financing Agreement and the other Loan Documents. Such assistance shall include, but not be
limited to (i) prompt assistance in the preparation of an information memorandum and the
verification of the completeness and accuracy of the information and the reasonableness of the
projections contained therein, (ii) preparation of offering materials and financial projections by
the Companies and their advisors, (iii) providing Agent with all information reasonably deemed
necessary by Agent to successfully complete the syndication,

57

 

(iv) confirmation as to the accuracy and completeness of such offering materials and
information and confirmation that management’s projections are based on assumptions believed by the
Loan Parties to be reasonable at the time made, and (v) participation of the Companies’ senior
management in meetings and conference calls with potential lenders at such times and places as
Agent may reasonably request.

     13.6. The Companies hereby agree that each Lender is solely responsible for its portion of the
Line of Credit and that neither the Agent nor any Lender shall be responsible for, nor assume any
obligations for the failure of any Lender to make available its portion of the Line of Credit.
Further, should any Lender refuse to make available its portion of the Line of Credit, then the
other Lender may, but without obligation to do so, increase, unilaterally, its portion of the Line
of Credit in which event the Companies are so obligated to that other Lender.

     13.7. In the event that the Agent, the Lenders or any one of them is sued or threatened with
suit by the Companies or any one of them, or by any receiver, trustee, creditor or any committee of
creditors on account of any preference, voidable transfer or lender liability issue, alleged to
have occurred or been received as a result of, or during the transactions contemplated under this
Financing Agreement, then in such event any money paid in satisfaction or compromise of such suit,
action, claim or demand and any expenses, costs and attorneys’ fees paid or incurred in connection
therewith, whether by the Agent, the Lenders or any one of them, shall be shared proportionately by
the Lenders. In addition, any costs, expenses, fees or disbursements incurred by outside agencies
or attorneys retained by the Agent to effect collection or enforcement of any rights in the
Collateral, including enforcing, preserving or maintaining rights under this Financing Agreement
shall be shared proportionately between and among the Lenders to the extent not reimbursed by the
Companies or from the proceeds of Collateral. The provisions of this paragraph shall not apply to
any suits, actions, proceedings or claims that (x) predate the date of this Financing Agreement or
(y) are based on transactions, actions or omissions that predate the date of this Financing
Agreement.

     13.8. Each of the Lenders agrees with each other Lender that any money or assets of the
Companies held or received by such Lender, no matter how or when received, shall be applied to the
reduction of the Obligations (to the extent permitted hereunder) after (x) the occurrence of an
Event of Default and (y) the election by the Required Lenders to accelerate the Obligations. In
addition, the Companies authorize, and the Lenders shall have the right, without notice, upon any
amount becoming due and payable hereunder, to set-off and apply against any and all property held
by, or in the possession of such Lender the Obligations due such Lenders.

SECTION 14. Agency

     14.1. Each Lender hereby irrevocably designates and appoints CIT as the Agent for the Lenders
under this Financing Agreement and any ancillary loan documents and irrevocably authorizes CIT as
the Agent for such Lender, to take such action on its behalf under the provisions of this Financing
Agreement and all ancillary documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Financing Agreement and all ancillary
documents together with such other powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary elsewhere in this Financing Agreement, the Agent shall not have any
duties or responsibilities, except those expressly set

58

 

forth herein, or any fiduciary relationship with any Lender and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read into this Financing
Agreement and the ancillary documents or otherwise exist against the Agent.

     14.2. The Agent may execute any of its duties under this Financing Agreement and all ancillary
documents by or through agents or attorneys-in-fact and shall be entitled to the advice of counsel
concerning all matters pertaining to such duties.

     14.3. Neither the Agent nor any of its officers, directors, employees, agents, or
attorneys-in-fact shall be (i) liable to any Lender for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Financing Agreement and all ancillary
documents (except for its or such Person’s own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements, representations or
warranties made by the Companies or any officer thereof contained in this Financing Agreement and
all ancillary documents or in any certificate, report, statement or other document referred to or
provided for in, or received by the Agent under or in connection with, this Financing Agreement and
all ancillary documents or for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Financing Agreement and all ancillary documents or for any failure of the
Companies to perform their obligations thereunder. The Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any of the agreements
contained in, or conditions of, this Financing Agreement and all ancillary documents or to inspect
the properties, books or records of the Companies.

     14.4. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation, counsel to the
Companies), independent accountants and other experts selected by the Agent. The Agent shall be
fully justified in failing or refusing to take any action under this Financing Agreement and all
ancillary documents unless it shall first receive such advice or concurrence of the Lenders, or the
Required Lenders, as the case may be, as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Financing Agreement and all
ancillary documents in accordance with a request of the Lenders, or the Required Lenders, as the
case may be, and such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders.

     14.5. The Agent shall not be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default hereunder unless the Agent has received written notice from a Lender or
the Companies describing such Default or Event of Default. In the event that the Agent receives
such a notice, the Agent shall promptly give notice thereof to the Lenders. The Agent shall take
such action with respect to such Default or Event of Default as shall be reasonably directed by the
Lenders, or Required Lenders, as the case may be; provided that unless and until the Agent
shall have received such direction, the Agent may in the interim (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to

59

 

such Default or Event of Default as it shall deem advisable and in the best interests of the
Lenders. In the event the Agent in its sole discretion, or at the request of the Required Lenders,
continues to make Revolving Loans and advances under this Financing Agreement upon the occurrence
of a Default or Event of Default, any such Revolving Loans and advances may be in such amounts
(subject to Paragraph 14.10 hereof) and on such additional terms and conditions as the Agent or the
Required Lenders may deem appropriate.

     14.6. Each Lender expressly acknowledges that neither the Agent nor any of its officers,
directors, employees, agents or attorneys-in-fact has made any representations or warranties to it
and that no act by the Agent hereinafter taken, including any review of the affairs of the
Companies shall be deemed to constitute any representation or warranty by the Agent to any Lender.
Each Lender represents to the Agent that it has, independently and without reliance upon the Agent
or any other Lender and based on such documents and information as it has deemed appropriate, made
its own appraisal of and investigation into the business, operations, property, financial and other
condition and creditworthiness of the Companies and made its own decision to enter into this
Financing Agreement. Each Lender also represents that it will, independently and without reliance
upon the 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 credit analysis, appraisals and decisions in
taking or not taking action under the Financing Agreement and to make such investigation as it
deems necessary to inform itself as to the business, operations, property, financial and other
condition or creditworthiness of the Companies. The Agent, however, shall provide the Lenders with
copies of all financial statements, projections and business plans which come into the possession
of the Agent or any of its officers, employees, agents or attorneys-in-fact.

     14.7. (a) The Lenders agree to indemnify the Agent in its capacity as such (to the extent not
reimbursed by the Companies and without limiting the obligation of the Companies to do so), from
and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements (including, without limitation, all Out-of-Pocket Expenses)
of any kind whatsoever (including negligence on the part of the Agent) which may at any time be
imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this
Financing Agreement or any ancillary documents or any documents contemplated by or referred to
herein or the transactions contemplated hereby or any action taken or omitted by the Agent under or
in connection with any of the foregoing; provided that no Lender shall be liable for the
payment of any portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the Agent’s gross
negligence or willful misconduct. The agreements in this paragraph shall survive the payment of
the Obligations.

(b) The Agent will use its reasonable business judgment in handling the collection of the
Accounts, enforcement of its rights hereunder and realization upon the Collateral but shall not be
liable to the Lenders for any action taken or omitted to be taken in good faith or on the written
advice of counsel. The Lenders expressly release the Agent from any and all liability and
responsibility (express or implied), for any loss, depreciation of or delay in collecting or
failing to realize on any Collateral, the Obligations or any guaranties therefor and for any
mistake, omission or error in judgment in passing upon or accepting any Collateral or in making (or
in failing to make) examinations or audits or for granting indulgences or extensions

60

 

to the Companies, any account debtor or any guarantor, other than resulting from the Agent’s
gross negligence or willful misconduct.

     14.8. The Agent may make loans to, and generally engage in any kind of business with the
Companies as though the Agent were not the Agent hereunder. With respect to its loans made or
renewed by it or loan obligations hereunder as Lender, the Agent shall have the same rights and
powers, duties and liabilities under this Financing Agreement as any Lender and may exercise the
same as though it was not the Agent and the terms “Lender” and “Lenders” shall include the Agent in
its individual capacity.

     14.9. The Agent may resign as the Agent upon 30 days’ written notice to the Lenders and such
resignation shall be effective upon the appointment of a successor Agent. If the Agent shall
resign or be removed as Agent, then the Lenders shall appoint a successor Agent for the Lenders
whereupon such successor Agent, so long as no Event of Default shall have occurred, be subject to
the approval of the Companies (which approval shall not be unreasonably withheld) whereupon such
successor agent shall succeed to the rights, powers and duties of the Agent and the term “Agent”
shall mean such successor agent effective upon its appointment, and the former Agent’s rights,
powers and duties as Agent shall be terminated, without any other or further act or deed on the
part of such former Agent or any of the parties to this Financing Agreement. After any retiring
Agent’s resignation hereunder as the Agent the provisions of this Section 14 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was the Agent.

     14.10. Notwithstanding anything contained in this Financing Agreement to the contrary, the
Agent will not, without the prior written consent of all Lenders: (a) amend the Financing Agreement
to (i) increase the Line of Credit; (ii) reduce the interest rates; (iii) reduce or waive (x) any
fees in which the Lenders share hereunder, or (y) the repayment of any Obligations due the Lenders;
(iv) extend the maturity of the Obligations; or (v) alter or amend (x) this Paragraph 14.10 or (y)
the definitions of Eligible Accounts Receivable, Eligible Inventory, Inventory Loan Cap, Collateral
or Required Lenders, or (vi) increase the advance percentages against Eligible Accounts Receivable
or Eligible Inventory or alter or amend the Agent’s criteria for determining compliance with such
definitions of Eligible Accounts Receivable and/or Eligible Inventory if the effect thereof is to
increase Availability; (b) except as otherwise required in this Financing Agreement, release any
guaranty or Collateral in excess of $500,000 during any year, or (c) knowingly make any Revolving
Loan or assist in opening any Letter of Credit hereunder if after giving effect thereto the total
of Revolving Loans and Letters of Credit hereunder for the Companies would exceed one hundred and
ten percent (110%) of the maximum amount available under this Financing Agreement (the portion in
excess of 100% of such maximum available amount shall be referred to herein as the “Agent Permitted
Overadvances”), provided that the Agent shall not be entitled to continue to knowingly make such
Agent Permitted Overadvances for a period in excess of ninety (90) days without the Lenders’
consent, and provided further that the foregoing limitations shall not prohibit or restrict
advances by the Agent to preserve and protect Collateral. Subject to the provisions of Section 12,
Paragraph 12.2 and the provisions of this Paragraph 14.10 of Section 14 of this Financing
Agreement, in all other respects the Agent is authorized by each of the Lenders to take such
actions or fail to take such actions under this Financing Agreement if the Agent, in its reasonable
discretion, deems such to be advisable and in the best interest of the Lenders. Notwithstanding
any provision to the

61

 

contrary contained in this Financing Agreement (including the provisions of Section 12,
Paragraph 12.2 and Section 14, Paragraph 14.10 hereof) the Agent is authorized to take such actions
or fail to take such actions in connection with (a) the exercise of (i) any and all rights and
remedies under this Financing Agreement (including but not limited to the exercise of rights and
remedies under Section 10, Paragraph 10.2 of this Financing Agreement) and (ii) its discretion in
(x) determining compliance with the eligibility requirements of Eligible Accounts Receivable and/or
Eligible Inventory and establishing reserves against Availability in connection therewith and/or
(y) the making of Agent Permitted Overadvances, and/or (b) the release of Collateral not to exceed
$500,000 in the aggregate during any Fiscal Year, and/or (c) curing any ambiguity, defect or
inconsistency in the terms of this Financing Agreement; provided that the Agent, in its reasonable
discretion, deems such to be advisable and in the best interests of the Lenders. In the event the
Agent terminates this Financing Agreement pursuant to the terms hereof, the Agent will cease making
any loans or advances upon the effective date of termination except for any loans or advances which
the Agent deems, in its sole discretion, are reasonably required to maintain, protect or realize
upon the Collateral.

     14.11. In the event any Lender’s consent is required pursuant to the provisions of this
Financing Agreement and such Lender does not respond to any request by the Agent for such consent
within 10 days after such request is made to such Lender, such failure to respond shall be deemed a
consent. In addition, in the event that any Lender declines to give its consent to any such
request, it is hereby mutually agreed that the Agent and/or any other Lender shall have the right
(but not the obligation) to purchase such Lender’s share of the Loans for the full amount thereof
together with accrued interest thereon to the date of such purchase.

     14.12. Each Lender agrees that notwithstanding the provisions of Section 11 of this Financing
Agreement any Lender may terminate its Commitment under this Financing Agreement and the Line of
Credit only as of the initial or any subsequent Anniversary Date and then only by giving the Agent
90 days prior written notice thereof. Within 30 days after receipt of any such termination notice,
the Agent shall, at its option, either (i) give notice of termination to the Companies hereunder or
(ii) purchase, or arrange for the purchase of, the Lender’s share of the Obligations hereunder for
the full amount thereof plus accrued interest thereon. Unless so terminated this Financing
Agreement and the Line of Credit shall be automatically extended from Anniversary Date to
Anniversary Date. Termination of its Commitment under this Financing Agreement by any of the
Lenders as herein provided shall not affect the Lenders’ respective rights and obligations under
this Financing Agreement incurred prior to the effective date of termination as set forth in the
preceding sentence.

     14.13. If the Agent is required at any time to return to the Companies or to a trustee,
receiver, liquidator, custodian or other similar official any portion of the payments made by the
Companies to the Agent as result of a bankruptcy or similar proceeding with respect to the
Companies, any guarantor or any other Person or entity or otherwise, then each Lender shall, on
demand of the Agent, forthwith return to the Agent its ratable share of any such payments made to
such Lender by the Agent, together with its ratable share of interest and/or penalties, if any,
payable by the Lenders; this provision shall survive the termination of this Financing Agreement.

     14.14. The Lenders agree to maintain the confidentiality of any non-public information
provided by the Companies to them, in the ordinary course of their business, provided that the

62

 

foregoing confidentiality provision shall terminate one (1) year after the termination date of
this Financing Agreement, and provided further that any such Lenders may disclose such information
(i) to any applicable bank regulatory and auditor personnel and (ii) upon the advise of their
counsel that such disclosure is required by applicable law or court.

     14.15. Nothing contained in this Agreement shall be deemed to amend, modify or otherwise
affect in any manner whatsoever the terms and provisions of and the rights and remedies available
to CIT in its capacity as factor under the Factoring Agreement.

SECTION 15. Borrowing Agent.

     15.1. (a) The Companies hereby irrevocably designate Borrowing Agent to be its attorney and
agent and in such capacity to borrow, sign and endorse notes, and execute and deliver all
instruments, documents, writings and further assurances now or hereafter required hereunder, on
behalf of the Companies, and hereby authorizes Agent to pay over or credit all loan proceeds
hereunder in accordance with the request of Borrowing Agent.

          (b) The handling of this credit facility as a co-borrowing facility with a borrowing agent in
the manner set forth in this Agreement is solely as an accommodation to the Companies and at their
request. Neither Agent nor any Lender shall incur liability to the Companies as a result thereof
except due to willful misconduct or gross (not mere) negligence by the Agent or Lender. To induce
Agent and Lenders to do so and in consideration thereof, the Companies hereby indemnify Agent and
each Lender and holds Agent and each Lender harmless from and against any and all liabilities,
expenses, losses, damages and claims of damage or injury asserted against Agent or any Lender by
any Person arising from or incurred by reason of the handling of the financing arrangements of the
Companies as provided in this Section 15.1, reliance by Agent or any Lender on any request or
instruction from Borrowing Agent or any other action taken by Agent or any Lender with respect to
this Section 15 except due to willful misconduct or gross (not mere) negligence by the indemnified
party.

          (c) All Obligations shall be joint and several, and the Companies shall make payment upon the
maturity of the Obligations by acceleration or otherwise, and such obligation and liability on the
part of the Companies shall in no way be affected by any extensions, renewals and forbearance
granted to Agent or any Lender to the Companies, failure of Agent or any Lender to give the
Companies notice of borrowing or any other notice, any failure of Agent or any Lender to pursue or
preserve its rights against the Companies, the release by Agent or any Lender of any Collateral now
or thereafter acquired from the Companies, and such agreement by the Companies to pay upon any
notice issued pursuant thereto is unconditional and unaffected by prior recourse by Agent or any
Lender to the Companies or any Collateral for the Companies’ Obligations or the lack thereof. The
Companies waive all suretyship defenses with respect to its relationship to its Subsidiaries.

     15.2. Each Company expressly waives any and all rights of subrogation, reimbursement,
indemnity, exoneration, contribution of any other claim which any Companies may now or hereafter
have against the other, directly or contingently liable for the Obligations hereunder, or against
or with respect to any Company’s property (including, without limitation, any property which is
Collateral for the Obligations), as the case may be, arising from the

63

 

existence or performance of this Agreement, until termination of this Agreement and repayment
in full of the Obligations.

     15.3. That certain Factoring Termination Agreement (as defined in the Original Financing
Agreement) is hereby terminated and shall be of no further force and effect as of the Closing Date.

     15.4. This Agreement may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be deemed to be an
original, and all of which, when taken together, shall constitute but one and the same Agreement.
Delivery of an executed counterpart of this Agreement by telefacsimile or by electronic
transmission in “pdf” or other imaging format shall be equally as effective as delivery of an
original executed counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile or electronic transmission also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed counterpart shall not
affect the validity, enforceability and binding effect of this Agreement.

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     IN WITNESS WHEREOF, the parties hereto have caused this Financing Agreement to be effective,
executed, accepted and delivered by their proper and duly authorized officers as of the date set
forth above.

	 	 	 	 	 	 	 
	 	 	THE CIT GROUP/COMMERCIAL SERVICES, INC.,	 	 
	 	 	 as Agent and
Lender	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Kevin J. Winsch	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	Kevin J. Winsch	 	 
	 

	 	Title:
	 	Senior Vice President	 	 
	 
	 	 	 	 	 	 
	 	 	BERNARD CHAUS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David Stiffman	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	David Stiffman	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 
	 
	 	 	 	 	 	 
	 	 	CYNTHIA STEFFE ACQUISITION, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David Stiffman	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	David Stiffman	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 
	 
	 	 	 	 	 	 
	 	 	S.L. DANIELLE ACQUISITION, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David Stiffman	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:
	 	David Stiffman	 	 
	 

	 	Title:
	 	Chief Operating Officer	 	 

Signature Page Amended and Restated Financing Agreement

 

 

EXHIBIT B

REVOLVING CREDIT NOTE

			
	$30,000,000
	 	Dated as of September 18, 2008

FOR VALUE RECEIVED, the undersigned, BERNARD CHAUS, INC., a New York Corporation (“Chaus”), CYNTHIA
STEFFE ACQUISITION, LLC, a New York limited liability company (“CS Acquisition”) and S.L. DANIELLE
ACQUISITION, LLC, a New York limited liability company (“Danielle Acquisition” and together with
Chaus and CS Acquisition, collectively the “Companies”), hereby, absolutely and unconditionally
promises to pay to the order of THE CIT GROUP/COMMERCIAL SERVICES, INC., a New York corporation,
(hereinafter “CIT”) with offices located at 11 West 42nd Street, New York, New York
10036, and CIT as agent for the Lenders (the “Agent”), and any other party which now or hereafter
becomes a lender hereunder pursuant to Section 13 hereof (individually a “Lender” and collectively
the “Lenders”), in lawful money of the United States of America and in immediately available funds,
the principal amount of THIRTY MILLION DOLLARS ($30,000,000), or such other principal amount
advanced pursuant to Section 3 and Section 5 of the Financing Agreement (as herein defined), such
Revolving Loan advances shall be repaid on a daily basis as a result of the application of the
proceeds of collections of the Accounts and the making of additional Revolving Loans as described
in Section 3. Subject to the terms of the Financing Agreement, the Revolving Loans may be
borrowed, repaid and reborrowed by the Companies. A final balloon payment in an amount equal to
the outstanding aggregate balance of principal and interest remaining unpaid, if any, under this
Note as shown on the books and records of the Agent shall be due and payable on the termination of
the Financing Agreement, as set forth in Section 11 thereof.

The Companies further absolutely and unconditionally promise to pay to the order of the Agent at
said office, interest, in like money, on the unpaid principal amount owing hereunder from time to
time from the date hereof on the dates and at the rates specified in Section 8, of the Financing
Agreement.

If any payment on this Note becomes due and payable on a day other than a business day, the
maturity thereof shall be extended to the next succeeding business day, and with respect to
payments of principal, interest thereon shall be payable at the then applicable rate during such
extension.

This Note is one of the Promissory Notes referred to in the Financing Agreement, dated as of the
date hereof, as the same may be amended and restated and in effect from time to time, among the
Companies, the Agent, and the Lenders thereto from time to time (the “Financing Agreement”), and is
subject to, and entitled to, all of the terms, provisions and benefits thereof and is subject to
optional and mandatory prepayment, in whole or in part, as provided therein. All capitalized terms
used herein shall have the meaning provided therefor in the Financing Agreement, unless otherwise
defined herein.

The date and amount of the advance(s) made hereunder may be recorded on the grid page or pages
which are attached hereto and hereby made part of this Note or the separate ledgers

Exhibit B - 1

 

 

maintained by the Agent. The aggregate unpaid principal amount of all advances made pursuant
hereto may be set forth in the balance column on said grid page or such ledgers maintained by the
Agent. All such advances, whether or not so recorded, shall be due as part of this Note.

The Companies confirm that any amount received by or paid to the Agent in connection with the
Financing Agreement and/or any balances standing to its credit on any of its or their accounts on
the Agent’s books under the Financing Agreement may in accordance with the terms of the Financing
Agreement be applied in reduction of this Note, but no balance or amounts shall be deemed to effect
payment in whole or in part of this Note unless the Agent shall have actually charged such account
or accounts for the purposes of such reduction or payment of this Note.

This Note amends and restates in its entirety and is given in substitution for (but not in
satisfaction of) that certain Revolving Credit Note dated September 27, 2002 issued by the
Companies to The CIT Group/ Commercial Services, Inc. in the original principal amount of
$40,000,000.

Upon the occurrence of any one or more of the Events of Default specified in the Financing
Agreement or upon termination of the Financing Agreement, all amounts then remaining unpaid on this
Note may become, or be declared to be, immediately due and payable as provided in the Financing
Agreement.

	 	 	 	 	 	 	 
	 	 	BERNARD CHAUS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	CYNTHIA STEFFE ACQUISITION, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	S.L. DANIELLE ACQUISITION, LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	Title:	 	 	 	 

Exhibit B - 2

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