Document:

Exhibit 4.8

 

EXECUTION COPY

 

SECOND LIEN
SECURITY AGREEMENT

 

Dated as of June 20, 2005

 

from

 

The Grantors referred to herein

 

as Grantors

 

to

 

THE BANK OF NEW YORK

 

as Collateral Agent

 

 

T A  B  L  E  O  F  C  O  N  T  E  N  T  S

 

	
  Section

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Section 1.

  	
  Grant of Security

  	
  2

  
	
   

  	
   

  	
   

  
	
  Section 2.

  	
  Security for Obligations

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 3.

  	
  Grantors Remain Liable

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 4.

  	
  Government Contract Claims

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 5.

  	
  Delivery and Control of Security Collateral

  	
  10

  
	
   

  	
   

  	
   

  
	
  Section 6.

  	
  Maintaining the Deposit Collateral

  	
  11

  
	
   

  	
   

  	
   

  
	
  Section 7.

  	
  Maintaining Transferable Records and Letter-of-Credit Rights and
  Giving Notice of Commercial Tort Claims

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 8.

  	
  Representations and Warranties

  	
  13

  
	
   

  	
   

  	
   

  
	
  Section 9.

  	
  Further Assurances

  	
  18

  
	
   

  	
   

  	
   

  
	
  Section 10.

  	
  As to Equipment and Inventory

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 11.

  	
  Insurance

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 12.

  	
  Post-Closing Changes; Bailees; Collections on Assigned Agreements,
  Receivables and Related Contracts

  	
  21

  
	
   

  	
   

  	
   

  
	
  Section 13.

  	
  As to Intellectual Property Collateral

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 14.

  	
  Voting Rights; Dividends; Etc.

  	
  24

  
	
   

  	
   

  	
   

  
	
  Section 15.

  	
  As to the Assigned Agreements

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 16.

  	
  Payments Under the Assigned Agreements

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 17.

  	
  As to Letter-of-Credit Rights

  	
  26

  
	
   

  	
   

  	
   

  
	
  Section 18.

  	
  Transfers and Other Liens; Additional Shares

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 19.

  	
  Collateral Agent Appointed Attorney-in-Fact

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 20.

  	
  Collateral Agent May Perform

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 21.

  	
  The Collateral Agent’s Duties

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 22.

  	
  Remedies

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 23.

  	
  Indemnity and Expenses

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 24.

  	
  Amendments; Waivers; Additional Grantors; Etc.

  	
  30

  

 

 

	
  Section 25.

  	
  Notices, Etc.

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 26.

  	
  Continuing Security Interest; Assignments under the Credit Agreement

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 27.

  	
  Release; Termination

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 28.

  	
  Execution in Counterparts

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 29.

  	
  The Mortgages

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 30.

  	
  Jurisdiction, Etc

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 31.

  	
  Governing Law

  	
  33

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule I

  	
  -

  	
  Location, Chief Executive Office, Place Where Agreements Are
  Maintained, Type Of Organization, Jurisdiction Of Organization And
  Organizational Identification Number

  	
   

  
	
  Schedule II

  	
  -

  	
  Pledged Equity and Pledged Debt

  	
   

  
	
  Schedule III

  	
  -

  	
  Locations of Equipment and Inventory

  	
   

  
	
  Schedule IV

  	
  -

  	
  Changes in Name, Location, Etc.

  	
   

  
	
  Schedule V

  	
  -

  	
  Patents, Trademarks and Trade Names, Copyrights and IP Agreements

  	
   

  
	
  Schedule VI

  	
  -

  	
  Deposit Accounts

  	
   

  
	
  Schedule VI-A

  	
  -

  	
  Securities Accounts

  	
   

  
	
  Schedule VII

  	
  -

  	
  Commercial Tort Claims

  	
   

  
	
  Schedule VIII

  	
  -

  	
  Letters of Credit

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibits

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Exhibit A

  	
  -

  	
  Form of Second Lien Security Agreement Supplement

  	
   

  
	
  Exhibit B

  	
  -

  	
  Form of Deposit Account Control Agreement

  	
   

  
	
  Exhibit C

  	
  -

  	
  Form of Securities Account Control Agreement

  	
   

  
	
  Exhibit D

  	
  -

  	
  Form of Second Lien Intellectual Property Security Agreement

  	
   

  
	
  Exhibit E

  	
  -

  	
  Form of Second Lien Intellectual Property Security Agreement
  Supplement

  	
   

  
	
  Exhibit F

  	
  -

  	
  Form of Consent to Assignment of Letter of Credit Rights

  	
   

  
	
  Exhibit G-1

  	
  -

  	
  Form of Assignment for Government Contract Claims

  	
   

  
	
  Exhibit G-2

  	
  -

  	
  Form of Notice of Assignment for Government Contract Claims

  	
   

  
	
  Exhibit G-3

  	
  -

  	
  Form of Acknowledgment of Government Contract Claims

  	
   

  

 

 

SECOND LIEN
SECURITY AGREEMENT

 

SECOND LIEN SECURITY AGREEMENT, dated as of June 20,
2005 (this “Agreement”),
made by RAFAELLA APPAREL GROUP, INC., a Delaware corporate (the “Borrower”), the other
Persons listed on the signature pages hereof and the Additional Grantors
(as defined in Section 24)
(the Borrower, the Persons so listed and the Additional Grantors being,
collectively, the “Grantors”),
to THE BANK OF NEW YORK (“BoNY”),
as Collateral Agent (in such capacity, together with any successor collateral
agent appointed pursuant to Article VII
of the Indenture (as hereinafter defined), the “Collateral Agent”) for the Secured
Parties (as hereinafter defined).

 

PRELIMINARY
STATEMENTS

 

(1)                                  The Borrower has entered into a Credit
Agreement, dated as of the date hereof, among the Borrower, Verrazano, Inc.,
any other subsidiaries of the Borrower that become guarantors thereunder and
the lenders party thereto (together with their successors and assigns, the “Lenders”) and HSBC
Bank USA, National Association, as agent (in such capacity, together with its
successors and assigns, the “Credit Agreement Agent”), setting forth the terms and
conditions of the senior credit facility, as such agreement may be
amended, supplemented, modified, renewed, refunded, replaced, restated,
substituted, or refinanced in whole or in part from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders (the “Credit
Agreement”).

 

(2)                                  The Borrower has entered into an Indenture,
dated as of the date hereof, among the Borrower, the Guarantors (as defined in
the Indenture) and BoNY, as Trustee and as Collateral Agent (the “Indenture”).

 

(3)                                  Pursuant to the Indenture, the Grantors are
entering into this Agreement in order to grant to the Collateral Agent for the
ratable benefit of the holders from time to time of any Secured Obligations
(the “Secured Parties”)
a security interest in the Collateral (as hereinafter defined).

 

(4)                                  Each Grantor is the owner of the shares of
stock or other Equity Interests (the “Initial Pledged Equity”) set forth opposite
such Grantor’s name on and as otherwise described in Part I of Schedule II hereto and issued by
the Persons named therein and of the indebtedness (the “Initial Pledged Debt”)
set forth opposite such Grantor’s name on and as otherwise described in Part II of Schedule II hereto and issued by
the obligors named therein.

 

(5)                                  In order to secure the first lien
Indebtedness under the Credit Agreement, each Grantor is concurrently granting
to the Credit Agreement Agent, for the benefit of the Senior Creditors (as
defined in the Intercreditor Agreement), a first priority lien and security
interest in the Collateral, it being understood that the relative rights and
priorities of the grantees in respect of the Collateral are governed by the
Intercreditor Agreement (as hereinafter defined).

 

(6)                                  Each Grantor now has or may in the
future have security entitlements (the “Pledged Security Entitlements”) with respect
to all the financial assets (the “Pledged Financial 

 

 

Assets”)
credited from time to time to the accounts set forth opposite such Grantor’s
name on Schedule VI-A
hereto.

 

(7)                                  Each Grantor now maintains or may in the
future maintain deposit accounts (the “Deposit Accounts”) and securities accounts
(the “Securities
Accounts”) with banks, in the name of such Grantor and subject to
the terms of this Agreement, as set forth opposite such Grantor’s name and
described in Schedule VI
hereto.

 

(8)                                  The Borrower is the beneficiary under certain
letters of credit as described in Schedule VIII.

 

(9)                                  It is a condition precedent to the issuance
of the Notes (as defined in the Indenture) that the Grantors shall have granted
the assignment and security interest and made the pledge and assignment
contemplated by this Agreement.

 

(10)                            Each Grantor will derive substantial direct and indirect benefit from
the transactions contemplated by the Indenture Documents.

 

(11)                            Terms defined in the Indenture and not otherwise defined in this
Agreement are used in this Agreement as defined in the Indenture. Further,
unless otherwise defined in this Agreement or in the Indenture, terms defined
in Article 8 or 9 of the UCC (as defined below) and/or in the Federal Book
Entry Regulations (as defined below) are used in this Agreement as such terms
are defined in such Article 8 or 9 and/or the Federal Book Entry Regulations.
“UCC”
means the Uniform Commercial Code as in effect, from time to time, in the
State of New York; provided,
that, if perfection or the effect of perfection or non-perfection or the
priority of any security interest in any Collateral is governed by the Uniform Commercial
Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial
Code as in effect from time to time in such other jurisdiction for purposes of
the provisions hereof relating to such perfection, effect of perfection or
non-perfection or priority. The term “Federal Book Entry Regulations” means (a) the
federal regulations contained in Subpart B (“Treasury/Reserve Automated Debt Entry System (TRADES)”)
governing book-entry securities consisting of U.S. Treasury bonds, notes and
bills and Subpart D (“Additional
Provisions”) of 31 C.F.R. Part 357, 31 C.F.R. § 357.2,
§ 357.10 through § 357.14 and § 357.41 through § 357.44 and
(b) to the extent substantially identical to the federal regulations referred
to in clause (a) above
(as in effect from time to time), the federal regulations governing other
book-entry securities.

 

NOW, THEREFORE, in consideration of the premises and
in order to induce the Trustee and Collateral Agent to enter into the Indenture,
each Grantor hereby agrees with the Collateral Agent for the ratable benefit of
the Secured Parties as follows:

 

Section 1.                                            Grant of Security. Each Grantor hereby grants to the
Collateral Agent, for the ratable benefit of the Secured Parties, a security
interest in such Grantor’s right, title and interest in and to the following,
in each case, as to each type of property described below, whether now owned or
hereafter acquired by such Grantor, wherever located, and whether now or
hereafter existing or arising (collectively, the “Collateral”):

 

2

 

(a)                                  all equipment in all of its forms, including,
without limitation, all machinery, tools, motor vehicles, vessels, aircraft,
furniture and fixtures, and all parts thereof and all accessions thereto and
all software related thereto, including, without limitation, software that is
embedded in and is part of the equipment (any and all such property being
the “Equipment”);

 

(b)                                 all inventory in all of its forms, including,
without limitation, (i) all raw materials, work in process, finished goods
and materials used or consumed in the manufacture, production, preparation or
shipping thereof, (ii) goods in which such Grantor has an interest in mass
or a joint or other interest or right of any kind (including, without
limitation, goods in which such Grantor has an interest or right as consignee)
and (iii) goods that are returned to or repossessed or stopped in transit
by such Grantor, and all accessions thereto and products thereof and documents
therefor, and all software related thereto, including, without limitation,
software that is embedded in and is part of the inventory (any and all
such property being the “Inventory”);

 

(c)                                  all accounts (including, without limitation,
Government Contract Claims and health-care-insurance receivables), chattel
paper (including, without limitation, tangible chattel paper and electronic
chattel paper), instruments (including, without limitation, promissory notes),
deposit accounts, letter-of-credit rights, 
general intangibles (including, without limitation, (i) payment
intangibles, (ii) Government Contract Claims and (iii) all rights,
claims, benefits, remedies and interests under the Related Documents, whether
direct or indirect, and whether or not any Grantor is a party thereto) and
other obligations of any kind, whether or not arising out of or in connection
with the sale or lease of goods or the rendering of services and whether or not
earned by performance, and all rights now or hereafter existing in and to all
supporting obligations and in and to all security agreements, mortgages, Liens,
leases, letters of credit and other contracts securing or otherwise relating to
the foregoing property (any and all of such accounts, chattel paper,
instruments, deposit accounts, letter-of-credit rights, general intangibles and
other obligations, to the extent not referred to in clause (d), (e) or (f) below,
being the “Receivables,”
and any and all such supporting obligations, security agreements, mortgages,
Liens, leases, letters of credit and other contracts being the “Related Contracts”);

 

(d)                                 the following (the “Security Collateral”):

 

(i)                                     the Initial Pledged Equity and the
certificates, if any, representing the Initial Pledged Equity, and all dividends,
distributions, return of capital, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Initial Pledged Equity and all Equity Interests
issued thereon or with respect thereto;

 

(ii)                                  the Initial Pledged Debt and the instruments,
if any, evidencing the Initial Pledged Debt, and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
Initial Pledged Debt;

 

3

 

(iii)                               all additional shares of stock and other Equity Interests from time to
time acquired by such Grantor in any manner (such shares and other Equity
Interests, together with the Initial Pledged Equity, being the “Pledged Equity”), and
the certificates, if any, representing such additional shares or other Equity
Interests, and all dividends, distributions, return of capital, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
shares or other Equity Interests and all Equity Interests issued thereon or
with respect thereto;

 

(iv)                              all additional indebtedness from time to time owed to such Grantor
(such indebtedness, together with the Initial Pledged Debt, being the “Pledged Debt”) and
the instruments, if any, evidencing such indebtedness, and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
indebtedness;

 

(v)                                 the Securities Accounts, all Pledged Security
Entitlements with respect to all Pledged Financial Assets from time to time
credited to any Securities Account, and all Pledged Financial Assets, and all
dividends, distributions, return of capital, interest, cash, instruments and
other property from time to time received, receivable or otherwise distributed
or credited to the Securities Accounts in respect of or in exchange for any or
all of such Pledged Security Entitlements or such Pledged Financial Assets and
all subscription warrants, rights or options issued thereon or with respect
thereto;

 

(vi)                              all commodities accounts, all commodity contracts from time to time
carried in such commodities accounts, and all value, cash, instruments and
other property from time to time received, receivable or otherwise distributed
or credited to such commodities accounts in respect of or in exchange for any
or all of such commodity contracts; and

 

(vii)                           all other investment property (including, without limitation, all (A) securities,
whether certificated or uncertificated, (B) security entitlements, (C) securities
accounts, (D) commodity contracts and (E) commodity accounts) and all
financial assets from time to time credited to any securities account in which
such Grantor has now, or acquires from time to time hereafter, any right, title
or interest in any manner, and the certificates or instruments, if any,
representing or evidencing such investment property, and all dividends,
distributions, return of capital, interest, distributions, value, cash,
instruments and other property from time to time received, receivable or
otherwise distributed or credited to any securities accounts in respect of or
in exchange for any or all of such investment property and financial assets and
all subscription warrants, rights or options issued thereon or with respect
thereto;

 

(e)                                  all agreements and contracts, including
without limitation, the Related Documents to which it is a party or with
respect to which it has any rights, benefits, remedies or interests (whether as
a party thereto, as third-party beneficiary thereunder or 

 

4

 

otherwise), the IP Agreements (as hereinafter defined), and each Hedge
Agreement to which such Grantor is now or may hereafter become a party, in
each case, as such agreements and contracts may be amended, amended and
restated, supplemented or otherwise modified from time to time (collectively,
the “Assigned Agreements”),
including, without limitation, (i) all rights of such Grantor to receive
moneys due and to become due under or pursuant to the Assigned Agreements, (ii) all
rights of such Grantor to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect to the Assigned Agreements, (iii) rights,
claims and remedies of such Grantor for damages or any other amounts arising
out of or for breach of or default or under any indemnity provision under the
Assigned Agreements and (iv) the right of such Grantor to terminate the
Assigned Agreements, to perform thereunder and to compel performance and
otherwise exercise all remedies and ancillary rights thereunder (all such
Collateral being the “Agreement
Collateral”);

 

(f)                                    the following (collectively, the “Deposit Collateral”):

 

(i)                                     the Deposit Accounts and each other deposit
or similar account (including any such accounts directly or indirectly
contemplated by the Credit Agreement) and all funds therein and financial
assets from time to time credited thereto (including, without limitation, all
Permitted Investments), all interest, dividends, distributions, cash,
instruments and other property from time to time received, receivable or otherwise
distributed or credited thereto in respect of or in exchange for any or all of
such funds and financial assets, and all certificates and instruments, if any,
from time to time representing or evidencing the Deposit Accounts and each
other deposit or similar account;

 

(ii)                                  all promissory notes, certificates of
deposit, deposit accounts, checks and other instruments from time to time
delivered to or otherwise possessed by the Collateral Agent for or on behalf of
such Grantor, including, without limitation, those delivered or possessed in
substitution for or in addition to any or all of the then existing Deposit
Collateral; and

 

(iii)                               all interest, dividends, distributions, cash, instruments and other
property from time to time received, receivable or otherwise distributed or
credited to the Deposit Accounts in respect of or in exchange for any or all of
the then existing Deposit Collateral; and

 

(g)                                 the following (collectively, the “Intellectual Property Collateral”):

 

(i)                                     all patents, patent applications, utility
models and statutory invention registrations, all inventions claimed or
disclosed therein and all improvements thereto (“Patents”);

 

(ii)                                  all trademarks, service marks, domain names,
trade dress, logos, designs, slogans, trade names, business names, corporate
names and other source identifiers, whether registered or unregistered
(provided that no security interest shall be granted in United States
intent-to-use trademark applications to the extent 

 

5

 

that, and solely during the period in which, the grant of a security
interest therein would impair the validity or enforceability of such
intent-to-use trademark applications under applicable federal law), together,
in each case, with the goodwill symbolized thereby (“Trademarks”);

 

(iii)                               all copyrights, including, without limitation, copyrights in Computer
Software (as hereinafter defined), internet web sites and the content thereof,
whether registered or unregistered (“Copyrights”);

 

(iv)                              all computer software, programs and databases (including, without
limitation, source code, object code and all related applications and data
files), firmware and documentation and materials relating thereto, together
with any and all maintenance rights, service rights, programming rights,
hosting rights, test rights, improvement rights, renewal rights and
indemnification rights and any substitutions, replacements, improvements, error
corrections, updates and new versions of any of the foregoing (“Computer Software”);

 

(v)                                 all confidential and proprietary information,
including, without limitation, know-how, trade secrets, manufacturing and
production processes and techniques, inventions, research and development
information, databases and data, including, without limitation, technical data,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information
(collectively, “Trade
Secrets”), and all other intellectual property of any type, including,
without limitation, industrial designs and mask works;

 

(vi)                              all registrations and applications for registration for any of the
foregoing, including, without limitation, those registrations and applications
for registration set forth in Schedule V
hereto (as such Schedule V may be supplemented from time to time by
supplements to this Agreement, each such supplement being substantially in the form of
Exhibit E  hereto
(each, an “IP Security
Agreement Supplement”) executed by such Grantor to the Collateral
Agent from time to time), together with all reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations thereof;

 

(vii)                           all tangible embodiments of the foregoing, all rights in the foregoing
provided by international treaties or conventions, all rights corresponding
thereto throughout the world and all other rights of any kind whatsoever of
such Grantor accruing thereunder or pertaining thereto;

 

(viii)                        all agreements, permits, consents, orders and franchises relating to
the license, development, use or disclosure of any of the foregoing to which
such Grantor, now or hereafter, is a party or a beneficiary, including, without
limitation, the agreements set forth in Schedule V
hereto (“IP Agreements”);
and

 

(ix)                                any and all claims for damages and injunctive relief for past, present
and future infringement, dilution, misappropriation, violation, misuse or 

 

6

 

breach with respect to any of the foregoing, with the right, but not
the obligation, to sue for and collect, or otherwise recover, such damages;

 

(h)                                 all commercial tort claims described in Schedule VII hereto or as may be
specifically identified from time to time pursuant to a supplement to Section 9(c) (collectively,
the “Commercial Tort
Claims Collateral”);

 

(i)                                     all books and records (including, without
limitation, customer lists, credit files, printouts and other computer output
materials and records) of such Grantor pertaining to any of the Collateral; and

 

(j)                                     all proceeds of, collateral for, income,
royalties and other payments now or hereafter due and payable with respect to,
and supporting obligations relating to, any and all of the Collateral
(including, without limitation, proceeds, collateral and supporting obligations
that constitute property of the types described in clauses (a) through (i) of
this Section 1 and
this clause (j)) and,
to the extent not otherwise included, all (A) payments under insurance
(whether or not the Collateral Agent is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral, (B) tort
claims, including, without limitation, all commercial tort claims and (C) cash.

 

Notwithstanding
anything herein to the contrary, in no event shall Collateral include (a) any
lease, license, contract, property rights or agreement to which any Grantor is
a party or any of such Grantor’s rights or interest thereunder if (i) the
grant of such security interest shall constitute or result in the abandonment,
invalidation or unenforceability of any right, title or interest of such
Grantor therein or in a breach or termination pursuant to the terms of, or a
default under, any such lease, license, contract, property rights or agreement
unless the applicable Grantor shall have obtained a consent or waiver with
respect to the Liens created hereunder or (ii) is prohibited by applicable
law (other than, in each case, to the extent that any such term would be rendered
ineffective pursuant to Sections 9-401(b), 9-406, 9-407, 9-408 or 9-409 of the
UCC (or any successor provision or provisions) of any relevant jurisdiction or
any other applicable law (including the Bankruptcy Code) or principles of
equity), (b) voting Equity Interests of Foreign Subsidiaries (as
hereinafter defined) in excess of 65% of the voting power of all classes, series or
designations of Equity Interests of such Foreign Subsidiaries entitled to vote,
(c) any cash, cash equivalents, investment property or financial assets
held in escrow pursuant to the Escrow Agreement and (d) leasehold
interests of any Grantor in real property.

 

Notwithstanding
anything herein to the contrary, the liens and security interests granted to
the Collateral Agent, for the benefit of the Secured Parties, pursuant to this
Agreement, and the exercise of any right or remedy by such Collateral Agent
hereunder are subject to the provisions of that certain Intercreditor
Agreement, dated as of the date hereof (as the same may be amended,
amended and restated, supplemented or otherwise modified from time to time, the
“Intercreditor
Agreement”),
among the Borrower, Verrazano, Inc., the Credit Agreement Agent and the
Collateral Agent. In the event of any conflict between the terms of the
Intercreditor Agreement and this Agreement, the terms of the Intercreditor
Agreement shall govern.

 

7

 

Section 2.                                            Security for Obligations. This Agreement secures, in the case of each
Grantor, the payment of all Obligations of such Grantor now or hereafter
existing under the Indenture Documents (as defined in the Indenture), whether
direct or indirect, absolute or contingent, and whether for principal,
reimbursement obligations, interest, fees, premiums, penalties,
indemnifications, contract causes of action, costs, expenses or otherwise (all
such Obligations being the “Secured Obligations”).

 

Section 3.                                            Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the contracts
and agreements included in such Grantor’s Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (b) the exercise
by the Collateral Agent of any of the rights hereunder shall not release any
Grantor from any of its duties or obligations under the contracts and
agreements included in the Collateral and (c) no Secured Party shall have
any obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement or any other Loan Document, nor shall
any Secured Party be obligated to perform any of the obligations or duties
of any Grantor thereunder or to take any action to collect or enforce any claim
for payment assigned hereunder.

 

Section 4.                                            Government Contract Claims. (a)  For purposes of this Agreement
and the other Indenture Documents, the following terms shall have the meanings
set forth below:

 

“Assignment of Government Contract
Claims” means an Assignment of Government Claims, in
substantially the form of Exhibit G-1
attached hereto (with such changes or modification thereto as may be
required with any changes or modifications to the Assignment of Claims Act or
the Assignment of Claims Regulations).

 

“CCR Database” means
the Central Contractor Registration database or the CCR database as used in 48
C.F.R. § 32.805(d)(4) and 48 C.F.R. § 4.1102.

 

“Notice of Assignment of Government
Contract Claims” means a Notice of Assignment of Government
Claims, in substantially the form of Exhibit G-2
attached hereto (with such changes or modification thereto as may be
required with any changes or modifications to the Assignment of Claims Act or
the Assignment of Claims Regulations).

 

(b)                                 Subject to the Intercreditor Agreement,
except for any of the following which have been executed and delivered in favor
of the Credit Agreement Agent, (i) no assignments of any Government
Contract Claims have been executed and delivered in favor of any Person (other
than the Collateral Agent), which were not forwarded to or filed with any
Person (including any Governmental Authority) and all such assignments and any
notices in respect thereof existing prior to the date of this Agreement (the “Effective Date”) have
been destroyed, (ii) all assignments of any Government Contract Claims and
notices of such assignments forwarded to or filed with any Person (including
any Governmental Authority) pursuant to 48 CFR Sections 32.802(e) and
32.805(b) on or prior to the Effective Date shall have been fully released
in accordance with 48 CFR Section 32.805(e), and (iii) there are no
other assignments of, or Liens on, Government Contract Claims other than as in
favor of a 

 

8

 

Governmental Party in respect of set-off rights as provided in the
Federal Acquisition Regulations, in favor of the Collateral Agent.

 

(c)                                  Subject to the Intercreditor Agreement, with
respect to any Assignable Government Contract Claims in respect of Government Contracts,
each applicable Grantor shall take the following actions with respect to the
applicable Government Contracts and Assignable Government Contract Claims:

 

(i)                                     execute and deliver to the Collateral Agent
two (2) original Assignments of Government Contract Claims and Notices of
Assignment of Government Contract Claims, which shall:

 

(A)                              include a full description of the applicable Government Contract,
including, (1) the contract number, (2) the date thereof, (3) the
Grantor’s name and address as listed on the contract, (4) the name of the
Governmental Party, the name of its office and its address, and (5) subject
to any applicable laws, rules and regulations or orders relating to
national security restricting such description, a description of the nature of
the contract, and

 

(B)                                with respect to each Assignment of Government Contract Claims, (1) be
duly executed by an authorized officer of such Grantor (other than the
secretary or assistant secretary of such Grantor), (2) be duly attested by
the secretary or assistant secretary of such Grantor, and (3) to the
extent not impressed with the corporate seal, include two (2) certified
(by any officer) true and correct copies of the resolutions of the governing
body of such Grantor authorizing the officer signing the Assignment of
Government Contract Claims to execute the same;

 

(ii)                                  with respect to each such applicable
Government Contract, provide the name, address and telephone number of (A) the
contracting officer, administrative contracting officer and the agency head of
the Governmental Party with respect to such Government Contract, (B) the
surety on any bond applicable, if any, to such Government Contract (including
any surety on any bond that may be applicable subsequently), and (C) the
disbursing officer designated in such Government Contract to make payment; and

 

(iii)                               notify the Collateral Agent whether the assignment of such Government
Contract Claims would require the Collateral Agent to register separately in
the CCR Database.

 

(d)                                 Subject to the Intercreditor Agreement, the
Collateral Agent may, or may direct the applicable Grantor to, in each
case, at such Grantor’s expense and at any time in its reasonable discretion
(and if so directed, such Grantor shall), with respect to the Assignable
Government Contract Claims described in clause
(c) above:

 

(i)                                     file and deliver an original Notice of
Assignment of Government Contract Claims with the appropriate number of copies
thereof and with the appropriate attachments as may be required (including
certified copies of the Assignment of Government Contract Claims) by the
Assignment of Claims Act and the Assignment of 

 

9

 

Claims Regulations to (1) the contracting officer or the agency
head of the Governmental Party with respect to such Government Contract, (2) if
applicable, the surety on any bond applicable to such Government Contract
(including any surety on any bond that may be delivered subsequently), and
(3) the disbursing officer designated in such Government Contract to make
payment; and

 

(ii)                                  file, deliver, and record with any other
Person or Governmental Party any other statement, notice, assignment,
instrument, document or agreement or take such other action as may reasonably
be deemed necessary or advisable in order to make the assignments of the
Assignable Government Contract Claims in favor of the Collateral Agent for the
ratable benefit of the Secured Parties effective and valid assignments under
the Assignment of Claims Act and the Assignment of Claims Regulations.

 

Section 5.                                            Delivery and Control of Security Collateral. (a)  Subject to the Intercreditor
Agreement, all certificates or instruments representing or evidencing Security
Collateral shall be delivered to and held by or on behalf of the Collateral
Agent pursuant hereto and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer,
indorsements or assignment in blank, all in form and substance
satisfactory to the Collateral Agent. Subject to the Intercreditor Agreement,
the Collateral Agent shall have the right, at any time after the occurrence and
during the continuation of an Event of Default, in its discretion and without
notice to any Grantor, to transfer to or to register in the name of the
Collateral Agent or any of its nominees any or all of the Security Collateral,
subject only to the revocable rights specified in Section 14(a). In addition, subject to the
Intercreditor Agreement, the Collateral Agent shall have the right, at any time
after the occurrence and during the continuation of an Event of Default to
exchange certificates or instruments representing or evidencing Security
Collateral for certificates or instruments of smaller or larger denominations.
Also, subject to the Intercreditor Agreement, the Collateral Agent shall have
the right at any time upon the occurrence and during the continuation of an
Event of Default to convert Security Collateral consisting of financial assets
credited to the Securities Account to Security Collateral consisting of
financial assets held directly by the Collateral Agent, and to convert Security
Collateral consisting of financial assets held directly by the Collateral Agent
to Security Collateral consisting of financial assets credited to the Securities
Account. Prior to the Discharge of Senior Indebtedness (as such term is defined
in the Intercreditor Agreement), the requirements of this Agreement to deliver
Collateral to the Collateral Agent hereunder shall be satisfied by delivery of
such Collateral to the Credit Agreement Agent.

 

(b)                                 Subject to the Intercreditor Agreement, with
respect to any Security Collateral in which any Grantor has any right, title or
interest and that constitutes an uncertificated security, such Grantor will use
commercially reasonable efforts to cause the issuer thereof either (i) to
register the Collateral Agent as the registered owner of such security or (ii) to
agree in an authenticated record with such Grantor and the Collateral Agent
that such issuer will comply with instructions with respect to such security
originated by the Collateral Agent without further consent of such Grantor,
such authenticated record to be in form and substance reasonably
satisfactory to the Collateral Agent.

 

(c)                                  Subject to the Intercreditor Agreement, with
respect to any Security Collateral in which any Grantor has any right, title or
interest and that constitutes a security 

 

10

 

entitlement in which the Collateral Agent is not the entitlement
holder, such Grantor will cause the securities intermediary with respect to
such security entitlement either (i) to identify in its records the
Collateral Agent as the entitlement holder of such security entitlement against
such securities intermediary or (ii) to agree in an authenticated record
with such Grantor and the Collateral Agent that such securities intermediary
will comply with entitlement orders (that is, notifications communicated to
such securities intermediary directing transfer or redemption of the financial
asset to which such Grantor has a security entitlement) originated by the
Collateral Agent without further consent of such Grantor, such authenticated
record to be in substantially the form of Exhibit C hereto or otherwise in form and substance
reasonably satisfactory to the Collateral Agent (each such agreement being a “Securities Account Control Agreement”).
Notwithstanding the foregoing, if a certificate has been received by the
Collateral Agent from the applicable Grantor as to any Security Collateral
constituting a securities entitlement in which the Collateral Agent is not the
entitlement holder, that contains a representation and warranty that such
Security Collateral is a securities account specifically and exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or
for the benefit of any Grantor’s salaried employees, such securities account may be
designated an “Excluded
Securities Account,” in which case, such Grantor will not be
required to comply with the requirements of this clause (c) with respect to such Excluded Securities
Account. If at any time, the representation and warranty contained in such
certificate shall fail to be true, the applicable Grantor shall promptly
transfer all funds and assets in or credited to such Excluded Securities
Account to any securities account subject to a Securities Account Control
Agreement and not permit any assets to be credited thereto and shall either
terminate such Excluded Securities Account or comply with the requirements of
this clause (c), at which
time such account shall no longer be an Excluded Securities Account.

 

(d)                                 No Grantor will change or add any securities
intermediary or commodity intermediary that maintains any securities account or
commodity account in which any of the Collateral is credited or carried, or
change or add any such securities account or commodity account, in each case
without first complying with the above provisions of this Section 5 in order to perfect the security interest granted hereunder in
such Collateral.

 

(e)                                  Subject to the Intercreditor Agreement, upon
the request of the Collateral Agent upon the occurrence and during the
continuation of an Event of Default, such Grantor will notify each such issuer
of Pledged Debt that such Pledged Debt is subject to the security interest
granted hereunder and that any payments thereof should be made directly to the
Collateral Agent.

 

Section 6.                                            Maintaining the Deposit Collateral. Subject to the Intercreditor Agreement, so
long as the Secured Obligations shall remain outstanding:

 

(a)                                  Each Grantor will maintain all Deposit
Collateral (other than any cash, cash equivalents, investment property or
financial assets held in escrow pursuant to the Escrow Agreement) only with the
Collateral Agent or with banks (the “Pledged Account Banks”) that have agreed, in
a record authenticated by the Grantor, the Collateral Agent and the Pledged
Account Banks, to (i) comply with instructions originated by the
Collateral Agent directing the disposition of funds in the Deposit Accounts
without the further consent of the Grantor and (ii) waive or subordinate
in favor of the Collateral 

 

11

 

Agent all claims of the Pledged Account Banks (including, without limitation,
claims by way of a security interest, lien or right of setoff or right of
recoupment) to the Deposit Collateral (other than for customary charges and for
returned or dishonored items), which authenticated record shall be
substantially in the form of Exhibit B
hereto, or shall otherwise be in form and substance reasonably
satisfactory to the Collateral Agent (each such agreement being a “Deposit Account Control Agreement”).

 

(b)                                 Each Grantor will ensure that each Person
obligated at any time to make any payment to such Grantor for any reason (an “Obligor”) has been
instructed to make such payment (a) to a Deposit Account that is subject
to a Deposit Account Control Agreement or (b) to such Grantor, in which
case such Grantor covenants to promptly deposit such payment in a Deposit
Account that is subject to a Deposit Account Control Agreement.

 

(c)                                  Each Grantor agrees that it will not add any
bank that maintains a deposit account for such Grantor or open any new deposit
account with any then existing Pledged Account Bank unless (i) the
Collateral Agent shall have received at least five (5) days’ prior written
notice of such additional bank or such new deposit account and (ii) the
Collateral Agent shall have received, in the case of a bank or Pledged Account
Bank that is not the Collateral Agent, a Deposit Account Control Agreement
authenticated by such new bank and such Grantor, or a supplement to an existing
Deposit Account Control Agreement with such then existing Pledged Account Bank,
covering such new deposit account (and, upon the receipt by the Collateral
Agent of such Deposit Account Control Agreement or supplement, Schedule VI hereto shall be
automatically amended to include such Deposit Account). Each Grantor agrees
that it will not terminate any bank as a Pledged Account Bank or terminate any
Deposit Account, except that the Grantor may terminate a Deposit Account,
and terminate a bank as a Pledged Account Bank with respect to such Deposit
Account, if it gives the Collateral Agent at least five (5) days’ prior
written notice of such termination (and, upon such termination, Schedule VI hereto shall be
automatically amended to delete such Pledged Account Bank and Deposit Account).
Notwithstanding the foregoing, if a certificate has been received by the
Collateral Agent from the applicable Grantor as to any Operating Account
existing on the Effective Date that, or if any such notice described in clause (i) above, in either case, contains a representation and
warranty that the account referred to in such notice or certificate is a
deposit account specifically and exclusively used for payroll, payroll taxes
and other employee wage and benefit payments to or for the benefit of any
Grantor’s salaried employees, such account may be designated an “Excluded Account,” in
which case, such Grantor will not be required to comply with the requirements
of clause (a) or clause (c)(ii) above with respect to such Excluded Account. If at any
time, any of the conditions set forth above in respect of such Excluded Account
shall fail to be true, the applicable Grantor shall promptly transfer all funds
and assets in or credited to such Excluded Account to any Deposit Account and
not permit any further payments or deposits to be made and shall either
terminate such Excluded Account or comply with the requirements of clause (ii) above, at which time such account shall no longer be an
Excluded Account but shall be a Deposit Account.

 

12

 

(d)                                 Upon any termination by a Grantor of any Deposit
Account of such Grantor, or any Pledged Account Bank with respect thereto, such
Grantor will promptly (i) transfer all funds and property held in such
terminated Deposit Account to another Deposit Account and (ii) notify all
Obligors that were making payments to such Deposit Account to make all future
payments to another Deposit Account so that the Collateral Agent shall have a
continuously perfected security interest in the Deposit Collateral, funds and
property.

 

(e)                                  Subject to the Intercreditor Agreement, the
Collateral Agent may, at any time and without notice to, or consent from, the
Grantor, transfer, or direct the transfer of, funds from, and any assets
credited to, the Deposit Accounts to satisfy the Grantor’s obligations under
the Indenture Documents if an Event of Default shall have occurred and be
continuing.

 

Section 7.                                            Maintaining Transferable Records and
Letter-of-Credit Rights and Giving Notice of Commercial Tort Claims. Subject to the Intercreditor Agreement, so
long as the Secured Obligations are outstanding:

 

(a)                                  With respect to any letter-of-credit rights
related to any letter-of-credit in an undrawn amount in excess of $500,000,
including, without limitation, all letter-of-credit rights associated with the
letters of credit described in Schedule VIII,
each Grantor will maintain such letter-of-credit rights so that the Collateral
Agent has control of the letter-of-credit rights in the manner specified in Section 9-107
of the UCC; and

 

(b)                                 Each Grantor will promptly give notice to the
Collateral Agent of any commercial tort claim that may arise in the future
and will promptly execute or otherwise authenticate a supplement to this
Agreement, and otherwise take all necessary action, to subject such commercial
tort claim to the second priority security interest created under this
Agreement.

 

Section 8.                                            Representations and Warranties. Each Grantor represents and warrants as
follows:

 

(a)                                  Such Grantor’s exact legal name, as defined
in Section 9-503(a) of the UCC, is correctly set forth in Schedule 1 hereto. Such Grantor
has only the trade names, domain names and marks listed on Schedule V hereto. Such Grantor
is located (within the meaning of Section 9-307 of the UCC) and has its
chief executive office and the office in which it maintains, to the extent
in its possession, the original copies of each Assigned Agreement and Related
Contract to which such Grantor is a party and all originals of all chattel
paper that evidence Receivables of such Grantor, in the state or jurisdiction
set forth in Schedule I
hereto. The information set forth in Schedule I
hereto with respect to such Grantor is true and accurate in all respects. Such
Grantor has not previously changed its name, location, chief executive office,
type of organization, jurisdiction of organization or organizational
identification number from those set forth in Schedule I hereto except as disclosed in Schedule IV
hereto.

 

13

 

(b)                                 All of the Equipment and Inventory of such
Grantor are located at the places specified therefor in Schedule III hereto, as such Schedule III may be amended
from time to time pursuant to Section 10(a).
Within the 5 years preceding the execution of this Agreement, such Grantor has
not previously changed the location of its Equipment and Inventory (other than
Inventory in transit) except as set forth in Schedule IV hereto. Subject to the Intercreditor
Agreement and Section 5(a) hereof,
all Security Collateral consisting of certificated securities and instruments
have been delivered to the Credit Agreement Agent or the Collateral Agent.
Subject to the Intercreditor Agreement and Section 5(a) hereof,
none of the Receivables is evidenced by a promissory note or other instrument
that has not been delivered to the Credit Agreement Agent or the Collateral
Agent.

 

(c)                                  Such Grantor is the legal and beneficial
owner of the Collateral of such Grantor free and clear of any Lien, claim,
option or right of others, except for the security interest created under this
Agreement or Permitted Liens (as defined in the Indenture). Other than
financing statements for which terminations have been prepared and delivered to
the Collateral Agent for filing, no effective financing statement or other
instrument similar in effect covering all or any part of such Collateral
or listing such Grantor or any trade name of such Grantor as debtor is on file
in any recording office, except such as may have been filed in favor of
the Collateral Agent relating to the Indenture Documents or in favor of the
holder of a Permitted Lien.

 

(d)                                 Such Grantor has exclusive possession and
control of the Equipment and Inventory other than Inventory or Equipment in
transit and Inventory stored at any warehouse for which, if requested by the
Collateral Agent, a warehouseman’s agreement, in form and substance
reasonably satisfactory to the Collateral Agent, is so indicated by an asterisk
on Schedule III
hereto, as such Schedule III
may be amended from time to time pursuant to Section 10(a). In the case of Equipment and
Inventory located on leased premises or in warehouses, no lessor or
warehouseman of any premises or warehouse upon or in which such Equipment or
Inventory is located has, to such Grantor’s knowledge, (i) issued any
warehouse receipt or other receipt in the nature of a warehouse receipt in
respect of any Equipment or Inventory, (ii) issued any document for any of
such Grantor’s Equipment or Inventory, (iii) received notification of any
secured party’s interest (other than the security interest granted hereunder or
in respect of Permitted Liens) in such Grantor’s Equipment or Inventory or (iv) any
Lien, claim or charge (based on contract, statute or otherwise) on such
Equipment and Inventory other than Permitted Liens.

 

(e)                                  The Pledged Equity pledged by such Grantor hereunder
has been duly authorized and validly issued and is fully paid and
non-assessable. If such Grantor is an issuer of Pledged Equity, such Grantor
confirms that it has received notice of such security interest. The Pledged
Debt pledged by such Grantor hereunder has been duly authorized, authenticated
or issued and delivered, is the legal, valid and binding obligation of the
issuers thereof, is evidenced by one or more promissory notes (which notes,
subject to Section 5(a) hereof,
have been delivered to the Collateral Agent) and is not in default.

 

14

 

(f)                                    The Initial Pledged Equity pledged by such
Grantor constitutes the percentage of the issued and outstanding Equity
Interests of the issuers thereof indicated on Schedule II hereto. The Initial Pledged Debt
constitutes all of the outstanding indebtedness owed to such Grantor by the
issuers thereof and is outstanding in the principal amount indicated on Schedule II hereto.

 

(g)                                 All of the Pledged Equity and Pledged Debt
owned by such Grantor is listed on Schedule II
hereto.

 

(h)                                 (i)                                     The Assigned Agreements to which such Grantor
is a party have been duly authorized, executed and delivered by the Grantor
party thereto and, to such Grantor’s knowledge, all other parties thereto, have
not been amended, amended and restated, supplemented or otherwise modified, are
in full force and effect and are binding upon and enforceable against such
Grantors, and, to such Grantor’s knowledge, all other parties thereto in accordance
with their terms. There exists no default under any Assigned Agreement to which
such Grantor is a party by the Grantor party thereto, or to such Grantor’s
knowledge, by any other party thereto.

 

(ii)                                  Each Government Contract has been properly
approved and executed by the Grantor party thereto and, to the knowledge of
such Grantor, the applicable Governmental Party.

 

(iii)                               Upon the Collateral Agent’s or such Grantor’s
taking the actions described in Section 4(d)(i) and, to the extent required by
Subpart 32.805(c) and (d) of the Assignment of Claims
Regulations, acknowledged by the appropriate contracting officer, the
Assignment of Government Contract Claims with respect to each Assignable
Government Contract Claims shall constitute an effective and valid assignment
of such Assignable Government Contract Claims to the extent that an assignment
of a Government Claims is governed by the Assignment of Claims Act and the
Assignment of Claims Regulations, and no other action is required in order to
create an effective and valid assignment of such Assignable Government Contract
Claims. Thereupon, the Credit Agreement Agent may exercise its rights as
set forth in Section 4(d).

 

(i)                                     Such Grantor has no deposit accounts, other
than the Deposit Accounts listed on Schedule VI
hereto, as such Schedule VI may be amended from time to time pursuant
to Section 6(c), and
legal, binding and enforceable Deposit Account Control Agreements are in effect
for each deposit account that constitutes Deposit Collateral, except to the extent
such Deposit Account Control Agreements are not required by Section 6(c). Such Grantor has
instructed all existing Obligors to make all payments to a Deposit Account.

 

(j)                                     Such Grantor is not a beneficiary or assignee
under any letter of credit, other than the letters of credit described in Schedule VIII hereto, as such Schedule VIII
may be amended from time to time, and legal, binding and enforceable
Consents to Assignment of Letter 

 

15

 

of Credit Rights, in the form of the Consent to Assignment of
Letter of Credit Rights attached hereto as Exhibit F,
are in effect for each letter of credit that constitutes Collateral, except to
the extent such Consents to Assignment of Letter of Credit Rights are not required
by Section 7(a).

 

(k)                                  Except for (i) the filing of initial
financing statements in the appropriate jurisdictions, which financing
statements will be in full force and effect and stamped copies of which will be
delivered to the Collateral Agent, and (ii) the filings referred to in Section 13(f) with
the United States Patent and Trademark Office or the United States Copyright
Office, all filings and other actions (including, to the extent required
hereunder, actions necessary to obtain control of Collateral as provided in
Sections 9-104, 9-106 and 9-107 of the UCC) necessary to perfect the security
interest in the Collateral of such Grantor created under this Agreement have
been duly made or taken and are in full force and effect, and this Agreement creates
in favor of the Collateral Agent for the benefit of the Secured Parties a valid
and, together with such filings and other actions, perfected security interest
in the Collateral of such Grantor, securing the payment of the Secured
Obligations, subject to no other Liens except Permitted Liens.

 

(l)                                     No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body or any other third party is required for (i) the grant by such
Grantor of the security interest granted hereunder or for the execution,
delivery or performance of this Agreement by such Grantor, (ii) the
perfection or maintenance of the security interest created hereunder, except
for the filing of financing and continuation statements under the UCC, the
recordation of the Second Lien Intellectual Property Security Agreements
referred to in Section 13(f) with the U.S. Patent and Trademark
Office and the U.S. Copyright Office and the actions described in Section 5 with respect to Security
Collateral, which actions described in Section 5
have been taken and are in full force and effect, or (iii) the exercise by
the Collateral Agent of its voting or other rights provided for in this
Agreement or the remedies in respect of the Collateral pursuant to this
Agreement, except as may be required in connection with the disposition of
any portion of the Security Collateral by laws affecting the offering and sale
of securities generally and the taking of the actions described in Section 4(d) with respect to Assignable
Government Contracts Claims.

 

(m)                               The Inventory that has been produced or distributed by such Grantor has
been produced in compliance with all requirements of applicable law, including,
without limitation, the Fair Labor Standards Act.

 

(n)                                 As to itself and its Intellectual Property
Collateral:

 

(i)                                     To such Grantor’s knowledge, the operation of
such Grantor’s business as currently conducted or as contemplated to be
conducted and the use of such Intellectual Property Collateral in connection
therewith do not conflict with, infringe, misappropriate, dilute, misuse or
otherwise violate the intellectual property rights of any third party.

 

16

 

(ii)                                  Such Grantor is the exclusive owner of all
right, title and interest in and to such Intellectual Property Collateral, and
is entitled to use all such Intellectual Property Collateral subject only to
the terms of the IP Agreements.

 

(iii)                               The Intellectual Property Collateral set forth on Schedule V hereto includes all of
the patents, patent applications, domain names, trademark registrations and
applications, copyright registrations and applications and IP Agreements owned
by such Grantor.

 

(iv)                              The Intellectual Property Collateral set forth on Schedule V hereto is subsisting and
has not been adjudged invalid or unenforceable in whole or part, and to the
best of such Grantor’s knowledge, is valid and enforceable. Such Grantor is not
aware of any uses of any item of such Intellectual Property Collateral that
would be reasonably likely to lead to such item becoming invalid or
unenforceable.

 

(v)                                 Such Grantor has made or performed all
filings, recordings and other acts and has paid all required fees and taxes to
maintain and protect its interest in each and every item of Intellectual
Property Collateral that is material to such Grantor’s business as currently
conducted in full force and effect throughout the world, and to protect and
maintain its interest therein including, without limitation, recordations of any
of its interests in the Patents and Trademarks that are material to such
Grantor’s business as currently conducted with the U.S. Patent and Trademark
Office and in corresponding national and international patent offices, and
recordation of any of its interests in the Copyrights that are material to such
Grantor’s business as currently conducted with the U.S. Copyright Office and in
corresponding national and international copyright offices. Such Grantor has
used proper statutory notice in connection with its use of each patent,
trademark and copyright in such Intellectual Property Collateral that is
material to such Grantor’s business as currently conducted so as not to cause
such Intellectual Property Collateral to lapse or become invalid or unenforceable
or placed in the public domain.

 

(vi)                              Except as set forth in Schedule V
hereto, no claim, action, suit, investigation, litigation or proceeding is
pending or has been threatened in writing against such Grantor (i) based
upon or challenging or seeking to deny or restrict the Grantor’s rights in or
use of any of the Intellectual Property Collateral set forth on Schedule V hereto, (ii) alleging
that the Grantor’s rights in or use of such Intellectual Property Collateral or
that any services provided by, processes used by, or products manufactured or
sold by, such Grantor infringe, misappropriate, dilute, misuse or otherwise
violate any patent, trademark, copyright or any other proprietary right of any
third party, or (iii) alleging that such Intellectual Property Collateral
is being licensed or sublicensed in violation or contravention of the terms of
any license or other agreement. To such Grantor’s knowledge, no Person is
engaging in any activity that infringes, misappropriates, dilutes, misuses or
otherwise violates the Intellectual Property Collateral set forth on Schedule V hereto or the Grantor’s
rights in or use thereof. Except as set forth on Schedule V 

 

17

 

hereto, such Grantor has not granted any license, release, covenant not
to sue, non-assertion assurance, or other right to any Person with respect to
any part of the Intellectual Property Collateral set forth on Schedule V hereto. The consummation
of the transactions contemplated by the Transaction Documents will not result
in the termination or impairment of such Intellectual Property Collateral in
any way which would adversely affect such Grantor’s business as currently
conducted.

 

(vii)                           With respect to each IP Agreement: (A) such IP Agreement is valid
and binding and in full force and effect and represents the entire agreement
between the respective parties thereto with respect to the subject matter
thereof; (B) such IP Agreement will not cease to be valid and binding and
in full force and effect on terms identical to those currently in effect as a
result of the rights and interest granted herein, nor will the grant of such
rights and interest constitute a breach or default under such IP Agreement or
otherwise give any party thereto a right to terminate such IP Agreement; (C) such
Grantor has not received any notice of termination or cancellation under such
IP Agreement which notice is still effective; (D) such Grantor has not
received any notice of a breach or default under such IP Agreement, which breach
or default has not been cured; (E) such Grantor has not granted to any
other third party any rights, adverse or otherwise, under such IP Agreement;
and (F) neither such Grantor nor, to such Grantor’s knowledge, any other
party to such IP Agreement is in breach or default thereof in any material
respect, and no event has occurred that, with notice or lapse of time or both,
would constitute such a breach or default or permit termination, modification
or acceleration under such IP Agreement, in either case, by such Grantor or, to
such Grantor’s knowledge, by any other party thereto.

 

(viii)                        No Grantor or Intellectual Property Collateral is subject to any
outstanding consent, settlement, decree, order, injunction, judgment or ruling
restricting the use of any Intellectual Property Collateral or that would
impair the validity or enforceability of such Intellectual Property Collateral,
which would, in either case, materially and adversely affect such Grantor’s
business as currently conducted.

 

(o)                                 The Grantor has no commercial tort claims (as
defined in Section 9-102(13) of the UCC) other than those listed in Schedule VII hereto.

 

Section 9.                                            Further Assurances. (a)  Subject to the Intercreditor
Agreement, each Grantor agrees that from time to time, at the expense of such
Grantor, such Grantor will promptly execute and deliver, or otherwise
authenticate, all further instruments and documents, and take all further
action that may be necessary, or that the Collateral Agent may reasonably
request, in order to perfect and protect any pledge or security interest
granted or purported to be granted by such Grantor hereunder or to enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral of such Grantor. Without limiting the generality of
the foregoing, subject to the Intercreditor Agreement, each Grantor will
promptly with respect to Collateral of such Grantor:  (i) at the request of the Collateral
Agent upon the occurrence and during the continuation of an Event of
Default, mark conspicuously 

 

18

 

each document included in Inventory, each chattel paper included in
Receivables, each Related Contract, each Assigned Agreement and, at the request
of the Collateral Agent, each of its records pertaining to such Collateral with
a legend, in form and substance satisfactory to the Collateral Agent,
indicating that such document, chattel paper, Related Contract, Assigned
Agreement or Collateral is subject to the security interest granted hereby; (ii) if
any such Collateral shall be evidenced by a promissory note or other instrument
or chattel paper, deliver and pledge to the Collateral Agent hereunder such
note or instrument or chattel paper duly indorsed and accompanied by duly
executed instruments of transfer or assignment, all in form and substance
reasonably satisfactory to the Collateral Agent; (iii) prepare, execute or
authenticate and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as the Collateral Agent may request, in order to perfect and
preserve the security interest granted or purported to be granted by such
Grantor hereunder; (iv) subject to Section 4(d),
deliver, file and record any statement, notice, assignment, instrument,
document, agreement or other paper or take any other action, as may be
necessary, or as the Collateral Agent may reasonably request, in order to
create, preserve, perfect, confirm or validate the security interest granted
hereunder in Assignable Government Contract Claims and exercise any right in
respect thereof; (v) deliver and pledge to the Collateral Agent for
benefit of the Secured Parties certificates representing Security Collateral
that constitutes certificated securities, accompanied by undated stock or bond
powers, instruments of transfer, indorsements or assignments executed in blank;
(vi) at the request of the Collateral Agent, take all action necessary to
ensure that the Collateral Agent has control of Collateral consisting of
deposit accounts, investment property, letter-of-credit rights and transferable
records as provided in Sections 9-104, 9-106 and 9-107 of the UCC, except as
otherwise excluded from such requirements hereunder; (vii) at the request
of the Collateral Agent upon the occurrence and during the continuation of an
Event of Default, take all action to ensure that the Collateral Agent’s
security interest is noted on any certificate of ownership related to any
Collateral evidenced by a certificate of ownership; (viii) take all such
actions to exercise or enforce any of the Borrower’s rights, interests,
remedies and benefits with respect to the Contribution Agreement during the
continuation of an Event of Default or as otherwise reasonably requested by the
Collateral Agent; and (ix) deliver to the Collateral Agent evidence that
all other action that the Collateral Agent may deem reasonably necessary
or desirable in order to perfect and protect the security interest created by
such Grantor under this Agreement has been taken.

 

(b)                                 Each Grantor hereby authorizes the Collateral
Agent to file one or more financing or continuation statements, and amendments
thereto, including, without limitation, one or more financing statements in any
filing jurisdiction and filing office and with any filing office and with any
collateral description it deems advisable indicating that such financing
statements cover all assets or all personal property (or words of similar
effect) of such Grantor, in each case without the signature of such Grantor,
and regardless of whether any particular asset described in such financing
statements falls within the scope of the UCC or the granting clause of this
Agreement. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient
as a financing statement where permitted by law. Each Grantor ratifies its
authorization for the Collateral Agent to have filed such financing statements,
continuation statements or amendments filed prior to the date hereof.

 

19

 

(c)                                  Each Grantor will furnish to the Collateral
Agent from time to time statements and schedules further identifying and
describing the Collateral of such Grantor and such other reports in connection
with such Collateral as the Collateral Agent may reasonably request, all
in reasonable detail.

 

Section 10.                                      As to Equipment and Inventory. (a)  Each Grantor will keep the
Equipment and Inventory of such Grantor (other than Inventory sold in the
ordinary course of business) at the places therefor specified in Schedule III hereto or at such other places designated by the
Grantor. At the end of each fiscal quarter of the Borrower each Grantor shall give
written notice to the Collateral Agent identifying such other places designated
during such fiscal quarter. Upon the giving of such notice, Schedule III shall be
automatically amended to add any new locations specified in the notice.

 

(b)                                 Each Grantor will cause the Equipment of such
Grantor to be maintained and preserved in the same condition, repair and
working order as when new, ordinary wear and tear excepted, and in accordance
with any manufacturer’s manual, and will forthwith, or in the case of any loss
or damage to any of such Equipment as soon as practicable after the occurrence
thereof, make or cause to be made all repairs, replacements and other
improvements in connection therewith that are necessary or desirable to such
end. Each Grantor will promptly furnish to the Collateral Agent a statement
respecting any loss or damage exceeding $100,000 to any of the Equipment or
Inventory of such Grantor.

 

(c)                                  Each Grantor will pay promptly when due all
property and other taxes, assessments and governmental charges or levies
imposed upon, and all claims (including, without limitation, claims for labor,
materials and supplies) against, the Equipment and Inventory of such Grantor,
except to the extent being contested in good faith by appropriate actions. In
producing its Inventory, each Grantor will comply with all requirements of
applicable law, including, without limitation, the Fair Labor Standards Act.

 

Section 11.                                      Insurance. (a)  Each Grantor will, at its own expense, maintain insurance
with respect to the Equipment and Inventory of such Grantor in such customary
amounts, against such risks, in such form and with such insurers, as shall
be consistent with industry standard. Until the Discharge of Senior
Indebtedness (as defined in the Intercreditor Agreement), the Collateral Agent
agrees that insurance coverage which satisfies the requirements of the Credit
Agreement will be deemed satisfactory to the Collateral Agent hereunder. Each
policy of each Grantor for liability insurance shall provide for all losses to
be paid on behalf of the Collateral Agent and such Grantor as their interests may appear,
and subject to the Intercreditor Agreement, each policy for property damage
insurance shall provide for all losses (except for losses of less than $500,000
per occurrence) to be paid directly to the Collateral Agent. Each such policy
shall in addition (i) name such Grantor and the Collateral Agent as
insured parties thereunder (without any representation or warranty by or
obligation upon the Collateral Agent) as their interests may appear, (ii) contain
the agreement by the insurer that any loss thereunder shall be payable to the
Collateral Agent notwithstanding any action, inaction or breach of
representation or warranty by such Grantor, (iii) provide that there shall
be no recourse against the Collateral Agent for payment of premiums or other
amounts with respect thereto and (iv) provide that at least 10 days’ prior
written notice of cancellation or of lapse shall be given to the Collateral
Agent by the insurer. Each Grantor will, if so requested by the Collateral
Agent, 

 

20

 

deliver to the Collateral Agent original or duplicate policies of such
insurance and, as often as the Collateral Agent may reasonably request, a
report of a reputable insurance broker with respect to such insurance. Further,
each Grantor will duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of this Section 11 and cause the insurers
to acknowledge notice of such assignment.

 

(b)                                 Reimbursement under any liability insurance
maintained by any Grantor pursuant to this Section 11
may be paid directly to the Person who shall have incurred liability
covered by such insurance. In case of any loss involving damage to Equipment or
Inventory when subsection (c) of this Section 11 is not applicable, the
applicable Grantor will make or cause to be made the necessary repairs to or
replacements of such Equipment or Inventory, and any proceeds of insurance
properly received by or released to such Grantor shall be used by such Grantor
to pay or as reimbursement for the costs of such repairs or replacements.

 

(c)                                  Subject to the Intercreditor Agreement, so
long as no Event of Default shall have occurred and be continuing, all
insurance payments received by the Collateral Agent in connection with any
loss, damage or destruction of any Inventory or Equipment will be released by
the Collateral Agent to the applicable Grantor for the repair, replacement or
restoration thereof, subject to such terms and conditions with respect to the
release thereof as the Collateral Agent may reasonably require. Subject to
the Intercreditor Agreement, upon the occurrence and during the continuation of
any Event of Default, all insurance payments in respect of such Equipment or
Inventory shall be paid to the Collateral Agent and shall, in the Collateral
Agent’s sole discretion, (i) be released to the applicable Grantor to be
applied as set forth in the first sentence of this subsection (c) or (ii) be held as
additional Collateral hereunder or applied as specified in Section 22(b).

 

Section 12.                                      Post-Closing Changes; Bailees; Collections on
Assigned Agreements, Receivables and Related Contracts. (a)  No Grantor will change its name,
type of organization, jurisdiction of organization, organizational
identification number or location from those set forth in Schedule I of this Agreement
without first giving at least 15 days’ prior written notice to the Collateral
Agent and taking all action necessary to perfect or protect the security
interest granted by this Agreement. No Grantor will become bound by a security
agreement authenticated by another Person (determined as provided in Section 9-203(d) of
the UCC) without taking all action required by the Collateral Agent or as
necessary to ensure that the perfection and second priority nature of the
Collateral Agent’s security interest in the Collateral will be maintained,
except to the extent any lien pursuant to such a security agreement is otherwise
permitted by the Indenture. Each Grantor will hold and preserve its records
relating to the Collateral, including, without limitation, the Assigned
Agreements and Related Contracts, and, upon reasonable notice from the
Collateral Agent, will permit representatives of the Collateral Agent at any
time during normal business hours to inspect and make abstracts from such
records and other documents. If the Grantor does not have an organizational
identification number and later obtains one, it will forthwith notify the
Collateral Agent of such organizational identification number.

 

(b)                                 Subject to the Intercreditor Agreement, if
any material amount of Collateral comprising Inventory or Equipment, or, upon
the occurrence and during the continuation of any Event of Default, any
Collateral, of any Grantor is at any time in the 

 

21

 

possession or control of a warehouseman, bailee or agent, and if the
Collateral Agent so requests such Grantor will (i) notify such warehouseman,
bailee or agent of the security interest created hereunder, (ii) instruct
such warehouseman, bailee or agent to hold all such Collateral solely for the
Collateral Agent’s account subject only to the Collateral Agent’s instructions
(which shall permit such Collateral to be removed by such Grantor in the
ordinary course of business until the Collateral Agent notifies such
warehouseman, bailee or agent that an Event of Default has occurred and is
continuing), (iii) use commercially reasonable efforts, to cause such
warehouseman, bailee or agent to authenticate a record acknowledging that it
holds possession of such Collateral for the Collateral Agent’s benefit and
shall act solely on the instructions of the Collateral Agent without the
further consent of the Grantor or any other Person, and (iv) make such
authenticated record available to the Collateral Agent.

 

(c)                                  Except as otherwise provided in this subsection (c), each Grantor will
continue to collect, at its own expense, all amounts due or to become due such
Grantor under the Assigned Agreements, Receivables and Related Contracts. In
connection with such collections, such Grantor may take such action as
such Grantor may deem necessary or advisable to enforce collection of the
Assigned Agreements, Receivables and Related Contracts; provided, however, that the Collateral Agent
shall have the right at any time, subject to the Intercreditor Agreement, upon
the occurrence and during the continuation of an Event of Default and upon
written notice to such Grantor of its intention to do so, to notify the
Obligors under any Assigned Agreements, Receivables and Related Contracts of
the assignment of such Assigned Agreements, Receivables and Related Contracts
to the Collateral Agent and to direct such Obligors to make payment of all
amounts due or to become due to such Grantor thereunder directly to the
Collateral Agent and, upon such notification and at the expense of such
Grantor, to enforce collection of any such Assigned Agreements, Receivables
(including Government Contract Claims) and Related Contracts, to adjust, settle
or compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done, and to otherwise exercise all rights
with respect to such Assigned Agreements, Receivables and Related Contracts,
including, without limitation, those set forth set forth in Section 9-607
of the UCC. After receipt by any Grantor of the notice from the Collateral
Agent referred to in the proviso to the preceding sentence, subject to the
Intercreditor Agreement, (i) all amounts and proceeds (including, without
limitation, instruments) received by such Grantor in respect of the Assigned
Agreements, Receivables and Related Contracts of such Grantor shall be received
in trust for the benefit of the Collateral Agent hereunder, shall be segregated
from other funds of such Grantor and shall be forthwith paid over to the
Collateral Agent in the same form as so received (with any necessary
indorsement) and applied as provided in Section 22(b) and (ii) such Grantor will
not adjust, settle or compromise the amount or payment of any Receivable or
amount due on any Assigned Agreement or Related Contract, release wholly or
partly any Obligor thereof without the Collateral Agent’s approval, or allow
any credit or discount thereon except in accordance with such Grantor’s
customary practice. No Grantor will permit or consent to the subordination of
its right to payment under any of the Assigned Agreements, Receivables and
Related Contracts to any other indebtedness or obligations of the Obligor
thereof.

 

Section 13.                                      As to Intellectual Property Collateral. (a)  With respect to each item of its
Intellectual Property Collateral material to such Grantor’s business, each
Grantor agrees to take, at its expense, all necessary steps, including, without
limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office
and any other U.S. governmental authority, to 

 

22

 

(i) maintain the validity and enforceability of such Intellectual
Property Collateral and maintain such Intellectual Property Collateral in full
force and effect, and (ii) pursue the registration and maintenance of each
patent, trademark, or copyright registration or application, now or hereafter
included in such Intellectual Property Collateral of such Grantor, including,
without limitation, the payment of required fees and taxes, the filing of
responses to office actions issued by the U.S. Patent and Trademark Office, the
U.S. Copyright Office or other governmental authorities, the filing of
applications for renewal or extension, the filing of affidavits under Sections
8 and 15 of the U.S. Trademark Act, the filing of divisional, continuation,
continuation-in-part, reissue and renewal applications or extensions, the
payment of maintenance fees and the participation in interference,
reexamination, opposition, cancellation, infringement and misappropriation
proceedings. Subject to the Intercreditor Agreement, no Grantor shall, without
the written consent of the Collateral Agent, discontinue use of or otherwise
abandon any Intellectual Property Collateral, or abandon any right to file an
application for patent, trademark, or copyright, unless such Grantor shall have
previously determined that such use or the pursuit or maintenance of such
Intellectual Property Collateral is no longer desirable in the conduct of such
Grantor’s business and that the loss thereof would not be reasonably likely to
have a material adverse effect on the financial condition or results of
operations of the Borrower and its subsidiaries, taken as a whole, or the
ability of the Borrower to perform its obligations under the Indenture
Documents.

 

(b)                                 Each Grantor agrees promptly to notify the
Collateral Agent if such Grantor becomes aware (i) that any item of the
Intellectual Property Collateral material to such Grantor’s business may have
become abandoned, placed in the public domain, invalid or unenforceable, or of
any adverse determination or development regarding such Grantor’s ownership of
any of the Intellectual Property Collateral that is material to such Grantor’s
business or its right to register the same or to keep and maintain and enforce
the same, or (ii) of any adverse determination or the institution of any
proceeding (including, without limitation, the institution of any proceeding in
the U.S. Patent and Trademark Office or any court) regarding any item of the
Intellectual Property Collateral material to such Grantor’s business.

 

(c)                                  In the event that any Grantor becomes aware
that any item of the Intellectual Property Collateral material to such Grantor’s
business is being materially infringed or misappropriated by a third party,
such Grantor shall promptly notify the Collateral Agent and shall take such
actions, at its expense, as such Grantor or, subject to the Intercreditor
Agreement, upon the occurrence and during the continuation of an Event of
Default, the Collateral Agent, deems reasonable and appropriate under the
circumstances to protect or enforce such Intellectual Property Collateral,
including, without limitation, suing for infringement or misappropriation and
for an injunction against such infringement or misappropriation.

 

(d)                                 Each Grantor shall use proper statutory
notice in connection with its use of each item of its Intellectual Property
Collateral material to such Grantor’s business. No Grantor shall do or permit
any act or knowingly omit to do any act whereby any of the Intellectual
Property Collateral material to such Grantor’s business may lapse or
become invalid or unenforceable or placed in the public domain.

 

(e)                                  Each Grantor shall take all steps which it
or, subject to the Intercreditor Agreement, upon the occurrence and during the
continuation of an Event of Default, as necessary 

 

23

 

to, or as the Collateral Agent, deems reasonable and appropriate under
the circumstances to, preserve and protect each item of its Intellectual
Property Collateral material to such Grantor’s business, including, without
limitation, maintaining the quality of any and all products or services used or
provided in connection with any of the Trademarks, consistent with the quality
of the products and services as of the date hereof, and taking all steps necessary
to ensure that all licensed users of any of the Trademarks use such consistent
standards of quality.

 

(f)                                    With respect to its Intellectual Property
Collateral, each Grantor agrees to execute or otherwise authenticate an
agreement, in substantially the form set forth in Exhibit D hereto or otherwise in form and
substance reasonably satisfactory to the Collateral Agent (a “Second Lien Intellectual Property
Security Agreement”), for recording the security interest
granted hereunder to the Collateral Agent in such Intellectual Property
Collateral with the U.S. Patent and Trademark Office, the U.S. Copyright Office
and any other governmental authorities necessary to perfect the security
interest hereunder in such Intellectual Property Collateral.

 

(g)                                 Each Grantor agrees that should it obtain an
ownership interest in any item of the type set forth in Section 1(g) that is not on the date hereof
a part of the Intellectual Property Collateral (“After-Acquired Intellectual Property”)
(i) the provisions of this Agreement shall automatically apply thereto,
and (ii) any such After-Acquired Intellectual Property and, in the case of
trademarks, the goodwill symbolized thereby, shall automatically become part of
the Intellectual Property Collateral subject to the terms and conditions of
this Agreement with respect thereto. At the end of each fiscal quarter of the
Borrower, each Grantor shall give written notice to the Collateral Agent
identifying the After-Acquired Intellectual Property that is material to such
Grantor’s business acquired during such fiscal quarter, and such Grantor shall
execute and deliver to the Collateral Agent with such written notice, or
otherwise authenticate, an IP Security Agreement Supplement covering such
After-Acquired Intellectual Property which IP Security Agreement Supplement
shall be recorded with the U.S. Patent and Trademark Office, the U.S. Copyright
Office and any other governmental authorities necessary to perfect the security
interest hereunder in such After-Acquired Intellectual Property.

 

Section 14.                                      Voting Rights; Dividends; Etc. (a)  So long as no Event of Default
shall have occurred and be continuing:

 

(i)                                     Each Grantor shall be entitled to exercise or
refrain from exercising any and all voting and other consensual rights
pertaining to the Security Collateral (subject in all cases to the terms of any
applicable Securities Account Control Agreement) of such Grantor or any part thereof
for any purpose; provided
that, subject to the Intercreditor Agreement, such Grantor will not exercise or
refrain from exercising any such right if such action would have a material
adverse effect on the value of the Security Collateral or any part thereof.

 

(ii)                                  Each Grantor shall be entitled to receive and
retain any and all dividends, interest and other distributions paid in respect
of the Security Collateral of such Grantor if and to the extent that the
payment thereof is not otherwise prohibited by the terms of the Indenture
Documents; provided, however, that any and all

 

24

 

(A)                              dividends, interest and other distributions paid or payable other than
in cash in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of, or in exchange for, any Security
Collateral,

 

(B)                                dividends and other distributions paid or payable in cash in respect of
any Security Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in-surplus and

 

(C)                                cash paid, payable or otherwise distributed in respect of principal of,
or in redemption of, or in exchange for, any Security Collateral

 

shall be, and, subject to the Intercreditor
Agreement, shall be forthwith delivered to the Collateral Agent to hold as,
Security Collateral and shall, if received by such Grantor, be received in
trust for the benefit of the Collateral Agent, be segregated from the other
property or funds of such Grantor and, subject to the Intercreditor Agreement,
be forthwith delivered to the Collateral Agent as Security Collateral in the
same form as so received (with any necessary indorsement).

 

(iii)                               Subject to the Intercreditor Agreement, the Collateral Agent will
execute and deliver (or cause to be executed and delivered) to each Grantor all
such proxies and other instruments as such Grantor may reasonably request
for the purpose of enabling such Grantor to exercise the voting and other
rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends
or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above.

 

(b)                                 Upon the occurrence and during the
continuation of an Event of Default:

 

(i)                                     Subject to the Intercreditor Agreement, upon
notice to such Grantor by the Collateral Agent, all rights of each Grantor
(x) to exercise or refrain from exercising the voting and other consensual
rights that it would otherwise be entitled to exercise pursuant to Section 14(a)(i) shall cease and (y) to
receive the dividends, interest and other distributions that it would otherwise
be authorized to receive and retain pursuant to Section 14(a)(ii) shall cease, and all such rights shall thereupon become
vested in the Collateral Agent, which shall thereupon have the sole right to exercise
or refrain from exercising such voting and other consensual rights and to
receive and hold as Security Collateral such dividends, interest and other
distributions.

 

(ii)                                  All dividends, interest and other
distributions that are received by any Grantor contrary to the provisions of paragraph (i) of this Section 14(b) shall be received in trust for
the benefit of the Collateral Agent, shall be segregated from other funds of
such Grantor and, subject to the Intercreditor Agreement, shall be forthwith paid
over to the Collateral Agent as Security Collateral in the same form as so
received (with any necessary indorsement).

 

(iii)                               Subject to the Intercreditor Agreement, the Collateral Agent shall be
authorized to send to each Securities Intermediary (as defined in and under any
Securities 

 

25

 

Account Control Agreement) a Notice of Exclusive Control (as defined in
and under such Securities Account Control Agreement).

 

Section 15.                                      As to the Assigned Agreements. (a)  Subject to the Intercreditor
Agreement, each Grantor will at its expense:

 

(i)                                     perform and observe all terms and
provisions of the Assigned Agreements to be performed or observed by it,
maintain the Assigned Agreements to which it is a party in full force and
effect, enforce the Assigned Agreements to which it is a party in accordance
with the terms thereof and take all such action to such end as may be
reasonably requested from time to time by the Collateral Agent; and

 

(ii)                                  furnish to the Collateral Agent promptly upon
receipt thereof copies of all notices, requests and other documents received by
such Grantor under or pursuant to the Assigned Agreements to which it is a
party, and from time to time (A) furnish to the Collateral Agent such
information and reports regarding the Assigned Agreements and such other
Collateral of such Grantor as the Collateral Agent may reasonably request
and (B) upon request of the Collateral Agent make to each other party to
any Assigned Agreement to which it is a party such demands and requests for
information and reports or for action as such Grantor is entitled to make
thereunder.

 

(iii)                               Each Grantor agrees that it will not take any action with respect to
any Assigned Agreement that would violate any restrictions applicable to such
Assigned Agreement set forth in the Indenture.

 

(b)                                 Each Grantor hereby consents on its behalf
and on behalf of its Subsidiaries to the assignment and pledge to the
Collateral Agent for benefit of the Secured Parties of each Assigned Agreement
to which it is a party by any other Grantor hereunder.

 

Section 16.                                      Payments Under the Assigned Agreements. (a)  Each Grantor agrees and will
ensure that each other party to each Assigned Agreement to which it is a party
has been instructed that all payments due or to become due under or in
connection with such Assigned Agreement are to be made (a) directly to a
Deposit Account that is subject to a Deposit Account Control Agreement or (b) to
such Grantor, in which case such Grantor covenants to promptly deposit such
payments in a Deposit Account that is subject to a Deposit Account Control
Agreement.

 

(b)                                 If any Event of Default shall have occurred
and be continuing, all moneys received or collected under or in connection with
each Assigned Agreement shall be applied as provided in Section 22(b).

 

Section 17.                                      As to Letter-of-Credit Rights. (a)  Each Grantor, by granting a
security interest in its Receivables consisting of letter-of-credit rights to
the Collateral Agent, intends to (and hereby does) assign to the Collateral
Agent its rights (including its contingent rights) to the proceeds of all
Related Contracts consisting of letters of credit of which it is or hereafter
becomes a beneficiary or assignee.

 

26

 

(b)                                 Subject to the Intercreditor Agreement, upon
the occurrence of an Event of Default, each Grantor will, promptly upon request
by the Collateral Agent, notify (and such Grantor hereby authorizes the
Collateral Agent to notify) the issuer and each nominated person with respect
to each of the Related Contracts consisting of letters of credit that the
proceeds thereof have been assigned to the Collateral Agent hereunder and any
payments due or to become due in respect thereof are to be made directly to the
Collateral Agent or its designee.

 

Section 18.                                      Transfers and Other Liens; Additional Shares. (a)  Each Grantor agrees that it will
not (i) dispose of, or grant any option with respect to, any of the
Collateral, other than dispositions of Collateral, and options relating to
Collateral, permitted under the terms of the Indenture, or (ii) create or
suffer to exist any Lien upon or with respect to any of the Collateral of such
Grantor except for the pledge, assignment and security interest created under
this Agreement or Permitted Liens.

 

(b)                                 Each Grantor agrees that it will (i) cause
each issuer of the Pledged Equity pledged by such Grantor not to issue any
Equity Interests or other securities in addition to or in substitution for the
Pledged Equity issued by such issuer, except to such Grantor or except as
otherwise permitted under the Indenture, and (ii) pledge hereunder,
immediately upon its acquisition (directly or indirectly) thereof, any and all
additional Equity Interests or other securities.

 

Section 19.                                      Collateral Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints
the Collateral Agent such Grantor’s attorney-in-fact, with full authority in
the place and stead of such Grantor and in the name of such Grantor or
otherwise, from time to time, upon the occurrence and during the continuation
of an Event of Default, in the Collateral Agent’s discretion, to take any
action and to execute any instrument that the Collateral Agent may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:

 

(a)                                  to obtain and adjust insurance required to be
paid to the Collateral Agent pursuant to Section 11,

 

(b)                                 to ask for, demand, collect, sue for,
recover, compromise, receive and give acquittance and receipts for moneys due
and to become due under or in respect of any of the Collateral,

 

(c)                                  to receive, indorse and collect any drafts or
other instruments, documents and chattel paper, in connection with clause (a) or (b) above,
and

 

(d)                                 to file any claims or take any action or
institute any proceedings that the Collateral Agent may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce
compliance with the terms and conditions of any Assigned Agreement or the
rights of the Collateral Agent with respect to any of the Collateral.

 

Section 20.                                      Collateral Agent May Perform. If any Grantor fails to perform any
agreement contained herein after demand by the Collateral Agent, subject to the
Intercreditor Agreement, the Collateral Agent may, but without any obligation
to do so and without notice, 

 

27

 

itself perform, or cause performance of, such agreement, and the
expenses of the Collateral Agent incurred in connection therewith shall be
payable by such Grantor under Section 23.

 

Section 21.                                      The Collateral Agent’s Duties. (a)  The powers conferred on the
Collateral Agent hereunder are solely to protect the Secured Parties’ interest
in the Collateral and shall not impose any duty upon it to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Collateral Agent
shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not any Secured Party has or is
deemed to have knowledge of such matters, or as to the taking of any necessary
steps to preserve rights against any parties or any other rights pertaining to
any Collateral. The Collateral Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which it accords its own property. The Collateral Agent shall not be
responsible for filing any financing or continuation statements or recording
any documents or instruments in any public office at any time or times or otherwise
perfecting or maintaining the perfection of any security interest in the
Collateral. For the avoidance of doubt, the foregoing shall in no way relieve
the obligations of each Grantor to take all actions necessary to perfect and
maintain the perfection of the security interest in the Collateral granted to
the Collateral Agent for the ratable benefit of the Secured Parties. In acting
under this Agreement, the Collateral Agent shall be entitled to the rights,
protections and immunities provided to the Trustee in the Indenture and such
are incorporated by reference herein, mutatis
mutandis.(b) Anything contained herein to the contrary
notwithstanding, the Collateral Agent may from time to time, when the
Collateral Agent deems it to be necessary, appoint one or more subagents (each,
a “Subagent”)
for the Collateral Agent hereunder with respect to all or any part of the
Collateral. In the event that the Collateral Agent so appoints any Subagent
with respect to any Collateral, (i) the assignment and pledge of such
Collateral and the security interest granted in such Collateral by each Grantor
hereunder shall be deemed for purposes of this Agreement to have been made to
such Subagent, in addition to the Collateral Agent, for the ratable benefit of
the Secured Parties, as security for the Secured Obligations of such Grantor, (ii) such
Subagent shall automatically be vested, in addition to the Collateral Agent,
with all rights, powers, privileges, interests and remedies of the Collateral
Agent hereunder with respect to such Collateral, and (iii) the term “Collateral Agent,” when used herein in
relation to any rights, powers, privileges, interests and remedies of the
Collateral Agent with respect to such Collateral, shall include such Subagent; provided, however, that no such Subagent shall
be authorized to take any action with respect to any such Collateral unless and
except to the extent expressly authorized in writing by the Collateral Agent.

 

Section 22.                                      Remedies. If any Event of Default shall have occurred and be continuing:

 

(a)                                  Subject to the Intercreditor Agreement, the
Collateral Agent may exercise in respect of the Collateral, in addition to
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party upon default under the UCC (whether
or not the UCC applies to the affected Collateral) and also may: (i) subject
to the Intercreditor Agreement, require each Grantor to, and each Grantor
hereby agrees that it will at its expense and upon request of the Collateral
Agent 

 

28

 

forthwith, assemble all or part of the Collateral as directed by
the Collateral Agent and make it available to the Collateral Agent at a place
and time to be designated by the Collateral Agent that is reasonably convenient
to both parties; (ii) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private
sale, at any of the Collateral Agent’s offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as the Collateral
Agent may deem commercially reasonable; (iii) occupy any premises
owned or leased by any of the Grantors where the Collateral or any part thereof
is assembled or located for a reasonable period in order to effectuate its
rights and remedies hereunder or under law, without obligation to such Grantor
in respect of such occupation; and (iv) exercise any and all rights and
remedies of any of the Grantors under or in connection with the Collateral, or
otherwise in respect of the Collateral, including, without limitation, (A) any
and all rights of such Grantor to demand or otherwise require payment of any
amount under, or performance of any provision of, the Assigned Agreements, the
Receivables (including Government Contract Claims), the Related Contracts and
the other Collateral, (B) withdraw, or cause or direct the withdrawal, of
all funds with respect to the Deposit Accounts and (C) exercise all other
rights and remedies with respect to the Assigned Agreements, the Receivables,
the Related Contracts and the other Collateral, including, without limitation,
those set forth in Section 9-607 of the UCC. Each Grantor agrees that, to
the extent notice of sale shall be required by law, at least ten days’ notice
to such Grantor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification.
The Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. The Collateral Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.

 

(b)                                 Subject to the Intercreditor Agreement, any
cash held by or on behalf of the Collateral Agent and all cash proceeds
received by or on behalf of the Collateral Agent in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent pursuant
to Section 23) in
whole or in part by the Collateral Agent for the ratable benefit of the
Secured Parties against, all or any part of the Secured Obligations, in
the order of priority set forth in Section 6.10 of the Indenture.

 

Any surplus of such cash or cash proceeds held by or
on the behalf of the Collateral Agent and remaining after payment in full of
all the Secured Obligations shall be paid over to the applicable Grantor or to
whomsoever may be lawfully entitled to receive such surplus.

 

(c)                                  Subject to the Intercreditor Agreement, all
payments received by any Grantor under or in connection with any Assigned
Agreement or otherwise in respect of the Collateral shall be received in trust
for the benefit of the Collateral Agent, shall be segregated from other funds
of such Grantor and shall be forthwith paid over to the Collateral Agent in the
same form as so received (with any necessary indorsement).

 

29

 

(d)                                 Subject to the Intercreditor Agreement, the
Collateral Agent may, without notice to any Grantor except as required by law
and at any time or from time to time, charge, set-off and otherwise apply all
or any part of the Secured Obligations against any funds held with respect
to the Deposit Accounts or in any other deposit account.

 

(e)                                  In the event of any sale or other disposition
of any of the Intellectual Property Collateral of any Grantor, the goodwill
symbolized by any Trademarks subject to such sale or other disposition shall be
included therein, and such Grantor shall supply to the Collateral Agent or its
designee such Grantor’s know-how and expertise, and documents and things
relating to any Intellectual Property Collateral subject to such sale or other
disposition, and such Grantor’s customer lists and other records and documents
relating to such Intellectual Property Collateral and to the manufacture,
distribution, advertising and sale of products and services of such Grantor.

 

Section 23.                                      Indemnity and Expenses. (a)  Each Grantor jointly and
severally agrees to indemnify, defend and save and hold harmless each Secured
Party and each of their Affiliates and their respective officers, directors,
employees, agents and advisors (each, an “Indemnified Party”) from and against, and
shall pay on demand, any and all claims, damages, losses, liabilities and
expenses (including, without limitation, reasonable fees and expenses of
counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except to the extent such claim, damage, loss, liability or
expense is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party’s gross negligence or
willful misconduct.(b) Each Grantor will upon demand pay to the Collateral
Agent the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees and expenses of its counsel and of any experts
and agents, that the Collateral Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other realization upon, any of
the Collateral of such Grantor, (iii) the exercise or enforcement of any
of the rights of the Collateral Agent or the other Secured Parties hereunder or
(iv) the failure by such Grantor to perform or observe any of the
provisions hereof.

 

Section 24.                                      Amendments; Waivers; Additional Grantors; Etc. (a)  No amendment or waiver of any
provision of this Agreement, and no consent to any departure by any Grantor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by the Collateral Agent and each Grantor, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given. No failure on the part of any Grantor, the
Collateral Agent or any other Secured Party to exercise, and no delay in
exercising any right hereunder, shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right.

 

(b)                                 Upon the execution and delivery, or
authentication, by any Person of a security agreement supplement in
substantially the form of Exhibit A
hereto (each, a “Security
Agreement Supplement”), (i) such Person shall be referred
to as an “Additional
Grantor” and shall be and become a Grantor hereunder, and each
reference in this Agreement and the other Indenture Documents to “Grantor” shall also mean and be a
reference to such Additional 

 

30

 

Grantor,  and each reference in
this Agreement and the other Indenture Documents to “Collateral” shall also
mean and be a reference to the Collateral of such Additional Grantor, and (ii) the
supplemental schedules I-IX attached to each Security Agreement Supplement
shall be incorporated into and become a part of and supplement Schedules I-VIII, respectively,
hereto, and the Collateral Agent may attach such supplemental schedules to
such Schedules; and each reference to such Schedules shall mean and be a
reference to such Schedules as supplemented pursuant to each Security Agreement
Supplement.

 

Section 25.                                      Notices, Etc. All notices and other communications
provided for hereunder shall be either (i) in writing (including
telegraphic, telecopier or telex communication) and mailed, telegraphed,
telecopied, telexed or otherwise delivered or (ii) by electronic mail (if
electronic mail addresses are designated as provided below) confirmed
immediately in writing, in the case of the Borrower or the Collateral Agent,
addressed to it at its address specified in the Indenture and, in the case of
each Grantor other than the Borrower, addressed to it at its address set forth
opposite such Grantor’s name on the signature pages hereto or on the
signature page to the Security Agreement Supplement pursuant to which it
became a party hereto; or, as to any party, at such other address as shall be
designated by such party in a written notice to the other parties. All such
notices and other communications shall, when mailed, telegraphed, telecopied,
telexed, sent by electronic mail or otherwise, be effective three days after
being deposited in the mails, or otherwise when delivered to the telegraph
company, telecopied, confirmed by telex answerback, sent by electronic mail and
confirmed in writing, or otherwise delivered (or confirmed by a signed
receipt), respectively, addressed as aforesaid; except that notices and other
communications to the Collateral Agent shall not be effective until received by
the Collateral Agent. Delivery by telecopier of an executed counterpart of
any amendment or waiver of any provision of this Agreement or of any Security
Agreement Supplement or Schedule hereto shall be effective as delivery of
an original executed counterpart thereof.

 

Section 26.                                      Continuing Security Interest; Assignments
under the Credit Agreement.
This Agreement shall create a continuing security interest in the Collateral
and shall (a) remain in full force and effect until the latest of (i) the
payment in full in cash of the Secured Obligations and (ii) the
satisfaction and discharge of the Indenture, (b) be binding upon each
Grantor, its successors and assigns and (c) inure, together with the
rights and remedies of the Collateral Agent hereunder, to the benefit of the
Secured Parties and their respective successors, transferees and assigns.

 

Section 27.                                      Release; Termination. (a)  Upon any disposition of any item
of Collateral of any Grantor in accordance with the terms of the Indenture
Documents (other than sales of Inventory in the ordinary course of business,
which Inventory shall automatically be released from the assignment and
security interest hereunder), the Collateral Agent will, at such Grantor’s
expense, execute and deliver to such Grantor such documents as such Grantor
shall reasonably request to evidence the release of such item of Collateral
from the assignment and security interest granted hereby; provided, however, that (i) at the time of
such request and such release no Event of Default shall have occurred and be
continuing and (ii) such Grantor shall have delivered to the Collateral
Agent, at least ten (10) Business Days prior to the date of the proposed
release, a written request for release describing the item of Collateral and
the terms of the disposition in reasonable detail, including, without
limitation, the price thereof and any expenses in connection therewith,
together with a form of release for execution by the Collateral 

 

31

 

Agent and a certificate of such Grantor to the effect that the
transaction is in compliance with the Indenture Documents and as to such other
matters as the Collateral Agent may request.

 

(b)                                 Upon the latest of (i) the payment in
full in cash of the Secured Obligations and (ii) the satisfaction and
discharge of the Indenture, the pledge and security interest granted hereby
shall terminate and all rights to the Collateral shall revert to the applicable
Grantor. Upon any such termination, the Collateral Agent will, at the
applicable Grantor’s expense, execute and deliver to such Grantor such documents
as such Grantor shall reasonably request to evidence such termination.

 

Section 28.                                      Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to
this Agreement by telecopier shall be effective as delivery of an original
executed counterpart of this Agreement.

 

Section 29.                                      The Mortgages. In the event that any of the Collateral
hereunder is also subject to a valid and enforceable Lien under the terms of
any Mortgage and the terms of such Mortgage are inconsistent with the terms of
this Agreement, then with respect to such Collateral, the terms of such
Mortgage shall be controlling in the case of fixtures and real estate leases,
letting and licenses of, and contracts and agreements relating to the lease of,
real property, and the terms of this Agreement shall be controlling in the case
of all other Collateral.

 

Section 30.                                      Jurisdiction, Etc. (a)  Each of the parties hereto hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York County, New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement or any of the other Indenture Documents to which it
is a party, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in
any such New York State court or, to the fullest extent permitted by law, in
such Federal court. Each of the parties hereto agrees that a final judgment in
any such action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Agreement shall affect any right that any party may otherwise
have to bring any action or proceeding relating to this Agreement or any of the
other Indenture Documents in the courts of any jurisdiction.

 

(b)                                 Each of the parties hereto irrevocably and
unconditionally waives, to the fullest extent it may legally and
effectively do so, any objection that it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement or any of the other Indenture Documents to which it is a party
in any New York State or Federal court described in Section 30(a) above. Each of the parties hereto
hereby irrevocably waives, to the fullest extent permitted by law, the defense
of an inconvenient forum to the maintenance of such action or proceeding in any
such court.

 

32

 

Section 31.                                      Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York.

 

33

 

IN WITNESS WHEREOF, each Grantor has caused this
Agreement to be duly executed and delivered by its officer thereunto duly
authorized as of the date first above written.

 

	
  Address for Notices:

  	
   

  	
  RAFAELLA APPAREL GROUP, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Glenn Palmer

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Glenn Palmer

  
	
   

  	
   

  	
   

  	
  Title: CEO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address for Notices:

  	
   

  	
  VERRAZANO, INC., as a Grantor

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
  /s/ Glenn Palmer

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Glenn Palmer

  
	
   

  	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Address for Notices:

  	
   

  	
  THE BANK OF NEW YORK, as Trustee

  
	
   

  	
   

  	
  and Collateral Agent

  
	
  101 Barclay St., 8W

  	
   

  	
   

  	
   

  
	
  New York, NY 10286

  	
   

  	
   

  	
   

  
	
  Attn: Corporate Trust Administration

  	
  By

  	
  /s/ Beata Hryniewicka

  	
   

  
	
   

  	
   

  	
   

  	
  Name: Beata Hryniewicka

  
	
   

  	
   

  	
   

  	
  Title: Assistant Treasurer

  

 

34Exhibit 10.1

 

$172,000,000

 

RAFAELLA
APPAREL GROUP, INC.

 

111⁄4%
Senior Secured Notes due 2011

 

PURCHASE
AGREEMENT

 

June 13, 2005

 

JEFFERIES & COMPANY, INC.

520 Madison Avenue 

New York, NY 10022

 

Ladies and Gentlemen:

 

Rafaella Apparel Group,
Inc., a Delaware corporation (the “Company”) and each of the Guarantors
(as hereinafter defined) hereby agree with you as follows:

 

1.         Issuance of Notes.
Subject to the terms and conditions herein contained, the Company proposes to
issue and sell to Jefferies & Company, Inc. (the “Initial Purchaser”)
$172,000,000 aggregate principal amount at maturity of 111⁄4% Senior Secured Notes due 2011 (each a “Note”
and, collectively, the “Notes”). The Notes will be issued pursuant to an
indenture (the “Indenture”), to be dated as of June 20, 2005, by and
among the Company, the Guarantors party thereto and The Bank of New York, as
trustee (the “Trustee”). Pursuant to the terms of the Redemption
Agreement to be dated the Closing Date (the “Redemption Agreement”), the
proceeds of the Notes will be used to redeem a portion of the Company’s
outstanding common equity interests (the “Redemption”) held by Rafaella
Sportswear, Inc., the predecessor of the Company (the “Predecessor”), as
described under the section of the Final Offering Circular (as defined below)
entitled “The Acquisition Transactions.” Immediately prior to the issuance of the
Notes and consummation of the Redemption, the Predecessor shall, pursuant to
the Contribution Agreement to be dated the Closing Date (the “Contribution Agreement”),
contribute substantially all its assets, subject to certain liabilities, to the
Company (the “Asset Contribution”) and Cerberus Capital Management, L.P.
shall, pursuant to the Securities Purchase Agreement, dated April 15, 2005, as
amended by Amendment No. 1 to the Securities Purchase Agreement, dated May 27,
2005 (the “Securities Purchase Agreement,” the Redemption Agreement and
the Contribution Agreement are collectively referred to as the “Acquisition
Documents”), contribute $40 million to the Company in exchange for
convertible preferred equity interests in the Company (the “Equity
Investment”). Capitalized terms used, but not defined herein, shall have
the meanings set forth in the “Description
of the Notes” section
of the Final Offering Circular (as hereinafter defined). References to the “Transactions”
shall have the meaning set forth in the section of the Final Offering Circular
(as defined below) entitled “Offering
Circular Summary—The Acquisition
Transactions.”

 

The Notes will be offered
and sold to the Initial Purchaser pursuant to an exemption from the
registration requirements under the Securities Act of 1933, as amended (the “Act”).
Upon original issuance thereof, and until such time as the same is no longer
required under the applicable requirements of the Act, the Notes shall bear the
legends set forth under the “Notice to
Investors” section of
the Final Offering Circular, dated the date hereof (the “Final Offering
Circular”). The Company has prepared a preliminary offering circular, dated
May 27, 2005 (the “Preliminary Offering Circular”), and the Final
Offering Circular relating to the offer and sale of the Notes (the “Offering”).
“Offering Circular” means, as of any date or time referred to in this
Agreement, the most recent offering circular (whether the

 

 

Preliminary Offering Circular or the Final Offering Circular, and any
amendment or supplement to either such document), including exhibits and
schedules thereto.

 

In connection with the
sale of the Notes, the Company will, on the Closing Date, enter into a
revolving credit and security agreement among the Company, the guarantors named
therein and HSBC Bank USA, National Association (“HSBC”), as agent for
Lenders (as defined therein), which provides for a revolving loan facility in
an amount of up to $62.5 (as amended, supplemented, modified, extended or
restated from time to time, the “Credit Agreement”). In connection with
entering into the Credit Agreement, the Trustee and HSBC, as agent for the
Lenders, shall enter into an Intercreditor Agreement, to be dated as of the
Closing Date, in a form reasonably satisfactory to the Initial Purchaser (such
agreement, the “Intercreditor Agreement”).

 

2.         Terms of Offering.
The Initial Purchaser has advised the Company, and the Company understands,
that the Initial Purchaser will make offers to sell (the “Exempt Resales”)
some or all of the Notes purchased by the Initial Purchaser hereunder on the
terms set forth in the Final Offering Circular, as amended or supplemented,
solely to persons (the “Subsequent Purchasers”) whom the Initial
Purchaser (i) reasonably believes to be “qualified institutional buyers” (“OIBs”)
as defined in Rule 144A under the Act, as such may be amended from time to
time, (ii) reasonably believes (based upon written representations made by such
persons to the Initial Purchaser) to be institutional “accredited investors” as
defined in Rule 501(a)(l), (2), (3) or (7) under the Act (“Accredited
Investors”) or (iii) reasonably believes to be non-U.S. persons in reliance
upon Regulation S under the Act.

 

Pursuant to the
Indenture, all Domestic Restricted Subsidiaries of the Company shall fully and
unconditionally guarantee, on a senior secured basis, to each holder of the
Notes and the Trustee, the full performance of the Company’s obligations under
the Indenture and the Notes (each such subsidiary being referred to herein as a
“Guarantor” and each such guarantee being referred to herein as a “Guarantee”).

 

Pursuant to the terms of
the Collateral Agreements, all of the obligations under the Notes and the
Indenture will be secured by a second priority lien and security interest in
substantially all of the assets of the Company and the Guarantors (subject to a
prior ranking lien by the lenders under the Credit Agreement as outlined in the
Intercreditor Agreement and certain other Permitted Liens) other than certain
funds to be deposited in an escrow account in connection with the consummation
of the Equity Investment.

 

Holders of the Notes
(including Subsequent Purchasers) will have the registration rights set forth
in the registration rights agreement applicable to the Notes (the “Registration
Rights Agreement”), to be executed on and dated as of the Closing Date (as
defined herein). Pursuant to the Registration Rights Agreement, the Company
will agree, among other things, to file with the Securities and Exchange
Commission (the “SEC”) (a) a registration statement under the Act
relating to Senior Secured Notes (the “Exchange Notes”), which shall be
identical to the Notes (except that the Exchange Notes shall have been
registered pursuant to such registration statement and will not be subject to
restrictions on transfer or contain additional interest provisions) to be
offered in exchange for the Notes (such offer to exchange being referred to as
the “Exchange Offer”), and/or (b) under certain circumstances, a shelf
registration statement pursuant to Rule 415 under the Act (the “Shelf
Registration Statement”) relating to the resale by certain holders of the
Notes. If required under the Registration Rights Agreement, the Company will
issue Exchange Notes to the Initial Purchaser (the “Private Exchange Notes”).
If the Company fails to satisfy its obligations under the Registration Rights
Agreement, it will be required to pay additional interest to the holders of the
Notes under certain circumstances.

 

2

 

This Agreement, the
Indenture, the Collateral Agreements, the Registration Rights Agreement, the
Notes, the Guarantees, the Exchange Notes and the Private Exchange Notes are
collectively referred to herein as the “Offering Documents.”

 

3.         Purchase, Sale and
Delivery. On the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, the Company agrees to issue and sell to the Initial Purchaser, and
the Initial Purchaser agrees to purchase from the Company, the Notes at a
purchase price of 92.0% of the aggregate principal amount at maturity thereof.
Delivery to the Initial Purchaser of and payment for the Notes shall be made at
a Closing (the “Closing”) to be held at 10:00 a.m., New York time, on
June 20, 2005 (the “Closing Date”) at the New York offices of Schulte
Roth & Zabel LLP.

 

The Company shall deliver
to the Initial Purchaser one or more certificates representing the Notes in
definitive form, registered in such names and denominations as the Initial
Purchaser may request, at least one business day prior to the Closing, against
payment by the Initial Purchaser of the purchase price therefor by immediately
available Federal funds bank wire transfer to such bank account or accounts as
the Company shall designate to the Initial Purchaser at least two business days
prior to the Closing. The certificates representing the Notes in definitive
form shall be made available to the Initial Purchaser for inspection at the New
York offices of Schulte Roth & Zabel LLP (or such other place as shall be
reasonably acceptable to the Initial Purchaser) not later than 10:00 a.m. one
business day immediately preceding the Closing Date. Notes to be represented by
one or more definitive global securities in book-entry form will be deposited
on the Closing Date, by or on behalf of the Company, with The Depository Trust
Company (“DTC”) or its designated custodian, and registered in the name
of Cede & Co.

 

4.         Representations and
Warranties of the Company. The Company represents and warrants to the
Initial Purchaser that, as of the date hereof and as of the Closing Date:

 

(a)                     The Preliminary
Offering Circular as of its date did not, the Final Offering Circular as of its
date did not, nor any amendment or supplement thereto, as of the date thereof
and at all times subsequent thereto up to the Closing Date, contain any untrue
statement of a material fact, or omit to state a material fact (except for
pricing terms intentionally left blank in the case of the Preliminary Offering
Circular) necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 4(a) do not apply to
(x) statements or omissions made in reliance upon and in conformity with
information relating to the Initial Purchaser and furnished to the Company in
writing by the Initial Purchaser expressly for use in the Preliminary Offering
Circular, the Final Offering Circular or any amendment or supplement thereto or
(y) statements or omissions contained in the Preliminary Offering Circular that
were added or modified in the Final Offering Circular or any amendment or
supplement thereto. No injunction or order has been issued that either (i)
asserts that any of the transactions contemplated by the Offering Documents is
subject to the registration requirements of the Act or (ii) would prevent or
suspend the issuance or sale of any of the Notes or the use of the Preliminary
Offering Circular, the Final Offering Circular or any amendment or supplement
thereto, in any jurisdiction. Each of the Preliminary Offering Circular and the
Final Offering Circular, as of their respective dates, contained, and the Final
Offering Circular, as amended or supplemented as of the Closing Date, will
contain, all the information specified in, and meet the requirements of, Rule
144A(d)(4) under the Act, except for statements or omissions contained in the
Preliminary Offering Circular that were added or modified in the Final Offering
Circular or any amendment or supplement thereto.

 

3

 

(b)                    Each
corporation, partnership, or other entity in which the Company, directly or
indirectly through any of its subsidiaries, owns more than fifty percent (50%)
of any class of equity securities or interests is listed on Schedule I
attached hereto (the “Subsidiaries”).

 

(c)                     Each of the
Company and its Subsidiaries (i) has been duly organized or formed, as the case
may be, is validly existing and is in good standing under the laws of its
jurisdiction of organization, (ii) has all requisite power and authority to
carry on its business and to own, lease and operate its properties and assets,
and (iii) is duly qualified or licensed to do business and is in good standing
as a foreign corporation, partnership or other entity, as the case may be,
authorized to do business in each jurisdiction in which the nature of such
businesses or the ownership or leasing of such properties requires such
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, have a material adverse effect on (A) the
properties, business, prospects, operations, earnings, assets, liabilities or
condition (financial or otherwise) of the Company and the Subsidiaries, taken
as a whole, (B) the ability of the Company to perform its obligations in all
material respects under any Document, (C) the enforceability of the Collateral
Agreements or the attachment, perfection or priority of any of the Liens or
security interests intended to be created thereby, (D) the validity or
enforceability of any of the Offering Documents, or (E) the consummation of any
of the transactions contemplated under any of the Offering Documents (each, a “Material
Adverse Effect”).

 

(d)                    All of the
issued and outstanding shares of capital stock of the Company and the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and were not issued in violation of, and are not subject to, any
preemptive or similar rights. Except as set forth in the table under the
caption “Capitalization” in the Final Offering Circular (including
the introduction and footnotes thereto), immediately following the Closing,
neither the Company nor any of the Subsidiaries will have any liabilities,
absolute, accrued, contingent or otherwise, other than (A) liabilities that are
reflected in the Financial Statements (as hereinafter defined) or (B)
liabilities incurred subsequent to the date thereof in the ordinary course of
business, consistent with past practice, or in connection with the
Transactions, that would not, individually or in the aggregate, have a Material
Adverse Effect. All of the outstanding shares of capital stock or other equity
interests of each of the Subsidiaries are owned, directly or indirectly, by the
Company, free and clear of all liens, security interests, mortgages, pledges,
charges, equities, claims or restrictions on transferability or encumbrances of
any kind (collectively, “Liens”), other than those imposed by the Act
and the securities or “Blue Sky” laws of certain domestic or foreign
jurisdictions or Permitted Liens. Except as disclosed in the Offering Circular,
there are no outstanding (A) options, warrants or other rights to purchase from
the Company or any of the Subsidiaries, (B) agreements, contracts, arrangements
or other obligations of the Company or any of the Subsidiaries to issue or (C)
other rights to convert any obligation into or exchange any securities for, in
the case of each of clauses (A) through (C), shares of capital stock of or
other ownership or equity interests in the Company or any of the Subsidiaries.

 

(e)                     No holder of
securities of the Company or any of the Subsidiaries will be entitled to have
such securities registered under the registration statement required to be
filed by the Company and the Guarantors with respect to the Notes pursuant to
the Registration Rights Agreement.

 

(f)                       The Company
and each of the Subsidiaries have the requisite corporate power and authority
to execute, deliver and perform their respective obligations under the Offering
Documents to which they are a party and to consummate the transactions
contemplated thereby.

 

4

 

(g)                    This Agreement
has been duly and validly authorized, executed and delivered by the Company and
the Guarantors. Each of the Indenture and the Collateral Agreements have been
duly and validly authorized by the Company and the Guarantors. Each of the
Indenture and the Collateral Agreements, when executed and delivered by the
Company and the Guarantors, will constitute a legal, valid and binding obligation
of each of the Company and Guarantors, enforceable against each of the Company
and the Guarantors in accordance with its terms, except that the enforcement
thereof may be subject to (i) bankruptcy, insolvency, reorganization,
receivership, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors’ rights generally and (ii) general
principles of equity (whether applied by a court of law or equity) and the
discretion of the court before which any proceeding therefor may be brought.

 

(h)                    The
Registration Rights Agreement has been duly and validly authorized by the
Company and the Guarantors. The Registration Rights Agreement, when executed
and delivered by the Company and the Guarantors, will constitute a legal, valid
and binding obligation of the Company and the Guarantors, enforceable against
the Company and the Guarantors in accordance with its terms, except that (A)
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to creditors’ rights generally
and (ii) general principles of equity (whether applied by a court of law or
equity) and the discretion of the court before which any proceeding therefor
may be brought and (B) any rights to indemnity or contribution thereunder may
be limited by federal and state securities laws and public policy
considerations.

 

(i)                        The Notes,
when issued, will be in the form contemplated by the Indenture. When executed
and delivered by the Company and the Guarantors, the Indenture will meet the
requirements for qualification under the Trust Indenture Act of 1939, as
amended (the “TIA”). The Notes, Exchange Notes and Private Exchange
Notes have each been duly and validly authorized by the Company and when
delivered to and paid for by the Initial Purchaser in accordance with the terms
of this Agreement and the Indenture, will have been duly executed, issued and
delivered and will be legal, valid and binding obligations of the Company,
entitled to the benefit of the Indenture and the Collateral Agreements and the
Registration Rights Agreement and enforceable against the Company in accordance
with their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors’ rights generally and (ii) general principles of equity (whether
applied by a court of law or equity) and the discretion of the court before
which any proceeding therefor may be brought.

 

(j)                        The
Guarantees have been duly and validly authorized by the Guarantors and, when
executed by the Guarantors, will have been duly executed, issued and delivered
and will be legal, valid and binding obligations of the Guarantors, entitled to
the benefit of the Indenture and the Collateral Agreements and the Registration
Rights Agreement and enforceable against the Guarantors in accordance with
their terms, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors’ rights generally and (ii) general principles of equity (whether
applied by a court of law or equity) and the discretion of the court before
which any proceeding therefor may be brought.

 

(k)                     Neither the
Company nor any of the Subsidiaries is in violation of its certificate of incorporation,
by-laws or other organizational documents (the “Charter Documents”).
Neither the Company nor any of the Subsidiaries is (i) in violation of any
Federal, state, local or foreign statute, law (including, without limitation,
common law) or ordinance, or any judgment, decree, rule,

 

5

 

regulation or order
(collectively, “Applicable Law”) of any federal, state, local and
other governmental authority, governmental or regulatory agency or body, court,
arbitrator or self-regulatory organization, domestic or foreign (each, a “Governmental
Authority”), applicable to any of them or any of their respective
properties, or (ii) in breach of or default under any bond, debenture, note or
other evidence of indebtedness, indenture, mortgage, deed of trust, lease or
any other agreement or instrument to which any of them is a party or by which
any of them or their respective property is bound (collectively, “Applicable
Agreements”), except for such violations, breaches or defaults that would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. There exists no condition that, with the passage of
time or otherwise, would constitute (a) a violation of such Charter Documents
or Applicable Laws, (b) a breach of or default under any Applicable Agreement,
except for such breaches that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, or (c) result in the
imposition of any penalty or the acceleration of any indebtedness.

 

(l)                        Neither
the execution, delivery or performance of the Offering Documents nor the
consummation of any transactions contemplated therein will conflict with,
violate, constitute a breach of or a default (with the passage of time or
otherwise) under, require the consent of any person (other than consents
already obtained and in full force and effect) under, result in the imposition
of a Lien on any assets of the Company or any of its respective Subsidiaries
(except for Liens pursuant to the Collateral Agreements and the Credit
Agreement), or result in an acceleration of indebtedness under or pursuant to
(i) the Charter Documents, (ii) any Applicable Agreement that have not
resulted, or would not be expected to result, individually or in the aggregate,
in a Material Adverse Effect, or (iii) any Applicable Law. After consummation
of the Offering and transactions contemplated in the Offering Documents, no
Default or Event of Default under the Indenture will exist.

 

(m)                  When executed
and delivered, the Offering Documents and the documents governing the
Transactions, including the Contribution Agreement and the Redemption Agreement
dated as of the Closing Date, will conform in all material respects to the
descriptions thereof in the Final Offering Circular.

 

(n)                    No consent,
approval, authorization or order of any Governmental Authority, or third party
is required for the issuance and sale by the Company of the Notes to the
Initial Purchaser or the consummation by the Company of the other transactions
contemplated hereby, except such as have been obtained and such as may be
required under state securities or “Blue Sky” laws in connection with the
purchase and resale of the Notes by the Initial Purchaser.

 

(o)                    Except as
disclosed in the Final Offering Circular under the caption “Business—Legal
Proceedings,” there is no action, claim, suit, demand, hearing, notice of
violation or deficiency, or proceeding, domestic or foreign (collectively, “Proceedings”),
pending or, to the knowledge of the Company or any of the Subsidiaries after
reasonable inquiry, threatened, that either (i) seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge any of the Offering
Documents or any of the transactions contemplated therein or (ii) would,
individually or in the aggregate, have a Material Adverse Effect. The Company
is not subject to any judgment, order, decree, rule or regulation of any
Governmental Authority that would, individually or in the aggregate, have a
Material Adverse Effect.

 

(p)                    The Company
and its Subsidiaries possess all licenses, permits, certificates, consents,
orders, approvals and other authorizations from, and has made all declarations
and filings with, all Governmental Authorities, presently required or necessary
to own or lease, as the case may be,

 

6

 

and to operate their
respective properties and to carry on their respective businesses as now or
proposed to be conducted as set forth in the Final Offering Circular (“Permits”),
except where the failure to obtain such Permits would not, individually or in
the aggregate, have a Material Adverse Effect; each of the Company and its
respective Subsidiaries has fulfilled and performed all of its obligations with
respect to such Permits and no event has occurred that allows, or after notice
or lapse of time would allow, revocation or termination thereof or results, or
after notice or lapse of time would result, in any other impairment of the
rights of the holder of any such Permit; in each case except as would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect; and none of the Company or its respective Subsidiaries has
received any notice of any proceeding relating to revocation or modification of
any such Permit, except as described in the Final Offering Circular or except
where such revocation or modification would not, individually or in the
aggregate, have a Material Adverse Effect.

 

(q)                    Neither the
Company nor any of its Subsidiaries owns any real property. Each of the Company
and its respective Subsidiaries has good title to all personal property owned
by it and good and marketable title to all leasehold estates in real and
personal property being leased by it and, as of the Closing Date, free and
clear of all Liens (other than Permitted Liens). All Applicable Agreements to
which the Company or any of its respective Subsidiaries is a party or by which
any of them is bound are valid and enforceable against each of the Company or
such Subsidiary, as applicable, and are valid and enforceable against the other
party or parties thereto and are in full force and effect with only such
exceptions as would not, individually or in the aggregate, have a Material
Adverse Effect.

 

(r)                       All Tax
returns required to be filed by the Company and each of the Subsidiaries have
been filed and all such returns are true, complete, and correct in all material
respects. All material Taxes that are due from the Company and its respective
Subsidiaries have been paid other than those (i) currently payable without
penalty or interest or (ii) being contested in good faith and by appropriate
proceedings and for which adequate reserves have been established in accordance
with generally accepted accounting principles of the United States,
consistently applied (“GAAP”). To the knowledge of the Company, there
are no actual or proposed Tax assessments against the Company or any of the
Subsidiaries that would, individually or in the aggregate, have a Material
Adverse Effect. The accruals and reserves on the books and records of the
Company and its respective Subsidiaries in respect of any material Tax
liability for any period not finally determined are adequate to meet any
assessments of Tax for any such period. For purposes of this Agreement, the
term “Tax” and “Taxes” shall mean all Federal, state, local and foreign taxes,
and other assessments of a similar nature (whether imposed directly or through
withholding), including any interest, additions to tax or penalties applicable
thereto.

 

(s)                     Each of the
Company and the Subsidiaries owns, or has a valid and enforceable license to
use, all patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service marks
and trade names (collectively, “Intellectual Property”) used in the
conduct of its business which, as of the Closing Date, free and clear of all
Liens, other than Permitted Liens. No claims or notices of any potential claim
have been asserted against the Company or its Subsidiaries in writing by any
party challenging the use of any such Intellectual Property by the Company or
any of the Subsidiaries, or (iii) questioning the validity or effectiveness or
enforceability of the Intellectual Property. To the knowledge of the Company,
the use of such Intellectual Property by the Company or any of the Subsidiaries
in a manner consistent with past practices does not infringe on the
Intellectual Property rights of any other person.

 

7

 

(t)                       Except as
disclosed in the Final Offering Circular, to the best of the Company’s
knowledge, (i) material financial transactions of the Predecessor are executed
in accordance with management’s general or specific authorization, (ii)
material transactions of the Predecessor are recorded as necessary to permit
preparation of financial statements in conformity with GAAP, and to maintain
asset accountability, and (iii) access to the Predecessor’s assets is permitted
only in accordance with management’s general or specific authorization.

 

(u)                    The audited
consolidated financial statements and related notes of the Predecessor and its
subsidiaries contained in the Final Offering Circular (the “Financial
Statements”) present fairly in all material respects the financial
position, results of operations and cash flows of the Predecessor and its
consolidated subsidiaries, as of the respective dates and for the respective
periods to which they apply and have been prepared in accordance with GAAP and
the requirements of Regulation S-X of the Act. The financial data set forth
under “Summary Historical and Unaudited Pro Forma Consolidated Financial Data”
and “Selected Historical Financial Data” included in the Final Offering
Circular has been prepared on a basis consistent with that of the Financial
Statements and present fairly the financial position in all material respects
and results of operations of the Predecessor and its consolidated subsidiaries
as of the respective dates and for the respective periods indicated. The
unaudited pro forma financial information and related notes contained in the
Final Offering Circular have been prepared in accordance with the requirements
of Regulation S-X and give effect to assumptions used in the’ preparation
thereof on a reasonable basis and in good faith. All other financial,
statistical, market and industry-related data included in the Final Offering
Circular are fairly and accurately presented and are based on or derived from
sources that the Company believes to be reliable and accurate.

 

(v)                    Subsequent to
the respective dates as of which information is given in the Final Offering
Circular, except as disclosed in the Final Offering Circular, (i) none of the
Predecessor or its subsidiaries or the Company or any of its Subsidiaries has
incurred any material liabilities, direct or contingent, or has entered into
any material transactions not in the ordinary course of business, (ii) there
has not been any material decrease in the capital stock or any material
increase in long-term indebtedness or any material increase in short-term
indebtedness of the Predecessor or the Company, or any payment of or
declaration to pay any dividends or any other distribution with respect to the
Predecessor or the Company, except the distribution to the shareholders of our
Predecessor prior to consummation of the Transactions in order to reduce the
estimated net worth as calculated in accordance with the Contribution Agreement
to an amount closer to the $26.7 million target net worth, and (iii) there has
not been any material adverse change in the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial or otherwise)
of the Predecessor and its subsidiaries or the Company and the Subsidiaries in
the aggregate (each of clauses (i), (ii) and (iii), a “Material Adverse
Change”). To the knowledge of the Company, there is no event that is
reasonably likely to occur, which if it were to occur, would, individually or
in the aggregate, have a Material Adverse Effect.

 

(w)                  No “nationally
recognized statistical rating organization” (as such term is defined for
purposes of Rule 436(g)(2) under the Act) (i) has imposed (or has informed the
Company that it is considering imposing) any condition (financial or otherwise)
on the Company, retaining any rating assigned to the Company or any of the
Subsidiaries or to any securities of the Company or any of the Subsidiaries or
(ii) has indicated to the Company that it is considering (A) the downgrading,
suspension or withdrawal of, or any review for a possible change that does not
indicate the direction of the possible change in, any rating so assigned, or
(B) any change in the

 

8

 

outlook for any rating of
the Company or any of the Subsidiaries or any securities of the Company or any
of the Subsidiaries.

 

(x)                      All
indebtedness represented by the Notes is being incurred for proper purposes and
in good faith. On the Closing Date, after giving pro forma effect to the
Transactions, the Company and each Guarantor (i) will have sufficient capital
for carrying on its business and (ii) will be able to pay its debts as they
mature.

 

(y)                    The Company
has not and, to its knowledge, no one acting on its behalf has, (i) taken,
directly or indirectly, any action designed to cause or to result in, or that
has constituted or that might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Notes, (ii) sold, bid for,
purchased or paid anyone any compensation for soliciting purchases of any of
the Notes or (iii) except as disclosed in the Final Offering Circular, paid or
agreed to pay to any person any compensation for soliciting another to purchase
any other securities of the Company; provided, that no representation is made
in this subsection with respect to the actions of the Initial Purchaser.

 

(z)                      Without
limiting any provision herein, no registration under the Act and no
qualification of the Indenture under the TIA is required for the sale of the
Notes to the Initial Purchaser as contemplated hereby or for the Exempt
Resales, assuming (i) that the purchasers in the Exempt Resales are QIBs or
Accredited Investors or non-U.S. persons (as defined under Regulation S of the
Act) and (ii) the accuracy of the Initial Purchaser’s representations contained
herein.

 

(aa)               The Notes are
eligible for resale pursuant to Rule 144A under the Act and no other securities
of the Company are of the same class (within the meaning of Rule 144A under the
Act) as the Notes and listed on a national securities exchange registered under
Section 6 of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), or quoted in a U.S. automated inter-dealer quotation system. No
securities of the Company of the same class as the Notes have been offered,
issued or sold by the Company or any of its respective Affiliates within the
six-month period immediately prior to the date hereof.

 

(bb)             Neither of the
Company nor any of its Affiliates or other person acting on behalf of the
Company has offered or sold the Notes by means of any general solicitation or
general advertising within the meaning of Rule 502(c) under the Act or, with
respect to Notes sold outside the United States to non-U.S. persons (as defined
in Rule 902 under the Act), by means of any directed selling efforts within the
meaning of Rule 902 under the Act, and the Company, any Affiliate of the
Company and any person acting on behalf of the Company have complied with and
will implement the “offering restrictions” within the meaning of such Rule 902;
provided, that no representation is made in this subsection with respect
to the actions of the Initial Purchaser.

 

(cc)               With respect to
each employee benefit plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”)) and each
other employee benefit plan, program, policy or arrangement (“Benefit Plans”)
maintained, sponsored or contributed to by the Company, the Subsidiaries or any
entity that would be deemed a “single employer” with the Company or any
Subsidiary under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of
ERISA (an “ERISA Affiliate”), no condition exists or event or
transaction has occurred in connection with any Benefit Plan that could result
in the Company or any ERISA Affiliate incurring any liability, fine or penalty
that could individually or in the aggregate have a Material Adverse Effect.
None of the Company, any Subsidiary, any ERISA Affiliate or any of their
respective predecessors has ever contributed to, contributes to, has ever been
required to

 

9

 

contribute to, or
otherwise participated in or participates in or in any way, directly or
indirectly, has any liability with respect to any plan subject to Section 412
of the Code, Section 302 of ERISA or Title IV of ERISA, including, without limitation,
any “multiemployer plan” (within the meaning of Sections 3(37) or 4001(a)(3) of
ERISA or Section 414(f) of the Code) or any single employer pension plan
(within the meaning of Section 4001(a)(15) of ERISA) which is subject to
Sections 4063,4064 and 4069 of ERISA.

 

(dd)             (i) Neither the
Company nor any of the Subsidiaries is party to or bound by any collective
bargaining agreement with any labor organization; (ii) none of the employees of
the Company or any Subsidiary is represented by a labor union, and, to the
knowledge of the Company, no petition has been filed, nor has any proceeding
been instituted by any employee or group of employees with any labor relations
board or commission seeking recognition of a collective bargaining
representative; (iii) to the knowledge of the Company, (a) there is no
organizational effort currently being made or threatened by or on behalf of any
labor organization or trade union to organize any employees of the Company or
any Subsidiary, and (b) no demand for recognition of any employees of the
Company or any Subsidiary has been made by or on behalf of any labor
organization or trade union; (iv) no labor strike, work stoppage, slowdown or
other material labor dispute is pending against the Company or the
Subsidiaries, or, to the knowledge of the Company after reasonable inquiry,
threatened against the Company or the Subsidiaries; (v) the Company and any
Subsidiary has paid or made provision for payment of all salaries, wages, and
vacation pay accrued through the Closing Date, are in compliance in all
material respects with (a) all federal and state laws respecting employment and
employment practices, terms and conditions of employment, collective
bargaining, immigration, wages, hours and benefits, non-discrimination in employment,
workers compensation, the collection and payment of withholding and/or payroll
taxes and similar taxes (except for non-compliance which, individually or in
the aggregate, would not have a Material Adverse Effect); (vi) to the knowledge
of the Company after reasonable inquiry, there is no threatened or pending
liability against the Company or the Subsidiaries pursuant to the Worker
Adjustment Retraining and Notification Act of 1988, as amended (“WARN”),
or any similar state or local law; (vii) there is no employment-related charge,
complaint, grievance, investigation, unfair labor practice claim or inquiry of
any kind pending against the Company or the Subsidiaries that could,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; (viii) to the knowledge of the Company after reasonable
inquiry, no employee or agent of the Company or the Subsidiaries has committed
any act or omission giving rise to liability for any violation identified in
subsection (vi) and (vii) above, other than such acts or omissions that would
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect; and (ix) no term or condition of employment exists
through arbitration awards, settlement agreements, or side agreement that is
contrary to the express terms of any applicable collective bargaining
agreement.

 

(ee)               None of the
transactions contemplated in the Offering Documents or the application of the
proceeds by the Company or any of the Subsidiaries of the proceeds of the Notes
will violate or result in a violation of Section 7 of the Exchange Act
(including, without limitation, Regulation T (12 C.F.R. Part 220), Regulation U
(12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of
Governors of the Federal Reserve System).

 

(ff)                   Neither the
Company nor any of the Subsidiaries is an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to
be registered under Section 8 of the United States Investment Company Act of
1940 (the “Investment Company Act”); and neither the Company nor any of
the Subsidiaries, after giving effect to the Offering

 

10

 

and sale of the Notes and
the application of the proceeds thereof as described in the Final Offering
Circular, will be an “investment company” as defined in the Investment Company
Act.

 

(gg)             The Company has not
engaged any broker, finder, commission agent or other person (other than the
Initial Purchaser) in connection with the Offering or any of the transactions
contemplated in the Offering Documents, and the Company is not under any
obligation to pay any broker’s fee or commission in connection with such
transactions (other than commissions or fees to the Initial Purchaser).

 

(hh)             Each of the Company
and the Subsidiaries (i) is in compliance with any and all applicable foreign,
federal, state and local laws and regulations relating to health and safety, or
the pollution or the protection of the environment or hazardous or toxic
substances, wastes, pollutants or contaminants (collectively and individually,
“Environmental Laws”), (ii) has received and is in compliance with all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct its respective businesses and (iii) has not
received notice of, and does not have knowledge of, any actual or potential
liability for damages to natural resources or the investigation or remediation
of any disposal, release or existence of hazardous or toxic substances or
wastes, pollutants or contaminants, in each case, except where such
non-compliance with Environmental Laws, failure to receive and comply with
required permits, licenses or other approvals, or liability would not, individually
or in the aggregate, have a Material Adverse Effect, whether or not arising
from transactions in the ordinary course of business. Neither the Company nor
any of the Subsidiaries has been named as a “potentially responsible party”
under the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended or any similar state or local laws or regulations, or is
required under any foreign Environmental Laws to investigate or remediate any
pollutants or contaminates, except where such requirement would not,
individually or in the aggregate, have a Material Adverse Effect, whether or
not arising from transactions in the ordinary course of business. None of the
transactions contemplated by this Agreement will trigger any filing requirement
or other action under the New Jersey Industrial Site Recovery Act (N.J.A.C.
§7:26B, et. seq.), as amended, or any rules or regulations
promulgated thereunder.

 

(ii)                     Except as
described in the Final Offering Circular, as of the Closing Date, there will be
no encumbrances or restrictions on the ability of any Subsidiary of the Company
(x) to pay dividends or make other distributions on such Subsidiary’s capital
stock or to pay any indebtedness to the Company or any other Subsidiary of the
Company, (y) to make loans or advances or pay any indebtedness to, or
investments in, the Company or any other Subsidiary of the Company or (z) to
transfer any of its property or assets to the Company or any other Subsidiary
of the Company.

 

(jj)                     (A) Each of
the Collateral Agreements creates a valid and enforceable security interest in
favor of the Collateral Agent for the benefit of the Secured Parties in those
types of Collateral (as defined in the Security Agreement) in which a security
interest may be created under Article 8 or Article 9 of the Uniform Commercial
Code as in effect in the State of New York (the “New York UCC”) (such
Collateral, the “Article 8 Collateral” or the “Article 9 Collateral,”
as appropriate).

 

(B)                   When Uniform
Commercial Code financing statements naming each of the Company and each
Domestic Restricted Subsidiary as debtor and the Collateral Agent as secured
party are completed in appropriate form for filing and duly filed in the filing
offices in the States identified in Schedule I hereto opposite the name of the
Company or such Domestic Restricted Subsidiary, as the case may be, all

 

11

 

security interests in all
Article 9 Collateral which can be perfected under the Uniform Commercial Code
as in effect in such State by the filing of a financing statement in such State
will be perfected. No further action will be required in order to perfect such
security interests. To our knowledge, no mortgage, recording, registration,
stamp or other similar tax or fee will be due upon the execution, delivery,
recordation, filing or performance, as the case may be, of any financing
statements referred to in this clause (B), except nominal filing fees.

 

(C)                   Upon delivery
to, and the continued possession by, HSBC, as representative (as defined in
Section 1-201(35) of the New York UCC) for the Secured Parties and the Lender
(in such capacity, the “Control Collateral Sub-Agent”), in the State of New
York of the certificates evidencing all of the shares of pledged Equity
Interests (as defined in the Security Agreement) (the “Pledged Shares”),
together with stock powers or other powers of transfer executed in blank and
assuming the Control Collateral Sub-Agent has no notice of any adverse claim to
the Pledged Shares, the Control Collateral Sub-Agent will have the status of a
“protected purchaser” with respect to the Pledged Shares under (and as defined
in) Section 8-303(a) of the NY UCC.

 

(D)                  Upon the
crediting of any financial assets (as defined in the New York UCC) to a Securities
Account (as defined in the Security Agreement) that is the subject of a
Securities Account Control Agreement that has been executed and delivered by
the Company or the applicable Domestic Restricted Subsidiary, as the case may
be, the securities intermediary identified therein and the Collateral Agent,
the Collateral Agent for the benefit of the Secured Parties (as defined in the
Security Agreement) will have “control” (as defined in Section 8-106 of the New
York UCC) over such Securities Account and in the financial assets contained
therein, and the security interest in such Securities Account and financial
assets will be perfected. No recordation or filing need be made, and no other
action need be taken, in order to perfect the Collateral Agent’s security
interest in such Securities Account or such financial assets.

 

(E)                    Upon the
execution and delivery of each Control Agreement relating to any Deposit
Account (as defined in the Security Agreement) of the Company or any Domestic
Restricted Subsidiary by the Company or such Domestic Restricted Subsidiary, as
the case may be, the depositary identified therein and the Collateral Agent,
the Collateral Agent for the benefit of the Secured Parties (as defined in the
Security Agreement) will have “control” (as defined in Section 9-104(a) of the
New York UCC) over such Deposit Account and all cash, checks, drafts, notes,
bills of exchange, money orders and other like instruments held therein, and
the security interest in such Deposit Account will be perfected. No recordation
or filing need be made, and no other action need be taken, in order to perfect
the Collateral Agent’s security interest in such Deposit Accounts.

 

(F)                    As of the
Closing Date and immediately following the Closing, except with respect to Permitted
Liens, there will be no currently effective financing statement, security
agreement, chattel mortgage, real estate mortgage or other document filed or
recorded with any filing records, registry, or other public office, that
purports to cover, affect or give notice of any present or possible future Lien
on, or security interest in, any assets or property of the Company or

 

12

 

any Domestic Restricted
Subsidiary or any rights thereunder.

 

(kk)               Each certificate
signed by any officer of the Company, or any Subsidiary thereof, delivered to
the Initial Purchaser shall be deemed a representation and warranty by the
Company or any such Subsidiary thereof (and not individually by such officer)
to the Initial Purchaser with respect to the matters covered thereby.

 

(ll)                     Each of the
Company and each of its respective Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged. All policies of insurance insuring the Company or any of its
respective Subsidiaries or their respective businesses, assets, employees,
officers and directors are in full force and effect. The Company and the
Subsidiaries are in compliance with the terms of such policies and instruments
in all material respects, and there are no claims by the Company or any of the
Subsidiaries under any such policy or instrument as to which any insurance
company is denying liability or defending under a reservation of rights clause.
Neither the Company nor any such Subsidiary has been refused any insurance
coverage sought or applied for, and neither the Company nor any such Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at
a cost that would not, individually or in the aggregate, have a Material
Adverse Effect.

 

(mm)         Set forth on Schedule
II hereto is a list of all Indebtedness that is to be paid down using the
proceeds of the Offering as of the close of business on the date hereof.

 

(nn)             The Predecessor has
been duly incorporated, is validly existing and is in good standing under the
laws of Delaware. The Contribution Agreement has been duly and validly
authorized by the Predecessor and the Company. When executed and delivered by
the Predecessor and the Company, the Contribution Agreement will constitute a
legal, valid and binding obligation of each of the Predecessor and the Company,
enforceable against each of the Predecessor and the Company in accordance with
its terms. The assets contributed pursuant to the Contribution Agreement
constitute substantially all of the assets of the Predecessor as reflected on
the Balance Sheet of the Predecessor as of December 31, 2004 included in the
Final Offering Circular.

 

5.         Covenants of the
Company and the Guarantors. Each of the Company and the Guarantors jointly
and severally agrees:

 

(a)                     At any time
prior to the date of the completion of the resale of the Notes by the Initial
Purchaser, to (i) advise the Initial Purchaser promptly after obtaining
knowledge (and, if requested by the Initial Purchaser, confirm such advice in
writing) of (A) the issuance by any state securities commission of any stop
order suspending the qualification or exemption from qualification of any of
the Notes for offer or sale in any jurisdiction, or the initiation of any
proceeding for such purpose by any state securities commission or other
regulatory authority, or (B) the happening of any event that makes any
statement of a material fact made in the Final Offering Circular untrue or that
requires the making of any additions to or changes in the Final Offering
Circular in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, (ii) use its
commercially reasonable efforts to prevent the issuance of any stop order or
order suspending the qualification or exemption from qualification of any of
the Notes under any state securities or Blue Sky laws, and (iii) if, at any
time, any state securities commission or other regulatory authority shall issue
an order suspending the qualification or exemption from

 

13

 

qualification of any of
the Notes under any such laws, use its commercially reasonable efforts to
obtain the withdrawal or lifting of such order at the earliest possible time.

 

(b)                    To (i) furnish
the Initial Purchaser, without charge, as many copies of the Final Offering
Circular, and any amendments or supplements thereto, as the Initial Purchaser
may reasonably request, and (ii) promptly prepare, upon the Initial Purchaser’s
reasonable request, any amendment or supplement to the Offering Circular that
the Initial Purchaser, upon written advice of legal counsel, determines may be
necessary in connection with Exempt Resales (and the Company hereby consents to
the use of the Preliminary Offering Circular and the Final Offering Circular,
and any amendments and supplements thereto, by the Initial Purchaser in
connection with Exempt Resales).

 

(c)                     Not to amend
or supplement the Offering Circular prior to the Closing Date, or at any time prior
to the completion of the resale by the Initial Purchaser of all the Notes
purchased by the Initial Purchaser, unless the Initial Purchaser shall
previously have been advised thereof and shall have provided its written
consent thereto.

 

(d)                    Until the date
upon which the Initial Purchaser shall have completed the resale of the Notes,
(i) if any event shall occur as a result of which, in the reasonable judgment
of the Company or the Initial Purchaser, it becomes necessary or advisable to
amend or supplement the Final Offering Circular in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or if it is necessary to amend or supplement the Final Offering
Circular to comply with Applicable Law, to prepare, at the expense of the
Company, an appropriate amendment or supplement to the Final Offering Circular
(in form and substance reasonably satisfactory to the Initial Purchaser) so
that (A) as so amended or supplemented, the Final Offering Circular will not
include an untrue statement of material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (B) the Final
Offering Circular will comply with Applicable Law and (ii) if, in the
reasonable judgment of the Company, it becomes necessary or advisable to amend
or supplement the Final Offering Circular so that the Final Offering Circular
will contain all of the information specified in, and meet the requirements of,
Rule 144A(d)(4) of the Act, to prepare an appropriate amendment or supplement
to the Final Offering Circular (in form and substance reasonably satisfactory
to the Initial Purchaser) so that the Final Offering Circular, as so amended or
supplemented, will contain the information specified in, and meet the
requirements of, such Rule.

 

(e)                     To cooperate
with the Initial Purchaser and the Initial Purchaser’s counsel in connection
with the qualification of the Notes under the securities or Blue Sky laws of
such jurisdictions as the Initial Purchaser may reasonably request and continue
such qualification in effect so long as reasonably required for Exempt Resales.

 

(f)                       Upon
consummation of the Offering and the transactions contemplated under the
Offering Documents, each of the Company and the Guarantors jointly and
severally agree to pay (i) all costs, expenses, fees and taxes incident to and
in connection with: (A) the preparation, printing and distribution of the
Preliminary Offering Circular and the Final Offering Circular and all
amendments and supplements thereto (including, without limitation, financial
statements and exhibits), and all other agreements, memoranda, correspondence
and other documents prepared and delivered in connection herewith, (B) the
negotiation, printing, processing and distribution (including, without
limitation, word processing and duplication costs) and delivery of, each of the
Offering Documents, (C) the preparation, issuance and delivery of the Notes,
(D) the qualification

 

14

 

of the Notes for offer
and sale under the securities or Blue Sky laws of the several states
(including, without limitation, the fees and disbursements of the Initial
Purchaser’s counsel relating to such registration or qualification) and (E)
furnishing such copies of the Preliminary Offering Circular and the Final
Offering Circular, and all amendments and supplements thereto, as may
reasonably be requested for use by the Initial Purchaser, (ii) all reasonable
fees and expenses of the counsel, accountants and any other experts or advisors
retained by the Company, (iii) all expenses and listing fees in connection with
the application for quotation of the Notes on the Private Offerings, Resales
and Trading Automated Linkages (“PORTAL”) market, (iv) all fees and
expenses (including reasonable fees and expenses of counsel) of the Company in
connection with approval of the Notes by DTC for “book-entry” transfer, (v) all
fees charged by rating agencies in connection with the rating of the Notes,
(vi) all fees and expenses (including reasonable fees and expenses of counsel)
of the Trustee and all collateral agents, (vii) all costs and expenses in
connection with the creation and perfection of the security interest in the
Collateral (including without limitation, filing and recording fees, search
fees, taxes and costs of title policies) and (viii) all reasonable fees,
disbursements and out-of-pocket expenses incurred by the Initial Purchaser in
connection with its services to be rendered hereunder including, without
limitation, the reasonable fees, expenses and disbursements and charges of
Proskauer Rose LLP, counsel to the Initial Purchaser, travel and lodging
expenses, word processing charges, messenger and duplicating services,
facsimile expenses and other customary expenditures, it being understood that
no amounts will be due and payable by the Company pursuant to this Agreement
unless and until the Offering is consummated.

 

(g)                    To use the
proceeds of the Offering in the manner described in the Final Offering Circular
under the caption “Use of Proceeds.”

 

(h)                    To do and
perform all things required to be done and performed under the Offering
Documents prior to and after the Closing Date.

 

(i)                        Not to, and
to ensure that no affiliate (as defined in Rule 501(b) of the Act) of the
Company will, sell, offer for sale or solicit offers to buy or otherwise
negotiate in respect of any “security” (as defined in the Act) that would be
integrated with the sale of the Notes in a manner that would require the
registration under the Act of the sale to the Initial Purchaser or to the
Subsequent Purchasers of the Notes.

 

(j)                        For so
long as any of the Notes remain outstanding, during any period in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act, to make
available, upon request, to any owner of the Notes in connection with any sale
thereof and any prospective Subsequent Purchasers of such Notes from such
owner, the information required by Rule 144A(d)(4) under the Act.

 

(k)                     To comply
with the representation letter of the Company to DTC relating to the approval
of the Notes by DTC for “book entry” transfer.

 

(l)                        To use its
commercially reasonable efforts to effect the inclusion of the Notes in Private
Offerings, Resales and Trading through Automated Linkages Market.

 

(m)                  For so long as
any of the Notes remain outstanding, the Company will furnish to the Initial
Purchaser copies of all reports and other communications (financial or
otherwise) furnished by the Company to the Trustee or to the holders of the
Notes and, as soon as available, copies of any

 

15

 

reports or financial
statements furnished to or filed by the Company with the SEC or any national securities
exchange on which any class of securities of the Company may be listed.

 

(n)                    Except in
connection with the Exchange Offer or the filing of the Shelf Registration
Statement, not to, and not to authorize or permit any person acting on its
behalf to, (i) distribute any offering material in connection with the offer
and sale of the Notes other than the Preliminary Offering Circular and the
Final Offering Circular and any amendments and supplements to the Final
Offering Circular prepared in compliance with this Agreement, or (ii) solicit
any offer to buy or offer to sell the Notes by means of any form of general
solicitation or general advertising (including, without limitation, as such
terms are used in Regulation D under the Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Act.

 

(o)                    During the
two-year period after the Closing Date (or such shorter period as may be
provided for in Rule 144(k) under the Act, as the same may be in effect from
time to time), to not, and to not permit any current or future Subsidiaries of
either the Company or any other affiliates (as defined in Rule 144A under the
Act) controlled by the Company to, resell any of the Notes that constitute
“restricted securities” under Rule 144 that have been reacquired by the
Company, any current or future Subsidiaries or any other “affiliates” (as
defined in Rule 144A under the Act) controlled by the Company, except pursuant
to an effective registration statement under the Act.

 

(p)                    The Company
shall pay all stamp, documentary and transfer taxes and other duties, if any,
which may be imposed by the United States or any political subdivision thereof
or taxing authority thereof or therein with respect to the issuance of the
Notes or the sale thereof to the Initial Purchaser.

 

(q)                    To use their
commercially reasonable efforts to complete on or prior to the Closing Date all
filings and other similar actions required in connection with the perfection of
security interests as and to the extent contemplated by the Collateral
Agreements.

 

(r)                       To cause
each of the Guarantors to execute counterparts of this Agreement in the form
attached as Exhibit C hereto.

 

6.         Representations and
Warranties of the Initial Purchaser. The Initial Purchaser represents
and warrants that:

 

(a)                     It is a QIB
as defined in Rule 144A under the Act and it will offer the Notes for resale
only upon the terms and conditions set forth in this Agreement and in the Final
Offering Circular.

 

(b)                    It is not
acquiring the Notes with a view to any distribution thereof that would violate
the Act or the securities laws of any state of the United States or any other
applicable jurisdiction. In connection with the Exempt Resales, it will solicit
offers to buy the Notes only from, and will offer and sell the Notes only to,
(A) persons reasonably believed by the Initial Purchaser to be QIBs or (B)
persons reasonably believed by the Initial Purchaser to be Accredited Investors
or (C) non-U.S. persons reasonably believed by the Initial Purchaser to be a
purchaser referred to in Regulation S under the Act; provided, however,
that in purchasing such Notes, such persons are deemed to have represented and
agreed as provided under the caption “Notice
to Investors” contained in the Final Offering Circular.

 

(c)                     No form of
general solicitation or general advertising in violation of the Act has been or
will be used nor will any offers in any manner involving a public offering
within the meaning of Section 4(2) of the Act or, with respect to Notes to be
sold in reliance on Regulation S, by means of any

 

16

 

directed selling efforts
be made by such Initial Purchaser or any of its representatives in connection
with the offer and sale of any of the Notes.

 

(d)                    The Initial
Purchaser will deliver to each Subsequent Purchaser of the Notes, in connection
with its original distribution of the Notes, a copy of the Final Offering
Circular, as amended and supplemented at the date of such delivery.

 

7.         Conditions.
The obligations of the Initial Purchaser to purchase the Notes under this
Agreement are subject to the performance by each of the Company and the
Guarantors of their respective covenants and obligations hereunder and the
satisfaction of each of the following conditions:

 

(a)                     All the
representations and warranties of the Company and the Guarantors contained in
this Agreement and in each of the Offering Documents shall be true and correct
in all material respects as of the date hereof and at the Closing Date. On or
prior to the Closing Date, the Company and each other party to the Offering
Documents (other than the Initial Purchaser) shall have performed or complied
with all of the agreements and satisfied all conditions on their respective
parts to be performed, complied with or satisfied pursuant to the Offering
Documents (other than conditions to be satisfied by such other parties, which
the failure to so satisfy would not, individually or in the aggregate, have a
Material Adverse Effect).

 

(b)                    No injunction,
restraining order or order of any nature by a Governmental Authority shall have
been issued as of the Closing Date that would prevent or materially interfere
with the consummation of the Offering or any of the transactions contemplated
under the Offering Documents; and no stop order suspending the qualification or
exemption from qualification of any of the Notes in any jurisdiction shall have
been issued and no Proceeding for that purpose shall have been commenced or, to
the knowledge of the Company after reasonable inquiry, be pending or
contemplated as of the Closing Date.

 

(c)                     No action
shall have been taken and no Applicable Law shall have been enacted, adopted or
issued that would, as of the Closing Date, prevent the consummation of the
Offering or any of the transactions contemplated under the Offering Documents.
No Proceeding shall be pending or, to the knowledge of the Company, threatened
other than Proceedings that (A) if adversely determined would not, individually
or in the aggregate, adversely affect the issuance or marketability of the
Notes, and (B) would not, individually or in the aggregate, have a Material
Adverse Effect.

 

(d)                    Subsequent to
the respective dates as of which data and information is given in the Final
Offering Circular, there shall not have been any Material Adverse Change.

 

(e)                     The Notes
shall have been designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in The PORTAL Market.

 

(f)                       On or after
the date hereof, (i) there shall not have occurred any downgrading, suspension
or withdrawal of, nor shall any notice have been given of any potential or
intended downgrading, suspension or withdrawal of, or of any review (or of any
potential or intended review) for a possible change that does not indicate the
direction of the possible change in, any rating of the Company or any
securities of the Company (including, without limitation, the placing of any of
the foregoing ratings on credit watch with negative or developing implications
or under review with an uncertain direction) by any “nationally recognized
statistical rating organization” as such term is defined for purposes of Rule
436(g)(2) under the Act, (ii) there shall not have occurred

 

17

 

any change, nor shall any
notice have been given of any potential or intended change, in the outlook for
any rating of the Company or any securities of the Company by any such rating
organization and (iii) no such rating organization shall have given notice that
it has assigned (or is considering assigning) a lower rating to the Notes than
that on which the Notes were marketed.

 

(g)                    The Initial
Purchaser shall have received on the Closing Date:

 

(i)                       certificates
dated the Closing Date, signed by (1) the Chief Executive Officer and (2) the
principal financial or accounting officer of the Company, on behalf of the
Company, to the effect that (a) the representations and warranties set forth in
Section 4 hereof, in each of the Offering Documents are true and correct in all
material respects with the same force and effect as though expressly made at
the Closing Date, (b) the Company has performed and complied with all
agreements and satisfied all conditions in all material respects on its part to
be performed or satisfied at or prior to the Closing Date, (c) at the Closing
Date, since the date hereof or since the date of the most recent financial
statements in the Final Offering Circular (exclusive of any amendment or
supplement thereto after the date hereof), no event or events have occurred, no
information has become known nor does any condition exist that, individually or
in the aggregate, would have a Material Adverse Effect, (d) since the date of
the most recent financial statements in the Final Offering Circular (exclusive
of any amendment or supplement thereto after the date hereof), other than as
described in the Final Offering Circular or contemplated hereby, none of the
Predecessor or its subsidiaries or the Company or any Subsidiary of the Company
has incurred any liabilities or obligations, direct or contingent, not in the
ordinary course of business, that are material to the Company and the
Subsidiaries, taken as a whole, or entered into any transactions not in the ordinary
course of business that are material to the business, condition (financial or
otherwise) or results of operations or prospects of the Company and the
Subsidiaries, taken as a whole, and there has not been any change in the
capital stock or equity interest, as applicable, or long-term indebtedness of
the Predecessor or its subsidiaries or the Company or any Subsidiary of the
Company that is material to the business, condition (financial or otherwise) or
results of operations or prospects of the Company and the Subsidiaries, taken
as a whole, and (e) the sale of the Notes has not been enjoined (temporarily or
permanently);.

 

(ii)                    a certificate,
dated the Closing Date, executed by the Secretary of the Company and each
Guarantor, certifying such matters as the Initial Purchaser may reasonably
request;

 

(iii)                 a solvency
opinion, dated the Closing Date, in form reasonably satisfactory to the Initial
Purchaser covering such matters as are customarily covered in such opinions;

 

(iv)                the opinion of
Schulte Roth & Zabel LLP, counsel to the Company, dated the Closing Date,
in the form of Exhibit A attached hereto;

 

(v)                   the opinion of
Kronish Lieb Weiner & Hellman LLP, counsel to the Predecessor, dated the
Closing Date, in the form of Exhibit B attached hereto; and

 

(vi)                an opinion, dated
the Closing Date, of Proskauer Rose LLP, counsel to the Initial Purchaser, in
form satisfactory to the Initial Purchaser covering such matters as are
customarily covered in such opinions.

 

(h)                    The Initial
Purchaser shall have received from Berenson LLP, independent auditors, with
respect to the Predecessor and the Company, (A) a customary comfort letter,
dated the date of the Final

 

18

 

Offering Circular, in
form and substance reasonably satisfactory to the Initial Purchaser and its
counsel, with respect to the financial statements and certain financial
information contained in the Final Offering Circular, and (B) a customary
comfort letter, dated the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchaser and its counsel, to the effect that
Berenson LLP reaffirms the statements made in its letter furnished pursuant to
clause (A).

 

(i)                        Each of
the Offering Documents shall have been executed and delivered by all parties
thereto, and the Initial Purchaser shall have received a fully executed
original of each Document.

 

(j)                        The
Initial Purchaser shall have received copies of all opinions, certificates,
letters and other documents delivered under or in connection with the Offering
or any transaction contemplated in the Offering Documents.

 

(k)                     The terms of
each Document shall conform in all material respects to the description thereof
in the Final Offering Circular.

 

(l)                        The
Collateral Agent shall have received (with a copy for the Initial Purchaser) on
the Closing Date:

 

(i)                       appropriately
completed copies of Uniform Commercial Code financing statements naming the
Company and each Guarantor as a debtor and the Collateral Agent as the secured
party, or other similar instruments or documents to be filed under the UCC of
all jurisdictions as may be necessary or, in the reasonable opinion of the
Collateral Agent and its counsel, desirable to perfect the security interests
of the Collateral Agent pursuant to the Security Agreement;

 

(ii)                    appropriately
completed copies of Uniform Commercial Code Form UCC 3 termination statements,
if any, necessary to release all Liens (other than Permitted Liens) of any
Person in any collateral described in any Security Agreement previously granted
by any Person;

 

(iii)                 certified copies
of Uniform Commercial Code Requests for Information or Copies (Form UCC 11), or
a similar search report certified by a party acceptable to the Collateral
Agent, dated a date reasonably near to the Closing Date, listing all effective
financing statements which name the Company or any Guarantor (under its present
name and any previous names) as the debtor, together with copies of such
financing statements (none of which shall cover any collateral described in any
Collateral Agreement, other than such financing statements that evidence
Permitted Liens);

 

(iv)                such other
approvals, opinions, or documents as the Collateral Agent may reasonably
request in form and substance reasonably satisfactory to the Collateral Agent;
and

 

(v)                   the Collateral
Agent and its counsel shall be satisfied that (i) the Lien granted to the
Collateral Agent, for the benefit of the Secured Parties in the collateral
described above is of the priority described in the Final Offering Circular; and
(ii) no Lien exists on any of the collateral described above other than the
Lien created in favor of the Collateral Agent, for the benefit of the Secured
Parties, pursuant to a Collateral Agreement, in each case subject to the
Permitted Liens.

 

(m)                  Provision shall
have been made for the filing of all Uniform Commercial Code financing
statements or other similar financing statements and Uniform Commercial Code
Form UCC-3

 

19

 

termination statements
required pursuant to clauses (1)(i) and (ii) above reasonably
acceptable to the Collateral Agent.

 

(n)                    The Initial
Purchaser shall have received written evidence (including the execution of the
Contribution Agreement), reasonably satisfactory to the Initial Purchaser, that
the Asset Contribution has been consummated as described under the section of
the Offering Circular entitled “The
Acquisition Transactions.”

 

(o)                    The Initial
Purchaser shall have received written evidence, reasonably satisfactory to the
Initial Purchaser, that the Equity Investment has been consummated as described
under the section of the Offering Circular entitled “The Acquisition Transactions.”

 

(p)                    The Company
and the Guarantors shall have entered into the Credit Agreement as described
under the section of the Offering Circular entitled “Certain Indebtedness.”

 

(r)                       Each of the
Subsidiaries shall have executed counterparts of this Agreement in the form
attached as Exhibit C hereto and delivered copies of such executed
counterparts to the Initial Purchaser.

 

8.                         Indemnification
and Contribution.

 

(a)                     Each of the
Company and the Guarantors jointly and severally agree to indemnify and hold
harmless the Initial Purchaser, and each person, if any, who controls the
Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, against any losses, claims, damages or liabilities of any
kind to which the Initial Purchaser or such controlling person may become
subject under the Act, the Exchange Act or otherwise, insofar as any such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon:

 

(i)                       any untrue
statement or alleged untrue statement of any material fact contained in any
Offering Circular or any amendment or supplement thereto;

 

(ii)                    the omission
or alleged omission to state, in any Offering Circular or any amendment or
supplement thereto, a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading; or

 

(iii)                 any breach by the
Company or any of the Guarantors of their respective representations,
warranties and agreements set forth herein;

 

and, subject to the
provisions hereof, will reimburse, as incurred, the Initial Purchaser and each
such controlling person for any legal or other expenses reasonably incurred by
the Initial Purchaser or such controlling person in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action in respect
thereof; provided, however, that the Company and the Guarantors
will not be liable in any such case to the extent (but only to the extent) that
any such loss, claim, damage or liability is finally judicially determined by a
court of competent jurisdiction in a final, unappealable judgment, to have
resulted solely from any untrue statement or alleged untrue statement or
omission or alleged omission made in any Offering Circular or any amendment or
supplement thereto in reliance upon and in conformity with written information
concerning the Initial Purchaser furnished to the Company by the Initial
Purchaser specifically for use therein. This indemnity agreement will be in
addition to any liability that the Company and the Guarantors may otherwise
have to the indemnified parties. The Company and the Guarantors

 

20

 

shall not be liable under
this Section 8 for any settlement of any claim or action effected without their
prior written consent, which shall not be unreasonably withheld; and provided further, however,
that this indemnity, as to the Preliminary Offering Circular, shall not inure
to the benefit of the Initial Purchaser (or any person controlling such Initial
Purchaser) on account of any loss, claim, damage or liability arising from the
sale of Notes to any person by such Initial Purchaser if such Initial Purchaser
failed to send or give a copy of the Final Offering Circular (as the same may
be supplemented or amended) to such person at or prior to the written
confirmation of the sale of the Notes to such person, and the untrue statement
or alleged untrue statement or omission or alleged omission of a material fact
in such Preliminary Offering Circular was corrected in the Final Offering
Circular, unless such failure resulted from noncompliance by the Company with
Section 5(b).

 

(b)                    The Initial
Purchaser agrees to indemnify and hold harmless each of the Company, the
Guarantors and their respective directors, officers and each person, if any,
who controls the Company or the Guarantors within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act against any losses, claims, damages
or liabilities to which the Company, the Guarantors or any such director,
officer or controlling person may become subject under the Act, the Exchange
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) are finally judicially determined by a court of
competent jurisdiction in a final, unappealable judgment, to have resulted
solely from (i) any untrue statement or alleged untrue statement of any
material fact contained in any Offering Circular or any amendment or supplement
thereto or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in any Offering Circular or any amendment
or supplement thereto or necessary to make the statements therein not
misleading, in each case to the extent (but only to the extent) that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information concerning such
Initial Purchaser, furnished to the Company or its agents by the Initial
Purchaser specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses incurred by the Company, each of the Guarantors or any such
director, officer or controlling person in connection with any such loss,
claim, damage, liability or action in respect thereof. This indemnity agreement
will be in addition to any liability that the Initial Purchaser may otherwise
have to the indemnified parties.

 

(c)                     As promptly
as reasonably practicable after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action for which such
indemnified party is entitled to indemnification under this Section 8, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party of the
commencement thereof in writing; but the omission to so notify the indemnifying
party (i) will not relieve such indemnifying party from any liability under paragraph
(a) or (b) above unless and only to the extent it is materially prejudiced as a
result thereof and (ii) will not, in any event, relieve the indemnifying party
from any obligations to any indemnified party other than the indemnification
obligation provided in paragraphs (a) and (b) above. In case any such action is
brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may determine, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if (i) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict
of interest, (ii) the defendants in any such action include both the
indemnified party and the indemnifying party, and the indemnified party shall
have been advised by counsel in writing that there may be one or more legal
defenses

 

21

 

available to it and/or
other indemnified parties that are different from or additional to those
available to the indemnifying party, or (iii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after receipt by the
indemnifying party of notice of the institution of such action, then, in each
such case, the indemnifying party shall not have the right to direct the
defense of such action on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select one separate
counsel to defend such action on behalf of such indemnified party or parties at
the expense of the indemnifying party. After notice from the indemnifying party
to such indemnified party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend such action,
the indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses, other than reasonable costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to one local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, designated by the Initial
Purchaser in the case of paragraph (a) of this Section 8 or the Company in the
case of paragraph (b) of this Section 8, representing the indemnified parties
under such paragraph (a) or paragraph (b), as the case may be, who are parties
to such action or actions) or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. After such notice from the indemnifying party to such indemnified
party, the indemnifying party will not be liable for the costs and expenses of
any settlement of such action effected by such indemnified party without the
prior written consent of the indemnifying party (which consent shall not be
unreasonably withheld), unless such indemnified party waived in writing its
rights under this Section 8, in which case the indemnified party may effect
such a settlement without such consent; provided that, in any case, any
settlement shall be subject to paragraph (d) of this Section 8.

 

(d)                    No
indemnifying party shall be liable under this Section 8 for any settlement of
any claim or action (or threatened claim or action) effected without its
written consent, which shall not be unreasonably withheld, but if a claim or
action is settled with its written consent, or if there is a final judgment for
the plaintiff with respect to any such claim or action, each indemnifying party
jointly and severally agrees, subject to the exceptions and limitations set
forth above, to indemnify and hold harmless each indemnified party from and
against any and all losses, claims, damages or liabilities (and legal and other
expenses as set forth above) incurred by reason of such settlement or judgment.
No indemnifying party shall, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld), effect
any settlement or compromise of any pending or threatened proceeding in respect
of which the indemnified party is or could have been a party, or indemnity
could have been sought hereunder by the indemnified party, unless such
settlement (A) includes an unconditional written release of the indemnified
party, in form and substance reasonably satisfactory to the indemnified party,
from all liability on claims that are the subject matter of such proceeding and
(B) does not include any statement as to an admission of fault, culpability or
failure to act by or on behalf of the indemnified party.

 

(e)                     In
circumstances in which the indemnity agreement provided for in the preceding
paragraphs of this Section 8 is unavailable to, or insufficient to hold
harmless, an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contributions, shall contribute to the amount
paid or

 

22

 

payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
(i) the relative benefits received by the indemnifying party or parties, on the
one hand, and the indemnified party, on the other hand, from the Offering or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties, on the one hand, and the indemnified party,
on the other, in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative benefits received by
the Company and the Guarantors, on the one hand, and the Initial Purchaser, on
the other hand, shall be deemed to be in the same proportion as the total
proceeds from the Offering (before deducting expenses) received by the Company
to the total discounts and commissions received by the Initial Purchaser. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company, on the one hand, or the Initial Purchaser,
on the other hand, the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission or
alleged statement or omissions, and any other equitable considerations
appropriate in the circumstances.

 

(f)                       The
Company, the Guarantors and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution determined pursuant to the
immediately preceding paragraph (e) were determined by pro rata or per capita
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the first sentence of the
immediately preceding paragraph (e). Notwithstanding any other provision of
this Section 8, the Initial Purchaser shall not be obligated to make
contributions hereunder that in the aggregate exceed the total discounts,
commissions and other compensation received by such Initial Purchaser under
this Agreement, less the aggregate amount of any damages that such Initial
Purchaser has otherwise been required to pay by reason of the untrue or alleged
untrue statements or the omissions or alleged omissions to state a material
fact. No person guilty of fraudulent misrepresentation (within the meaning of
Section 1l(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of the
immediately preceding paragraph (e), each person, if any, who controls the
Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act shall have the same rights to contribution as the Initial
Purchaser, and each director or manager, as applicable, of the Company and the
Guarantors, each officer of the Company and the Guarantors and each person, if
any, who controls the Company or the Guarantors within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company and the Guarantors.

 

9.         Termination.
The Initial Purchaser may terminate this Agreement at any time prior to the
Closing Date by written notice to the Company if any of the following has
occurred:

 

(a)                     since the
date hereof, any Material Adverse Effect or development involving or reasonably
expected to result in a prospective Material Adverse Effect that could, in the
Initial Purchaser’s reasonable judgment, be expected to (i) make it
impracticable or inadvisable to proceed with the offering or delivery of the
Notes on the terms and in the manner contemplated in the Final Offering Circular,
or (ii) materially impair the investment quality of any of the Notes;

 

(b)                    the failure of
the Company or the Guarantors to satisfy the conditions contained in Section
7(a) hereof on or prior to the Closing Date;

 

23

 

(c)                     any outbreak
or escalation of hostilities or other national or international calamity or
crisis, including acts of terrorism, or material adverse change or disruption
in economic conditions in, or in the financial markets of, the United States
(it being understood that any such change or disruption shall be relative to
such conditions and markets as in effect on the date hereof), if the effect of
such outbreak, escalation, calamity, crisis, act or material adverse change in
the economic conditions in, or in the financial markets of, the United States
could be reasonably expected to make it, in the Initial Purchaser’s reasonable
judgment, impracticable or inadvisable to market or proceed with the offering
or delivery of the Notes on the terms and in the manner contemplated in the
Final Offering Circular or to enforce contracts for the sale of any of the
Notes;

 

(d)                    the suspension
or limitation of trading generally in securities on the New York Stock
Exchange, the American Stock Exchange or the NASDAQ National Market or any
setting of limitations on prices for securities on any such exchange or NASDAQ
National Market;

 

(e)                     the
enactment, publication, decree or other promulgation after the date hereof of
any Applicable Law that, in the Initial Purchaser’s counsel’s reasonable
opinion, materially and adversely affects, or could be reasonably expected to
materially and adversely affect, the properties, business, prospects,
operations, earnings, assets, liabilities or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole;

 

(f)                       any
securities of the Company shall have been downgraded or placed on any “watch
list” for possible downgrading by any “nationally recognized statistical rating
organization,” as such term is defined for purposes of Rule 436(g)(2) under the
Act; or

 

(g)                    the
declaration of a banking moratorium by any Governmental Authority; or the
taking of any action by any Governmental Authority after the date hereof in
respect of its monetary or fiscal affairs that, in the Initial Purchaser’s
opinion, could reasonably be expected to have a material adverse effect on the
financial markets in the United States or elsewhere.

 

10.      Survival of
Representations and Indemnities. The representations and warranties,
covenants, indemnities and contribution and expense reimbursement provisions
and other agreements, representations and warranties of the Company, the
Guarantors and Initial Purchaser set forth in or made pursuant to this
Agreement shall remain operative and in full force and effect, and will
survive, regardless of (i) any investigation, or statement as to the results
thereof, made by or on behalf of the Initial Purchaser, (ii) acceptance of the
Notes, and payment for them hereunder, and (iii) any termination of this
Agreement.

 

11.      Default by the Initial
Purchaser. If the Initial Purchaser shall breach its obligations to
purchase the Notes that it has agreed to purchase hereunder on the Closing Date
and arrangements satisfactory to the Company for the purchase of such Notes are
not made within 36 hours after such default, this Agreement shall terminate
with respect to the Initial Purchaser without liability on the part of the
Company or the Guarantors. Nothing herein shall relieve the Initial Purchaser
from liability for its default.

 

12.      Information Supplied by
the Initial Purchaser. The statements set forth on the cover page of
the Offering Circular with respect to price and in the first sentence of the
third paragraph and the first and second sentences of the last paragraph under
the heading “Plan of Distribution” in
the Offering Circular (to the extent such statements relate to the Initial
Purchaser) constitute the only

 

24

 

information furnished by the Initial Purchaser to the Company or the
Subsidiaries for the purposes of Sections 4(a) and 8 hereof.

 

13.      Miscellaneous.

 

(a)                     Notices given
pursuant to any provision of this Agreement shall be addressed as follows: (i)
if to the Company, to: 1411 Broadway, 2nd Floor, New York, New York
10018, Attention: Chief Executive Officer, with a copy to: Schulte Roth &
Zabel LLP, 919 Third Avenue, New York, New York 10022, Attention: David
Rosewater, Esq., and (ii) if to the Initial Purchaser, to: Jefferies & Company,
Inc., 11100 Santa Monica Boulevard, 10th Floor, Los Angeles, California 90025,
Attention: Lloyd H. Feller, Esq., with a copy to: Proskauer Rose LLP, 1585
Broadway, New York, New York 10036, Attention: Julie M. Allen, Esq. (or in any
case to such other address as the person to be notified may have requested in
writing).

 

(b)                    This Agreement
has been and is made solely for the benefit of and shall be binding upon the
Company and the Guarantors, the Initial Purchaser and, to the extent provided
in Section 8 hereof, the controlling persons, officers, directors, partners,
employees, representatives and agents referred to in Section 8, and their
respective heirs, executors, administrators, successors and assigns, all as and
to the extent provided in this Agreement, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term “successors and
assigns” shall not include a purchaser of any of the Notes from the Initial
Purchaser merely because of such purchase. Notwithstanding the foregoing, it is
expressly understood and agreed that each purchaser who purchases Notes from
the Initial Purchaser is intended to be a beneficiary of the covenants of the
Company and the Guarantors contained in the Registration Rights Agreement to
the same extent as if the Notes were sold and those covenants were made
directly to such purchaser by the Company and the Guarantors, and each such
purchaser shall have the right to take action against the Company and the
Guarantors to enforce, and obtain damages for any breach of, those covenants.

 

(c)                     THE VALIDITY
AND INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH
HEREIN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY
THEREIN.

 

(d)                    EACH OF THE
COMPANY AND THE GUARANTORS HEREBY EXPRESSLY AND IRREVOCABLY (I) SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN THE
BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY SUIT OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY;
AND (II) WAIVES (A) ITS RIGHT TO A TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN) OR ACTIONS OF THE INITIAL PURCHASER AND FOR ANY COUNTERCLAIM RELATED
TO ANY OF THE FOREGOING AND (B) ANY OBLIGATION WHICH IT MAY HAVE OR HEREAFTER
MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.

 

25

 

(e)                     This
Agreement may be signed in various counterparts, which together shall
constitute one and the same instrument.

 

(f)                       The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

 

(g)                    If any term,
provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their best efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.
It is hereby stipulated and declared to be the intention of the parties that
they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.

 

(h)                    This Agreement
may be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may be given, provided that the same are in
writing and signed by all of the signatories hereto.

 

26

 

Please confirm that the
foregoing correctly sets forth the agreement between the Company, the
Guarantors and the Initial Purchaser.

 

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  RAFAELLA APPAREL GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ronald Frankel

  
	
   

  	
   

  	
   

  	
  Name:  Ronald
  Frankel

  
	
   

  	
   

  	
   

  	
  Title: President

  

 

 

Purchase
Agreement

 

 

	
  Accepted and Agreed to:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  JEFFERIES & COMPANY, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Andrew Booth

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Andrew Booth

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Managing Director

  	
   

  	
   

  
							

 

 

Purchase
Agreement

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