Document:

exv10w19

 

Exhibit 10.19

TRADE FINANCE AND SECURITY AGREEMENT

     THIS TRADE FINANCE AND SECURITY AGREEMENT is made and entered into as of the 18 day of
November 2004 between The Fashion House, Inc., a Delaware corporation having its principal place
of business at 6310 San Vicente Blvd. Suite 330, Los Angeles, CA 90048-5499 (“TFH”), and ITOCHU
International Inc., a New York corporation having its principal place of business at 335 Madison
Avenue, New York, NY 10017 (“ITOCHU”)

WITNESSETH.

     WHEREAS, TFH sells and markets footwear;

     WHEREAS, TFH has requested of ITOCHU trade financing in connection with the
manufacture, distribution and sale of Merchandise to Retailers (as hereinafter defined)
and ITOCHU is willing to extend such trade financing upon the terms set forth herein.

     NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the mutual covenants set forth herein and the trade finance to be
extended, the TFH and ITOCHU hereby agree as follows:

ARTICLE

DEFINITIONS

     As used in this Trade Finance and Security Agreement, the following terms shall have the
following meanings, unless the context otherwise requires:

     1.1 “Agreement” shall mean this Trade Finance and Security Agreement, as the same may from
time to time be amended or supplemented.

     1.2 “Business Day” shall mean a day other than a Saturday, Sunday, legal holiday or day on
which commercial banks are authorized to be closed under the laws of the State of Maryland or the
State of New York.

 

 

     1.3
“Collateral” shall have the meaning set forth in Article 3 hereof.

     1.4 “Default” shall mean the occurrence of any of the events specified in Section 7.1
hereof, w7.1 hereof, whether or not any requirement for notice or lapse of time or other condition
precedent has been satisfied.

     1.5 “Event of Default” shall mean the occurrence of any of the events specified in Section 6.1
hereof, provided that any requirement for notice or lapse of time or any other condition precedent
has been satisfied.

     1,6 “Excepted Liens” shall mean: (i) Liens (as hereinafter defined) for taxes, assessments or
other governmental charges or levies not yet due or which are being contested in good faith by
appropriate action, and (ii) Liens in connection with workmen‘s compensation,
unemployment insurance or other social security, pension or public liability obligations.

     1.7 “Financial Statements” shall mean the financial statement or statements of TFH described
or referred to in Section 4.6 hereof.

     1.8 “Governmental Requirement” shall mean any law, statute, code, ordinance, order, rule,
regulation, judgment, decree, injunction, franchise, permit, certificate, license, authorization
or other direction or requirement (including, without limitation, any of the foregoing which
relate to environmental standards or controls, energy regulations and occupational, safety and
health standards or controls) of any (domestic or foreign) federal, state, county, municipal or
other government, department, commission, board, court, agency or any other instrumentality of any
of them, which exercises jurisdiction over TFH or any of its Property.

     1.9 “Indebtedness” shall mean any and all amounts owing or to be owing by TFH to ITOCHU in
connection with this Agreement or any Security Instrument.

     1.10 “Invoice Amount” shall mean the landed duty price (including, without limitation, the price for Merchandise charged by the manufacturer, freight, duty and insurance), plus Four
Percent (4%) for Merchandise paid for, imported and delivered by ITOCHU to TFH, in accordance with
the provisions of Article 2 of this Agreement.

     1.11 “Lien” shall mean any interest in Property securing an obligation owed to, or a claim
by, a Person (as hereinafter defined) other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and including but not limited to the lien or
security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional
sale or trust receipt or a lease, consignment or bailment for security purposes. The term “Lien”
shall include reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances affecting Property.
For the purposes of’ this Agreement, TFH shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement, financing lease or other
arrangement pursuant to which title to the Property has been retained by or vested in some other
Person for security purposes.

     1.12 “Material Adverse Effect” shall mean any material and adverse effect on (i)

 

 

the assets, liabilities, financial condition, business, operations, affairs or circumstances
of TFH from those reflected in the Financial Statements or from the facts represented or warranted
in this Agreement or any Security Instrument, or (ii) the ability of TFH to carry out its business as at,
or as proposed at, the date of this Agreement to be conducted or meet its obligations under, this
Agreement or the Security Instruments on a timely basis.

     1.13 “Merchandise” shall mean all                                                                                 

     1.14 “Person” shall mean any individual, corporation, partnership, joint venture, association,
joint stock company, trust, unincorporated organization, government or any agency or political
subdivision thereof, or any other form of entity.

     1.15 “Prime Rate” shall mean the rate of interest announced by [Citibank, N.A.] in New York,
New York from time to time as its prime rate.

     1.16 “Property “ shall mean any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.

     1.17 “Retailers” shall mean all purchasers of Merchandise from TFH.

     1.18 “Security Instruments” shall mean the agreements or instruments described or referred to
in Section 3.4 hereof and any and all other agreements or instruments now or hereafter executed
and delivered by TFH or any other Person (other than participation or similar agreements between
ITOCHU and any other bank or creditor with respect to any Indebtedness pursuant to this Agreement)
in connection with, or as security for the payment or performance of this Agreement, as such
agreements may be amended or supplemented from time to time.

     1.19 “Trade Finance” shall mean the amount paid by ITOCHU, for the benefit of TFH, for the
production, import and delivery of Merchandise to TFH, and all costs and expenses incurred in
connection therewith.

     1.20 Where the character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation is required to be
made for the purposes of this Agreement, this shall be done in accordance with generally accepted
accounting principles applied on a basis consistent with those reflected by the Financial
Statements, except where such principles are inconsistent with the requirements of this Agreement.

 

 

ARTICLE 2

AMOUNT AND TERMS TRADE FINANCE LOAN

     2.1 Terms of Trade Finance. Subject to the terns and conditions and relying upon the
representations and warranties set forth in this Agreement, ITOCHU agrees to provide Trade
Finance to TFH as follows:

          2.1.1 TFH shall send a written notice to lTOCHU setting forth therein (a) the name and
address of the manufacturer; (b) the articles of Merchandise to be manufactured; (c) the amount
of the manufacturer’s invoice; (d) the date of shipment by the manufacturer; and (e) such other
information requested by ITOCHU in connection with the Trade Finance. In addition, together with
the request for Trade Finance, TFH shall send to ITOCHU information with respect to such request
detailing TFH’s (w) sales forecast for the Merchandise; (x) analysis of orders received; (y)
analysis of markups; and (z) profit and. loss forecast. TFH shall not seek Trade Finance or loans
from other Persons until ITOCHU has exercised its discretion in accordance with the provisions of
Paragraph 2.1.2.

          2.1.2 ITOCHU may, in its sole and absolute discretion, accept or reject TFH request for Trade
Finance. In the event that ITOCHU chooses not to extend Trade Finance with respect to a particular
request, TFH shall be permitted to seek financing from other Persons.

          2.1.3 In the event that ITOCHU accepts TFH’s request for Trade Finance, ITOCHU shall open a
letter or letters of credit in favor of the manufacturer set forth in the request of TFH, and
otherwise in accordance with the information provided in such request. ITOCHU shall pay the
manufacturer for all merchandise covered by the particular request, shall import all such
merchandise and shall deliver such merchandise as instructed by TFH.

          2.1.4 With respect to all merchandise delivered to TFH in accordance with the immediately
preceding paragraph, ITOCHU shall deliver an invoice to TFH in the invoice amount. Such invoice
shall be due and payable within thirty (30) days from the date of invoice, without setoff,
deduction or allowance, upon the same payment due terms as those pertaining to ITOCHU’s purchase of
the particular merchandise from the manufacturer of such Merchandise. Invoices not paid, and
invoice amounts not received on the due date thereof shall accrue interest at the rate of the
LIBOR, plus three and one half percent (3.5%)

          2.1.5 If the date for the payment of any amount due ITOCHU falls on a day which is not a
Business Day, then for all purposes of this Agreement, the same shall be deemed to have fallen on
the next following Business Day, and such extension of time shall in such case cause interest to
accrue on such amount.

          2.1.6 At no time shall the amount of Trade Finance outstanding and unpaid by TFH to ITOCHU
exceed the credit line, if any, set by Itochu in its sole discretion, at the time.

 

 

ARTICLE

SECURITY INTEREST

     3.1 Grant of Security Interest. In consideration of the extension of Trade
Credit described in Section 2.1 by ITOCHU to TFH and in order to secure the prompt and complete
performance and payment to ITOCHU as well as all costs and expenses incurred by ITOCHU in
collection and enforcement of all Indebtedness of TFH to ITOCHU now existing or hereafter
incurred, whether matured or unmatured, direct or contingent, and any. renewals and extensions
thereof and substitutions therefor, TFH hereby assigns and pledges to ITOCHU and grants to
ITOCHU a continuing security interest in and lien on the Collateral described in Section 3.2
hereof:

     3.2 Collateral. The collateral to be subject to the security interest granted
hereunder consist of all of TFH’s right, title and interest, whether now existing or hereafter
arising, including, all property acquired subsequent to the date hereof, in and of to the
following:

3.2.1 Equipment. All equipment in all of its forms used or employed in connection
with TFH’s business or by TFH’s shareholders, employees or officers, wherever located, now
or hereafter existing, including, but not limited to, all goods, machinery, furnishings,
fixtures, appliances, leasehold improvements, chattels and motor vehicles, together with
all increases, parts, fittings, accessories, special tools and accessions now or hereafter
attached thereto or used in connection therewith, and any and all replacements of or
substitutions for all or any part.

	 	3.2.2	 	Inventory. All inventory in all of its forms, wherever located, now
or hereafter existing, now or hereafter owned, including, but not limited to, (1) all
raw materials and work in process therefor, finished goods thereof, and materials used
or consumed in the manufacture or production thereof (ii) goods in which TFH has an
interest in mass or a joint or other interest or right as consignee, (iii) goods which
are returned to or repossessed by TFH, and (iv) all other tangible personal property
now owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in TFH’s business or by TFH’s
shareholders, employees or officers, and (v) all additions and accessions thereto and
substitutions therefor and products thereof and documents therefor;
	 
	 	3.2.3	 	Receivables and Related Contracts. All negotiable and non-negotiable
documents now or at any time hereafter obtained or acquired by TFH and all accounts,
accounts receivable, contract

 

 

	 	 	 	rights, notes, drafts, acceptances, chattel paper, instruments, general
intangibles, including any and all federal or state income tax refunds now or
any time hereafter payable or paid to TFH and other obligations of any kind, now or
hereafter existing, whether or not arising out of or in connection with the sale or
lease of goods or the rendering of services, and all rights now or hereafter
existing in and to all security agreements, leases, and other contracts securing or
otherwise relating to any such accounts, contract rights, notes, drafts and
acceptances, chattel paper, instruments, general intangibles or obligations; and

	 	3.2.4	 	Products. All proceeds of any and all of the foregoing Collateral
including, without limitation, proceeds which constitute property of the types
described in subsections 3.2.1, 3.2.2, and 3.2.3 of this Section 3.2 and, to the
extent not otherwise included, all payments under insurance (whether or not ITOCHU 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. The
inclusion of proceeds in this Agreement does not authorize TFH to sell, dispose of or
otherwise use the Collateral in any matter specifically not authorized hereby.

     3.3 Insufficiency of Collateral. If, in the judgment of ITOCHU, the Collateral at any
time during which any Indebtedness hereunder is outstanding materially decreases in value, other
than temporarily in the normal course of business and other than decreases in the value of
equipment which occur in the normal course of business, or if ITOCHU at any time reasonably deems
itself insecure, TFH shall either provide additional Collateral of like nature sufficient to
satisfy ITOCHU or reduce the amount of the total Indebtedness by an amount sufficient to satisfy
ITOCHU. In either such event, ITOCHU shall give TFH notice in writing of any deficiency in the
Collateral, and TFH shall, within thirty (30) days of receipt of said notice, provide the
additional Collateral requested or reduce the amount of its Indebtedness to ITOCHU as specified in
the notice. TFH’s failure to comply with the requirements of any such notice shall constitute an
Event of Default.

     3.4 Further Assurances Regarding Collateral — Documents. At the request of ITOCHU, TFH
shall join in executing or shall execute, as appropriate, all financing statements and other
documents, in a form, satisfactory to ITOCHU, necessary to perfect ITOCHU’s security interest
hereunder. TFH shall pay the costs of filing such statements and documents. TFH further irrevocably
authorizes ITOCHU to conduct such searches of public filings as ITOCHU deems necessary or desirable
and agrees to execute any and all documents and to cooperate with ITOCHU in respect of such
searches and in the preparation of any required notices, statements and other documents relating
thereto. TFH warrants that no financing statement covering Collateral or any part or any proceeds
thereof having priority over ITOCHU’s security interest created hereunder is presently on file in
any public office.

     3.5 Further Assurances Regarding Collateral. — Enforcing TFH’s
Rights. Unless otherwise directed by ITOCHU, TFH will (i) collect and enforce payment of all
accounts receivable, and (ii) enforce all rights by way of suretyship or guarantee which TFH now
has or may hereafter require to enforce payment of accounts receivable and all rights in the nature
of security interest whereby TFH may satisfy any account receivable out of Property.

 

 

     3.6 Further Assurances Regarding Collateral — Insurance. TFH shall at all times insure
Collateral with insurers reasonably acceptable to ITOCHU against such casualties and in such
amounts as ITOCHU shall require. Such insurance shall be for the benefit of TFH and ITOCHU as their
interests may appear. TFH will obtain endorsements to the policies pertaining to the Collateral
naming ITOCHU as additional loss payee as its interest may appear and containing provisions that
such policies will not be cancelled without thirty (30) days prior written notice having been given
by the insurance company to ITOCHU.

     3.7 Further Assurances Regarding Collateral — Payment of Taxes and
Assessments. TFH shall promptly pay when due all taxes and assessments on Collateral or for its
use and operation and shall not permit the assessment against it or the Collateral of any Liens or
encumbrances as a result of its failure to timely pay same.

     3.8 Further Assurances Regarding Collateral — Maintenance of Collateral. TFH shall
keep the Collateral in good order and repair and shall not waste or destroy it or any part thereof.
TFH shall not use the Collateral in violation of any statute, regulation or ordinance.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

     In order to induce ITOCHU to enter into this Agreement and to extend the Trade Finance
described herein, TFH hereby represents and warrants to ITOCHU (which representations and
warranties will survive the execution of this Agreement and the extension of Trade Credit
hereunder) that:

     4.1 Corporate Existence. TFH is a corporation duly organized, legally existing
and in good standing under the laws of the State of Delaware and is duly qualified as a foreign
corporation in all jurisdictions wherein the Property owned or the business transacted by it makes
such qualification necessary.

     4.2 Corporate Power and Authorization. TFH is duly authorized and empowered to
execute, deliver and perform this Agreement and the Security Instruments and all corporate action
on TFH’s part requisite for the execution, delivery and performance of this Agreement and the
Security Instruments has been duly and effectively taken.

     4.3 Binding Obligations. This Agreement does, and the Security
Instruments upon their creation, issuance, execution and delivery will, constitute valid
and binding obligations of TFH, enforceable in accordance with their terms (except that enforcement
may be subject to any applicable bankruptcy, insolvency or similar laws affecting the enforcement
of creditors’ rights generally).

     4.4 No Legal Bar or _Resultant Lien. This Agreement and the Security Instruments do
not and will not violate any provisions of the articles or certificate of incorporation or by-laws
of TFH, or any contract, agreement, instrument, or Governmental Requirement to .which
TFH is subject, or result in the creation or imposition of any Lien upon any Property of TFH, other
than those permitted by this Agreement,

     4.5 No Consent. TFH’s execution, delivery and performance of this Agreement and

 

 

the Security Instruments do not require the consent or approval of any other Person
including, without limitation, any regulatory authority or governmental body of the United States
of America or any state thereof or any political subdivision of the United States of America or
any state thereof.

     4.6 Financial Condition. The unaudited pro forma balance sheet of TFH as of
                    , which has been delivered to ITOCHU, has been prepared in accordance with generally accepted accounting principles, consistently applied, and fully and
accurately presents the financial condition of TFH as at the date and for the period stated. No
change, either in any case or in the aggregate, has since occurred in the condition, financial or
otherwise, of the TFH which would have a Material Adverse Effect.

     4.7 Liabilities: Litigation. Except for liabilities incurred in the normal course of
business, TFH has no material (individually or in the aggregate) liabilities, direct or
contingent, except as disclosed or referred to in the Financial Statements. At the date of this
Agreement there is no litigation, legal, administrative or arbitral proceeding, investigation or
other action of any nature pending or, to the knowledge of TFH, threatened against or affecting
TFH which involves the possibility of any judgment or liability not fully covered by
insurance, and which would have a Material Adverse Effect. No unusual or unduly
burdensome restriction or restraint exists by contract, law or governmental regulation or
otherwise relative to the business or Property of TFH, which, if enforced against TFH, would
prevent TFH from conducting its business as now conducted or have a Material Adverse Effect.

     4.8 Taxes: Governmental Charges. TFH has filed all tax returns and reports required
to be filed and has paid all taxes, assessments, fees and other governmental charges levied upon
it or upon any of its Property or income which are due and payable, including interest and
penalties, or has provided adequate reserves for the payment thereof

     4.9 Titles, etc. TFH has good title to its material (individually or in the
aggregate) Property, free and clear of all Liens except (i) Liens referred to in the Financial
Statements, (ii) Excepted Liens and minor irregularities in title which do not materially
interfere with the occupation, use and enjoyment by TFH of any of its Property in the normal
course of business as presently conducted or materially impair the value thereof for such business, or (iii) Liens
otherwise permitted or contemplated by this Agreement or the Security Instruments.

     4.10 Defaults. TFH is not in default, nor has any event or circumstance occurred
which, but for the passage of time or the giving of notice, or both, would constitute a default
under any loan or credit agreement, the License Agreement, indenture, mortgage, deed of trust,
security agreement or other agreement or instrument evidencing or pertaining to any indebtedness or
obligation of TFH, or under any material agreement or other instrument to which TFH is a party or
by which TFH is bound.

     4.11 Compliance with the Law. TFH:

          (a) is not in violation of any Governmental Requirement; and

          (b) has not failed to obtain any license, permit, franchise or other governmental
authorization necessary to the ownership of any of its Property or the conduct

 

 

of its business in the usual course which violation or failure would have (in the event such
violation or failure were asserted by any Person through appropriate action) a Material Adverse
Effect

     4.13 No Material Misstatements. No information, exhibit or report requested by ITOCHU
and furnished to ITOCHU by TFH in connection with the negotiation of this Agreement contains any
material misstatement of fact or, to the knowledge of any officer of TFH, omits to state a
material fact necessary to make the statement contained therein not materially misleading.

     4.14 Subsidiaries. TFH has no Subsidiaries.

     4.15 Location of Business and Offices. TFH’s principal place of business and chief
executive offices are located at the address stated in the caption of this Agreement.

ARTICLE

AFFIRMATIVE COVENANTS

     TFH will at all times comply with the covenants contained in this Article 5, from the date
hereof and for so long as any part of the Indebtedness is outstanding.

     5.1 Financial Statements and Reports. TFH will promptly furnish to ITOCHU from time
to time upon request such information regarding the business and affairs and financial condition
of TFH as ITOCHU may reasonably request, including (without limitation), Annual Reports, Quarterly
Reports, Monthly Reports, Audit Reports and Tax Returns,

     5.2 Taxes and Other Liens. In addition to its obligations under Sections 3.7 and 3.8 hereof,
TFH will pay and discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon the income or any Property of TFH as well as all claims of any kind
(including claims for labor, materials, supplies and rent) which, if unpaid, might become a Lien
upon any or all of the Property of TFH; provided, however, that TFH shall not be required to pay
any such tax, assessment, charge, levy or claim if the amount, applicability or validity thereof
shall currently be contested in good faith by appropriate proceedings diligently conducted by or
on behalf of TFH, and if TFH shall have set up reserves therefor adequate under generally accepted
accounting principles.

     5.3 Maintenance. TFH will (i) maintain its corporate existence, rights and
franchises; (ii) observe and comply with all Governmental Requirements; and (iii) maintain its
Properties (and any Properties leased by or consigned to it or held under title retention or
conditional sales contracts) in good and workable condition at all times and make all repairs,
replacements, additions, betterments and improvements to its Property as are needful and proper so
that the business carried on in connection therewith may be conducted properly and efficiently at
all times.

 

 

     5.4 Further Assurances. TFH will cure promptly any defects in the creation and the
execution and delivery of this Agreement and the Security Instruments. TFH at its expense will
promptly execute and deliver to ITOCHU upon request all such other and further documents,
agreements and instruments in compliance with or accomplishment of the covenants and agreements of
TFH in this Agreement and the Security Instruments or to further evidence and more fully describe
the Collateral intended as security, or to correct any omissions in the Security Instruments, or
more fully to state the security obligations set out herein or in any of the Security Instruments,
or to perfect, protect or preserve any Liens created pursuant to any of the Security Instruments,
or to make any recordings, to file any notices, or obtain any consents, all as may be necessary or
appropriate in. connection therewith.

     5.5 Reimbursement of Expenses. In addition to its obligations under Sections 3.4 and
3.7 hereof, TFH will pay all fees, charges or taxes for the recording or filing of Security
Instruments. TFH will also pay all out-of-pocket expenses of ITOCHU in connection with the
administration of this Agreement and the Security Instruments. TFH will, upon request, promptly
reimburse ITOCHU for all amounts expended, advanced or incurred by ITOCHU to satisfy any
obligation of TPH under this Agreement or any other Security Instrument, or to enforce the rights
of ITOCHU under this Agreement or any other Security Instrument, which amounts will include all
court costs, attorneys’ fees (including, without limitation, for trial, appeal or other
proceedings), fees of auditors and accountants, and investigation expenses reasonably incurred by
ITOCHU in connection with any such matters, together with interest at the Prime Rate plus 2% on
each such amount from the date of written demand or request by 1TOCHU for reimbursement until the
date of reimbursement to ITOCHU.

     5.6 Insurance. In addition to its obligations under Section 3.6 hereof, TFH
will maintain and continue to maintain with financially sound and reputable insurers, insurance
with respect to its Property and business against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of Persons engaged in the
same or similar business and similarly situated. Upon request of ITOCHU, TFH will furnish or cause
to be furnished to ITOCHU from time to time a summary of the insurance coverage of TFH in form and
substance satisfactory to ITOCHU and, if requested, will furnish ITOCHU copies of the applicable
policies. In the case of any fire, accident or other casualty causing loss or damage to any
Property of TFH, the proceeds of such policies shall be used (i) to repair or replace the damaged
Property, or (ii) to prepay the Indebtedness.

     5.7 Accounts and Records. TFH will keep books of record and account in which full,
true and correct entries will be made of all dealings or transactions in relation to its business
and activities, in accordance with generally accepted accounting principles, consistently applied
except only for changes in accounting principles or practices with which TFH’s independent public
accountants concur.

     5.8 Right of Inspection. TFH will permit any officer, employee or agent of ITOCHU to
visit and inspect any of the Property of TFH, examine TFH’s books of record and accounts, take
copies and extracts therefrom, and discuss the affairs, finances and accounts of TFH with TM’s
officers, accountants and auditors, all at such reasonable times and as often as ITOCHU may
desire.

     5.9 Notice of Certain Events; TFH shall promptly notify ITOCHU if TFH
learns of the occurrence of (i) any event which constitutes a Default, together with a detailed
statement by a responsible officer of TFH of the steps being taken to cure the effect of such
Default; or (ii) any legal, judicial or regulatory proceedings affecting TFH or any of the
Property of TFH in which the

 

 

amount involved is material and is not covered by insurance or which, if adversely
determined, would have a Material Adverse Effect; or (iii) any dispute between TFH and any
governmental or regulatory body or any other Person which, if adversely determined, would have a
Material Adverse Effect; or (iv) any event or condition having a Material Adverse Effect including
any material default by TFH under any contract with or obligation to a Person and any amendment to
any such contract.

     5.10 Location of Collateral. TFH shall keep and maintain the Collateral (other than
vehicles) at the locations set forth in Exhibit A, unless ten (10) or more Business Days prior to
moving any Collateral to another location or locations, TFH notifies ITOCHU of such movement and
specifies the location or locations (to include address and county). The principal place of
business and chief executive offices of TFH and the office where TFH keeps its records concerning
the Collateral is set forth in the caption hereof.

     5.11 Delivery of Original, Executed Documents. TFH shall promptly execute and deliver
to ITOCHU original forms of Uniform Commercial Code Financing statements for Ming by ITOCHU in all
jurisdictions deemed appropriate by ITOCHU.

     5.12 Indemnification. The parties hereto acknowledge and agree that TFH shall have the
exclusive obligation for the content and quality of the Merchandise manufactured and, consequently,
TFH shall indemnify ITOCHU, hold ITOCHU harmless and defend ITOCHU from and against any loss to or
claim asserted against ITOCHU arising from any cause whatsoever, including, but not limited to
claims of defects in or quality or content of Merchandise, any and all claims by Retailers,
manufacturers or Customs officials or non-payment or cancellation of orders by Retailers. ITOCHU
DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES RELATING TO WORKMANSHIP,
MERCHANTIBILI TY OR FITNESS FOR A PARTICULAR PURPOSE.

     5.13 License Agreement. Throughout the term of this Agreement or so long as any Indebtedness owed
by TFH to ITOCHU shawl be and remain outstanding, TFH shall perform or omit to perform any act
which would cause TFH to be in default under the License Agreement or cause the License Agreement
to be terminated.

ARTICLE

EVENTS OF DEFAULT

     6.1 Events. Any of the following events shall be considered an “Event of Default” as
that term is used herein:

          (a) Payments — default is made in the payment or prepayment when due of any Indebtedness or
interest thereon, and such default continues unremedied for a period of ten. (10) days; or

Representations and Warranties — any representation or warranty by TFH or other Person
(including any officer or accountant thereof) herein or in any Security Instrument, or in any
certificate, statement (including financial statements), request or other document furnished
pursuant to or under this Agreement or any Security Instrument proves to have been incorrect in.

 

 

any material respect as of the date when made, and such default continues unremedied for a
period of thirty (30) days after the earlier of (i) notice thereof being given by ITOCHU to TFH, or
(ii) such default otherwise becoming known to TFH (except in the case of technical defaults or
conditions which are not material to TFH’s ability to perform hereunder); or

          (b) Affirmative Covenants — default is made in the due observance or performance by TFH of
any of the covenants or agreements contained in Article S of this Agreement, and such default
continues unremedied for a period of thirty (30) days after the earlier of (i) notice thereof
being given by ITOCHU to TFH, or (ii) such default otherwise becoming known to TFH (except in the
case of technical defaults or conditions which are not material to TFH’s ability to perform
hereunder); or

          (c) Security Instrument Obligations — default is made in the due observance or earlier of
notice thereof being given by ITOCHU to TFH, or (ii) such default otherwise becoming known to TFH
(except in the case of technical defaults or conditions which are not material to TFH’s ability to
perform hereunder), or (iii) the expiration of any applicable grace period which may be expressly
allowed under such Security Instrument; or

          (e) Involuntary Bankruptcy or Other Proceedings — an involuntary case or other proceeding
commenced against TFH which seeks liquidation, reorganization or other relief with respect to it or
its debts or other liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its Property, and such involuntary case or
other proceeding is not terminated within thirty (30) days; or an order for relief against TFH
shall be entered in any such proceeding under the U.S. Bankruptcy Code; or

          (f) Voluntary Petitions, etc. — TFH commences a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts or other
liabilities under any bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of its Property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of creditors, or shall
fail generally to, or shall admit in writing its inability to, pay its debts generally as they
become due, or shall take any corporate action to authorize or effect any of the foregoing; or

          (g) Discontinuance of Business — TFH discontinues its usual business; or

          (h) Default on Other Debt — TFH defaults in any payment of principal of or interest on any
other obligation for the payment of money beyond any period of grace provided with respect thereto,
or any event or condition occurs (and any period of grace provided with respect thereto expires)
under any agreement, term, or provision contained in any agreement or instrument under or by which
any such obligation is created, evidenced or secured if the effect thereof (upon giving of notice,
lapse of time, or both) is to cause such obligation to become due before its stated maturity or to
permit the holder(s) of such obligations or the trustees) under any such agreement or instrument to
cause such obligation to become due prior to its stated maturity (except in the case of technical
defaults or conditions which are not material to TFH’s ability to perform hereunder), whether or
not waived by the holder(s) of such

 

 

obligation or such trustee(s); or

          (i) Undischarged Judgments — TFH fails within thirty (30) days to pay, satisfy or otherwise
discharge any judgment or order for the payment of money in excess of $5,000 that is not otherwise
being satisfied in accordance with its terms and is not stayed on appeal or otherwise being
appropriately contested in good faith; or

          (j) Security Instruments — the Security Instruments referred to in Section 3.4 hereof after
delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease
to be in full force and effect and valid, binding and enforceable (except as enforceability may be
limited as stated in Section 43 hereof) in accordance with their terms, or cease to create a valid
and perfected Lien of the priority required thereby on any of the Collateral purported to be
covered thereby, or the TFf1 (or any other Person who may have granted or purported to grant such
Lien) shall so state in writing.

     6.2 Remedies. Upon the occurrence of any Event of Default described in paragraphs
6.1(e) or (f) hereof; or in paragraph 6.1(j) to the extent that such paragraph refers to
paragraphs 6.1(e) or (f) hereof, the obligations, if any, of the ITOCHU hereunder shall
immediately terminate, and the entire principal amount of all Indebtedness then outstanding
together with interest then accrued thereon shall automatically become immediately due and
payable, all without written notice and without presentment, demand, protest, notice of protest or
dishonor or any other notice of default of any kind, all of which are hereby expressly waived by
TFH. Upon the occurrence and at any time during the continuance of any other Event of Default
specified in Section 6.1 hereof, ITOCHU may by written notice to TFH (i) declare the entire
principal amount of all Indebtedness then outstanding together with interest then accrued thereon
to be immediately due and payable without presentment, demand, protest, notice of protest or
dishonor, notice of intention to accelerate or other notice of default of any kind, all of which
are hereby expressly waived by TFH, and/or (ii) terminate the obligations, if any, of ITOCHU
hereunder unless and until ITOCHU shall reinstate same in writing.

ARTICLE

MISCELLANEOUS

     7.1 Notices. Any notice required or permitted to be given under or in connection with
this Agreement or the Security Instruments (except as may otherwise be expressly required therein)
shall be in writing and shall be mailed by first class or express mail, postage prepaid, or sent
by, telex, telegram, telecopy or other similar form of rapid transmission confirmed by mailing (by
first class or express mail, postage prepaid) written confirmation at substantially the same time
as such rapid transmission, or personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered, to the addressee at its address shown in the
caption of this Agreement, or to such other address or to such individual’s or department’s
attention as the addressee may have furnished the other party in writing.

Any communication so addressed and mailed shall be deemed to be given when so mailed, and any
notice so sent by rapid transmission shall be deemed to be given when receipt of such

 

 

transmission is acknowledged, and any communication so delivered in person shall be deemed to be
given when receipted for by, or actually received by, an authorized officer of TFH or ITOCHIJ, as
the case may be.

     7.2 Amendments and Waivers. Any provision of this Agreement or the Security
Instruments may be amended or waived if, but only if, such amendment or waiver is in writing
and is signed by TFH (and/or any other Person which is a party to any Security Instrument
being amended or with respect to which a waiver is being obtained) and .ITOCHU.

     7.3 Invalidity. In the event that any one or more of the provisions contained in
this Agreement or in any Security Instrument is, for any reason, deemed to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability shall not
affect any other provision of this Agreement or any other Security Instrument.

     7.4 Successors and Assigns. All covenants and agreements made by or on behalf of
TFH in this Agreement and any Security Instrument shall bind its successors and assigns and
shall inure to the benefit of ITOCHU and its successors and assigns. TFH shall not, however,
have the right to assign its rights under this Agreement or any interest herein, without the
prior written consent of ITOCHU. In the event ITOCHU assigns all or any of its rights
hereunder, it will give TFH ten (10) days’ prior notice thereof.

     7.5 Renewal, Extension or Rearrangement. All provisions of this Agreement and of
any Security Instrument shall apply with equal force and effect to each and all promissory
notes hereinafter executed by TFH which in whole or in part represent a renewal, extension for
any period, increase or rearrangement of any part of the Indebtedness or of any part of such
other indebtedness,

     7.6 Waivers. No course of dealing on the part of ITOCHU, its officers, employees,
consultants or agents, nor any failure or delay by ITOCHU with respect to exercising any
right, power or privilege of ITOCHU under this Agreement or any Security Instrument shall
operate as a waiver thereof, except as otherwise provided in Section 8.2 hereof.

     7.7 Cumulative Rights. All rights and remedies of ITOCHU under this Agreement and
each Security Instrument shall be cumulative, and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any other right or remedy.

     7.8 Singular and Plural. Words used herein in the singular, where the context so
permits, shall be deemed to include the plural and vice versa. The definitions of words in the
singular herein shall apply to such words when used in the plural where the context so
permits and vice versa.

     7.9 Construction. This Agreement is a contract made under and shall be
construed in accordance with and governed by the laws of the United States of America and the
State of New York, as such laws are now in effect and, with respect to usury laws, if any, applicable to ITOCHU
and to the extent allowed thereby, as such laws may hereafter be in effect which allow a higher maximum nonusurious interest rate than such laws now allow.

     7.10 Interest. It is the intention of the parties hereto to conform strictly
to all usury laws applicable to ITOCHU. Accordingly, if the transactions contemplated
hereby

 

 

would be usurious under applicable law (including the laws of the United States of
America and the State of New York), then, in that event, notwithstanding anything to the
contrary, this Agreement or in any Security Instrument or agreement entered into in
connection with or as security, it is agreed as follows:

          7.10.1 The aggregate of all consideration which constitutes interest under law
applicable to ITOCHU that is contracted for, taken, reserved, charged or received under,
this Agreement or under any of the aforesaid Security Instruments or agreements or
otherwise in connection herewith shall under no circumstances exceed the maximum amount of
nonusurious interest, if any, allowed by such applicable law, and any excess shall be
credited by ITOCHU to the principal amount of the Indebtedness (or, if the principal amount
of the Indebtedness shall have been paid in full, refunded to TFH); and

          7.10.2 In the event that the maturity of Indebtedness accelerated by reason of any
Event of Default under this Agreement or otherwise, or in the event of any required of
permitted prepayment, then such consideration that constitutes interest under law
applicable to ITOCHU may never include more than the maximum amount of nonusurious
interest, if any, allowed by such applicable law, and excess interest, if any, provided for
in this Agreement or otherwise shall be cancelled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited by ITOCHU on the
principal amount of the Indebtedness (or, if the principal amount of the Indebtedness shall
have been paid in full, refunded by ITOCHU to TFH).

     7.11 References. The words “herein,” “hereof,” “hereunder” and other words of
similar import when used in this Agreement refer to this Agreement as a whole, and not to
any particular article, section, subsection, paragraph or subparagraph.

     7.12 Taxes. etc, Any taxes (excluding income taxes) payable or deemed payable
by any federal, state or local authority in respect of this Agreement or any Security
Instruments shall be paid by TFH, together with interest and penalties, if any.

     7.13 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, ITOCHU shall not be obligated to extend credit to TFH in an
amount in violation of any limitation or prohibition provided by any applicable statute,
regulation or ordinance.

     7.14 Entire Agreement. This Agreement and the Security Instruments embody the
entire agreement and understanding among the parties hereto and supersede all prior
agreements and understandings among them relating to the subject matter thereof.

     7.15 Exhibits. The exhibits attached to this Agreement are incorporated herein and
shall be considered a part of this Agreement for the purposes stated herein, except that in the
event of any conflict between any of the provisions of such exhibits and the provisions of this
Agreement, the provisions of this Agreement shall prevail.

     7.16 Readings, All headings to articles or other divisions of this Agreement or the
exhibits hereto are only for the convenience of the parties and shall not be construed to have any
effect or meaning with respect to the content thereof; such content being controlling as to the

 

 

agreement among the parties hereto.

     7.17 Jurisdiction. All actions or proceedings with respect to this Agreement or the
Security Instruments must be instituted in the courts of New York County of the State of New York
or the United States District Court for the Southern District of New York and, by execution and
delivery of this Agreement, TFH irrevocably and unconditionally submits to the jurisdiction (both
subject matter and personal) of each such court, and irrevocably and unconditionally waives (i) any
objection it may now or hereafter have to the laying of venue in any of such courts, and (ii) any
claim that any action or proceeding brought in any of such courts has been brought in an
inconvenient forum. TFH waives its right to a jury trial in any such proceedings.

     7.18 Counterparts. This Agreement may be executed in two (2) or more counterparts, and
it shall not be necessary that the signatures of all parties hereto be contained on any one
counterpart hereof. Each counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.

     IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed as of
the date first above written.

	 	 	 	 	 	 	 
	TFH:	 	The Fashion House Inc.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

     Name:
	 	 
	 

	 	 	 	     Title	 	 
	 
	 	 	 	 	 	 
	ITOCHU	 	ITOCHU International Inc.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

     Name
	 	 
	 

	 	 	 	     TitleEX-10.1

 

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE 

     This SEPARATION AGREEMENT AND GENERAL RELEASE (this “Agreement”), dated as of April
11, 2006 (the “Effective Date”), is by and among AMH Holdings II, Inc., a Delaware
corporation (“AMH II”), AMH Holdings, Inc. (“AMH”), a Delaware corporation and
wholly owned subsidiary of AMH II, Associated Materials Holdings, Inc. (“AMHI”), a Delaware
corporation and wholly owned subsidiary of AMH, Associated Materials Incorporated, a Delaware
corporation and wholly owned subsidiary of AMH I (“Employer” and together with AMH II, AMHI
and AMH, “Associated”), and Michael Caporale, Jr. (“Executive”).

     WHEREAS, Employer and Executive are parties to that certain Amended and Restated Employment
Agreement, dated as of July 27, 2004 (the “Employment Agreement”);

     WHEREAS, Executive serves as a member of the Boards of Directors of each of AMH II, AMHI, AMH
and AMI (each, a Board of Directors, and collectively, the “Boards of Directors”);

     WHEREAS, Executive owns beneficially and of record 71,688 shares (the “Class B
Shares”) of Class B Series II (Non-Voting) Common Stock of AMH II (the “Class B Common
Stock”);

     WHEREAS, Executive has resigned as Employer’s Chairman, President and Chief Executive Officer
by mutual agreement with Employer’s Board of Directors, such resignation to be effective in
accordance with the terms and conditions of this Agreement; and

     WHEREAS, the parties hereto desire to clarify and settle all existing legal rights and
obligations related to (i) Executive’s employment with Employer, (ii) the Class B Shares and (iii)
options Executive holds to purchase additional equity securities of AMH II and of AMH (subject to
Executive’s agreement to exchange any equity securities of AMH issued upon the exercise of such
options for equity securities of AMH II).

     NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations and
undertakings of the parties set forth herein, the adequacy and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     1. Termination Date; Board Membership.

          (a) The parties hereto acknowledge and agree that Executive’s employment with Employer shall
terminate effective on the close of business on June 30, 2006 (the “Termination Date”).
Executive shall remain employed by Employer through the Termination Date in accordance with the
terms of the Employment Agreement, except as provided in Section 3 below. Executive acknowledges
and agrees that after the Termination Date, he will not report to work for Associated or hold
himself out as being employed by Associated, notwithstanding the fact that Executive may continue
as a member of the Boards of Directors pursuant to Section 1(b) below.

 

 

          (b) Subject to Section 3 below, Executive will remain as a member of the Boards of Directors
through December 31, 2006, serving in the capacity of non-executive Chairman of the Boards of
Directors through such time. After such time, Executive shall continue to serve as a member of the
Boards of Directors at the pleasure of AMH II, AMHI, AMH or AMI and their respective stockholders.
If, from and after the Termination Date, AMH II, AMHI, AMH or AMI elects to designate Executive as
a non-voting member of the applicable Board of Directors and all requisite Board and stockholder
approvals are obtained for such designation, Executive shall become a non-voting member of the
applicable Board of Directors, with all rights of a director other than the right to vote on
matters before the Board of Directors.

     2. Payments to Executive.

          (a) Subject to Section 3 below, (i) until the earlier of (x) the Termination Date and (y) the
date, if any, on which the Executive accepts full time salaried employment with any third party,
Employer will continue to pay Executive’s base salary at the annual rate currently in effect and
(ii) from the Termination Date until the earlier of (x) December 31, 2006 and (y) the date, if any,
on which the Executive accepts full time salaried employment with any third party, Employer will
pay to the Executive, as complete and total compensation for Executive’s duties as a member of the
Boards of Directors and in consideration of the Executive entering into this Agreement and the
covenants and agreements contained herein, including without limitation those contained in Sections
7 and 8 hereof, and the general release of claims in Section 9 hereof, a fee of $10,000 per month
(and a pro-rated portion for any partial months) (the “Fee Payments”), in accordance with
Employer’s normal payroll practices and as reduced by deductions or withholdings required by law.

          (b) Subject to Section 3 below, and provided that the Executive has signed (and not revoked) a
General Release in the form attached hereto as Exhibit A (the “General Release”) and
provided that the General Release is signed within the requisite time periods stated therein and
has become effective, then, starting on July 1, 2006, Employer shall provide the Executive with the
following:

               (i) A severance payment equal to $1,000,000 per year for the two year period following
the Termination Date (the “Severance Period”) in accordance with Section 7 of the
Employment Agreement. Such payment shall be made in accordance with Employer’s normal
payroll practices and be reduced by deductions or withholdings required by law. The amount
paid to Executive pursuant to the foregoing sentence is referred to herein as the
“Severance Payment.”

               (ii) Employer will continue to provide Executive with the medical and dental benefits
currently provided to Executive from the date hereof through the Severance Period, at the
same rate of employee and Employer shared costs of such coverage as in effect from time to
time for active employees of Employer.

               (iii) To the extent incentive bonuses are payable to the top five (5) most senior
executives of Employer (other than the Executive) for the fiscal year 2006, Employer will
pay Executive one half of the incentive bonus that would be payable to the

7

 

Executive for the fiscal year 2006 based upon the same performance criteria with
respect to Associated that are applicable to such five executives (notwithstanding anything
to the contrary contained in the Employment Agreement), in accordance with Executive’s
Board-approved bonus policy for such executives, payable when incentive bonuses, if any, are
paid to the executives of Employer.

               (iv) Employer’s agreement to make the payments and provide the benefits described in
this Section 2(b) will be made in consideration of the Executive entering into the General
Release. The Executive’s execution of this Agreement does not constitute an agreement to
sign the General Release or otherwise waive any legal rights that Executive may have with
respect to claims arising subsequent to Executive’s execution of this Agreement. Rather, in
the event that the General Release is provided to Executive, Executive will be afforded the
opportunity to review and determine whether to sign the General Release in accordance with
relevant laws.

          (c) No payment made or benefit provided by Associated to Executive on or after the Termination
Date shall in any way be treated as continuing any employment relationship between Executive and
Employer beyond such date.

          (d) The payments under this Agreement shall be in lieu of any other severance-related payments
to which Executive otherwise could claim entitlement, including without limitation the Employment
Agreement and any severance plan or policy of Associated.

     3. Early Termination of Executive. If, prior to the Termination Date, the Board of
Directors of Employer determines in good faith (with Executive recusing himself from such vote)
that (x) Executive should be terminated based upon a breach of the covenants contained in Section
7(a) or (y) Executive should be terminated for “Cause” (as defined in the Employment Agreement),
then:

          (a) Executive shall not be entitled to receive the continuation of base salary and/or
Fee Payments (as applicable) pursuant to Section 2(a) of this Agreement (as applicable)
pursuant to Section 2(b) from and after the date the Board makes such determination;

          (b) Executive shall not be entitled to receive the extension of the exercise period for
the options in accordance with Section 5 of this Agreement (but rather, in accordance with
the terms of the governing option agreements, Executive will have 90 days from the date he
no longer serves as Chief Executive Officer of Employer to exercise the options to the
extent vested as of the Termination Date);

          (c) Executive shall not be entitled to the Severance Payment and the continuation of
benefits; and

     (iv) Executive will not be entitled to continue as a member of the Boards of Directors
in accordance with Section 1(b) above.

4. Repurchase Rights With Respect to Class B Shares.

8

 

     AMH II hereby waives its rights, pursuant to the Option Agreements (as defined below), to
repurchase after the Termination Date any or all of the Class B Shares that are held by Employee as
of the date hereof.

     5. Treatment of Options; Repurchase of Option Shares. Executive holds options to
purchase Class B Common Stock as set forth on Schedule 1 hereto (the “Options”) pursuant to
the option agreement identified on Schedule 1 hereto (the “Option Agreements”). The
parties hereto acknowledge and agree that notwithstanding any provisions contained in the Option
Agreements that state that Executive will have 90 days from the termination of employment to
exercise Options to the extent vested on the Termination Date, Executive shall be entitled to
exercise any such Options at any time prior to December 31, 2006; provided, however, that if
Executive is terminated pursuant to Section 3 above, the post-termination exercise periods shall
remain 90 days. In the event that Executive exercises any Options, AMH II shall have the right,
exercisable upon written notice to Executive no later than June 15, 2007 (a “Repurchase
Notice”), to repurchase all of the shares of Class B Common Stock issued to Executive upon the
exercise of such Options (“the “Option Shares”) for an aggregate purchase price equal to
the lesser of (i) $2,000,000 and (ii) the fair market value of the Option Shares to be repurchased
as of the Repurchase Date (as defined below), as determined in good faith by the Board of Directors
of AMH II, without discount for lack of marketability or minority interest, based upon a customary
appraisal prepared by an independent appraisal company, or such other reasonable valuation method
as the Board of Directors shall select and apply (the “Repurchase Price”). If AMH II
elects to repurchase the Option Shares pursuant to a Repurchase Notice, the closing of such
repurchase shall occur, subject to the following proviso and to the immediately succeeding
sentence, on June 30, 2007; provided, however, that if the Repurchase Price on such date would be
less than $1,500,000, then Executive shall be entitled to defer the date of such repurchase until
December 31, 2007, and the Repurchase Price shall be calculated as of December 31, 2007 (the date
on which such repurchase occurs, the “Repurchase Date”); provided, however, that the
Repurchase Price shall not in any event exceed $2,000,000. Notwithstanding the foregoing or
anything to the contrary contained in any Option Agreement, the Executive hereby agrees that, in
the event that (i) AMH II exercises its repurchase right as described above and (ii) either (x) AMH
II’s payment of the Repurchase Price for all or a portion of the Option Shares to be repurchased is
not then permitted under Delaware law or under the terms of any of the Company’s or any of its
Affiliates’ debt or equity financing agreements, including, without limitation, the Indenture with
respect to AMH II’s 13.625% Senior Notes Due 2014 (the “Mezz Notes”) or (y) such payment
would, in the reasonable judgment of AMH II’s Board of Directors, render AMH II unable to pay when
due its next scheduled installment of interest in respect of the Mezz Notes, then the repurchase of
such Option Shares shall be deferred as follows:

     (A) if such deferral is pursuant to clause (x) above, AMH II shall purchase such quantity of
Option Shares on the Repurchase Date as it shall be permitted to do so in compliance with all of
the restrictions described in such clause (x), for a purchase price per Option Share equal to the
Repurchase Price divided by the number of Option Shares to be repurchased at such time (the
“Price Per Share”), and the purchase of any Option Shares that AMH II is prohibited by such
restrictions from purchasing on the Repurchase Date shall be deferred until the date that is ten
days after the end of the first fiscal quarter in which AMH II shall be permitted to purchase such
Option Shares in compliance with such restrictions, subject to additional quarterly deferrals in

9

 

like manner until all Option Shares elected to be purchased by AMH II shall have been
purchased and paid for; and

     (B) if such deferral is pursuant to clause (y) above, AMH II shall purchase such quantity of
Option Shares, on the Repurchase Date and for the Price Per Share, as would, in the reasonable
judgment of AMH II’s Board of Directors, enable AMH II to pay the full amount of the next scheduled
interest payment in respect of the Mezz Notes, and the purchase of any Option Shares which AMH II
does not purchase on the Repurchase Date shall be deferred until the next scheduled interest
payment date in respect of the Mezz Notes on which AMH II is able, in the reasonable judgment of
the Board of Directors to (I) first, pay the scheduled interest payment in respect of the Mezz
Notes on such date and (II) second, purchase any Option Shares in compliance with such all of the
restrictions described in clause (x) above, subject to additional deferrals as provided herein
until all Option Shares elected to be purchased by AMH II shall have been purchased and paid for;

The purchase price in respect of each Option Share purchased by AMH II after the Repurchase Date
(whether pursuant to clause (A) or clause (B) above) shall be the Price Per Share, together with
accrued interest thereon from the Repurchase Date to the date of repurchase at the rate of 8% per
annum; provided, however, that the aggregate purchase price in respect of all repurchased Option
Shares shall not in any event exceed $2,000,000. Executive expressly acknowledges and agrees that
AMH II’s right to defer any purchase of Option Shares in the manner described above shall be in
addition to, and not in lieu or limitation of, any other right of AMH II to defer cash payment of
the purchase price for repurchased Option Shares contained in any Option Agreement.

     6. Representations of Executive. Executive represents and warrants to Associated that
he has the capacity to enter into this Agreement and this Agreement constitutes a legal, valid and
binding obligation of him.

     7. General Covenants and Agreements.

          (a) Executive covenants and agrees not to make any derogatory or disparaging statements about
Associated, its officers, directors, agents, employees, representatives, related or affiliated
corporations, their successors and assigns, their products or services, their customers at any time
in the future without limitation of any kind, except as otherwise required by law. Associated, on
behalf of itself and its officers, directors, agents, employees, representatives, related or
affiliated corporations, their successors and assigns, covenants and agrees not to make any
derogatory or disparaging statements about Executive at any time in the future without limitation
of any kind, or otherwise interfere with his efforts to secure future employment, except as
otherwise required by law.

          (b) Executive agrees to (i) voluntarily appear, if requested by Associated, without a subpoena
to testify in any legal proceeding, meet with Associated counsel prior to such testimony as and
when reasonably requested by Associated and advise such counsel truthfully of all facts known to
him, and (ii) for a period of twelve months from the Termination Date, provide reasonable
consultation, cooperation and assistance as and when reasonably requested by Associated with
respect to matters in which Executive was involved or had knowledge of during

10

 

his employment by Employer, provided, that, Associated shall reimburse Executive for all
reasonable out-of-pocket expenses incurred by Executive in order to comply with this Section 7(b).

          (c) Executive covenants and agrees that he will execute such additional documents and take
such additional actions as may be reasonably requested by Associated in furtherance or connection
with this Agreement.

     8. Non-Competition, Non-Solicitation, Non-Disclosure of Proprietary Information, Surrender
of Records, Inventions and Patents.

          (a) Non-Competition. Executive acknowledges that in the course of his employment with
Employer he has become familiar with the trade secrets and other confidential information of
Employer. Therefore, and in consideration of, among other things, the Severance Payment, Executive
agrees that from the date hereof through the Severance Period (the “Noncompete Period”), he
shall not directly or indirectly within any jurisdiction or marketing area in which Associated is
doing or is qualified to do business, directly or indirectly, own, manage, operate, control, be
employed by or participate in the ownership, management, operation or control of, or be connected
in any manner with, any manufacturing, production, distribution or sale of exterior residential
building products, including, without limitation, vinyl siding, windows, fencing, decking, railings
and garage doors, or any other business of a type and character engaged in by Associated during
Executive’s employment with Employer. Nothing herein shall prohibit Executive from being a passive
owner of not more than 2% of the outstanding stock of any class of a competing corporation which is
publicly traded so long as Executive has no direct or indirect active participation in the business
of such corporation.

          (b) Non-Solicitation. During the Noncompete Period, Executive shall not, directly or
indirectly, (i) employ any individual who is or was an employee of Associated during Executive’s
with Employer and who is or was granted options to purchase stock of Associated or who is or was a
party to an employment or severance agreement with Associated; (ii) solicit for employment or
otherwise contract for the services of any individual who is or was an employee of Associated
during Executive’s employment with Employer; (iii) otherwise induce or attempt to induce any
employee of Associated to leave the employ of Associated, or in any way knowingly interfere with
the relationship between Associated and any employee respectively thereof; or (iv) induce or
attempt to induce any customer, supplier, licensee or other business relation of Associated to
cease doing business with Associated.

          (c) Proprietary Information. Executive agrees that he shall not use for his own
purpose or for the benefit of any person or entity other than Employer or its shareholders or
affiliates, nor shall Executive otherwise disclose to any individual or entity any proprietary
information of Employer unless such disclosure (i) has been authorized by Employer’s board of
directors or (ii) is required by law, a court of competent jurisdiction or a governmental or
regulatory agency. For purposes of this Agreement, “proprietary information” shall mean: (a) the
name or address of any customer, supplier or affiliate of Employer or any information concerning
the transactions or relations of any customer, supplier or affiliate of Employer or any of its
shareholders; (b) any information concerning any product, service, technology or procedure offered
or used by Employer, or under development by or being considered for use by Employer;

11

 

(c) any information relating to marketing or pricing plans or methods, capital structure, or
any business or strategic plans of Employer; (d) any inventions, innovations, trade secrets or
other items covered by Section 8(d) below; and (e) any other information which the Board has
determined by resolution and communicated to Executive in writing to be proprietary information for
purposes hereof. However, proprietary information shall not include any information that is or
becomes generally known to the public other than through actions of Executive in violation of this
Section 8.

          (d) Surrender of Records. Executive agrees that he shall not retain and shall
promptly after the date hereof surrender to Employer all correspondence, memoranda, files, manuals,
financial, operating or marketing records, magnetic tape, or electronic or other media of any kind
which may be in Executive’s possession or under his control or accessible to him which contain any
proprietary information as defined in Section 8(c) above. Upon written and specific request by
Executive, Employer will consider permitting Executive to retain one copy of management
presentations and similar items which do not contain any proprietary information as defined in
Section 8(c) above.

          (e) Inventions and Patents. Executive agrees that all inventions, innovations, trade
secrets, patents and processes in any way relating, directly or indirectly, to Employer’s business
developed by him alone or in conjunction with others at any time during his employment by Employer
shall belong to Employer. Executive will use his best efforts to perform all actions reasonably
requested by the Board of Directors of Employer to establish and confirm such ownership by
Employer.

          (f) Enforcement. The parties hereto agree that the duration and area for which the
covenants set forth in this Section 8 are to be effective are reasonable. The periods under the
covenants in this Section 8 shall be extended by one day for each day that Executive is in
violation thereof. In the event that any court or arbitrator determines that the time period or
the area, or both of them, are unreasonable and that any of the covenants are to that extent
unenforceable, the parties hereto agree that such covenants will remain in full force and effect,
first, for the greatest time period, and second, in the greatest geographical area that would not
render them unenforceable. The parties intend that this Agreement will be deemed to be a series of
separate covenants, one for each and every county of each and every state of the United States of
America. Executive agrees that damages are an inadequate remedy for any breach of the covenants in
this Section 8 and that Associated will be entitled, in addition to and not in lieu of monetary
damages or any other remedy available to Associated at law, to equitable relief in the form of
preliminary and permanent injunctions without bond or other security upon any actual or threatened
breach of this Agreement.

     9. Release. For valuable consideration, including without limitation the Fee
Payments, Executive hereby for himself and his successors, heirs, executors, administrators and
assigns, does hereby remise, release and forever discharge Associated and Associated’s parent(s),
predecessors, successors, divisions, subsidiaries, affiliates and assigns and their respective
current and former officers, directors, agents, employees and counsel, individually and in their
official capacities, from all manner of actions, causes of action, suits, debts, sums of money,
bonds, bills, contracts, controversies, agreements, indemnification rights, promises, damages,
judgments, claims and demands whatsoever, at law or in equity, whether known or unknown, up

12

 

until the time that this Agreement is executed by Executive, including but not limited to
claims pursuant to federal, state or local law, regulation or executive order prohibiting
discrimination in employment, including, but not limited to, all claims under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act
of 1991, the Employee Retirement Income Security Act and the Americans with Disabilities Act, which
Executive or his successors, heirs, executors, administrators or assigns ever had, now has or
hereafter can, shall or may have, for, upon or by reason of his employment by Employer or any
interest in Associated, or the shares of the capital stock of AMH II, or any agreement, instrument,
matter, cause or thing whatsoever, including any action alleging a supposed breach of contract or
tort, claims for severance pay, back pay, wage/salary increase, expenses, benefits, bonus(es),
options, phantom stock, severance, re-employment, service letters, compensatory or punitive
damages, attorneys’ fees and all claims for any other type of damage relief or any other theory of
law. The release contained in this Section 9 shall not release AMH II from its obligations under
the terms of this Agreement.

     10. Miscellaneous.

          (a) Entire Agreement. This Agreement, together with the Option Agreements, the
Employment Agreement (as modified by this Agreement) and, if executed in accordance with the terms
hereof, the General Release, is the entire agreement between Executive and Associated with regard
to the clarification of all existing legal rights and obligations related to (i) Executive’s
employment by Employer, (ii) the Class B Shares and (iii) the Options.

          (b) Disclaimer of Wrongdoing. This Agreement shall not be construed as an admission
by Associated of any wrongdoing or any violation of federal, state or local law, statute or
ordinance, and Associated specifically disclaims and denies any wrongdoing whatsoever against
Executive by it, its employees, representatives, or agents.

          (c) No Representations, Warranties, Promises or Inducements. Executive acknowledges
that the only consideration for him signing this Agreement are the terms stated herein, that no
other promise, agreement, statement or representation of any kind has been made to him by any
person or entity to cause him to sign this Agreement, that he is competent to execute this
Agreement, that he fully understands the meaning and intent of the promises and covenants contained
herein, and that he is voluntarily executing this Agreement without reservation and of his own free
will. Other than as stated herein, no promises of inducement have been offered to Executive in
consideration for his acceptance and agreement to the terms of this Agreement.

          (d) Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon AMH II and Employer and their successors and assigns and Executive and his heirs and
personal representatives, but Executive’s rights hereunder are personal to him and shall not be
subject to voluntary or involuntary alienation, assignment or transfer.

          (e) Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without reference to its choice of law rules.

13

 

          (f) Waivers and Amendments. This Agreement may be amended, modified, superseded,
cancelled, renewed or extended, and the terms and conditions hereof may be waived, only by a
written instrument signed by AMH II, Employer and Executive or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party hereto in exercising any right, power
or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part any
party hereto of any right, power or privilege hereunder, or any single or partial exercise of any
right, power or privilege hereunder, preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any party hereto may otherwise have
at law or in equity.

          (g) Severability. The invalidity or unenforceability of any particular provision of
this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed
in all respects as if such invalid or unenforceable provision were omitted.

          (h) Counterparts. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one and the same
instrument.

          (i) Headings. The headings in this Agreement are for reference purposes only and
shall not in any way affect the meaning or interpretation of this Agreement.

          (j) Conflicts. In the event that any of the terms or conditions contained in this
Agreement are inconsistent or otherwise conflict with any of the terms and conditions of the
Employment Agreement, the terms and conditions of this Agreement shall govern and control.

          (k) Age Discrimination in Employment Act. Executive hereby represents and
acknowledges that he is being given 21 days to consider whether to sign this Agreement (including
the general release of claims set forth in Section 9 hereof) and that he has seven (7) days from
the date that he signs this Agreement to revoke this Agreement. Any revocation of this Agreement
must be in writing and personally delivered to Employer, 3737 State Road, Cuyahoga Falls, Ohio
44224, Attn: Chief Financial Officer, or if mailed, postmarked within seven (7) days of the date
upon which it was signed by you.

          (l) EXECUTIVE HEREBY ACKNOWLEDGES AND AGREES THAT HE HAS READ THIS AGREEMENT; FULLY
UNDERSTANDS AND ACCEPTS ALL OF ITS TERMS AND CONDITIONS OF HIS OWN FREE WILL; AND THAT HE HAS HAD
AN ADEQUATE OPPORTUNITY TO DISCUSS THIS AGREEMENT WITH AN ATTORNEY OF HIS CHOOSING AND HAS DONE SO
OR VOLUNTARILY ELECTED NOT TO DO SO.

[the remainder of this page is intentionally left blank]

14

 

     IN WITNESS WHEREOF, this Agreement is made effective as of the Effective Date.

	 	 	 	 	 	 	 
	 	 	AMH HOLDINGS II, INC.
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ D. Keith LaVanway
	 	 	 	 	 
	 

	 	 	 	Name:
	 	D. Keith LaVanway
	 

	 	 	 	Title:
	 	Vice President — Finance,
	 

	 	 	 	 	 	Chief Financial Officer,
	 

	 	 	 	 	 	Treasurer and Secretary
	 
	 	 	 	 	 	 
	 	 	AMH HOLDINGS, INC.
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ D. Keith LaVanway
	 	 	 	 	 
	 

	 	 	 	Name:
	 	D. Keith LaVanway
	 

	 	 	 	Title:
	 	Vice President — Finance,
	 

	 	 	 	 	 	Chief Financial Officer,
	 

	 	 	 	 	 	Treasurer and Secretary
	 
	 	 	 	 	 	 
	 	 	ASSOCIATED MATERIALS HOLDINGS, INC.
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ D. Keith LaVanway
	 	 	 	 	 
	 

	 	 	 	Name:
	 	D. Keith LaVanway
	 

	 	 	 	Title:
	 	Vice President — Finance,
	 

	 	 	 	 	 	Treasurer and Secretary
	 
	 	 	 	 	 	 
	 	 	ASSOCIATED MATERIALS INCORPORATED
	 
	 	 	 	 	 	 
	 	 	By:	 	/s/ D. Keith LaVanway
	 	 	 	 	 
	 

	 	 	 	Name:
	 	D. Keith LaVanway
	 

	 	 	 	Title:
	 	Vice President — Finance,
	 

	 	 	 	 	 	Treasurer and Secretary
	 
	 	 	 	 	 	 
	 	 	/s/ Michael Caporale, Jr
	 	 	 
	 	 	Michael Caporale, Jr.

15

 

Schedule 1

Options and Option Agreements

Options to purchase 134,204 shares of Class B, Series II (Non-Voting) Common Stock of AMH Holdings
II, Inc., subject to vesting, granted pursuant to the Stock Option Award Agreement, dated September
4, 2002, between Michael Caporale and AMH Holdings, Inc.

 

 

EXHIBIT A

April 11, 2006

	 	 	 	 	 
	 	 	Michael Caporale, Jr.
	 	 	c/o Associated Materials Incorporated
	 	 	3773 State Road
	 
	 	 	 	 
	 	 	Cuyahoga Falls, OH 44223
	 
	 	 	 	 
	 

	 	Re:
	 	General Release
	 
	 	 	 	 
	 	 	Dear Michael:

          In connection with the termination of your employment, Associated Materials Incorporated
(“AMI”) is prepared to provide you with the following severance payments and benefits
(which are described in Section 5 of your employment agreement, dated July 27, 2004 (the
“Employment Agreement”) and Section 2 of your Separation Agreement and General Release,
dated April 11, 2006 (the “Separation Agreement”)):

               (i) A severance payment equal to $1,000,000 per year for two years, with such
payment(s) to commence on July 1, 2006 (the “Severance Period”). Such payment(s)
shall be made in accordance with AMI’s normal payroll practices and be reduced by deductions
or withholdings required by law.

               (ii) Employer will continue to provide Executive with the medical and dental benefits
currently provided to Executive from the date hereof through the Severance Period, at the
same rate of employee and Employer shared costs of such coverage as in effect from time to
time for active employees of Employer.

               (iii) To the extent incentive bonuses are payable to the top five (5) most senior
executives of Employer (other than the Executive) for the fiscal year 2006, Employer will
pay Executive one half of the incentive bonus that would be payable to the Executive for the
fiscal year 2006 based upon the same performance criteria with respect to Associated that
are applicable to such five executives (notwithstanding anything to the contrary contained
in the Employment Agreement), in accordance with Executive’s Board-approved bonus policy for
such executives, payable when incentive bonuses, if any, are paid to the executives of
Employer.

          In order to be eligible to receive the payments and benefits described above to which you are
not otherwise entitled, you are required to agree to the terms contained in this

 

 

General Release, indicate your agreement by signing and returning this General Release and not
revoke this General Release as provided below.

          In consideration for the payments and other benefits described above to which you are not
otherwise entitled, you hereby for yourself and your successors, heirs, executors, administrators
and assigns, do hereby remise, release and forever discharge AMI, AMH Holdings II, Inc., AMH
Holdings, Inc. and Associated Materials Holdings, Inc. and each of their respective parent(s),
predecessors, successors, divisions, subsidiaries, affiliates and assigns and their respective
current and former officers, directors, agents, employees and counsel, individually and in their
official capacities, from all manner of actions, causes of action, suits, debts, sums of money,
bonds, bills, contracts, controversies, agreements, indemnification rights, promises, damages,
judgments, claims and demands whatsoever, at law or in equity, whether known or unknown, up until
the time that this Agreement is executed by Executive, including but not limited to claims pursuant
to federal, state or local law, regulation or executive order prohibiting discrimination in
employment, including, but not limited to, all claims under the Age Discrimination in Employment
Act, Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Employee
Retirement Income Security Act and the Americans with Disabilities Act, which Executive or his
successors, heirs, executors, administrators or assigns ever had, now has or hereafter can, shall
or may have, for, upon or by reason of his employment by Employer or any interest in Associated, or
the shares of the capital stock of Associated, or any agreement, instrument, matter, cause or thing
whatsoever, including any action alleging a supposed breach of contract or tort, claims for
severance pay, back pay, wage/salary increase, expenses, benefits, bonus(es), options, phantom
stock, severance, re-employment, service letters, compensatory or punitive damages, attorneys’ fees
and all claims for any other type of damage relief or any other theory of law. By signing this
Agreement and Release, you are providing a complete waiver of all claims that may have arisen,
whether known or unknown, up until the time that this Agreement and Release is executed.
Notwithstanding the foregoing, this General Release does not release AMI from its obligations under
the terms of this General Release.

          You acknowledge and agree that you continue to be bound by the terms of the Separation
Agreement, including the covenants contained in Sections 7 and 8 thereof, and the General Release
contained in Section 9 thereof (relevant sections of the Separation Agreement and General Release
and the Employment Agreement are attached hereto and incorporated herein as Exhibits A and B
respectively).

          If you breach this Agreement and Release, AMI will seek restitution and/or offset of any
payments or benefits provided to the extent permitted by law.

          You represent that you have not commenced or participated in any proceeding of any kind (on
behalf of yourself, any other person or as a member of any alleged class of persons) that is
pending in any court or before any administrative or investigative body or agency (whether public,
quasi-public or private) against or involving any of Associated or any Associated Officials and
that you have not assigned or transferred your rights with respect to any Claims covered by this
General Release. In addition, if you do commence or participate in any such proceeding, you agree
that this General Release will be a complete defense in any such proceeding and you (and your
heirs, administrators, executors, successors and assigns) will not

2

 

           seek, obtain or receive, and that you will have no right to seek, obtain or receive any award,
recovery, settlement or relief of any kind whatsoever as a result of any such proceeding.

          Since your execution of this Agreement and Release releases Associated and any Associated
Officials from all claims you may have, you should review this carefully before signing it. You
can take at least twenty-one (21) days from your receipt of this Agreement and Release to consider
its meaning and effect and to determine whether you wish to enter into it. You are advised to
consult with anyone of your choosing, including an attorney, prior to executing this Agreement and
Release.

          Once you have signed this Agreement and Release, you may choose to revoke your execution
within seven (7) days. Any revocation of this Agreement and Release must be in writing and
personally delivered to Keith LaVanway, Associated Materials, Inc., 3773 State Road, Cuyahoga
Falls, OH 44223 or, if mailed, postmarked within seven (7) days of the date upon which it was
signed by you.

          TO RECEIVE THE PAYMENTS AND OTHER BENEFITS DESCRIBED ABOVE TO WHICH YOU ARE NOT OTHERWISE
ENTITLED, YOU MUST SIGN AND RETURN THE AGREEMENT AND RELEASE NO LATER THAN May 2, 2006. This
Agreement and Release should be returned to Keith LaVanway, Associated Materials, Inc., 3773 State
Road, Cuyahoga Falls, OH 44223. AMI will not make any payments or provide any benefits pursuant to
this Agreement and Release until after the seven (7) day period expires and provided that you have
not revoked this General Release.

          This Agreement and Release (including the relevant sections of the Separation Agreement and
General Release and the Employment Agreement) contains the entire understanding of the parties
relating to the subject matter hereof. You acknowledge that no representations, oral or written,
have been made other than those expressly set forth herein, and that you have not relied on any
other representations in executing this Agreement and Release. This Agreement and Release may be
modified only in a document signed by the parties and referring specifically hereto.

	 	 	 
	 

	 	Sincerely yours,
	 
	 	 
	 

	 	Associated Materials Incorporated
	 
	 	 
	 

	 	/s/ D. Keith LaVanway
	 
	 	 
	 

	 	D. Keith LaVanway

Vice-President and CFO

	 	 	 	 	 
	 

	 	 	 	 
	 

	 	AGREED TO AND ACCEPTED:	 	 
	 
	 	 	 	 
	 

	 	/s/ Michale Caporale, Jr.	 	 
	 	 	 	 	 
	 

	 	Michael Caporale, Jr.	 	 
	 
	 	 	 	 
	 

	 	Date: April 11, 2006	 	 

3

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