Document:

exhibit10-1.htm

  
    NON
BROKERED PRIVATE PLACEMENT SUBSCRIPTION

    

    
 

    WESTERN
STANDARD ENERGY CORP.

    

    

    PRIVATE
PLACEMENT

    

    INSTRUCTIONS
TO SUBSCRIBER:

    

    
      	
              1.

            	
              COMPLETE the information
      on page 2 of this Subscription
Agreement.

            

    

    

    
      	
              2.

            	
              If resident in the United
      States, COMPLETE the Prospective Investor Suitability Questionnaire
      attached as Appendix 1 to this Subscription Agreement (the "US
      Questionnaire").

            

    

    

    
      	
               
      

            	
              (collectively,
      the “Questionnaires”)

            

    

    

    
      	
              3.

            	
              COURIER the originally
      executed copy of the entire Subscription Agreement, together with the
      Questionnaire, and the Subscription Proceeds to the Company
      at:

            

    

    

    Western
Standard Energy Corp.

    c/o
Clark Wilson LLP

    800-885
West Georgia Street, Vancouver, BC  V6C 3H1

    

    
      	
            

    

    

    

     

     

    

    WE
MUST RECEIVE YOUR COMPLETED SUBSRIPTION AGREEMENT AND PAYMENT IN FULL
NOT

     

    LATER
THAN 3 PM P.S.T. ON FEBRUARY 12,
2010 TO BE CONSIDERED FOR ACCEPTANCE.

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

    PRIVATE PLACEMENT
SUBSCRIPTION AGREEMENT

     

    
      	
              TO:

            	
              Western
      Standard Energy Corp.   c/o Clark Wilson LLP 800-885 West
      Georgia Street, Vancouver, BC  V6C
  3H1

            

    

    

    

    Subject
and pursuant to the attached “Terms and Conditions” of this Subscription
Agreement, including all schedules and appendices attached hereto, the
Subscriber hereby irrevocably subscribes for, and on the Closing Date, will
purchase from the Company, the following securities at the following
price:

    
      	
              100,000 Units

            
	
              US$0.00125
      per Unit for a total purchase price of ___$125.00______

            
	
              The
      Subscriber owns, directly or indirectly, the following securities of the
      Company:

            
	
              Nil                                                                                                                   

            
	
              [Check if
      applicable]  The Subscriber is  an affiliate of
      the Company

            

    

     

    The
Subscriber directs the Company to issue, register and deliver the certificates
representing the Shares as follows:

     

    
      	
              REGISTRATION
      INSTRUCTIONS

            	 
      	
              DELIVERY
      INSTRUCTIONS

            
	 
      	 
      	 
      
	
              Name
      to appear on certificate

            	 
      	
              Name
      and account reference, if applicable

            
	 
      	 
      	 
      
	
              Account
      reference if applicable

            	 
      	
              Contact
      name

            
	 
      	 
      	 
      
	
              Address

            	 
      	
              Address

            
	 
      	 
      	 
      
	 
      	 
      	
              Telephone
      Number

            

    

     

    EXECUTED
by the Subscriber this ______ day of _________, 2010.

     

    
      	
              WITNESS:

            	 
      	
              EXECUTION
      BY SUBSCRIBER:

            
	 
      	 
      	
              X

            
	
              Signature
      of Witness

            	 
      	
              Signature
      of individual (if Subscriber is an
      individual)

            
	 
      	 
      	
              X

            
	
              Name
      of Witness

            	 
      	
              Authorized
      signatory (if Subscriber is not an
      individual)

            
	 
      	 
      	 
      
	
              Address
      of Witness

            	 
      	
              Name
      of Subscriber (please
      print)

            
	 
      	 
      	 
      
	 
      	 
      	
              Name
      of authorized signatory (please
      print)

            
	
              ACCEPTED
      this 12th day of February, 2010

            	 
      	 
      
	
              WESTERN
      STANDARD ENERGY CORP.

            	 
      	
              Address
      of Subscriber (residence)

            
	
              per:

            	 
      	 
      
	
              
              

            	 
      	
              Telephone
      Number

            
	
              Authorized
      Signatory

            	 
      	 
      
	 
      	 
      	
              E-mail
      address

            
	 
      	 
      	 
      
	 
      	 
      	
              Social
      Security/ Social Insurance No.:

            

    

    

    By
signing this acceptance, the Subscriber agrees to be bound by the term and
conditions of this Subscription Agreement.

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    NONE
OF THE SECURITIES TO WHICH THIS PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT (THE
“SUBSCRIPTION AGREEMENT”) RELATES HAVE BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR ANY U.S. STATE
SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE
UNITED STATES OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN)
EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.

     

    TERMS AND
CONDITIONS

     

    
      	
              1.

            	
              Subscription

            

    

     

    1.1                      The
undersigned (the "Subscriber") hereby irrevocably subscribes for and agrees to
purchase the number of shares of the Company's common stock (the "Shares") as
set out on page 2 of this Subscription Agreement at a price of US$0.00125 per
unit, each unit comprised of one common share.  (such subscription and
agreement to purchase being the "Subscription"), for the total subscription
price as set out on page 2 of this Subscription Agreement (the "Subscription
Proceeds"), which Subscription Proceeds are tendered herewith, on the basis of
the representations and warranties and subject to the terms and conditions set
forth herein.

     

    1.2           The
Company hereby agrees to sell, on the basis of the representations and
warranties and subject to the terms and conditions set forth herein, to the
Subscriber the Shares.  Subject to the terms hereof, the Subscription
Agreement will be effective upon its acceptance by the Company.

     

    1.3           Unless
otherwise provided, all dollar amounts referred to in this Subscription
Agreement are in lawful money of the United States of America.

     

    
      	
              2.

            	
              Payment

            

    

     

    2.1           The
Subscription Proceeds must accompany this Subscription and shall be paid by bank
draft, money order or cheque drawn on a major U.S. bank or Canadian chartered
back acceptable to the Company and paid to Clark Wilson LLP, In
Trust.  If the funds are wired to the Company's lawyers, those lawyers
are authorized to immediately deliver the funds to the Company without further
authorization from the Subscriber.

     

    2.2           The
Subscriber acknowledges and agrees that this Subscription Agreement, the
Subscription Proceeds and any other documents delivered in connection herewith
will be held by the Company's lawyers on behalf of the Company.  In
the event that this Subscription Agreement is not accepted by the Company for
whatever reason within 60 days of the delivery of an executed Subscription
Agreement by the Subscriber, this Subscription Agreement, the Subscription
Proceeds and any other documents delivered in connection herewith will be
returned to the Subscriber at the address of the Subscriber as set forth in this
Subscription Agreement without interest or deduction.

     

    2.3           Where
the Subscription Proceeds are paid to the Company, the Company may treat the
Subscription Proceeds as a non-interest bearing loan and may use the
Subscription Proceeds prior to this Subscription Agreement being accepted by the
Company.

     

    
      	
              3.

            	
              Questionnaires
      and Undertaking and
Direction

            

    

     

    3.1           The
Subscriber must complete, sign and return to the Company the following
documents:

     

    
      	
               
      

            	
              (a)

            	
              One
      (1) executed copy of this Subscription Agreement;
  and

            

    

     

    
      	
               
      

            	
              (b)

            	
              the
      US Questionnaire in the form attached as Appendix 1 if the Subscriber is
      resident in the United States.

            

    

     

    (collectively, the
“Questionnaires”)

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    3.2           The
Subscriber shall complete, sign and return to the Company as soon as possible,
on request by the Company, any documents, questionnaires, notices and
undertakings as may be required by regulatory authorities, stock exchanges and
applicable law.

     

    
      	
              4.

            	
              Closing

            

    

     

    4.1                      Closing
of the purchase and sale of the Shares shall occur on or before 3PM P.ST. on
February 12, 2010 or on such other date as may be determined by the Company in
its sole discretion (the "Closing Date").  The Subscriber acknowledges
that Shares may be issued to other subscribers under this offering (the
"Offering") before or after the Closing Date.  The Company, may, at
its discretion, elect to close the Offering in one or more closings, in which
event the Company may agree with one or more subscribers (including the
Subscriber hereunder) to complete delivery of the Shares to such subscriber(s)
against payment therefore at any time on or prior to the Closing
Date.

     

    
      	
              5.

            	
              Acknowledgements
      of Subscriber

            

    

     

    5.1           The
Subscriber acknowledges and agrees that:

     

    
      	
               
      

            	
              (a)

            	
              none
      of the Shares have been registered under the 1933 Act, or under any state
      securities or “blue sky” laws of any state of the United States, and,
      unless so registered, may not be offered or sold in the United States or
      to U.S. Persons, as that term is defined in Regulation S under the 1933
      Act (“Regulation S”), except pursuant to an exemption from, or in a
      transaction not subject to, the registration requirements of the 1933
      Act;

            

    

     

    
      	
               
      

            	
              (b)

            	
              the
      Subscriber acknowledges that the Company has not undertaken, and will have
      no obligation, to register any of the Shares under the 1933
      Act;

            

    

     

    
      	
               
      

            	
              (c)

            	
              the
      decision to execute this Subscription Agreement and purchase the Shares
      agreed to be purchased hereunder has not been based upon any oral or
      written representation as to fact or otherwise made by or on behalf of the
      Company.  If the Company has presented a business plan to the
      Subscriber, the Subscriber acknowledges that the business plan may not be
      achieved or be achievable;

            

    

     

    
      	
               
      

            	
              (d)

            	
              the
      Subscriber and the Subscriber’s advisor(s) have had a reasonable
      opportunity to ask questions of and receive answers from the Company in
      connection with the sale of the Shares hereunder, and to obtain additional
      information, to the extent possessed or obtainable without unreasonable
      effort or expense, necessary to verify the accuracy of the information
      about the Company;

            

    

     

    
      	
               
      

            	
              (e)

            	
              the
      books and records of the Company were available upon reasonable notice for
      inspection, subject to certain confidentiality restrictions, by
      Subscribers during reasonable business hours at its principal place of
      business and that all documents, records and books in connection with the
      sale of the Shares hereunder have been made available for inspection by
      the Subscriber, the Subscriber’s attorney and/or
    advisor(s);

            

    

     

    
      	
               
      

            	
              (f)

            	
              by
      execution of this Subscription Agreement the Subscriber has waived the
      need for the Company to communicate its acceptance of the purchase of the
      Shares pursuant to this Subscription
Agreement;

            

    

     

    
      	
               
      

            	
              (g)

            	
              all
      information which the Subscriber has provided to the Company in the
      Questionnaires are correct and complete as of the date the Questionnaires
      are signed, and if there should be any change in such information prior to
      the Subscription being accepted by the Company, the Subscriber will
      immediately provide the Company with such
  information;

            

    

     

    
      	
               
      

            	
              (h)

            	
              the
      Company is entitled to rely on the representations and warranties and the
      statements and answers of the Subscriber contained in this Subscription
      Agreement and in the Questionnaires, and the Subscriber will hold harmless
      the Company from any loss or damage it may suffer as a result of the
      Subscriber’s failure to correctly complete this Subscription Agreement or
      the Questionnaires;

            

    

    
      
         

      

      
        4

        
          

        

      

      
         

        
          -  -

        

      

    

     

    
      	
               
      

            	
              (i)

            	
              it
      will indemnify and hold harmless the Company and, where applicable, its
      respective directors, officers, employees, agents, advisors and
      shareholders from and against any and all loss, liability, claim, damage
      and expense whatsoever (including, but not limited to, any and all fees,
      costs and expenses whatsoever reasonably incurred in investigating,
      preparing or defending against any claim, lawsuit, administrative
      proceeding or investigation whether commenced or threatened) arising out
      of or based upon any representation or warranty of the Subscriber
      contained herein or in any document furnished by the Subscriber to the
      Company in connection herewith being untrue in any material respect or any
      breach or failure by the Subscriber to comply with any covenant or
      agreement made by the Subscriber to the Company in connection
      therewith;

            

    

     

    
      	
               
      

            	
              (j)

            	
              the
      issuance and sale of the Shares to the Subscriber will not be completed if
      it would be unlawful or if, in the discretion of the Company acting
      reasonably, it is not in the best interests of the
  Company;

            

    

     

    
      	
               
      

            	
              (k)

            	
              it
      has been advised to consult its own legal, tax and other advisors with
      respect to the merits and risks of an investment in the Shares and with
      respect to applicable resale restrictions and it is solely responsible
      (and the Company is not in any way responsible) for compliance with
      applicable resale restrictions;

            

    

     

    
      	
               
      

            	
              (l)

            	
              none
      of the Shares are listed on any stock exchange or automated dealer
      quotation system and no representation has been made to the Subscriber
      that any of the Shares will become listed on any stock exchange or
      automated dealer quotation system, except that certain market makers
      currently make a market in the Company’s share of common stock on the
      over-the counter bulletin board in the United
  States;

            

    

     

    
      	
               
      

            	
              (m)

            	
              it
      is acquiring the Shares as principal for its own account, for investment
      purposes only, and not with a view to, or for, resale, distribution or
      fractionalization thereof, in whole or in part, and no other person has a
      direct or indirect beneficial interest in such
  Shares;

            

    

     

    
      	
               
      

            	
              (n)

            	
              the
      Subscriber is acquiring the Shares pursuant to an exemption from the
      registration and prospectus requirements of applicable securities
      legislation in all jurisdictions relevant to this Subscription, and, as a
      consequence, the Subscriber will not be entitled to use most of the civil
      remedies available under applicable securities legislation and the
      Subscriber will not receive information that would otherwise be required
      to be provided to the Subscriber pursuant to applicable securities
      legislation;

            

    

     

    
      	
               
      

            	
              (o)

            	
              the
      Subscriber has been advised that the business of the Company is in a
      start-up phase and acknowledges that there is no assurance that the
      Company will raise sufficient funds to adequately capitalize the business
      or that the business will be profitable in the
  future;

            

    

     

    
      	
               
      

            	
              (p)

            	
              no
      documents in connection with the sale of the Shares hereunder have been
      reviewed by the Securities and Exchange Commission or any state securities
      administrators;

            

    

     

    
      	
               
      

            	
              (q)

            	
              there
      is no government or other insurance covering any of the Shares;
      and

            

    

     

    
      	
               
      

            	
              (r)

            	
              this
      Subscription Agreement is not enforceable by the Subscriber unless it has
      been accepted by the Company.

            

    

     

    
      	
              6.

            	
              Representations,
      Warranties and Covenants of the
  Subscriber

            

    

     

    6.1           The
Subscriber hereby represents and warrants to and covenants with the Company
(which representations, warranties and covenants shall survive the Closing)
that:

     

    
      	
               
      

            	
              (a)

            	
              the
      Subscriber is resident in the jurisdiction set forth on page 2 underneath
      the Subscriber’s name and
signature;

            

    

    
      
         

      

      
        5

        
          

        

      

      
         

        
          -  -

        

      

    

     

    
      	
               
      

            	
              (b)

            	
              the
      Subscriber has the legal capacity and competence to enter into and execute
      this Subscription Agreement and to take all actions required pursuant
      hereto and, if the Subscriber is a corporation, it is duly incorporated
      and validly subsisting under the laws of its jurisdiction of incorporation
      and all necessary approvals by its directors, shareholders and others have
      been obtained to authorize execution and performance of this Subscription
      Agreement on behalf of the
Subscriber;

            

    

     

    
      	
               
      

            	
              (c)

            	
              the
      Subscriber (i) has adequate net worth and means of providing for its
      current financial needs and possible personal contingencies, (ii) has no
      need for liquidity in this investment, and (iii) is able to bear the
      economic risks of an investment in the Shares for an indefinite period of
      time;

            

    

     

    
      	
               
      

            	
              (d)

            	
              the
      Subscriber has made an independent examination and investigation of an
      investment in the Shares and the Company and has depended on the advice of
      its legal and financial advisors and agrees that the Company will not be
      responsible in anyway whatsoever for the Subscriber’s decision to invest
      in the Shares and the Company;

            

    

     

    
      	
               
      

            	
              (e)

            	
              all
      information contained in the Questionnaires are complete and accurate and
      may be relied upon by the Company and the Subscriber will notify the
      Company immediately of any material change in any such information
      occurring prior to the closing of the purchase of the
    Shares;

            

    

     

    
      	
               
      

            	
              (f)

            	
              the
      entering into of this Subscription Agreement and the transactions
      contemplated hereby do not result in the violation of any of the terms and
      provisions of any law applicable to, or the constating documents of, the
      Subscriber or of any agreement, written or oral, to which the Subscriber
      may be a party or by which the Subscriber is or may be
    bound;

            

    

     

    
      	
               
      

            	
              (g)

            	
              the
      Subscriber has duly executed and delivered this Subscription Agreement and
      it constitutes a valid and binding agreement of the Subscriber enforceable
      against the Subscriber;

            

    

     

    
      	
               
      

            	
              (h)

            	
              it
      understands and agrees that none of the Shares have been registered under
      the 1933 Act or any state securities laws, and, unless so registered, none
      may be offered or sold in the United States or, directly or indirectly, to
      U.S. Persons (as defined herein) except pursuant to an exemption from, or
      in a transaction not subject to, the Registration Requirements of the 1933
      Act and in each case only in accordance with state securities
      laws;

            

    

     

    
      	
               
      

            	
              (i)

            	
              it
      is purchasing the Shares for its own account for investment purposes only
      and not for the account of any other person and not for distribution,
      assignment or resale to others, and no other person has a direct or
      indirect beneficial interest is such Shares, and the Subscriber has not
      subdivided his interest in the Shares with any other
    person;

            

    

     

    
      	
               
      

            	
              (j)

            	
              it
      is able to fend for itself in the Subscription and has the ability to bear
      the economic risks of its prospective investment and can afford the
      complete loss of such investment;

            

    

     

    
      	
               
      

            	
              (k)

            	
              if
      it is acquiring the Shares as a fiduciary or agent for one or more
      investor accounts, it has sole investment discretion with respect to each
      such account and it has full power to make the foregoing acknowledgments,
      representations and agreements on behalf of such
  account;

            

    

     

    
      	
               
      

            	
              (l)

            	
              it
      understands and agrees that the Company and others will rely upon the
      truth and accuracy of the acknowledgments, representations and agreements
      contained in sections 4 and 6 hereof and agrees that if any of such
      acknowledgments, representations and agreements are no longer accurate or
      have been breached, it shall promptly notify the
  Company;

            

    

     

    
      	
               
      

            	
              (m)

            	
              the
      Subscriber is not acquiring the Shares as a result of any form of general
      solicitation or general advertising including advertisements, articles,
      notices or other communications published in any newspaper, magazine or
      similar media or broadcast over radio, or television, or any seminar or
      meeting whose attendees have been invited by general solicitation or
      general advertising;

            

    

     

    
      	
               
      

            	
              (n)

            	
              no
      person has made to the Subscriber any written or oral
      representations:

            

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    
      	
               
      

            	
              (i)

            	
              that
      any person will resell or repurchase any of the Shares, except as noted in
      Section 7, below;

            

    

     

    
      	
               
      

            	
              (ii)

            	
              that
      any person will refund the purchase price of any of the
      Shares;

            

    

     

    
      	
               
      

            	
              (iii)

            	
              as
      to the future price or value of any of the Shares;
  or

            

    

     

    
      	
               
      

            	
              (iv)

            	
              that
      any of the Shares will be listed and posted for trading on any stock
      exchange or automated dealer quotation system or that application has been
      made to list and post any of the Shares of the Company on any stock
      exchange or automated dealer quotation
system.

            

    

     

    6.2           In
this Subscription Agreement, the term “U.S. Person” shall have the meaning
ascribed thereto in Regulation S and for the purpose of the Subscription
includes any person in the United States.

     

    
      	
              7.

            	
              Acknowledgement
      and Waiver

            

    

     

    7.1           The
Subscriber has acknowledged that the decision to purchase the Shares was solely
made on the basis of publicly available information.  The Subscriber
hereby waives, to the fullest extent permitted by law, any rights of withdrawal,
rescission or compensation for damages to which the Subscriber might be entitled
in connection with the distribution of any of the Shares.

     

    
      	
              8.

            	
              Representations and
      Warranties will be Relied Upon by the
  Company

            

    

     

    8.1           The
Subscriber acknowledges that the representations and warranties contained herein
are made by it with the intention that they may be relied upon by the Company
and its legal counsel in determining the Subscriber’s eligibility to purchase
the Shares under applicable securities legislation, or (if applicable) the
eligibility of others on whose behalf it is contracting hereunder to purchase
the Shares under applicable securities legislation.  The Subscriber
further agrees that by accepting delivery of the certificates representing the
Shares on the Closing Date, it will be representing and warranting that the
representations and warranties contained herein are true and correct as at the
Closing Date with the same force and effect as if they had been made by the
Subscriber at the Closing Date and that they will survive the purchase by the
Subscriber of the Shares and will continue in full force and effect
notwithstanding any subsequent disposition by the Subscriber of such
Shares.

     

    
      	
              9.

            	
              Resale
      Restrictions

            

    

     

    9.1           The
Subscriber acknowledges that any resale of the Shares will be subject to resale
restrictions contained in the securities legislation applicable to each
Subscriber or proposed transferee as set forth in paragraph 6 of this Subscription Agreement.  The
Shares may not be offered or sold in the United States unless registered in
accordance with federal securities laws and all applicable state securities laws
or exemptions from such registration requirements are available.

     

    
      	
              10.

            	
              Legending and
      Registration of Subject
Securities

            

    

     

    10.1                      The
Subscriber hereby acknowledges that that upon the issuance thereof, and until
such time as the same is no longer required under the applicable securities laws
and regulations, the certificates representing any of the Shares will bear a
legend in substantially the following form:

     

    “NONE OF
THE SECURITIES TO WHICH THIS PRIVATE PLACEMENT SUBSCRIPTION AGREEMENT (THE
“SUBSCRIPTION AGREEMENT”) RELATES HAVE BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR ANY U.S. STATE
SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE
UNITED STATES OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN)
EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE
WITH APPLICABLE STATE SECURITIES LAWS.”

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

     

    10.2           The
Subscriber hereby acknowledges and agrees to the Company making a notation on
its records or giving instructions to the registrar and transfer agent of the
Company in order to implement the restrictions on transfer set forth and
described in this Subscription Agreement.

     

    
      	
              11.

            	
              Costs

            

    

     

    11.1           The
Subscriber acknowledges and agrees that all costs and expenses incurred by the
Subscriber (including any fees and disbursements of any special counsel retained
by the Subscriber) relating to the purchase of the Shares shall be borne by the
Subscriber.

     

    
      	
              12.

            	
              Governing
      Law

            

    

     

    12.1           This
Subscription Agreement is governed by the laws of the State of Nevada and the
federal laws of the Canada applicable herein.  The Subscriber, in its
personal or corporate capacity and, if applicable, on behalf of each beneficial
purchaser for whom it is acting, irrevocably attorns to the jurisdiction of the
State of Nevada

     

    
      	
              13.

            	
              Survival

            

    

     

    13.1           This
Subscription Agreement, including without limitation the representations,
warranties and covenants contained herein, shall survive and continue in full
force and effect and be binding upon the parties hereto notwithstanding the
completion of the purchase of the Shares by the Subscriber pursuant
hereto.

     

    
      	
              14.

            	
              Assignment

            

    

     

    14.1           This
Subscription Agreement is not transferable or assignable.

     

    
      	
              15.

            	
              Execution

            

    

     

    15.1           The
Company shall be entitled to rely on delivery by facsimile machine of an
executed copy of this Subscription Agreement and acceptance by the Company of
such facsimile copy shall be equally effective to create a valid and binding
agreement between the Subscriber and the Company in accordance with the terms
hereof.

     

    
      	
              16.

            	
              Severability

            

    

     

    16.1           The
invalidity or unenforceability of any particular provision of this Subscription
Agreement shall not affect or limit the validity or enforceability of the
remaining provisions of this Subscription Agreement.

     

    
      	
              17.

            	
              Entire
      Agreement

            

    

     

    17.1           Except
as expressly provided in this Subscription Agreement and in the agreements,
instruments and other documents contemplated or provided for herein, this
Subscription Agreement contains the entire agreement between the parties with
respect to the sale of the Shares and there are no other terms, conditions,
representations or warranties, whether expressed, implied, oral or written, by
statute or common law, by the Company or by anyone else.

     

    
      	
              18.

            	
              Notices

            

    

     

    18.1                      All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication.  Notices to the Subscriber shall be directed to the
address on page 2 and notices to the Company shall be directed to it at the
first page of this Subscription Agreement.

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    19.                      Counterparts

     

    19.1           This
Subscription Agreement may be executed in any number of counterparts, each of
which, when so executed and delivered, shall constitute an original and all of
which together shall constitute one instrument.

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

    APPENDIX
1

     

    PROSPECTIVE INVESTOR
SUITABILITY QUESTIONNAIRE

     

    All
capitalized terms herein, unless otherwise defined, have the meanings ascribed
thereto in the Subscription Agreement.

     

    This
Questionnaire is for use by each Subscriber who is a US person (as that term is
defined Regulation S of the United States Securities Act of 1933 (the “1933
Act”)) and has indicated an interest in purchasing Shares of Western Standard
Energy Corp. (the “Company”).  The purpose of this Questionnaire is to
assure the Company that each Subscriber will meet the standards imposed by the
1933 Act and the appropriate exemptions of applicable state securities
laws.  The Company will rely on the information contained in this
Questionnaire for the purposes of such determination.  The Shares will
not be registered under the 1933 Act in reliance upon the exemption from
registration afforded by Section 3(b) and/or Section 4(6) of the 1933
Act.  This Questionnaire is not an offer of Shares or any other
securities of the Company in any state other than those specifically authorized
by the Company.

     

    All
information contained in this Questionnaire will be treated as
confidential.  However, by signing and returning this Questionnaire,
each Subscriber agrees that, if necessary, this Questionnaire may be presented
to such parties as the Company deems appropriate to establish the availability,
under the 1933 Act or applicable state securities law, of exemption from
registration in connection with the sale of the Shares hereunder.

     

    The
Subscriber covenants, represents and warrants to the Company that it satisfies
one or more of the categories of “Accredited Investors”, as defined by
Regulation D promulgated under the 1933 Act, as indicated
below:  (Please initial in the space provide those categories, if any,
of an “Accredited Investor” which the Subscriber satisfies)

     

    
      	
               
      

            	
                Category
      1

            	
              An
      organization described in Section 501(c)(3) of the United States Internal
      Revenue Code, a corporation, a Massachusetts or similar business trust or
      partnership, not formed for the specific purpose of acquiring the Shares,
      with total assets in excess of
  US $5,000,000;

            

    

     

    
      	
               
      

            	
                Category
      2

            	
              A
      natural person whose individual net worth, or joint net worth with that
      person’s spouse, on the date of purchase exceeds
      US $1,000,000;

            

    

     

    
      	
               
      

            	
                Category
      3

            	
              A
      natural person who had an individual income in excess of US $200,000
      in each of the two most recent years or joint income with that person’s
      spouse in excess of US $300,000 in each of those years and has a
      reasonable expectation of reaching the same income level in the current
      year;

            

    

     

    
      	
               
      

            	
                Category
      4

            	
              A
      “bank” as defined under Section (3)(a)(2) of the 1933 Act or savings
      and loan association or other institution as defined in
      Section 3(a)(5)(A) of the 1933 Act acting in its individual or
      fiduciary capacity; a broker dealer registered pursuant to Section 15
      of the Securities
      Exchange Act of 1934 (United States); an insurance company as
      defined in Section 2(13) of the 1933 Act; an investment company
      registered under the Investment Company Act of
      1940 (United States) or a business development company as defined
      in Section 2(a)(48) of such Act; a Small Business Investment Company
      licensed by the U.S. Small Business Administration under
      Section 301(c) or (d) of the Small Business Investment Act
      of 1958 (United States); a plan with total assets in excess of
      $5,000,000 established and maintained by a state, a political subdivision
      thereof, or an agency or instrumentality of a state or a political
      subdivision thereof, for the benefit of its employees; an employee benefit
      plan within the meaning of the Employee Retirement Income
      Security Act of 1974 (United States) whose investment decisions are
      made by a plan fiduciary, as defined in Section 3(21) of such Act,
      which is either a bank, savings and loan association, insurance company or
      registered investment adviser, or if the employee benefit plan has total
      assets in excess of $5,000,000, or, if a self-directed plan, whose
      investment decisions are made solely by persons that are accredited
      investors;

            

    

     

    
      	
               
      

            	
                Category
      5

            	
              A
      private business development company as defined in Section 202(a)(22)
      of the Investment
      Advisers Act of 1940 (United
States);

            

    

     

    
      	
               
      

            	
                Category
      6

            	
              A
      director or executive officer of the
Company;

            

    

     

    
      	
               
      

            	
                Category
      7

            	
              A
      trust with total assets in excess of $5,000,000, not formed for the
      specific purpose of acquiring the Shares, whose purchase is directed by a
      sophisticated person as described in Rule 506(b)(2)(ii) under the
      1933 Act;

            

    

     

    
      	
               
      

            	
                Category
      8

            	
              An
      entity in which all of the equity owners satisfy the requirements of one
      or more of the foregoing
categories;

            

    

     

    Note that
prospective Subscribers claiming to satisfy one of the above categories of
Accredited Investor may be required to supply the Company with a balance sheet,
prior years’ federal income tax returns or other appropriate documentation to
verify and substantiate the Subscriber’s status as an Accredited
Investor.

     

    If the
Subscriber is an entity which initialled Category 8 in reliance upon the
Accredited Investor categories above, state the name, address, total personal
income from all sources for the previous calendar year, and the net worth
(exclusive of home, home furnishings and personal automobiles) for each equity
owner of the said entity:

     

                                                                                                                                                       

     

                                                                                                                                                       

     

    The
Subscriber hereby certifies that the information contained in this Questionnaire
is complete and accurate and the Subscriber will notify the Company promptly of
any change in any such information.  If this Questionnaire is being
completed on behalf of a corporation, partnership, trust or estate, the person
executing on behalf of the Subscriber represents that it has the authority to
execute and deliver this Questionnaire on behalf of such entity.

     

    IN
WITNESS WHEREOF, the undersigned has executed this Questionnaire as of the
_______ day of February, 2010.

    
      	
              If
      a Corporation, Partnership or Other Entity:

               

            	
              If
      an Individual:

            
	
               

              Print
      of Type Name of Entity

               

              Signature
      of Authorized Signatory

               

              Type
      of Entity

            	
               

              Signature

               

              Print
      or Type Name

               

              Social
      Security/Tax I.D. No.Exhibit 10.38

 

AMENDED AND RESTATED FINANCING AGREEMENT

 

HSBC BANK USA, NATIONAL ASSOCIATION

(AS AGENT AND AS LENDER)

 

and

 

THE OTHER LENDERS SIGNATORY HERETO

FROM TIME TO TIME

(AS LENDERS)

 

with

 

RAFAELLA APPAREL GROUP, INC.

 

and

 

THE OTHER LOAN PARTIES SIGNATORY HERETO

(AS LOAN PARTIES)

 

February 22, 2010

 

 

TABLE OF CONTENTS

 

	
  I.

  	
  DEFINITIONS

  	
  2

  
	
   

  	
  1.1.

  	
  Accounting Terms

  	
  2

  
	
   

  	
  1.2.

  	
  General Terms

  	
  2

  
	
   

  	
  1.3.

  	
  UCC Terms

  	
  22

  
	
   

  	
  1.4.

  	
  Certain Matters of
  Construction

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  II.

  	
  ADVANCES, PAYMENTS

  	
  22

  
	
   

  	
  2.1.

  	
  Maximum Advances

  	
  22

  
	
   

  	
  2.2.

  	
  Procedure for Borrowing

  	
  23

  
	
   

  	
  2.3.

  	
  Disbursement of Advance
  Proceeds

  	
  26

  
	
   

  	
  2.4.

  	
  Swingline Loans

  	
  26

  
	
   

  	
  2.5.

  	
  Intentionally Omitted

  	
  27

  
	
   

  	
  2.6.

  	
  Repayment of Advances

  	
  27

  
	
   

  	
  2.7.

  	
  Repayment of Excess
  Revolving Advances

  	
  27

  
	
   

  	
  2.8.

  	
  Statement of Account

  	
  28

  
	
   

  	
  2.9.

  	
  Letters of Credit and Air
  Releases/Steamship Guarantees

  	
  28

  
	
   

  	
  2.10.

  	
  Issuance of Letters of
  Credit and Air Releases/Steamship Guarantees

  	
  28

  
	
   

  	
  2.11.

  	
  Requirements For Issuance
  of Letters of Credit and Air Releases/Steamship Guarantees

  	
  30

  
	
   

  	
  2.12.

  	
  Additional Payments

  	
  31

  
	
   

  	
  2.13.

  	
  Manner of Borrowing and
  Payment

  	
  31

  
	
   

  	
  2.14.

  	
  Mandatory Prepayments

  	
  33

  
	
   

  	
  2.15.

  	
  Use of Proceeds

  	
  33

  
	
   

  	
  2.16.

  	
  Defaulting Lender

  	
  34

  
	
   

  	
  2.17.

  	
  Term Loan

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  III.

  	
  INTEREST AND FEES

  	
  35

  
	
   

  	
  3.1.

  	
  Interest

  	
  35

  
	
   

  	
  3.2.

  	
  Letter of Credit and Air
  Release/Steamship Guarantee Fees; Cash Collateral

  	
  35

  
	
   

  	
  3.3.

  	
  Loan Fees

  	
  36

  
	
   

  	
  3.4.

  	
  Computation of Interest
  and Fees

  	
  37

  
	
   

  	
  3.5.

  	
  Maximum Charges

  	
  37

  
	
   

  	
  3.6.

  	
  Increased Costs

  	
  37

  
	
   

  	
  3.7.

  	
  Basis For Determining
  Interest Rate Inadequate or Unfair

  	
  38

  
	
   

  	
  3.8.

  	
  Capital Adequacy

  	
  39

  
	
   

  	
  3.9.

  	
  Gross-Up for Taxes

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
  IV.

  	
  COLLATERAL: GENERAL TERMS

  	
  40

  
	
   

  	
  4.1.

  	
  Security Interest in the
  Collateral

  	
  40

  
	
   

  	
  4.2.

  	
  Perfection of Security
  Interest

  	
  40

  
	
   

  	
  4.3.

  	
  Disposition of Collateral

  	
  41

  
	
   

  	
  4.4.

  	
  Preservation of Collateral

  	
  41

  
	
   

  	
  4.5.

  	
  Ownership of Collateral

  	
  42

  
	
   

  	
  4.6.

  	
  Defense of Agent’s and
  Lenders’ Interests

  	
  42

  

 

i

 

	
   

  	
  4.7.

  	
  Books and Records

  	
  43

  
	
   

  	
  4.8.

  	
  Financial Disclosure

  	
  43

  
	
   

  	
  4.9.

  	
  Compliance with Laws

  	
  43

  
	
   

  	
  4.10.

  	
  Inspection of Premises

  	
  43

  
	
   

  	
  4.11.

  	
  Insurance

  	
  44

  
	
   

  	
  4.12.

  	
  Failure to Pay Insurance

  	
  44

  
	
   

  	
  4.13.

  	
  Payment of Taxes

  	
  45

  
	
   

  	
  4.14.

  	
  Payment of Leasehold
  Obligations

  	
  45

  
	
   

  	
  4.15.

  	
  Receivables

  	
  45

  
	
   

  	
  4.16.

  	
  Inventory

  	
  48

  
	
   

  	
  4.17.

  	
  Maintenance of Equipment

  	
  48

  
	
   

  	
  4.18.

  	
  Exculpation of Liability

  	
  48

  
	
   

  	
  4.19.

  	
  Environmental Matters

  	
  48

  
	
   

  	
  4.20.

  	
  Financing Statements

  	
  50

  
	
   

  	
  4.21.

  	
  Collateral Audits

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  V.

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
  51

  
	
   

  	
  5.1.

  	
  Authority

  	
  51

  
	
   

  	
  5.2.

  	
  Formation and
  Qualification

  	
  51

  
	
   

  	
  5.3.

  	
  Survival of
  Representations and Warranties

  	
  52

  
	
   

  	
  5.4.

  	
  Tax Returns

  	
  52

  
	
   

  	
  5.5.

  	
  Financial Statements

  	
  52

  
	
   

  	
  5.6.

  	
  Organization Name

  	
  52

  
	
   

  	
  5.7.

  	
  O.S.H.A. and Environmental
  Compliance

  	
  53

  
	
   

  	
  5.8.

  	
  Solvency; No Litigation,
  Violation, Indebtedness or Default

  	
  53

  
	
   

  	
  5.9.

  	
  Patents, Trademarks,
  Copyrights and Licenses

  	
  54

  
	
   

  	
  5.10.

  	
  Licenses and Permits

  	
  55

  
	
   

  	
  5.11.

  	
  No Defaults

  	
  55

  
	
   

  	
  5.12.

  	
  No Burdensome Restrictions

  	
  55

  
	
   

  	
  5.13.

  	
  No Labor Disputes

  	
  56

  
	
   

  	
  5.14.

  	
  Margin Regulations

  	
  56

  
	
   

  	
  5.15.

  	
  Investment Company Act

  	
  56

  
	
   

  	
  5.16.

  	
  Disclosure

  	
  56

  
	
   

  	
  5.17.

  	
  Delivery of Senior Note
  Documentation and Factoring Agreement

  	
  56

  
	
   

  	
  5.18.

  	
  Swaps

  	
  56

  
	
   

  	
  5.19.

  	
  Conflicts

  	
  57

  
	
   

  	
  5.20.

  	
  Application of Certain
  Laws and Regulations

  	
  57

  
	
   

  	
  5.21.

  	
  Business and Property of
  Loan Parties

  	
  57

  
	
   

  	
  5.22.

  	
  Material Contracts

  	
  57

  
	
   

  	
   

  	
   

  	
   

  
	
  VI.

  	
  AFFIRMATIVE COVENANTS

  	
  57

  
	
   

  	
  6.1.

  	
  Payment of Fees

  	
  57

  
	
   

  	
  6.2.

  	
  Conduct of Business and
  Maintenance of Existence and Assets

  	
  57

  
	
   

  	
  6.3.

  	
  Violations

  	
  58

  
	
   

  	
  6.4.

  	
  Government Receivables

  	
  58

  
	
   

  	
  6.5.

  	
  Execution of Supplemental
  Instruments

  	
  59

  
	
   

  	
  6.6.

  	
  Payment of Indebtedness

  	
  59

  

 

ii

 

	
   

  	
  6.7.

  	
  Standards of Financial
  Statements

  	
  59

  
	
   

  	
  6.8.

  	
  Financial Covenants

  	
  59

  
	
   

  	
  6.9.

  	
  Subsidiaries

  	
  60

  
	
   

  	
   

  	
   

  	
   

  
	
  VII.

  	
  NEGATIVE COVENANTS

  	
  60

  
	
   

  	
  7.1.

  	
  Merger, Consolidation,
  Acquisition and Sale of Assets

  	
  60

  
	
   

  	
  7.2.

  	
  Creation of Liens;
  Negative Pledges

  	
  61

  
	
   

  	
  7.3.

  	
  Guarantees

  	
  61

  
	
   

  	
  7.4.

  	
  Investments

  	
  61

  
	
   

  	
  7.5.

  	
  Loans

  	
  61

  
	
   

  	
  7.6.

  	
  Intentionally Omitted

  	
  62

  
	
   

  	
  7.7.

  	
  Dividends and
  Distributions

  	
  62

  
	
   

  	
  7.8.

  	
  Indebtedness

  	
  63

  
	
   

  	
  7.9.

  	
  Nature of Business

  	
  64

  
	
   

  	
  7.10.

  	
  Transactions with
  Affiliates

  	
  64

  
	
   

  	
  7.11.

  	
  Intentionally Omitted

  	
  64

  
	
   

  	
  7.12.

  	
  Subsidiaries

  	
  64

  
	
   

  	
  7.13.

  	
  Fiscal Year and Accounting
  Changes

  	
  64

  
	
   

  	
  7.14.

  	
  Pledge of Credit

  	
  64

  
	
   

  	
  7.15.

  	
  Amendment of
  Organizational Documents and Material Agreements

  	
  65

  
	
   

  	
  7.16.

  	
  Compliance with ERISA

  	
  65

  
	
   

  	
  7.17.

  	
  Prepayment of Indebtedness

  	
  65

  
	
   

  	
  7.18.

  	
  Senior Secured Notes

  	
  65

  
	
   

  	
  7.19.

  	
  State of Organization

  	
  66

  
	
   

  	
  7.20.

  	
  Other Agreements

  	
  66

  
	
   

  	
   

  	
   

  	
   

  
	
  VIII.

  	
  CONDITIONS PRECEDENT

  	
  66

  
	
   

  	
  8.1.

  	
  Closing Conditions

  	
  66

  
	
   

  	
  8.2.

  	
  Conditions to Each Advance

  	
  69

  
	
   

  	
   

  	
   

  	
   

  
	
  IX.

  	
  INFORMATION AS TO BORROWER

  	
  70

  
	
   

  	
  9.1.

  	
  Disclosure of Material
  Matters

  	
  70

  
	
   

  	
  9.2.

  	
  Schedules

  	
  70

  
	
   

  	
  9.3.

  	
  Environmental Reports

  	
  70

  
	
   

  	
  9.4.

  	
  Litigation

  	
  71

  
	
   

  	
  9.5.

  	
  Material Occurrences

  	
  71

  
	
   

  	
  9.6.

  	
  Government Receivables

  	
  71

  
	
   

  	
  9.7.

  	
  Annual Audited Financial
  Statements

  	
  71

  
	
   

  	
  9.8.

  	
  Semi-Annual Reviewed
  Financial Statements

  	
  72

  
	
   

  	
  9.9.

  	
  Quarterly Internally
  Prepared Financial Statements

  	
  72

  
	
   

  	
  9.10.

  	
  Other Reports

  	
  73

  
	
   

  	
  9.11.

  	
  Additional Information

  	
  73

  
	
   

  	
  9.12.

  	
  Projected Operating Budget

  	
  73

  
	
   

  	
  9.13.

  	
  Variances From Operating
  Budget

  	
  74

  
	
   

  	
  9.14.

  	
  Notice of Suits, Adverse
  Events

  	
  74

  
	
   

  	
  9.15.

  	
  ERISA Notices and Requests

  	
  74

  
	
   

  	
  9.16.

  	
  Additional Documents

  	
  75

  

 

iii

 

	
  X.

  	
  EVENTS OF DEFAULT

  	
  75

  
	
   

  	
   

  	
   

  	
   

  
	
  XI.

  	
  LENDERS’ RIGHTS AND
  REMEDIES AFTER DEFAULT

  	
  77

  
	
   

  	
  11.1.

  	
  Rights and Remedies

  	
  77

  
	
   

  	
  11.2.

  	
  Allocation of Payments
  After Event of Default

  	
  78

  
	
   

  	
  11.3.

  	
  Agent’s Discretion

  	
  80

  
	
   

  	
  11.4.

  	
  Setoff

  	
  80

  
	
   

  	
  11.5.

  	
  Rights and Remedies not
  Exclusive

  	
  80

  
	
   

  	
   

  	
   

  	
   

  
	
  XII.

  	
  WAIVERS AND JUDICIAL
  PROCEEDINGS

  	
  80

  
	
   

  	
  12.1.

  	
  Waiver of Notice

  	
  80

  
	
   

  	
  12.2.

  	
  Delay

  	
  80

  
	
   

  	
  12.3.

  	
  Jury Waiver

  	
  81

  
	
   

  	
   

  	
   

  	
   

  
	
  XIII.

  	
  EFFECTIVE DATE AND
  TERMINATION

  	
  81

  
	
   

  	
  13.1.

  	
  Term

  	
  81

  
	
   

  	
  13.2.

  	
  Termination

  	
  81

  
	
   

  	
   

  	
   

  	
   

  
	
  XIV.

  	
  REGARDING AGENT

  	
  82

  
	
   

  	
  14.1.

  	
  Appointment

  	
  82

  
	
   

  	
  14.2.

  	
  Nature of Duties

  	
  82

  
	
   

  	
  14.3.

  	
  Lack of Reliance on Agent
  and Resignation

  	
  83

  
	
   

  	
  14.4.

  	
  Certain Rights of Agent

  	
  83

  
	
   

  	
  14.5.

  	
  Reliance

  	
  84

  
	
   

  	
  14.6.

  	
  Notice of Default

  	
  84

  
	
   

  	
  14.7.

  	
  Indemnification

  	
  84

  
	
   

  	
  14.8.

  	
  Agent in its Individual
  Capacity

  	
  84

  
	
   

  	
  14.9.

  	
  Delivery of Documents

  	
  85

  
	
   

  	
  14.10.

  	
  Intentionally Deleted

  	
  85

  
	
   

  	
  14.11.

  	
  Agent under Collateral
  Documents and Guaranty

  	
  85

  
	
   

  	
   

  	
   

  	
   

  
	
  XV.

  	
  GUARANTEE

  	
  85

  
	
   

  	
  15.1.

  	
  Guaranty

  	
  85

  
	
   

  	
  15.2.

  	
  Waivers

  	
  86

  
	
   

  	
  15.3.

  	
  No Defense

  	
  86

  
	
   

  	
  15.4.

  	
  Guaranty of Payment

  	
  86

  
	
   

  	
  15.5.

  	
  Liabilities Absolute

  	
  86

  
	
   

  	
  15.6.

  	
  Waiver of Notice

  	
  87

  
	
   

  	
  15.7.

  	
  Agent’s Discretion

  	
  88

  
	
   

  	
  15.8.

  	
  Reinstatement

  	
  88

  
	
   

  	
  15.9.

  	
  Action Upon Event of
  Default

  	
  89

  
	
   

  	
  15.10.

  	
  Statute of Limitations

  	
  90

  
	
   

  	
  15.11.

  	
  Interest

  	
  90

  
	
   

  	
  15.12.

  	
  Guarantor’s Investigation

  	
  90

  
	
   

  	
  15.13.

  	
  Termination

  	
  90

  
	
   

  	
  15.14.

  	
  Discharge of Guaranty Upon
  Sale of Guarantor

  	
  90

  

 

iv

 

	
  XVI.

  	
  MISCELLANEOUS

  	
  91

  
	
   

  	
  16.1.

  	
  Governing Law

  	
  91

  
	
   

  	
  16.2.

  	
  Entire Understanding;
  Amendments

  	
  91

  
	
   

  	
  16.3.

  	
  Successors and Assigns; Participations;
  New Lenders

  	
  94

  
	
   

  	
  16.4.

  	
  Application of Payments

  	
  96

  
	
   

  	
  16.5.

  	
  Indemnity

  	
  96

  
	
   

  	
  16.6.

  	
  Notice

  	
  97

  
	
   

  	
  16.7.

  	
  Survival

  	
  98

  
	
   

  	
  16.8.

  	
  Severability

  	
  98

  
	
   

  	
  16.9.

  	
  Expenses

  	
  99

  
	
   

  	
  16.10.

  	
  Injunctive Relief

  	
  99

  
	
   

  	
  16.11.

  	
  Consequential Damages

  	
  99

  
	
   

  	
  16.12.

  	
  Captions

  	
  99

  
	
   

  	
  16.13.

  	
  Counterparts; Telecopied
  Signatures

  	
  100

  
	
   

  	
  16.14.

  	
  Construction

  	
  100

  
	
   

  	
  16.15.

  	
  Confidentiality; Sharing
  Information

  	
  100

  
	
   

  	
  16.16.

  	
  Publicity

  	
  101

  

 

v

 

List of Exhibits and
Schedules

 

	
  Exhibits

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of
  Borrowing Base Certificate

  
	
  Exhibit 2.1(a)

  	
   

  	
  Form of
  Revolving Credit Note

  
	
  Exhibit 2.4

  	
   

  	
  Form of
  Swingline Note

  
	
  Exhibit 2.17

  	
   

  	
  Form of
  Term Note

  
	
  Exhibit 6.9

  	
   

  	
  Form of
  Joinder Agreement

  
	
  Exhibit 16.3

  	
   

  	
  Form of
  Commitment Transfer Supplement

  
	
   

  	
   

  	
   

  
	
  Schedules

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule
  2.10(g)

  	
   

  	
  Existing
  Letters of Credit and Existing Air Release/Steamship Guarantees

  
	
  Schedule
  4.5

  	
   

  	
  Equipment
  and Inventory Locations

  
	
  Schedule
  4.15(c)

  	
   

  	
  Location
  of Executive Offices

  
	
  Schedule
  5.2(a)

  	
   

  	
  States
  of Qualification and Good Standing

  
	
  Schedule
  5.2(b)

  	
   

  	
  Subsidiaries
  and Equityholders

  
	
  Schedule
  5.4

  	
   

  	
  Federal
  Tax Identification Number

  
	
  Schedule
  5.6

  	
   

  	
  Prior
  Names

  
	
  Schedule
  5.7

  	
   

  	
  Environmental

  
	
  Schedule
  5.8(b)

  	
   

  	
  Litigation

  
	
  Schedule
  5.8(d)

  	
   

  	
  Plans

  
	
  Schedule
  5.9

  	
   

  	
  Intellectual
  Property, Source Code Escrow Agreements

  
	
  Schedule
  5.10

  	
   

  	
  Licenses
  and Permits

  
	
  Schedule
  5.13

  	
   

  	
  Labor
  Disputes

  
	
  Schedule
  5.22

  	
   

  	
  Material
  Contracts

  
	
  Schedule
  7.2

  	
   

  	
  Existing
  Liens

  
	
  Schedule 7.8

  	
   

  	
  Existing Indebtedness

  

 

vi

 

AMENDED AND RESTATED FINANCING AGREEMENT

 

Amended and Restated
Financing Agreement dated as of February 22, 2010 among RAFAELLA APPAREL
GROUP, INC., a Delaware corporation (the “Borrower”),
Verrazano, Inc., a New York corporation (“Verrazano”), each other
subsidiary of the Borrower which becomes a guarantor of the obligations
hereunder from time to time (collectively with Verrazano, the “Guarantors”;
each a “Guarantor”), HSBC BANK USA, NATIONAL ASSOCIATION (“HSBC”)
and the other financial institutions which are now or which hereafter become a
party hereto (with respect to their Commitments to make Advances) (each a “Lender”
and collectively, the “Lenders”), 
CERBERUS CAPITAL MANAGEMENT, L.P., a Delaware limited partnership, as
the term loan lender (“Term Lender”) and HSBC, as agent for Term Lender
and the Lenders (in such capacity, the “Agent”).

 

BACKGROUND

 

Borrower and Guarantors
(jointly and severally, “Loan Parties”), Lenders and Agent entered into
a certain Financing Agreement dated as of June 20, 2005 (as amended,
restated or otherwise modified from time to time prior to the date hereof, the
“Original Financing Agreement”) pursuant to which Agent and Lenders
provide Borrower with certain financial accommodations.

 

Loan Parties have requested Term Lender to extend to
Borrower a term loan in the aggregate principal amount of up to $10,000,000,
with the concurrent reduction in the Maximum Loan Amount from $30,000,000 to
$20,000,000.  Term Lender has agreed to
fund the Term Loan on the terms and subject to the conditions set forth herein,
as a “first-in last-out” loan, repayable by Borrower as set forth in this
Agreement.  Loan Parties, Term Lender,
Lenders and Agent have agreed to amend and modify the Original Financing
Agreement, inter alia, to (a) provide for the
Term Loan, (b) modify the amount of the Availability Reserve,
(c) modify the Working Capital requirements, (d) modify the Net
Income requirements and (e) extend the term of the Financing Agreement
from December 15, 2010 to April 1, 2011, and Agent, Term Lender and
Lenders are willing to do so on the terms and conditions set forth herein.

 

Loan Parties, Term Lender,
Lenders and Agent now wish to amend and restate the Original Financing
Agreement on the terms and conditions set forth in this Agreement.

 

AMENDMENT AND RESTATEMENT

 

Upon and subject to the
satisfaction of the conditions precedent set forth in Section 8.1, the
terms, conditions, covenants, agreements, representations and warranties
contained in the Original Financing Agreement shall be deemed amended and
restated in their entirety as follows and the Original Financing Agreement
shall be consolidated with and into and superseded by this Agreement; provided,
however, that nothing contained in this Agreement shall impair, limit or
affect the Liens heretofore granted, pledged and/or assigned to Agent and
Lenders as security for Borrower’s Obligations to Lenders under the Original
Financing Agreement or for Borrower’s Obligations to the Term Lender under this
Agreement.

 

IN CONSIDERATION of the mutual
covenants and undertakings herein contained, Borrower, Guarantors, Term Lender,
Lenders and Agent hereby agree as follows:

 

 

I.                                         DEFINITIONS.

 

1.1.                              Accounting
Terms.

 

As used in this Agreement,
the Notes, any Other Document, or any certificate, report or other document
made or delivered pursuant to this Agreement, accounting terms not defined in
Section 1.2 or elsewhere in this Agreement and accounting terms partly
defined in Section 1.2 to the extent not defined, shall have the respective
meanings given to them under GAAP; provided, however, whenever
such accounting terms are used for the purposes of determining compliance with
financial covenants in this Agreement, such accounting terms shall be defined
in accordance with GAAP as applied in preparation of the audited financial
statements of Borrower for the fiscal year ended June 30, 2009.

 

1.2.                              General Terms.

 

For purposes of this
Agreement the following terms shall have the following meanings:

 

“Accountants” shall
have the meaning set forth in Section 9.7.

 

“ACH Transactions”
shall mean any cash management, disbursement, or related services, including
overdrafts and the automated clearinghouse transfer of funds by HSBC or any
affiliate of HSBC for the account of any Loan Party.

 

“Adjusted LIBO Rate”
shall mean, with respect to any Eurodollar Rate Loan for any Interest Period a
rate of interest equal to:

 

(a)                                  the offered
rate for deposits in U.S. dollars in the London interbank market for the
relevant Interest Period which is shown on the Reuters Screen LIBOR01 as of
11:00 a.m. (London time) on the day which is two (2) Business Days
prior to the first day of such Interest Period for a term comparable to such
Interest Period; provided, however, that if, for any reason, such a rate is not
published by the British Bankers’ Association or available on the Reuters
Screen LIBOR01, Adjusted LIBO Rate shall be equal to a rate per annum equal to
the average rate (rounded upwards, if necessary, to the nearest one-sixteenth
of one percent (0.0625%)) at which Agent determines that U.S. dollars in an
amount comparable to the amount of the applicable Advances or the Term Loan are
being offered to prime banks at approximately 11:00 a.m. (London time) on
the day which is two (2) Business Days prior to the first day of such
Interest Period for a term comparable to such Interest Period for settlement in
immediately available funds by leading banks in the London interbank market
selected by Agent; divided by

 

(b)                                 a number equal
to 1.0 minus the aggregate (but without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on the day which is two
(2) Business Days prior to the beginning of such Interest Period
(including, without limitation, basic, supplemental, marginal and emergency reserves
under any regulations of the Board of Governors of the Federal Reserve System
or other governmental authority having jurisdiction with respect thereto, as
now and from time to time in effect) for eurocurrency funding (currently
referred to as “Eurocurrency Liabilities” in Regulation D of such Board) which
are required to be 

 

2

 

maintained by a member bank
of the Federal Reserve System; such rate (if greater than zero) to be rounded
upward to the next whole multiple of one-sixteenth of one percent (0.0625%).

 

“Advance Rates” shall
mean the Receivables Advance Rate and the Inventory Advance Rate.

 

“Advances” shall mean
and include the Revolving Advances, Swingline Loans, Letters of Credit, and Air
Release/Steamship Guarantees.

 

“Affiliate” of any
Person shall mean (a) any Person (other than a Subsidiary) which, directly
or indirectly, is in control of, is controlled by, or is under common control
with such Person, or (b) any Person who is a director or executive officer
(i) of such Person, (ii) of any Subsidiary of such Person or
(iii) of any Person described in clause (a) above.  For purposes of this definition, control of a
Person shall mean the power, direct or indirect, (x) to vote 10% or more
of the securities having ordinary voting power for the election of directors of
such Person, or (y) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.

 

“Agent” shall have
the meaning set forth in the preamble to this Agreement and shall include its
successors and assigns.

 

“Agreement” shall
mean this Financing Agreement, as amended, restated, modified or supplemented
from time to time.

 

“Air Release/Steamship
Guarantee” shall mean a guarantee issued by Agent, a Lender or any
Affiliate of Agent or a Lender to a steamship line or airway carrier for the
benefit of Borrower covering the absence for any reason of a steamship or
airway bill of lading applicable to goods shipped to Borrower to expedite
delivery of such goods and to facilitate Customs entry.

 

“Assignment of Factoring
Proceeds” shall mean, the Assignment of Factoring Proceeds among Agent,
Factor, and Borrower dated as of December 19, 2008, as such agreement may
be supplemented, modified, amended, amended and restated, or replaced from time
to time with the consent of Agent.

 

“Authority” shall
have the meaning set forth in Section 4.19(d).

 

“Availability Reserve”
shall mean (a) $5,000,000 from the Closing Date through December 31,
2010 and (b) $0 on and after January 1, 2011.

 

“Bank Products” shall
mean each and any of the following types of services or facilities extended to
the Loan Parties by HSBC or any Affiliate of HSBC:  (a) commercial credit cards;
(b) cash management services (including controlled disbursement services,
ACH Transactions, and interstate depository network services); (c) return
items; (d) Hedge Agreements, and (e) foreign exchange.

 

“Base Rate” shall
mean, on any date, a variable rate of interest per annum equal to the greater of
(a) the highest of the “prime rate,” “reference rate,” “base rate” or
other similar 

 

3

 

rate as determined by Agent
(or any successor to Agent) announced from time to time by HSBC (or any
successor to HSBC) (with the understanding that any such rate may merely be a
reference rate and may not necessarily represent the lowest or best rate
actually charged to any customer by such bank), (b) the Federal Funds Rate
plus 1⁄2 of 1% and (c) the equivalent of the Eurodollar Rate for a one month
period plus 100 basis points (1%) (for the avoidance of doubt, with such
Eurodollar Rate under this clause (c) being determined pursuant to the
definitions of “Eurodollar Rate” and “Adjusted LIBO Rate”, each as set forth in
this Agreement, with respect to a Eurodollar Rate Loan and an Interest Period
beginning on such date).

 

“Blocked Accounts”
shall have the meaning set forth in Section 4.15(h).

 

“Borrower’s Account”
shall have the meaning set forth in Section 2.8.

 

“Borrowing Base
Certificate” shall mean a certificate duly executed by an officer of
Borrower appropriately completed and in substantially the form of Exhibit A.

 

“Business Day” shall
mean, with respect to Eurodollar Rate Loans, any day on which commercial banks
are open for domestic and international business, including dealings in Dollar
deposits, in London, England and New York, New York, and with respect to all
other matters, any day other than a day on which commercial banks in New York
are authorized or required by law to close.

 

“Capital Lease” means
any lease of any property (whether real, personal or mixed) that, in conformity
with GAAP, should be accounted for as a capital lease.

 

“Cash Collateral”
shall have the meaning set forth in Section 6.8(c).

 

“Cash Equivalents”
shall mean: (a) marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof and
backed by the full faith and credit of the United States, in each case maturing
within 1 year from the date of acquisition thereof; (b) commercial paper
maturing no more than 1 year from the date issued and, at the time of
acquisition, having one of the two highest ratings obtainable from
Standard & Poor’s Corporation or Moody’s Investment Service when
acquired; (c) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or
public instrumentality thereof, in each case, maturing within one year after
such date and having, at the time of the acquisition thereof, one of two
highest ratings from Standard & Poor’s Corporation or Moody’s
Investors Service, (d) certificates of deposit or bankers’ acceptances
maturing within 1 year from the date of issuance thereof issued by, or overnight
reverse repurchase agreements from, any commercial bank organized under the
laws of the United States of America or any state thereof or the District of
Columbia having combined capital and surplus of not less than $250,000,000 and
whose debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a
nationally recognized investment rating agency when acquired and not subject to
setoff rights in favor of such bank and (e) shares of any money market
mutual fund that (i) has substantially all of its assets invested
continuously in the types of investments referred to in clauses
(a) through (d) above, (ii) has net assets of not less than
$250,000,000, and (iii) has one 

 

4

 

of the two highest ratings
obtainable from Standard & Poor’s Corporation or Moody’s Investors
Service when acquired.

 

“Cerberus” shall mean
Cerberus Capital Management L.P., a Delaware limited partnership.

 

“CERCLA” shall mean
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. §§9601 et seq.

 

“Change of Control”
shall mean (a) the occurrence of any event (whether in one or more
transactions) which results in a transfer of control of any Loan Party to a
Person who is not a Permitted Holder; (b) more than 50% of the equity
interests in any Loan Party (including for the purposes of the calculation of
percentage ownership, any equity interests into which any equity interests in
any Loan Party held by any of the Permitted Holders is convertible or for which
any such equity interests in any Loan Party or of any other Person may be
exchanged and any equity interests issuable to such Permitted Holders upon
exercise of any warrants, options or similar rights which may at the time of
calculation be held by such Permitted Holders) (with full power to elect
directors) is no longer owned or controlled by a Person who is a Permitted
Holder or (c) any merger or consolidation of or with any Loan Party or
sale of all or substantially all of the property or assets of any Loan
Party.  For purposes of this definition,
“control” of a Person shall mean the power, direct or indirect, (x) more
than 50% of the securities having ordinary voting power for the election of
directors or managers of such Person or (y) to direct or cause the
direction of the management and policies of such Person by contract or
otherwise.

 

“Charges” shall mean
all taxes, charges, fees, imposts, levies or other assessments, including,
without limitation, all net income, gross income, gross receipts, sales, use,
ad valorem, value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social security,
unemployment, excise, severance, stamp, occupation and property taxes, custom
duties, fees, assessments, liens, claims and charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts, imposed by any taxing or other authority, domestic or foreign
(including, without limitation, the PBGC or any environmental agency or
superfund), upon the Collateral, Loan Parties or any of their Affiliates.

 

“Closing Date” shall
mean the date that all conditions precedent to the effectiveness of the
amendment and restatement set forth in this Agreement shall have been
satisfied.

 

“Code” shall mean the
Internal Revenue Code of 1986, as amended from time to time and the regulations
promulgated thereunder.

 

“Collateral” shall
mean and include:

 

(a)                                  all
Receivables;

 

(b)                                 all Equipment;

 

(c)                                  all General
Intangibles;

 

5

 

(d)                                 all Inventory;

 

(e)                                  all Investment
Property;

 

(f)                                    all Real
Property;

 

(g)                                 all of each
Loan Party’s right, title and interest in and to (i) its goods and other
property including, but not limited to, all merchandise returned or rejected by
Customers, relating to or securing any of the Receivables; (ii) all of
each Loan Party’s rights as a consignor, a consignee, an unpaid vendor,
mechanic, artisan, or other lienor, including stoppage in-transit, setoff,
detinue, replevin, reclamation and repurchase; (iii) all supporting
obligations and all additional amounts due to any Loan Party from any Customer
relating to the Receivables; (iv) other property, including warranty
claims, relating to any goods securing this Agreement; (v) all of each
Loan Party’s contract rights, rights of payment which have been earned under a
contract right, letter of credit rights (whether or not the letter of credit is
evidenced by a writing), instruments (including promissory notes), documents,
chattel paper (whether tangible or electronic), warehouse receipts, deposit
accounts, money and securities; (vi) if and when obtained by any Loan
Party, all real and personal property of third parties in which such Loan Party
has been granted a lien or security interest as security for the payment or
enforcement of Receivables; and (vii) any other goods, personal property
or real property now owned or hereafter acquired in which any Loan Party has
expressly granted a security interest or may in the future grant a security
interest to Agent hereunder, or in any amendment or supplement hereto or
thereto, or under any other agreement between Agent and any Loan Party;

 

(h)                                 all of each Loan
Party’s ledger sheets, ledger cards, files, correspondence, records, books of
account, business papers, computers, computer software (owned by any Loan Party
or in which it has an interest), computer programs, tapes, disks and documents
relating to clauses (a), (b), (c), (d), (e), (f) or (g) of this
definition; and

 

(i)                                     all proceeds
and products of clauses (a), (b), (c), (d), (e), (f), (g) and (h) of
this definition in whatever form, including, but not limited to: cash, deposit
accounts (whether or not comprised solely of proceeds), certificates of
deposit, insurance proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements, documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds; provided, however, that the Collateral shall
not in any event include (1) any interest of any Loan Party in any
premises leased by any Loan Party at any time or (2) any interest in the capital
stock of any Subsidiary organized in a jurisdiction other than a State of the
United States or the District of Columbia in excess of 65% of the voting power
of all classes, series or designations of equity interests of such Subsidiaries
entitled to vote.

 

“Commitment Percentage”
of any Lender or Term Lender shall mean, as the context may require, the
percentage set forth below such Lender’s or such Term Lender’s name on the
signature page hereof as same may be adjusted upon any assignment by a
Lender or Term Lender pursuant to Section 16.3.

 

“Commitment Transfer
Supplement” shall mean a document in the form of Exhibit 16.3,
properly completed and otherwise in form and substance satisfactory to Agent by

 

6

 

which the Purchasing Lender
purchases and assumes (x) a portion of the outstanding Advances and the
obligation of Lenders to make Advances under this Agreement and/or (y) a
portion of the obligation of Term Lender to make the Term Loan under this Agreement,
or after the Term Loan has been made, a portion of the outstanding Term Loan.

 

“Commitments” shall
mean, as to any Lender, its obligation to make Advances (including
participating in Letters of Credit) in an aggregate amount not to exceed at any
one time outstanding the amount set forth below such Lender’s name on the
signature page hereof under the heading “Commitment”, as same may be
adjusted in accordance with this Agreement.

 

“Consents” shall mean
all filings and all licenses, permits, consents, approvals, authorizations,
qualifications and orders of governmental authorities and other third parties,
domestic or foreign, necessary to carry on any Loan Party’s business,
including, without limitation, any Consents required under all applicable
federal, state or other applicable law.

 

“Controlled Group”
shall mean all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control which, together
with any Loan Party, are treated as a single employer under Section 414 of
the Code.

 

“Currency Agreement”
means any foreign exchange contract, currency swap agreement, futures contract,
option contract, synthetic cap or other similar agreement or arrangement, each
of which is for the purpose of hedging the foreign currency risk associated
with Borrower’s and its Subsidiaries’ operations and not for speculative
purposes.

 

“Current Assets” at a
particular date, shall mean all (a) cash and cash equivalents,
(b) Receivables, and (c) Inventory, in each case of Loan Parties on a
Consolidated Basis; provided, however, that such amounts shall
not include amounts owing by contractors to Borrower with respect to Inventory
of Borrower which is located at such contractors.

 

“Current Liabilities”
at a particular date, shall mean, without duplication, all amounts which would,
in conformity with GAAP, be included under current liabilities on a balance
sheet of Loan Parties on a Consolidated Basis, as at such date, but in any
event including, without limitation, the amounts of (a) all Indebtedness
of Loan Parties on a Consolidated Basis payable on demand, or, at the option of
the Person to whom such Indebtedness is owed, not more than twelve (12) months
after such date, (b) any payments in respect of any Indebtedness of any
Loan Party (whether installment, serial maturity, sinking fund payment or
otherwise) required to be made not more than twelve (12) months after such
date, (c) all reserves in respect of liabilities or Indebtedness payable
on demand or, at the option of the Person to whom such Indebtedness is owed,
not more than twelve (12) months after such date, the validity of which is not
contested at such date, and (d) all accruals for federal or other taxes
measured by income payable within a twelve (12) month period; provided, however,
that for purposes of determining Working Capital, notwithstanding the fact that
such Indebtedness may then be due and payable within twelve (12) months,
Current Liabilities shall be deemed at all times to exclude the Senior Note
Debt and the Term Loan.

 

“Customer” shall mean
and include the account debtor with respect to any Receivable and/or the
prospective purchaser of goods, services or both with respect to any 

 

7

 

contract or contract right,
and/or any party who enters into or proposes to enter into any contract or
other arrangement with any Loan Party, pursuant to which any Loan Party is to
deliver any personal property or perform any services.

 

“Customs” shall mean
the U.S. Customs Service and any successor thereto.

 

“Default” shall mean
an event which, with the giving of notice or passage of time or both, would
constitute an Event of Default.

 

“Default Rate” shall
have the meaning set forth in Section 3.1.

 

“Defaulting Lender”
shall have the meaning set forth in Section 2.16(a).

 

“Depository Accounts”
shall have the meaning set forth in Section 4.15(h).

 

“Documentary Letters of
Credit” shall mean all Letters of Credit issued in connection with this
Agreement to pay the purchase price for Inventory purchased by Borrower.

 

“Dollar” and the sign
“$” shall mean lawful money of the United States of America.

 

“Domestic Rate Loan”
shall mean any Advance, or portion of the Term Loan, that bears interest based
upon the Base Rate.

 

“Eligible Factored Receivables”
shall mean Receivables that have been credit approved by the Factor pursuant to
the Factoring Agreement and the proceeds of which will constitute part of the
credit balance in favor of the Borrower thereunder and which have been assigned
to Agent pursuant to an Assignment of Factoring Proceeds.

 

“Eligible Inventory”
shall mean and include Inventory consisting of finished goods, owned by and in
the possession of Borrower and located at premises of Borrower listed on Schedule 4.5, valued at the lower of
cost or market value, determined on a first-in-first-out basis, which is not,
in Agent’s opinion, obsolete, slow moving or unmerchantable and which Agent, in
its reasonable discretion, shall deem to be eligible Inventory, based on such
considerations as Agent may from time to time deem appropriate in its
reasonable discretion including, without limitation, whether such Inventory is
subject to a perfected, first priority security interest in favor of Agent and
no other Lien (other than Permitted Encumbrances) and whether such Inventory
conforms to all standards imposed by any governmental agency, division or
department thereof which has regulatory authority over such goods or the use or
sale thereof.  Eligible Inventory shall
not include licensed or private-label Inventory, unless (i) Borrower is
the owner of such license or private-label, or (ii) a consent, in form and
substance satisfactory to Agent, has been obtained from the owner of such
license or private-label with respect to Agent’s security interest in such
Inventory.  Eligible Inventory shall
include all Inventory in-transit for which title has passed to Borrower, which
is insured to the full value thereof, and for which Agent has in its possession
(a) all negotiable bills of lading, properly endorsed, and (b) all
non-negotiable bills of lading issued in Agent’s name.

 

8

 

“Eligible Receivables”
shall mean and include each Receivable of Borrower arising in the ordinary
course of Borrower’s business which is not an Eligible Factored Receivable and
which Agent, in its reasonable credit judgment, shall deem to be an Eligible
Receivable, based on such considerations as Agent may from time to time deem
appropriate in its reasonable discretion. 
A Receivable shall not be deemed eligible unless such Receivable is
subject to Agent’s first priority perfected security interest and no other Lien
(other than Permitted Encumbrances described in clauses (a), (b), (c) and
(f) of the definition thereof), and is evidenced by an invoice or other
documentary evidence satisfactory to Agent. 
In addition, no Receivable shall be an Eligible Receivable if:

 

(a)                                  it arises out
of a sale made by Borrower to an Affiliate of Borrower or to a Person
controlled by an Affiliate of Borrower; provided that Portfolio Company
Receivables shall be Eligible Receivables to the extent they otherwise meet the
eligibility criteria;

 

(b)                                 it is due or
unpaid more than ninety (90) days after the original due date;

 

(c)                                  more than 50%
of the Receivables from such Customer are not deemed Eligible Receivables
hereunder;

 

(d)                                 any covenant,
representation or warranty contained in this Agreement with respect to such
Receivable has been breached;

 

(e)                                  the Customer
shall (i) apply for, suffer, or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or call a meeting of its
creditors, (ii) admit in writing its inability, or be generally unable, to
pay its debts as they become due or cease operations of its present business,
(iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under any state or federal bankruptcy laws
(as now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) take any action for the purpose of
effecting any of the foregoing;

 

(f)                                    the sale is to
a Customer outside the United States of America or Canada, unless the sale is
on letter of credit, guaranty or acceptance terms, in each case acceptable to
Agent in its sole discretion;

 

(g)                                 the sale to the
Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment or any other repurchase or return basis or is evidenced
by chattel paper;

 

(h)                                 Agent believes,
in its reasonable credit judgment, that collection of such Receivable is
insecure or that such Receivable may not be paid by reason of the Customer’s
financial inability to pay;

 

(i)                                     the Customer is
the United States of America, any state or any department, agency or
instrumentality of any of them, unless Borrower assigns its right to payment of
such Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as
amended (31 U.S.C. 

 

9

 

Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et  seq.) or has
otherwise complied with other applicable statutes or ordinances;

 

(j)                                     the goods
giving rise to such Receivable have not been shipped and delivered to and
accepted by the Customer or the services giving rise to such Receivable have
not been performed by Borrower and accepted by the Customer or the Receivable
otherwise does not represent a final sale, except for customary rights of
return in accordance with practices disclosed in writing to Agent;

 

(k)                                  the Receivables
of the Customer exceed a credit limit determined by Agent, in its reasonable
credit judgment, to the extent such Receivable exceeds such limit;

 

(l)                                     the Receivable
is subject to any offset, deduction, defense, dispute, or counterclaim, (except
that the amount of the Receivable in excess of such offset, deduction, defense,
dispute or counterclaim shall not be ineligible due to the operation this
clause (l)) or the Receivable is contingent in any respect or for any reason;

 

(m)                               the Borrower
has made any agreement with any Customer for any deduction therefrom, except
for discounts or allowances made in the ordinary course of business for prompt
payment, all of which discounts or allowances are reflected in the calculation
of the face value of each respective invoice related thereto;

 

(n)                                 any return,
rejection or repossession of the merchandise has occurred;

 

(o)                                 such Receivable
is not payable to Borrower;

 

(p)                                 Receivables
with respect to which the Customer is located in New Jersey, Minnesota, or any
other state denying creditors access to its courts in the absence of a Notice
of Business Activities Report or other similar filing, unless Borrower is
incorporated under the laws of such state or has either qualified as a foreign
corporation authorized to transact business in such state or has filed a Notice
of Business Activities Report or similar filing with the applicable state
agency for the then current year; or

 

(q)                                 such Receivable
is not otherwise satisfactory to Agent as determined in good faith by Agent in
the exercise of its discretion in a reasonable manner.

 

“Environmental Complaint”
shall have the meaning set forth in Section 4.19(d).

 

“Environmental Laws”
shall mean all federal, state and local environmental, land use, zoning,
health, chemical use, and occupational safety laws, statutes, ordinances and
codes relating to the protection of the environment and/or governing the use,
storage, treatment, generation, transportation, processing, handling,
production or disposal of Hazardous Substances and the rules, regulations,
policies, guidelines, interpretations, decisions, orders and directives of
federal, state and local governmental agencies and authorities with respect
thereto.

 

“Equipment” shall
mean and include as to each Loan Party, all of such Loan Party’s goods (other
than Inventory) whether now owned or hereafter acquired and wherever located
including, without limitation, all equipment, machinery, apparatus, motor
vehicles, 

 

10

 

fittings, furniture,
furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.

 

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

 

“Eurodollar Rate”
shall mean for any Eurodollar Rate Loan for the then current Interest Period
relating thereto the rate per annum (such Eurodollar Rate to be adjusted to the
next higher 1/100 of one percent (1%)) equal to the Adjusted LIBO Rate.

 

“Eurodollar Rate Loan”
shall mean an Advance, or a portion of the Term Loan, at any time that bears
interest based on the Adjusted LIBO Rate.

 

“Event of Default”
shall mean the occurrence of any of the events set forth in Article X.

 

“Existing Air
Release/Steamship Guarantee” shall have the meaning provided in
Section 2.10(g).

 

“Existing Letter of
Credit” shall have the meaning provided in Section 2.10(g).

 

“Factor” shall mean
Wells Fargo Trade Capital, LLC and any other factor that is acceptable to Agent
in its sole judgment.

 

“Factoring Agreement”
shall mean (a) the Factoring Agreement (Collections) dated
December 19, 2008 between Borrower and Factor, as such agreement may be
supplemented, modified, amended, amended and restated, or replaced from time to
time with the consent of Agent, (b) the Factoring Agreement (Collections)
dated December 19, 2008 between Verrazano and Factor, as such agreement
may be supplemented, modified, amended, amended and restated, or replaced from
time to time with the consent of Agent, and (c) on and after the date, if
any, Borrower enters into a Factoring Agreement in form and substance
satisfactory to Agent in all respects with a Factor other than Wells Fargo
Trade Capital, LLC, such Factoring Agreement, as it may be supplemented,
modified, amended, amended and restated, or replaced from time to time with the
consent of Agent.

 

“Federal Funds Rate”
shall mean, for any day, the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or if such rate is not so published for any day which is a
Business Day, the average of quotations for such day on such transactions
received by Agent from three Federal funds brokers of recognized standing
selected by Agent.

 

“Formula Amount”
shall have the meaning set forth in Section 2.1(b).

 

“GAAP” shall mean
generally accepted accounting principles in the United States of America in
effect from time to time.

 

11

 

“General Intangibles”
shall mean and include as to each Loan Party, all of such Loan Party’s general
intangibles, whether now owned or hereafter acquired including, without
limitation, all payment intangibles, choses in action, commercial tort claims,
causes of action, corporate or other business records, inventions, designs,
patents, patent applications, equipment formulations, manufacturing procedures,
quality control procedures, trademarks, service marks, trade secrets, goodwill,
copyrights, design rights, registrations, licenses, franchises, customer lists,
tax refunds, tax refund claims, computer programs and computer software, all
claims under guaranties, security interests or other security held by or
granted to such Loan Party to secure payment of any of the Receivables by a
Customer, all rights of indemnification and all other intangible property of
every kind and nature (other than Receivables).

 

“Governmental Body”
shall mean any nation or government, any state or other political subdivision
thereof or any entity exercising the legislative, judicial, regulatory or
administrative functions of or pertaining to a government.

 

“Guarantor” or “Guarantors”
shall have the meaning set forth in the preamble to this Agreement and shall
extend to all permitted successors and assigns of such Persons.

 

“Guaranty” shall mean
the guaranty set forth in Article XV of this Agreement and any other
guaranty of the obligations of Borrower executed by a Guarantor in favor of
Agent for its benefit and for the ratable benefit of Lenders and Term Lender.

 

“Hazardous Discharge”
shall have the meaning set forth in Section 4.19(d).

 

“Hazardous Substance”
shall mean, without limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
Hazardous Wastes, hazardous or Toxic Substances or related materials as defined
in CERCLA, the Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections
1801, et seq.), RCRA, Articles 15 and 27 of the New York State
Environmental Conservation Law or any other applicable Environmental Law and in
the regulations adopted pursuant thereto.

 

“Hazardous Wastes”
shall mean all waste materials subject to regulation under CERCLA, RCRA or
applicable state law, and any other applicable Federal and state laws now in
force or hereafter enacted relating to hazardous waste disposal.

 

“Hedge Agreement”
shall mean an Interest Rate Agreement or a Currency Agreement.

 

“HSBC” shall have the
meaning set forth in the preamble to this Agreement and shall include its
successors and assigns.

 

“HSBC L/C Program”
shall mean the HSBC Supply Chain Solutions program, as in effect from time to
time.

 

“Indebtedness” of a
Person at a particular date shall mean all obligations of such Person which in
accordance with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise) and in any event,
without limitation by 

 

12

 

reason of enumeration, shall
include (a) all indebtedness, debt and similar monetary obligations of
such Person whether direct or guaranteed; (b) all indebtedness for
borrowed money; (c) that portion of obligations with respect to capital
leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (d) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money;
(e) any obligation owed for all or any part of the deferred purchase price
of property or services if the purchase price is due more than six
(6) months from the date the obligation is incurred or is evidenced by a
note or similar written instrument; and (f) all indebtedness secured by
any Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is nonrecourse to the credit of that Person.

 

“Intercreditor Agreement”
shall mean the Intercreditor Agreement dated as of the Original Closing Date
among Agent, Borrower and Senior Note Agent, as amended, restated, supplemented
or otherwise modified from time to time.

 

“Interest Period”
shall mean the period provided for any Eurodollar Rate Loan pursuant to
Section 2.2(b).

 

“Interest Rate Agreement”
means any interest rate swap agreement (whether from fixed to floating or from
floating to fixed), interest rate cap agreement, interest rate collar
agreement, interest rate hedging agreement or other similar agreement or
arrangement, each of which is for the purpose of hedging the interest rate
exposure associated with Borrower’s and its Subsidiaries’ operations and not
for speculative purposes.

 

“Inventory” shall
mean and include, as to each Loan Party, all of such Loan Party’s now owned or
hereafter acquired goods, merchandise and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work in process, finished goods and materials and
supplies of any kind, nature or description which are or might be used or
consumed in such Loan Party’s business or used in selling or furnishing such
goods, merchandise and other personal property, all other inventory of such
Loan Party, and all documents of title or other documents representing them.

 

“Inventory Advance Cap”
shall mean (a) $15,000,000 from the Closing Date through March 31,
2010, (b) $10,000,000 from April 1, 2010 through September 30,
2010, (c) $5,000,000 from October 1, 2010 through December 31,
2010 and (d) $0 from and after January 1, 2011.

 

“Inventory Advance Rate”
shall have the meaning set forth in Section 2.1(b)(y)(ii).

 

“Investment Property”
shall mean and include as to each Loan Party, all of such Loan Party’s now
owned or hereafter acquired securities (whether certificated or
uncertificated), securities entitlements, securities accounts, commodities
contracts, commodities accounts, stocks, mutual fund shares, money market
shares and U.S. Government securities.

 

“Issuer” shall mean
any Person who issues a Letter of Credit and/or accepts a draft pursuant to the
terms thereof, it being agreed that so long as HSBC shall be Agent or a 

 

13

 

Lender, then the Issuer
shall be HSBC (or any corporation that directly or indirectly controls or is
controlled by or it under common control with HSBC); provided, however,
that in the event that HSBC is neither Agent nor a Lender, the “Issuer” with
respect to all subsequently issued Letters of Credit shall be any other Lender
selected by Loan Parties.

 

“Lender” and “Lenders”
shall have the meaning ascribed to such term in the preamble to this Agreement
and shall include each Person which becomes a transferee, successor or assign
of any Lender.  For purposes of
clarification, the term “Lender” or “Lenders” shall not include Term Lender,
except as specifically set forth herein.

 

“Lender Default”
shall have the meaning set forth in Section 2.16(a).

 

“Letter of Credit Application”
shall have the meaning set forth in Section 2.10.

 

“Letter of Credit and
Guarantee Fees” shall have the meaning set forth in Section 3.2.

 

“Letters of Credit”
shall have the meaning set forth in Section 2.9.

 

“Lien” shall mean any
mortgage, deed of trust, pledge, hypothecation, assignment, security interest,
lien (whether statutory or otherwise), claim or encumbrance, or preference,
priority or other security agreement or preferential arrangement held or
asserted in respect of any asset of any kind or nature whatsoever including,
without limitation, any conditional sale or other title retention agreement,
any lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
under the UCC or comparable law of any jurisdiction.

 

“Loan Party” shall
mean, individually, the Borrower and each Guarantor, and “Loan Parties”
shall mean, collectively, the Borrower and the Guarantors.

 

“Loan Parties on a
Consolidated Basis” shall mean the consolidation in accordance with GAAP of
the accounts or other items of Loan Parties and their respective Subsidiaries.

 

“Material Adverse Effect”
shall mean a material adverse effect on (a) the business, operations,
assets or financial condition of the Loan Parties, taken as a whole,
(b) any Loan Party’s ability to pay the Obligations in accordance with the
terms thereof, (c) the value of the Collateral, taken as a whole, or
Agent’s Liens on any material amount of the Collateral or the priority of any such
Lien or (d) the practical realization of the benefits of Agent’s and each
Lender’s and Term Lender’s rights and remedies under this Agreement and the
Other Documents.

 

“Maximum Direct Debt
Sublimit” shall mean $10,000,000.

 

“Maximum Loan Amount”
shall mean $20,000,000.

 

“Maximum Swingline Loan
Amount” shall mean $5,000,000.

 

14

 

“Maximum Undrawn Amount”
shall mean with respect to any outstanding Letter of Credit, the amount of such
Letter of Credit that is or may become available to be drawn, including all
automatic increases provided for in such Letter of Credit, whether or not any
such automatic increase has become effective.

 

“Multiemployer Plan”
shall mean a “multiemployer plan” as defined in Sections 3(37) and
4001(a)(3) of ERISA.

 

“Net Income” shall
mean, for any period, the aggregate income (or loss) of Loan Parties on a
Consolidated Basis for such period, all computed and calculated in accordance
with GAAP.

 

“Non-Defaulting Lenders”
shall have the meaning set forth in Section 2.16(b).

 

“Notes” shall mean,
collectively, the Revolving Credit Note, the Swingline Note, and the Term Note.

 

“Obligations” shall
mean and include any and all of each Loan Party’s Indebtedness and/or
liabilities to Agent, Term Lender, Lenders or any Issuer, or any corporation
that directly or indirectly controls or is controlled by or is under common
control with Agent, Term Lender, any Lender or any Issuer, under this Agreement
and the Other Documents, of every kind, nature and description, direct or
indirect, secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising,
contractual or tortious, liquidated or unliquidated, regardless of how such
indebtedness or liabilities arise or by what agreement or instrument they may
be evidenced or whether evidenced by any agreement or instrument (including all
interest accruing after the commencement of any bankruptcy or similar
proceeding whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) including, without limitation, Bank Products and
all obligations of any Loan Party under this Agreement and the Other Documents
to Agent, Term Lender, Lenders or any Issuer to perform acts or refrain from
taking any action.

 

“Original Closing Date”
shall mean June 20, 2005.

 

“Original Term” shall
have the meaning set forth in Section 13.1.

 

“Other Documents”
shall mean the Notes, the Questionnaire, the Assignment of Factoring Proceeds
and any and all other agreements, instruments and documents, including, without
limitation, guaranties, pledges, powers of attorney, consents, and all other
writings heretofore, now or hereafter executed by any Person and/or delivered
to Agent or any Lender or Term Lender in respect of the transactions
contemplated by this Agreement.

 

“Parent” of any
Person shall mean a corporation or other entity owning, directly or indirectly,
more than 50% of the shares of stock or other ownership interests having
ordinary voting power to elect a majority of the directors of the Person, or
other Persons performing similar functions for any such Person.

 

“Participant” shall
mean each Person who shall be granted the right by any Lender or Term Lender to
participate in any of the Advances or the Term Loan and who shall 

 

15

 

have entered into a
participation agreement in form and substance satisfactory to such Lender or
Term Lender.

 

“Payment Office”
shall mean initially 452 Fifth Avenue, New York, New York 10018; thereafter,
such other office of Agent, if any, which it may designate by notice to the
Borrower and to each Lender and the Term Lender to be the Payment Office.

 

“PBGC” shall mean the
Pension Benefit Guaranty Corporation.

 

“Permitted Disposition”
means (a) sales or other dispositions of equipment that is substantially
worn, damaged, or obsolete in the ordinary course of business, (b) sales
and leases of inventory to buyers in the ordinary course of business,
(c) the use or transfer of money or Cash Equivalents in a manner that is
not prohibited by the terms of the Agreement or the Other Documents,
(d) the licensing, on a non-exclusive basis, of patents, trademarks,
copyrights, and other intellectual property rights in the ordinary course of
business, including without limitation, non-exclusive licenses of such Person’s
company name to resellers pursuant to reseller agreements, and
(e) dispositions permitted by Section 4.3.

 

“Permitted Encumbrances”
shall mean (a) Liens in favor of Agent for the benefit of Agent, Term
Lender, Lenders and/or any Issuer, which, in each case, secure Obligations;
(b) Liens for taxes, assessments or other governmental charges not
delinquent or being contested in good faith and by appropriate proceedings and
with respect to which proper reserves have been taken by Loan Parties; provided,
that, a stay of enforcement of any such Lien shall be in effect;
(c) Liens disclosed in the financial statements referred to in
Section 5.5, the existence of which Agent has consented to in writing;
(d) deposits or pledges to secure obligations under worker’s compensation,
social security or similar laws, or under unemployment insurance;
(e) deposits or pledges to secure bids, tenders, contracts (other than
contracts for the payment of money), leases, statutory obligations, surety and
appeal bonds and other obligations of like nature arising in the ordinary
course of any Loan Party’s business; (f) judgment Liens that have been
stayed or bonded and mechanics’, landlords’, carriers’, warehousemens’,
workers’, materialmen’s or other like Liens arising in the ordinary course of
any Loan Party’s business with respect to obligations which are not due or
which are being contested in good faith by the applicable Loan Party; (g) Liens
placed upon fixed assets hereafter acquired to secure a portion of the purchase
price thereof, provided that (x) any such lien shall not encumber any
other property of Loan Parties and (y) the aggregate amount of
Indebtedness secured by such Liens incurred as a result of such purchases
during any fiscal year shall not exceed the amount provided for in
Section 7.8(v); (h) Liens disclosed on Schedule
7.2, or on a title report delivered with respect to any real
estate subject to a mortgage in favor of Agent; (i) easements,
rights-of-way, restrictions, encroachments, and other minor defects or
irregularities in title, in each case which do not and will not interfere in
any material respect with the ordinary conduct of the business of Borrower or any
of its Subsidiaries; (j) any interest or title of a lessor or sublessor
under any lease of real or personal property which is not a Capital Lease;
(k) purported Liens evidenced by the filing of precautionary UCC financing
statements relating solely to operating leases of personal property entered
into in the ordinary course of business; (l) Liens in favor of Customs and
revenue authorities or freight handlers or forwarders to secure payment of
Customs duties in connection with the importation of goods; (m) any zoning
or similar law or right reserved to or vested in any Governmental Body;
(n) Liens securing Indebtedness permitted pursuant to Section 7.8(v);

 

16

 

provided, any such Lien
shall encumber only the asset acquired, constructed or improved with the
proceeds of such Indebtedness and substitutions and replacements thereof and
accessions and attachments thereto, and extensions, renewals and replacements
of such Liens; provided, that any extension, renewal or replacement is
no more restrictive in any material respect than the Liens so extended, renewed
or replaced and does not extend to any additional property or assets;
(o) customary security deposits under operating leases in the ordinary
course of business; (p) customary rights of set off, bankers’ lien, refund
or charge back under deposit agreements, the Uniform Commercial Code or common
law of banks or other financial institutions where Borrower or any of its
Subsidiaries maintains deposits (other than deposits intended as cash
collateral) in the ordinary course of business; (q) Liens in connection
with permitted repurchase obligations; (r) Liens in favor of any Loan
Party; (s) (i) Liens on property, plant and equipment of a Person
existing at the time such Person is merged with or into or consolidated with,
or the assets of such Person are acquired by, Borrower or a Subsidiary thereof;
provided, that such Liens were in existence prior to and were not
incurred in connection with or in contemplation of such merger or consolidation
or acquisition and do not extend to any assets other than those of the Person
merged into or consolidated with or acquired by Borrower or such Subsidiary and
(ii) extensions, renewals and replacements of any Liens set forth in clause
(i) of this subsection (s) provided, that any such extension,
renewal or replacement is no more restrictive in any material respect than the
Lien so extended, renewed or replaced and does not extend to any additional
property or assets; and (t) Liens in favor of the holders of Senior
Secured Notes under the Senior Note Documentation.

 

“Permitted Holders”
means (a) Cerberus and (b) any investment funds and managed accounts
which are managed or advised by Cerberus or an Affiliate of Cerberus.

 

“Permitted Investments”
means:

 

(a)                                  Investments in
cash and Cash Equivalents;

 

(b)                                 obligations,
stock or other ownership interests owned as of the Closing Date in any
Subsidiary;

 

(c)                                  Investments
(i) received in satisfaction or partial satisfaction of delinquent
accounts and disputes with customers or suppliers of such Person in the
ordinary course of business; or (ii) acquired as a result of foreclosure
of a Lien securing an investment or the transfer of the assets subject to such
Lien in lieu of foreclosure;

 

(d)                                 loans to the
extent permitted under Section 7.5;

 

(e)                                  Investments
described in Schedule 7.4;

 

(f)                                    extensions of
credit to customers or advances, deposits and payment to or with suppliers,
lessors or utilities or for workers’ compensation, in each case, in the ordinary
course of business that are recorded as accounts receivable, prepaid expenses
or deposits on the balance sheet of the Borrower and its Subsidiaries prepared
in accordance with GAAP;

 

17

 

(g)                                 Investments
constituting non-cash consideration received by Borrower or any of its
Subsidiaries in connection with Permitted Dispositions and other sales and
dispositions permitted under Section 7.1(a); and

 

(h)                                 Investments
under Hedge Agreements to the extent permitted under Section 7.8;

 

(i)                                     Investments in
joint ventures with any buying agent of Borrower to facilitate the purchase of
Inventory so long as Borrower shall not become liable in respect of any
Indebtedness of such joint ventures in excess of $5,000,000 at any time
outstanding; and

 

(j)                                     Investments in
connection with the purchase or redemption of Senior Secured Notes made in
accordance with Section 7.18.

 

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

 

“Plan” shall mean any
employee benefit plan within the meaning of Section 3(3) of ERISA,
maintained for employees of any Loan Party or any member of the Controlled
Group or any such Plan to which any Loan Party or any member of the Controlled
Group is required to contribute on behalf of any of its employees.

 

“Portfolio Company
Receivable” means a Receivable of Borrower owing by an Affiliate of
Borrower (i) that contains arms-length terms and arises in the ordinary
course of business of Borrower and such Affiliate and (ii) the Customer
with respect thereto is an Affiliate of Borrower solely as a result of common
ownership by Permitted Holders or the existence of common directors with
Borrower and such Customer.

 

“Purchaser” shall
mean RA Cerberus Acquisition, LLC, a Delaware limited liability company.

 

“Purchasing Lender”
shall have the meaning set forth in Section 16.3(c).

 

“Questionnaire” shall
mean the Documentation Information Questionnaire and the responses thereto
provided by Loan Parties and delivered to Agent on or prior to the Original
Closing Date.

 

“Rafaella Inc.” shall
mean Rafaella Sportswear, Inc., a Delaware corporation.

 

“RCRA” shall mean the
Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq., as
same may be amended from time to time.

 

“Real Property” shall
have the meaning set forth in Section 4.19(i).

 

18

 

“Recapitalization”
shall mean, collectively, (i) the contribution of the assets of Rafaella
Inc. to Borrower and the assumption of the liabilities of Rafaella Inc. by
Borrower, pursuant to the Contribution Agreement by and among Rafaella Inc.,
Borrower, Verrazano and RA Cerberus Acquisition, LLC, (ii) the issuance of
the Senior Secured Notes, (iii) the acquisition of 100% of the preferred
capital stock (which is convertible into 75% of the common capital stock) in
Borrower by Cerberus pursuant to the Securities Purchase Agreement dated
April 15, 2004 by and among RA Cerberus Acquisition, LLC, Borrower,
Rafaella Inc., Verrazano and Ronald Frankel, and (iv) the redemption of
the 75% of the common in Borrower owned by Rafaella Sportswear, Inc.

 

“Receivables” shall
mean and include as to each Loan Party, all of such Loan Party’s accounts
(including, without limitation, all health-care insurance receivables),
contract rights, instruments (including promissory notes and other instruments
evidencing Indebtedness owed to such Loan Party by their Affiliates), chattel
paper (whether tangible or electronic), General Intangibles relating to
accounts, drafts and acceptances, and all other forms of obligations owing to
such Loan Party arising out of or in connection with the sale, lease or other
disposition of Inventory or the rendition of services, all guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Agent hereunder.

 

“Receivables Advance Rate”
shall have the meaning set forth in Section 2.1(a).

 

“Release” shall have
the meaning set forth in Section 5.7(c).

 

“Reportable Event”
shall mean a reportable event described in Section 4043(b) of ERISA
or the regulations promulgated thereunder.

 

“Required Lenders”
shall mean Lenders holding at least sixty six and two-thirds percent (66 2/3%)
of the Advances and, if no Advances are outstanding, shall mean Lenders holding
sixty six and two-thirds percent (66 2/3%) of the Commitment Percentages with
respect to the Advances; provided, however, after the Commitments of the
Lenders to make Advances have been terminated and all of the Obligations
described in “FIRST” through “SIXTH” of Section 11.2 have been satisfied
in full, then “Required Lenders” shall mean Term Lenders holding at least sixty
six and two-thirds percent (66 2/3%) of the outstanding Term Loan.

 

“Reserves” shall mean
such reserves as Agent may reasonably deem proper and necessary from time to
time, (a) to reflect events, conditions, contingencies or risks which, as
determined by Agent in good faith, adversely affect, or would have a reasonable
likelihood of adversely affecting, either (i)the Collateral or any other
property which is security for the Obligations, its value or the amount that
might be received by Agent from the sale or other disposition or realization
upon such Collateral, or (ii)the security interests and other rights of Agent
or any Lender or Term Lender in the Collateral (including the enforceability,
perfection and priority thereof) or (b) to reflect Agent’s good faith belief
that any collateral report or financial information furnished by or on behalf
of any Borrower to Agent is or may have been incomplete, inaccurate or
misleading in any material respect, or (a)to reflect outstanding Letters of
Credit, or (b)in respect of any state of facts which Agent determines in good
faith constitutes a Default or an Event of Default; and also including the
Availability Reserve.

 

19

 

“Revolving Advances”
shall mean Advances made other than Swingline Loans, Letters of Credit, and Air
Release/Steamship Guarantees.

 

“Revolving Credit Note”
shall mean, collectively, the promissory notes referred to in
Section 2.1(a).

 

“Revolving Interest Rate”
shall mean an interest rate per annum equal to (a) the Base Rate with
respect to Domestic Rate Loans and (b) the sum of the Eurodollar Rate plus
two and three quarters percent (2.75%) per annum with respect to Eurodollar
Rate Loans.

 

“Securities Purchase
Agreement” shall mean the Securities Purchase Agreement, dated as of
April 15, 2004, by and among Purchaser, Borrower, Rafaella Inc.,
Verrazano, and Ronald Frankel.

 

“Senior Note Agent”
shall mean The Bank of New York, as Trustee, and its successors and assigns.

 

“Senior Note Debt”
shall mean all Indebtedness of Borrower under or in connection with the Senior
Note Documentation.

 

“Senior Note
Documentation” shall mean the Senior Note Indenture, the Senior Secured
Notes and any agreements, documents and instruments relating thereto.

 

“Senior Note Indenture”
shall mean that certain Indenture dated as of June 20, 2005 among
Borrower, the Guarantors and The Bank of New York, as Trustee and Collateral
Agent as amended by that certain First Supplemental Indenture dated as of
July 12, 2006.

 

“Senior Secured Notes”
shall mean the 11.25% Senior Secured Notes due 2011 issued by Borrower.

 

“Settlement Date”
shall mean the Closing Date and thereafter Monday of each week, unless such day
is not a Business Day in which case it shall be the next succeeding Business
Day, and every other Business Day designated by Agent as a “Settlement Date” by
notice from Agent to each Lender.

 

“Standby Letters of
Credit” shall mean all Letters of Credit issued in connection with this
Agreement as a credit enhancement for certain Indebtedness of Loan Parties.

 

“Standby Letter of Credit
Sublimit” shall mean $4,010,500.

 

“Subsidiary” shall
mean, with respect to any Person, a corporation or other entity of whose shares
of stock or other ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.

 

“Swingline Lender”
means HSBC, or if HSBC shall resign as Swingline Lender, another Lender
selected by Agent and reasonably acceptable to Borrower.

 

20

 

“Swingline Loan”
means each Advance made by Swingline Lender pursuant to Section 2.4.

 

“Swingline Note”
shall mean the promissory note referred to in Section 2.4.

 

“Tender Offer
Consideration” shall mean the aggregate amount paid by Borrower to the
holders of the Senior Secured Notes which are purchased by the Borrower
pursuant to the Borrower’s consummation of the Transactions, excluding the
accrued interest paid to such holders in connection with consummation of the
Transactions.

 

“Term” shall mean the
period commencing on the Original Closing Date and ending on the Termination
Date.

 

“Term Lender” shall
have the meaning ascribed to such term in the preamble to this Agreement and
shall include each Person which becomes a transferee, successor or assign of
Term Lender.

 

“Term Loan” shall mean
the loan made by the Term Lender pursuant to Section 2.17.

 

“Term Loan Commitment”
shall mean the obligation of the Term Lender to make the Term Loan in an amount
up to $10,000,000 on the terms and subject to the conditions of this Agreement.

 

“Term Note” shall
mean the Term Note referred to in Section 2.17.

 

“Termination Date”
shall have the meaning set forth in Section 13.1.

 

“Termination Event”
shall mean (i) a Reportable Event with respect to any Plan or
Multiemployer Plan; (ii) the withdrawal of any Loan Party or any member of
the Controlled Group from a Plan or Multiemployer Plan during a plan year in
which such entity was a “substantial employer” as defined in
Section 4001(a)(2) of ERISA; (iii) the providing of notice of
intent to terminate a Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of
proceedings to terminate a Plan or Multiemployer Plan; (v) any event or
condition (a) which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Plan or Multiemployer Plan, or (b) that may result in termination of a
Multiemployer Plan pursuant to Section 4041A of ERISA; or (vi) the
partial or complete withdrawal within the meaning of Sections 4203 and 4205 of
ERISA, of any Loan Party or any member of the Controlled Group from a
Multiemployer Plan.

 

“Toxic Substance”
shall mean and include any material present on the Real Property or the
Leasehold Interests which has been shown to have significant adverse effect on
human health or which is subject to regulation under the Toxic Substances
Control Act (TSCA), 15 U.S.C. §§ 2601 et seq., applicable state law, or
any other applicable Federal or state laws now in force or hereafter enacted relating
to toxic substances.  “Toxic Substance”
includes but is not limited to asbestos, polychlorinated biphenyls (PCBs) and
lead-based paints.

 

21

 

“Transactions”
shall mean the Borrower’s purchase of Senior Secured Notes pursuant to the
Borrower’s tender offer as described in that certain Offer to Purchase dated
February 22, 2010, as such tender offer may be amended, modified or
extended.

 

“Transferee” shall
have the meaning set forth in Section 16.3.

 

“UCC” shall mean
the Uniform Commercial Code as in effect in the State of New York from time to
time.

 

“Week” shall mean
the time period commencing with the opening of business on a Monday and ending
on the end of business the following Sunday.

 

“Working Capital”
shall mean as of any date of determination, the excess, if any, of Current
Assets over Current Liabilities at such date.

 

1.3.          UCC Terms.

 

All terms used herein and
defined in the UCC shall have the meaning given therein unless otherwise
defined herein.

 

1.4.          Certain Matters of
Construction.

 

The terms “herein”,
“hereof” and “hereunder” and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Each reference to a Section, an Exhibit or a Schedule shall
be deemed to refer to a Section, an Exhibit or a Schedule, as applicable,
of this Agreement, as modified or supplemented with the consent of Agent unless
otherwise specified.  Any pronoun used
shall be deemed to cover all genders. 
Wherever appropriate in the context, terms used herein in the singular
also include the plural and vice  versa.  All references to statutes (including the
UCC) and related regulations shall include any amendments of same and any
successor statutes and regulations. 
Unless otherwise provided, all references to any instruments or
agreements to which Agent is a party, including, without limitation, references
to any of the Other Documents, shall include any and all modifications,
restatements, supplements or amendments thereto and any and all extensions or
renewals thereof.  For purposes of
Sections 3.1, 3.5, 3.6, 3.7, 3.8, Articles IV, V, VIII, XI, XII, XIII, XIV, and
XV, the term “Lender” shall include each Lender and Swingline Lender.

 

II.            ADVANCES, PAYMENTS.

2.1.          Maximum Advances.

 

(a)           Direct Debt Advances. Subject to the terms and conditions set
forth in this Agreement (including, without limitation, Sections
2.1(b) and (c)), each Lender, severally and not jointly, will make
Revolving Advances to Borrower in aggregate amounts outstanding at any time not
to exceed such Lender’s Commitment Percentage of an amount equal to the lesser
of (x) the Maximum Direct Debt Sublimit and (y) an amount equal to
the sum, subject to the provisions of Section 2.1(c), of
(A) (i) from the Closing Date through December 31, 2010,  70% and (ii) from and after
January 1, 2011, 65% (as applicable, the “Receivables Advance Rate”)
of Eligible Receivables plus (B) the Receivables Advance Rate of
Eligible Factored Receivables.  The 

 

22

 

Revolving Advances shall be evidenced by one or more secured promissory
notes (each, a “Revolving Credit Note”) substantially in the form
attached hereto as Exhibit 2.1(a).

 

(b)           All Advances. 
The aggregate balance of Revolving Advances outstanding plus the
aggregate amount of Letters of Credit and Air Releases/Steamship Guarantees
outstanding plus the aggregate principal amount of Swingline Loans outstanding
at any time shall not exceed the lesser of (x) the Maximum Loan Amount and
(y) an amount equal to the sum of:

 

(i)            the sum subject to the provisions of
Section 2.1(c), of (A) the Receivables Advance Rate of Eligible
Receivables plus (B) the Receivables Advance Rate of Eligible
Factored Receivables, plus

 

(ii)           the lesser of (A) the sum of
(I) subject to the provisions of Section 2.1(c), 50% (the “Inventory
Advance Rate”) of Eligible Inventory (including up to $10,000,000 of
Eligible Inventory consisting of in-transit Inventory), plus
(II) the Inventory Advance Rate of outstanding Documentary Letters of
Credit, provided that the foregoing shall include only Documentary
Letters of Credit utilized to purchase finished goods Inventory, or
(B) the Inventory Advance Cap; plus

 

(iii)          the
amount of Cash Collateral then on deposit with Agent; minus

 

(iv)          Reserves.

 

The amount derived from
the sum of Sections 2.1(b)(y)(i) plus 2.1(b)(y)(ii) plus
2.1(b)(y)(iii) minus Section 2.1(b)(y)(iv) at any time and from
time to time shall be referred to as the “Formula Amount”.

 

(c)           Discretionary Rights. 
The Receivables Advance Rate may be increased or decreased by Agent at
any time and from time to time, upon five (5) Business Days notice to
Borrower, based upon dilution, as set forth on the most recent field
examination conducted in accordance with this Agreement, it being specifically
understood that the 65% Receivables Advance Rate scheduled to be in effect as
of January 1, 2011 assumes a dilution rate of no more than ten percent
(10%).  In addition, the Advance Rates
may be increased or decreased by Agent at any time and from time to time, upon
five (5) Business Days notice to Borrower, based upon other material
changes in Borrower’s financial circumstances, to be done in the exercise of
its good faith business judgment based upon the lending practices of Agent,
consistent with criteria customary in the commercial finance industry
generally.  Borrower consents to any such
increases or decreases and acknowledge that decreasing the Advance Rates or
increasing the Reserves may limit or restrict Advances requested by the
Borrower.

 

2.2.          Procedure for Borrowing.

 

(a)           Borrower may notify Agent prior to 12:00
noon (New York City time) on a Business Day of Borrower’s request to incur, on
that day, a Revolving Advance hereunder. 
Any amount required to be paid as interest hereunder, or as fees or
other charges under this Agreement or any other agreement with Agent, Lenders,
Term Lender and/or any Issuer, or with respect to any other Obligation, which
shall become due, shall be deemed a request for an 

 

23

 

Advance as of the date such payment is due, in the amount required to
pay in full such interest, fee, charge or Obligation under this Agreement, or
any Other Documents with Agent, Lenders, Term Lender and/or any Issuer and such
request shall be irrevocable.

 

(b)           Notwithstanding the provisions of
(a) above, in the event Borrower desires to obtain a Eurodollar Rate Loan,
Borrower shall give Agent at least three (3) Business Days’ prior written
notice (or such shorter period as Agent, in its sole discretion, is willing to
accommodate), specifying (i) the date of the proposed borrowing (which
shall be a Business Day), (ii) the type of borrowing and the amount on the
date of such Advance to be borrowed, which amount shall be in a minimum amount
of $1,000,000 and in integral multiples of $250,000 in excess thereof, and
(iii) the duration of the first Interest Period therefor.  Borrower may also elect, subject to the same
criteria set forth in the preceding sentence, to designate portions of the Term
Loan as Eurodollar Rate Loans, from time to time.  Interest Periods for Eurodollar Rate Loans
shall be for one, two, three, four, five, six, nine or twelve months.  No Eurodollar Rate Loan shall be made
available to Borrower during the continuance of a Default or an Event of
Default.  After giving effect to each
such borrowing, there shall not be outstanding more than ten
(10) Eurodollar Rate Loans, in the aggregate at any time.

 

(c)           Each Interest Period of a Eurodollar Rate
Loan shall commence on the date such Eurodollar Rate Loan is made and shall end
on such date as Borrower may elect as set forth in (b)(iii) above provided
that the exact length of each Interest Period shall be determined in accordance
with the practice of the London interbank market for Dollar deposits and no
Interest Period shall end after the Termination Date.

 

(d)           Borrower shall elect the initial Interest
Period applicable to a Eurodollar Rate Loan by its notice of borrowing given to
Agent pursuant to Section 2.2(b) or Section 2.17 or by its
notice of conversion given to Agent pursuant to Section 2.2(e), as the
case may be.  Borrower shall elect the
duration of each succeeding Interest Period by giving irrevocable written
notice to Agent of such duration not less than three (3) Business Days
prior to the last day of the then current Interest Period applicable to such
Eurodollar Rate Loan.  If Agent does not
receive timely notice of the Interest Period elected by Borrower, Borrower
shall be deemed to have elected an Interest Period of one month.

 

(e)           Provided that no Event of Default shall
have occurred and be continuing, Borrower may, on the last Business Day of the
then current Interest Period applicable to any outstanding Eurodollar Rate Loan
(including any applicable portion of the Term Loan), or on any Business Day
with respect to Domestic Rate Loans (including any applicable portion of the
Term Loan), convert any such loan into a loan of another type in the same
aggregate principal amount provided that any conversion of a Eurodollar Rate
Loan shall be made only on the last Business Day of the then current Interest
Period applicable to such Eurodollar Rate Loan. 
If Borrower desires to convert a loan, Borrower shall give Agent not
less than three (3) Business Days’ prior written notice to convert from a
Domestic Rate Loan to a Eurodollar Rate Loan or one (1) Business Day’s
prior written notice to convert from a Eurodollar Rate Loan to a Domestic Rate
Loan, specifying the date of such conversion, the loans to be converted and if
the conversion is from a Domestic Rate Loan to any other type of loan, the
duration of the first Interest Period therefor. 
After giving effect to each such conversion, there shall not be
outstanding more than ten (10) Eurodollar Rate Loans, in the aggregate.

 

24

 

(f)            Subject to Section 13.1,

 

(i)            At its option and upon three
(3) Business Days’ prior written notice, Borrower may prepay the
Eurodollar Rate Loans in whole at any time or in part from time to time,
without premium or penalty, but with accrued interest on the principal being
prepaid to the date of such repayment. 
Borrower shall specify the date of prepayment of Advances which are
Eurodollar Rate Loans and the amount of such prepayment.  In the event that any prepayment of a
Eurodollar Rate Loan is required or permitted on a date other than the last
Business Day of the then current Interest Period with respect thereto, Borrower
shall indemnify Agent and Lenders therefor in accordance with
Section 2.2(g).

 

(ii)           At its option and upon one
(1) Business Days’ prior written notice, Borrower may prepay the Domestic
Rate Loans in whole at any time or in part from time to time, without premium
or penalty, but with accrued interest on the principal being prepaid to the
date of such repayment.  Borrower shall
specify the date of prepayment of Advances which are Domestic Rate Loans and
the amount of such prepayment.

 

(g)           Borrower shall indemnify Agent, Term
Lender and Lenders and hold Agent, Lenders and Term Lender harmless from and
against any and all losses or expenses that Agent, Lenders and Term Lender may
sustain or incur as a consequence of any prepayment, conversion of or any
default by Borrower in the payment of the principal of or interest on any
Eurodollar Rate Loan or failure by Borrower to complete a borrowing of, a
prepayment of or conversion of or to a Eurodollar Rate Loan after notice
thereof has been given, including, but not limited to, any interest payable by
Agent, Lenders or Term Lender to lenders of funds obtained by it in order to
make or maintain its Eurodollar Rate Loans hereunder.  A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Agent , any Lender or
Term Lender to Borrower shall be conclusive absent manifest error.

 

(h)           Notwithstanding any other provision
hereof, if any applicable law, treaty, regulation or directive, or any change
therein or in the interpretation or application thereof, shall make it unlawful
for any Lender (for purposes of this Section 2.2(h), the term “Lender”
shall include any Lender or Term Lender and the office or branch where any
Lender or Term Lender or any corporation or bank controlling such Lender or
Term Lender makes or maintains any Eurodollar Rate Loans) to make or maintain
its Eurodollar Rate Loans, the obligation of Lenders and Term Lender to make
Eurodollar Rate Loans hereunder shall forthwith be cancelled and Borrower
shall, if any affected Eurodollar Rate Loans are then outstanding, promptly
upon request from Agent, either pay all such affected Eurodollar Rate Loans or
convert such affected Eurodollar Rate Loans into loans of another type, either
at the end of the applicable Interest Periods if the affected Lenders and Term
Lender may maintain the affected Eurodollar Rate Loans until such dates, or
otherwise immediately upon such request. 
If any such payment or conversion of any Eurodollar Rate Loan is made on
a day that is not the last day of the Interest Period applicable to such
Eurodollar Rate Loan, Borrower shall pay Agent, upon Agent’s request, such
amount or amounts as may be necessary to compensate Lenders and Term Lender for
any loss or expense sustained or incurred by Lenders and Term Lender in respect
of such Eurodollar Rate Loan as a result of such payment or conversion,
including (but not limited to) any interest or other amounts payable by Lenders
or Term Lender to lenders of funds obtained by Lenders or Term Lender  in order to make or maintain such Eurodollar
Rate Loan.  A certificate 

 

25

 

as to any additional amounts payable pursuant to the foregoing sentence
submitted by Lenders or Term Lender to Borrower shall be conclusive absent
manifest error.

 

2.3.          Disbursement of Advance
Proceeds.

 

All Advances shall be
disbursed from whichever office or other place Agent may designate from time to
time and, together with any and all other Obligations of Borrower to Agent or
Lenders, shall be charged to Borrower’s Account on Agent’s books.  During the Term, Borrower may use the
Advances by borrowing, prepaying and reborrowing, all in accordance with the
terms and conditions hereof.  The
proceeds of each Advance requested by Borrower or deemed to have been requested
by Borrower under Section 2.2(a) shall, with respect to requested
Advances to the extent Lenders make such Advances, be made available to
Borrower on the day so requested by way of credit to Borrower’s operating
account maintained with Agent or such other bank as Borrower may designate
following notification to Agent, in immediately available federal funds or
other immediately available funds or, with respect to Advances deemed to have
been requested by Borrower, be disbursed to Agent to be applied to the
outstanding Obligations giving rise to such deemed request.

 

2.4.          Swingline Loans.

 

(a)           Agent may convert any request by Borrower
for a Revolving Advance constituting a Domestic Rate Loan into a request for a
Swingline Loan, to be made solely by the Swingline Lender to Borrower as
otherwise provided in Section 2.3 on the date of the requested
Advance.  The Swingline Loans shall be
Domestic Rate Loans and shall not exceed in the aggregate at any time outstanding
the Maximum Swingline Loan Amount.  In
the event that on any Business Day Swingline Lender desires that all or any
portion of the outstanding Swingline Loans should be reduced in whole or in
part, Swingline Lender shall promptly notify Agent to that effect and indicate
the portion of the Swingline Loans to be reduced.  Swingline Lender hereby agrees that it shall
notify Agent to reduce the outstanding Swingline Loans to $0 at least once
every week.  Agent agrees to promptly
transmit to Lenders the information contained in each notice received by Agent
from Swingline Lender and shall concurrently notify Lenders of each Lender’s
Commitment Percentage of the obligation to make a Revolving Advance to repay
the Swingline Loan (or portion thereof).

 

(b)           Each of the Lenders hereby
unconditionally and irrevocably agrees to fund to Agent for the benefit of
Swingline Lender, in lawful money of the United States and in same day funds,
not later than 1:00 p.m. (New York City time) on the Settlement Date, such
Lender’s Commitment Percentage of a Revolving Advance (which Revolving Advance
shall be a Domestic Rate Loan and shall be deemed to be requested by Borrower)
in the principal amount of such portion of the Swingline Loans which is
required to be paid to Swingline Lender under this Section 2.4 (regardless
of whether the conditions precedent thereto set forth in Article VIII are
then satisfied and whether or not Borrower has provided a notice of borrowing
under Section 2.2 and whether or not any Default or Event of Default
exists or all or any of the Advances have been accelerated, but subject to the
other provisions of this Section 2.4). 
The proceeds of any such Revolving Advance shall be immediately paid
over to Agent for the benefit of Swingline Lender for application to the
Swingline Loan.

 

26

 

(c)           In the event that an Event of Default
shall occur and either (i) such Event of Default is of the type described
in Section 10.7 or (ii) no further Revolving Advances are being made
under this Agreement, so long as any such Event of Default is continuing, then,
each of the Lenders (other than Swingline Lender) shall be deemed to have
irrevocably, unconditionally and immediately purchased from Swingline Lender
such Lender’s Commitment Percentage of the Swingline Loan outstanding as of the
date of the occurrence of such Event of Default.  Each Lender shall effect such purchase by
making available an amount equal to its participation on the date of such
purchase in Dollars in immediately available funds to Agent for the benefit of
Swingline Lender.  In the event any
Lender fails to make available to Swingline Lender when due the amount of such
Lender’s participation in the Swingline Loan, Swingline Lender shall be
entitled to recover such amount on demand from such Lender together with
interest at the Federal Funds Rate.  Each
such purchase by a Lender shall be made without recourse to Swingline Lender,
without representation or warranty of any kind, and shall be effected and
evidenced pursuant to documents reasonably acceptable to Swingline Lender.  The Swingline Loans shall be evidenced by one
or more promissory notes substantially in the form of Exhibit 2.4 to
the Original Financing Agreement.  The
obligations of the Lenders under this Section 2.4 shall be absolute,
irrevocable and unconditional, shall be made under all circumstances and shall
not be affected, reduced or impaired for any reason whatsoever.

 

2.5.          Intentionally Omitted.

 

2.6.          Repayment of Advances.

 

(a)           The Revolving Advances shall be due and
payable in full on the Termination Date subject to earlier prepayment as herein
provided.  The Swingline Loans shall be
due and payable in accordance with Section 2.4, subject to earlier
prepayment as herein provided.

 

(b)           All payments of principal, interest and
other amounts payable hereunder, or under any of the related agreements
(including with respect to the Term Loan) shall be made to Agent at the Payment
Office not later than 1:00 p.m. (New York time) on the due date therefor
in lawful money of the United States of America in federal funds or other funds
immediately available to Agent.  Agent
shall have the right to effectuate payment on any and all Obligations due and
owing hereunder by charging Borrower’s Account or by making Revolving Advances
as provided in Section 2.2.

 

(c)           Borrower shall pay principal, interest,
and all other amounts payable hereunder, or under any related agreement
(including with respect to the Term Loan), without any deduction whatsoever,
including, but not limited to, any deduction for any setoff or counterclaim.

 

2.7.          Repayment of Excess
Revolving Advances.

 

The aggregate balance of
Revolving Advances outstanding at any time in excess of the maximum amount of
Revolving Advances permitted hereunder shall be immediately due and payable
without the necessity of any demand, at the Payment Office, whether or not a
Default or Event of Default has occurred.

 

27

 

2.8.          Statement of Account.

 

Agent shall maintain, in
accordance with its customary procedures, a loan account (the “Borrower’s
Account”) in the name of Borrower in which shall be recorded the date and
amount of each Advance made by Lenders and of the Term Loan, and the date and
amount of each payment in respect thereof; provided, however, the
failure by Agent to record the date and amount of any Advance shall not
adversely affect Agent or any Lender or Term Lender.  Each month, Agent shall send to Borrower a
statement showing the accounting for the Advances made, payments made or
credited in respect thereof, and other transactions between Lenders and
Borrower, during such month.  The monthly
statements shall be deemed correct and binding upon Borrower in the absence of
manifest error and shall constitute an account stated between Lenders and
Borrower unless Agent receives a written statement of Borrower’s specific
exceptions thereto within thirty (30) days after such statement is received by
Borrower.  The records of Agent with
respect to the loan account shall be conclusive evidence absent manifest error
of the amounts of Advances, the Term Loan 
and other charges thereto and of payments applicable thereto.

 

2.9.          Letters of Credit and Air
Releases/Steamship Guarantees.

 

Subject to the terms and
conditions hereof, Agent shall (a) issue or cause the issuance of
Documentary Letters of Credit and Standby Letters of Credit (collectively, “Letters
of Credit”) by the Issuer on behalf of Borrower, and (c) issue or
cause the issuance of Air Release/Steamship Guarantees, provided, however,
that Agent will not be required to issue or cause to be issued any Letter of
Credit or Air Release/Steamship Guarantee to the extent that the face amount of
such Letter of Credit or Air Release/Steamship Guarantee would then cause the
sum of (i) the outstanding Revolving Advances and Swingline Loans plus
(ii) outstanding Letters of Credit and Air Release/Steamship Guarantees to
exceed the lesser of (x) the Maximum Loan Amount or (y) the Formula
Amount.  The Maximum Undrawn Amount of
outstanding Standby Letters of Credit shall not exceed in the aggregate at any
time the Standby Letter of Credit Sublimit. All disbursements or payments
related to Letters of Credit and Air Release/Steamship Guarantees shall be
deemed to be Domestic Rate Loans consisting of Revolving Advances and shall
bear interest at the Revolving Interest Rate for Domestic Rate Loans; Letters
of Credit and Air Releases/Steamship Guarantees that have not been drawn upon
shall not bear interest.

 

2.10.        Issuance of Letters of
Credit and Air Releases/Steamship Guarantees.

 

(a)           Borrower may request Agent to issue or
cause the issuance of a Letter of Credit by delivering to Agent at the Payment
Office, Issuer’s standard form of letter of credit and security agreement and
standard form of letter of credit application (collectively, the “Letter of
Credit Application”) and any draft if applicable, completed to the
satisfaction of Agent; and such other certificates, documents and other papers
and information as Agent or Issuer may reasonably request.  HSBC shall have the right to decline to issue
a Letter of Credit or Air Release/Steamship Guarantee hereunder if, after
giving effect to the issuance thereof, the aggregate balance of Advances
outstanding due to such Lender would exceed its Commitment Percentage of the
lesser of the Maximum Loan Amount or the Formula Amount.

 

28

 

(b)           Each Letter of Credit shall, among other
things, (i) provide for the payment of sight drafts or acceptances of
issuance drafts when presented for honor thereunder in accordance with the
terms thereof and when accompanied by the documents described therein and
(ii) (a) with respect to Documentary Letters of Credit, have an
expiry date not later than two hundred and forty (240) days after such
Documentary Letter of Credit’s date of issuance or (b) with respect to
Standby Letters of Credit, have an expiry date not later than twelve (12)
months after such Standby Letter of Credit’s date of issuance, and (with
respect to clauses (ii) (a) and (ii) (b) above) in no event
having an expiry date later than the Termination Date unless Borrower provides
cash collateral equal to not less than one hundred five percent (105%) of the
face amount thereof to be held by Agent pursuant to a cash collateral agreement
in form and substance satisfactory to Agent. 
Each Documentary Letter of Credit shall be subject to the Uniform
Customs and Practice for Documentary Credits as most recently published by the
International Chamber of Commerce at the time a Letter of Credit is Issued, and
any amendments or revision thereof adhered to by the Issuer and, to the extent
not inconsistent therewith, the laws of the State of New York.  All Standby Letters of Credit shall be
subject to the laws or rules designated in such Standby Letter of Credit,
or if no laws or rules are designated, the International Standby Practices
(ISP98 — International Chamber of Commerce Publication Number 590) (the “ISP98
Rules”) and, as to matters not governed by the ISP98 Rules, the laws of the
State of New York.

 

(c)           Subject to the Borrower’s acceptance into
the HSBC L/C Program, all Documentary Letters of Credit to be issued by HSBC
shall be issued in Hong Kong.

 

(d)           Agent shall use its reasonable efforts to
notify Lenders of the request by Borrower for issuance of a Letter of Credit or
Air Release/Steamship Guarantee.

 

(e)           Subject to terms set by Agent from time
to time in its discretion with respect to the issuance of air releases and
steamship guarantees generally, Borrower may request Air Release/Steamship
Guarantees on any Business Day by delivering to Agent a request therefor in
form reasonably acceptable to Agent and, upon demand, copies of all invoices,
delivery receipts and related documents relating to that request that Agent
might require.  Provided that the request
for an Air Release/Steamship Guaranty is received prior to 10:30 a.m. on a
Business Day and approved by Agent, Agent shall issue, or cause to be issued,
an Air Release/Steamship Guarantee on the same Business Day.

 

(f)            To the extent each Air Release/Steamship
Guarantee has not been terminated or been returned to Agent on the day
preceding the expiration of the Term, Borrower shall provide cash collateral
equal to not less than one hundred five percent (105%) of the face amount
thereof plus any variances allowed thereunder to be held by Agent pursuant to a
cash collateral agreement in form and substance satisfactory to Agent.

 

(g)           Schedule 2.10(g) hereto contains a description of each
letter of credit and air release/steamship guarantee issued by HSBC for the
account of Borrower, and outstanding as of the date hereof (and setting forth,
with respect to each such letter of credit and air release/steamship guaranty
(if applicable), (i) the name of the issuing lender, (ii) the letter
of credit number, (iii) the name(s) of the account party or account
parties, (iv) the stated amount, (v) the name of the beneficiary,
(vi) the expiry date, and (vii) whether such letter of credit 

 

29

 

constitutes a standby letter of credit or a documentary letter of
credit).  Each such letter or credit
and/or air release/steamship guarantee, including any extension or renewal
thereof (each, an “Existing Letter of Credit”, or an “Existing Air
Release/Steamship Guarantee”, as the case may be), (x) in the case of
each Existing Letter of Credit shall be deemed a “Letter of Credit” for
all purposes under this Agreement, and (y) in the case of each Existing
Air Release/Steamship Guarantee shall be deemed an “Air Release/Steamship
Guarantee” for all purposes under this Agreement, in each case as if originally
issued hereunder for the account of Borrower.

 

2.11.        Requirements For Issuance of
Letters of Credit and Air Releases/Steamship Guarantees.

 

(a)           In connection with the issuance of any
Letter of Credit or Air Release/Steamship Guarantee, Borrower shall indemnify,
save and hold Agent, each Lender and each Issuer harmless from any loss, cost,
expense or liability, including, without limitation, payments made by Agent,
any Lender or any Issuer and expenses and reasonable attorneys’ fees incurred
by Agent, any Lender or any Issuer arising out of, or in connection with, any
Letter of Credit or Air Release/Steamship Guarantee to be issued.  Borrower shall be bound by Agent’s or
Issuer’s regulations and good faith interpretations of any Letter of Credit or
Air Release/Steamship Guarantee issued, although this interpretation may be
different from its own; and neither Agent, nor any Lender, nor any Issuer nor
any of their correspondents shall be liable for any error, negligence, or
mistakes, whether of omission or commission, in following Borrower’s
instructions or those contained in any Letter of Credit, Air Release/Steamship
Guarantee or of any modifications, amendments or supplements thereto or in
issuing or paying any Letter of Credit or Air Release/Steamship Guaranty,
except for its own gross negligence or willful misconduct.

 

(b)           Borrower shall authorize and direct any
Issuer of a Letter of Credit and Air Releases/Steamship Guarantees to deliver
to Agent all related payment/acceptance advices, to deliver to Agent all
instruments, documents, and other writings and property received by the Issuer
pursuant to the Letter of Credit or Air Release/Steamship Guarantee and to
accept and rely upon Agent’s instructions and agreements with respect to all
matters arising in connection with any Letter of Credit or Air
Release/Steamship Guarantee or any application therefor.

 

(c)           In connection with all Letters of Credit
and Air Releases/Steamship Guarantees issued or caused to be issued by Agent
under this Agreement, Borrower hereby appoints Agent, or its designee, as its
attorney, with full power and authority (i) to sign and/or endorse
Borrower’s name upon any warehouse or other receipts, Letter of Credit
Applications; (ii) to sign Borrower’s name on bills of lading;
(iii) to clear Inventory through Customs in the name of Borrower or Agent
or Agent’s designee, and to sign and deliver to Customs officials powers of
attorney in the name of Borrower for such purpose; and (iv) to complete in
Borrower’s name or Agent’s, or in the name of Agent’s designee, any order, sale
or transaction, obtain the necessary documents in connection therewith, and
collect the proceeds thereof.  Neither
Agent nor its attorneys will be liable for any acts or omissions nor for any
error of judgment or mistakes of fact or law, except for its own gross
negligence or willful misconduct.  This
power, being coupled with an interest, is irrevocable as long as any Letters of
Credit or Air Releases/Steamship Guarantees remain outstanding.

 

30

 

(d)           Each Lender shall to the extent of the
amount equal to the product of such Lender’s Commitment Percentage times the
aggregate amount of all unreimbursed reimbursement obligations arising from
disbursements made or obligations incurred with respect to the Letters of
Credit or Air Releases/Steamship Guarantees be deemed to have irrevocably
purchased an undivided participation in (i) each such unreimbursed
reimbursement obligation, (ii) Agent’s credit support enhancement provided
to the Issuer of any Letter of Credit or Air Release/Steamship Guarantee, and
(iii) each Revolving Advance made as a consequence of the issuance of a
Letter of Credit or Air Release/Steamship Guarantee and all disbursements
thereunder, in each case in an amount equal to such Lender’s applicable
Commitment Percentage times the outstanding amount of the Letters of Credit and
Air Releases/Steamship Guarantees and disbursements thereunder.  In the event that at the time a disbursement
is made the unpaid balance of Revolving Advances exceeds or would exceed, with
the making of such disbursement, the amount permitted under
Section 2.1(b), and such disbursement is not reimbursed by Loan Parties
within two (2) Business Days, Agent shall promptly notify each Lender and
upon Agent’s demand each Lender shall pay to Agent such Lender’s proportionate
share of such unreimbursed disbursement together with such Lender’s
proportionate share of Agent’s unreimbursed costs and expenses relating to such
unreimbursed disbursement.  Upon receipt
by Agent of a repayment from Borrower of any amount disbursed by Agent for
which Agent had already been reimbursed by Lenders, Agent shall deliver to each
Lender that Lender’s pro rata share of such repayment.  Each Lender’s participation commitment shall
continue until the last to occur of any of the following events: (A) Agent
ceases to be obligated to issue or cause to be issued Letters of Credit or Air
Releases/Steamship Guarantees hereunder, (B) no Letter of Credit or Air
Release/Steamship Guarantee issued hereunder remains outstanding and
uncancelled, or (C) all Persons (other than Borrower) have been fully
reimbursed for all payments made under or relating to Letters of Credit and Air
Releases/Steamship Guarantees.

 

2.12.        Additional Payments.

 

Any sums expended by
Agent or any Lender or Term Lender due to any Loan Party’s failure to perform
or comply with its obligations under this Agreement or any Other Document
including, without limitation, Loan Parties’ obligations under Sections 4.2,
4.4, 4.12, 4.13, 4.14 and 6.1, may be charged to Borrower’s Account as a
Revolving Advance and added to the Obligations.

 

2.13.        Manner of Borrowing and
Payment.

 

(a)           Each borrowing of Revolving Advances
shall be advanced according to the applicable Commitment Percentages of
Lenders.

 

(b)           Each payment (including each prepayment)
by Borrower on account of the principal of the Revolving Advances, shall be
applied to the Revolving Advances pro rata according to the applicable
Commitment Percentages of Lenders. 
Except as expressly provided herein, all payments (including
prepayments) to be made by Borrower on account of principal, interest and fees
(including with respect to the Term Loan) shall be made without set off or
counterclaim and shall be made to Agent on behalf of the Lenders or Term
Lender, as the case may be, to the Payment Office, in each case on or prior to
2:00 p.m. (New York City time), in Dollars and in immediately available
funds.  Payments (including prepayments)
by Borrower 

 

31

 

shall be applied first to Domestic Rate Loans and then to Eurodollar
Rate Loans in such order as to eliminate or minimize breakage costs to be paid
by Borrower to Lenders or Term Lender pursuant to Section 2.2(g).

 

(i)            Notwithstanding anything to the contrary
contained in Sections 2.13(a) and 2.13(b), commencing with the first
Business Day following the Closing Date, each borrowing of Advances shall be
advanced by Agent and each payment by Loan Parties on account of Advances shall
be applied first to those Revolving Advances advanced by Agent.  On or before 2:00 p.m. (New York City
time) on each Settlement Date commencing with the first Settlement Date
following the Closing Date, Agent and Lenders shall make certain payments as
follows: (I) if the aggregate amount of new Revolving Advances made by
Agent during the preceding Week (if any) exceeds the aggregate amount of
repayments applied to outstanding Revolving Advances during such preceding
Week, then each Lender shall provide Agent with funds in an amount equal to its
applicable Commitment Percentage of the difference between (w) such Revolving
Advances and (x) such repayments and (II) if the aggregate amount of
repayments applied to outstanding Revolving Advances during such Week exceeds
the aggregate amount of new Revolving Advances made during such Week, then
Agent shall provide each Lender with funds in an amount equal to its applicable
Commitment Percentage of the difference between (y) such repayments and
(z) such Revolving Advances.

 

(ii)           Each Lender shall be entitled to earn
interest at the Revolving Interest Rate on outstanding Advances which it has
funded.

 

(iii)          Promptly
following each Settlement Date, Agent shall submit to each Lender a certificate
with respect to payments received and Revolving Advances made during the Week
immediately preceding such Settlement Date. 
Such certificate of Agent shall be conclusive in the absence of manifest
error.

 

(c)           If any Lender or Participant (a “benefited
Lender”) shall at any time receive any payment of all or part of its
Advances, or interest thereon, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily or by set-off) in a greater proportion than any
such payment to and Collateral received by any other Lender, if any, in respect
of such other Lender’s Advances, or interest thereon, and such greater
proportionate payment or receipt of Collateral is not expressly permitted
hereunder, such benefited Lender shall purchase for cash from the other Lenders
a participation in such portion of each such other Lender’s Advances, or shall
provide such other Lender with the benefits of any such Collateral, or the
proceeds thereof, as shall be necessary to cause such benefited Lender to share
the excess payment or benefits of such Collateral or proceeds ratably with each
of Lenders; provided, however, that if all or any portion of such
excess payment or benefits is thereafter recovered from such benefited Lender,
such purchase shall be rescinded, and the purchase price and benefits returned,
to the extent of such recovery, but without interest.  Each Lender so purchasing a portion of another
Lender’s Advances may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.

 

(d)           Unless Agent shall have been notified by
telephone, confirmed in writing, by any Lender that such Lender will not make
the amount which would constitute its applicable Commitment Percentage of the
Advances available to Agent, Agent may (but shall not be 

 

32

 

obligated to) assume that such Lender shall make such amount available
to Agent on the next Settlement Date and, in reliance upon such assumption,
make available to Borrower a corresponding amount.  Agent will promptly notify Borrower of its
receipt of any such notice from a Lender. 
If such amount is made available to Agent on a date after such next
Settlement Date, such Lender shall pay to Agent on demand an amount equal to
the product of (i) the daily average Federal Funds Rate (computed on the basis
of a year of 360 days) during such period as quoted by Agent, times
(ii) such amount, times (iii) the number of days from and including
such Settlement Date to the date on which such amount becomes immediately
available to Agent.  A certificate of Agent
submitted to any Lender with respect to any amounts owing under this paragraph
(e) shall be conclusive, in the absence of manifest error.  If such amount is not in fact made available
to Agent by such Lender within three (3) Business Days after such Settlement
Date, Agent shall be entitled to recover such an amount, with interest thereon
at the rate per annum then applicable to such Revolving Advances hereunder, on
demand from Borrower; provided, however, that Agent’s right to
such recovery shall not prejudice or otherwise adversely affect Borrower’s
rights (if any) against such Lender.

 

2.14.        Mandatory Prepayments.

 

(a)           When Borrower sells or otherwise disposes
of any Collateral, other than Inventory in the ordinary course of business
(which shall be governed by the provisions of Section 4.15(h)), Borrower
shall repay, first, the Advances and, second, subject to Section 2.17, the
Term Loan in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions and
taxes on the sales proceeds), such repayments to be made promptly but in no
event more than one (1) Business Day following receipt of such net
proceeds, and until the date of payment, such proceeds shall be held in trust
for Agent.  The foregoing shall not be
deemed to be implied consent to any such sale otherwise prohibited by the terms
and conditions hereof.  Such repayments
shall be applied to the outstanding Advances in such order as Agent may
determine, subject to Borrower’s ability to reborrow Revolving Advances in
accordance with the terms hereof.

 

(b)           Subject to the provisions of
Section 4.11, Agent shall apply the proceeds of any insurance settlements
from casualty losses which are received by Agent, first, to the outstanding Advances
in such order as Agent may determine, subject to Borrower’s ability to reborrow
Revolving Advances in accordance with the terms hereof, and second, subject to
Section 2.17, to the Term Loan.

 

2.15.        Use of Proceeds.

 

Borrower shall apply the
proceeds of (i) the Term Loan, if any, made on the Closing Date to
consummate the Transactions, including to pay fees and expenses relating to the
Transactions, and (ii) Advances made on the Closing Date to consummate the
Transactions, including to pay fees and expenses relating to the Transactions,
and (iii) Advances made on and after the Closing Date to provide for its
working capital needs in the ordinary course of business.

 

33

 

2.16.        Defaulting Lender.

 

(a)           Notwithstanding anything to
the contrary contained herein, in the event any Lender (x) has refused
(which refusal constitutes a breach by such Lender of its obligations under
this Agreement) to make available its portion of any Advance or
(y) notifies either Agent or Borrower that it does not intend to make
available its portion of any Advance (if the actual refusal would constitute a
breach by such Lender of its obligations under this Agreement) (each, a “Lender
Default”), all rights and obligations hereunder of such Lender (a “Defaulting
Lender”) as to which a Lender Default is in effect and of the other parties
hereto shall be modified to the extent of the express provisions of this
Section 2.16 while such Lender Default remains in effect.

 

(b)           Advances shall be incurred
pro rata from Lenders (the “Non-Defaulting Lenders”) which are not
Defaulting Lenders based on their respective Commitment Percentages, and no
Commitment Percentage of any Lender or any pro rata share of any Advances
required to be advanced by any Lender shall be increased as a result of such
Lender Default.  Amounts received in
respect of principal of any type of Advances shall be applied to reduce the
applicable Advances of each Lender pro rata based on the aggregate of the
outstanding Advances of that type of all Lenders at the time of such
application; provided, that, such amount shall not be applied to any Advances
of a Defaulting Lender at any time when, and to the extent that, the aggregate
amount of Advances of any Non-Defaulting Lender exceeds such Non-Defaulting
Lender’s Commitment Percentage of all Advances then outstanding.

 

(c)           A Defaulting Lender shall
not be entitled to give instructions to Agent or to approve, disapprove,
consent to or vote on any matters relating to this Agreement and the Other
Documents.  All amendments, waivers and
other modifications of this Agreement and the Other Documents may be made
without regard to a Defaulting Lender and, for purposes of the definition of
“Required Lenders”, a Defaulting Lender shall be deemed not to be a Lender and
not to have either Advances outstanding or a Commitment Percentage.

 

(d)           Other than as expressly set
forth in this Section 2.16, the rights and obligations of a Defaulting
Lender (including the obligation to indemnify Agent) and the other parties
hereto shall remain unchanged.  Nothing
in this Section 2.16 shall be deemed to release any Defaulting Lender from
its obligations under this Agreement and the Other Documents, shall alter such
obligations, shall operate as a waiver of any default by such Defaulting Lender
hereunder, or shall prejudice any rights which Loan Parties, Agent or any
Lender may have against any Defaulting Lender as a result of any default by
such Defaulting Lender hereunder.

 

(e)           In the event a Defaulting
Lender retroactively cures to the satisfaction of Agent the breach which caused
a Lender to become a Defaulting Lender, such Defaulting Lender shall no longer
be a Defaulting Lender and shall be treated as a Lender under this Agreement.

 

2.17.        Term Loan.

 

Subject to the terms and
conditions of this Agreement, including, without limitation, Section 8.1,
Term Lender will make a Term Loan to Borrower in a sum equal to up to
$10,000,000 on the Closing Date. 
Borrower shall have notified Agent prior to 12:00 noon (New York City
time) on the Business Day preceding the Closing Date of its request to borrow
the 

 

34

 

Term Loan, and the amount
thereof determined in accordance with Section 8.1(o).  The Term Loan Commitment shall terminate on
the Closing Date to the extent not utilized on such date.  The Term Loan, once repaid, cannot be
reborrowed.  The Term Loan shall be, with
respect to principal, payable on the last day of the Term when the entire then
unpaid principal sum of the Term Loan shall be payable in full, subject to
acceleration upon the occurrence of an Event of Default under this Agreement or
termination of this Agreement.  Notwithstanding
any provision of this Agreement to the contrary, the Term Loan may not be
prepaid, in whole or in part, unless and until all other Obligations described
in “FIRST through “SIXTH” of Section 11.2 have been satisfied in full and
the Commitment of Lenders herein to make Advances shall have terminated.  The Term Loan shall be evidenced by one or
more promissory notes substantially in the form of Exhibit 2.17.

 

III.           INTEREST AND FEES.

 

3.1.          Interest.

 

Interest on Advances and on
the Term Loan shall be payable to Agent for the benefit of Lenders, or the Term
Lender, as applicable, in arrears on the first day of each month with respect
to Domestic Rate Loans and, with respect to Eurodollar Rate Loans, at the end
of each Interest Period or, for Eurodollar Rate Loans with an Interest Period
in excess of three months, at the earlier of (a) each three months on the
anniversary date of the commencement of such Eurodollar Rate Loan or
(b) the end of the Interest Period. 
Interest charges shall be computed on the actual principal amount of
Advances and Term Loan outstanding during the month at a rate per annum equal
to the applicable Revolving Interest Rate. 
Whenever, subsequent to the date of this Agreement, the Base Rate is
increased or decreased, the Revolving Interest Rate for Domestic Rate Loans shall
be similarly changed without notice or demand of any kind by an amount equal to
the amount of such change in the Base Rate during the time such change or
changes remain in effect.  Upon and after
the occurrence of an Event of Default, and during the continuation thereof, at
Agent’s option or at the request of Required Lenders, the Obligations shall
bear interest at the Revolving Interest Rate plus two percent (2.0%) per
annum (the “Default Rate”).

 

3.2.          Letter of Credit and Air
Release/Steamship Guarantee Fees; Cash Collateral.

 

(a)           Borrower shall pay
(w) to Agent, for the benefit of Lenders, fees for each Standby Letter of
Credit for the period from and excluding the date of issuance of same to and
including the date of expiration or termination, equal to the average daily
face amount of each outstanding Standby Letter of Credit multiplied by two and
three-quarters percent (2.75%) per annum, the fees under this
Section 3.2(a)(w) to be calculated on the basis of a 360-day year for
the actual number of days elapsed and to be payable monthly in arrears on the
first day of each month and on the last day of the Term, (x) to Agent for
the benefit of the Issuer, any and all fees and expenses as agreed upon by the
Issuer and the Borrower in connection with any Documentary Letter of Credit,
including, without limitation, in connection with the issuance, amendment or
renewal of any such Documentary Letter of Credit (provided that
Documentary Letters of Credit issued under the HSBC L/C Program shall not incur
any issuance fee), (y) to Agent for the benefit of Lenders, a fee equal to
one-quarter of one percent (0.25%) of the face amount of each Documentary
Letter of Credit upon any payment, each extension of the expiry 

 

35

 

date beyond 120 days from
issuance, or cancellation thereof, and (z) to Agent, solely for its
benefit as the issuer of any Air Release/Steamship Guarantee, a fee of $95 for
each Air Release/Steamship Guarantee issued or cancelled, and shall reimburse
Agent for any and all fees and expenses, if any, paid by Agent to the Issuer
(all of the foregoing fees, the “Letter of Credit and Guarantee Fees”).  All such charges shall be deemed earned in
full on the date when the same are due and payable hereunder and shall not be
subject to rebate or proration upon the termination of this Agreement for any
reason.  Any such charge in effect at the
time of a particular transaction shall be the charge for that transaction,
notwithstanding any subsequent change in the Issuer’s prevailing charges for
that type of transaction.  Upon and after
the occurrence of an Event of Default, and during the continuation thereof,
Agent may, and at the direction of the Required Lenders Agent shall, increase
the Letter of Credit and Guarantee Fees by two percent (2.0%) per annum.  All Letter of Credit and Guarantee Fees
payable hereunder shall be deemed earned in full on the date when the same are
due and payable hereunder and shall not be subject to rebate or proration upon
the termination of this Agreement for any reason.

 

(b)           On demand by Agent following
the occurrence and during the continuance of an Event of Default, Borrower will
cause cash to be deposited and maintained in an account with Agent, as cash
collateral, in an amount equal to one hundred and five percent (105%) of the
outstanding Letters of Credit and Air Releases/Steamship Guarantees, and
Borrower hereby irrevocably authorizes Agent, in its discretion, on Borrower’s
behalf and in Borrower’s name, to open such an account and to make and maintain
deposits therein, or in an account opened by Borrower, in the amounts required
to be made by Borrower, out of the proceeds of Receivables or other Collateral
or out of any other funds of Borrower coming into any Lender’s possession at
any time.  Agent will invest such cash
collateral (less applicable reserves) in such short-term money-market items as
to which Agent and Borrower mutually agree and the net return on such
investments shall be credited to such account and constitute additional cash
collateral.  Borrower may not withdraw
amounts credited to any such account except to pay Obligations in respect of
Letters of Credit and Air Releases/Steamship Guarantees or upon payment and
performance in full of all Obligations and termination of this Agreement.

 

3.3.          Loan Fees.

 

(a)           Facility Fee.  If, for any month during the Term, the
average daily unpaid balance of the Advances for each day of such month does
not equal the Maximum Loan Amount, then Borrower shall pay to Agent for the
ratable benefit of Lenders a fee at a rate equal to one-quarter of one percent
(0.25%) per annum on the amount by which the Maximum Loan Amount exceeds such
average daily unpaid balance.  Such fee
shall be payable to Agent in arrears on the first day of each month.

 

(b)           Closing Fee.  Upon the execution of this Agreement,
Borrower shall pay to Agent for the ratable benefit of Lenders a closing fee in
an amount equal to $150,000.

 

(c)           Term Loan Facility Fee.  Borrower agrees to pay Term Lender, as fee
compensation for the Term Loan Commitment, a fee in an amount equal to $100,000
plus 1.50% of the original principal amount of the Term Loan funded on the
Closing Date, which fee is fully earned on the Closing Date and payable upon
the date the Term Loan becomes payable as 

 

36

 

provided in
Section 2.17 or if the Term Loan is not funded, payable upon the last day
of the Term or upon the earlier termination of this Agreement or acceleration
of the Obligations.

 

3.4.          Computation of Interest and
Fees.

 

Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed.  If any payment to be
made hereunder becomes due and payable on a day other than a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the Revolving Interest Rate during such
extension; provided, that with respect to Eurodollar Rate Loans, if
extending such payment would cause the last day of the applicable Interest
Period to be extended into the next calendar month, then the due date for such
payment shall be the immediately preceding Business Day.

 

3.5.          Maximum Charges.

 

In no event whatsoever shall
interest and other charges charged hereunder exceed the highest rate
permissible under law.  In the event
interest and other charges as computed hereunder would otherwise exceed the
highest rate permitted under law, such excess amount shall be first applied to
any unpaid principal balance of the Advances and thereafter, subject to
Section 2.17, to the unpaid principal balance of the Term Loan, and if the
then remaining excess amount is greater than the previously unpaid principal
balances, Lenders shall promptly refund such excess amount to Borrower and the
provisions hereof shall be deemed amended to provide for such permissible rate.

 

3.6.          Increased Costs.

 

In the event that any
applicable law, treaty or governmental regulation, or any change therein or in
the interpretation or application thereof, or compliance by any Lender (for
purposes of this Section 3.6, the term “Lender” shall include Agent or any
Lender or Term Lender and any corporation or bank controlling Agent or any
Lender or Term Lender) and the office or branch where Agent or any Lender (as
so defined) makes or maintains any Eurodollar Rate Loans with any request or
directive (whether or not having the force of law) from any central bank or
other financial, monetary or other authority, shall:

 

(a)           subject Agent or any Lender to
any tax of any kind whatsoever with respect to this Agreement or any Other
Document or change the basis of taxation of payments to Agent or any Lender of
principal, fees, interest or any other amount payable hereunder or under any
Other Documents (except for changes in the rate of tax on the overall net
income of Agent or any Lender by a jurisdiction with which Agent or such Lender
has a present or former connection);

 

(b)           impose, modify or hold
applicable any reserve, special deposit, assessment or similar requirement
against assets held by, or deposits in or for the account of, advances or loans
by, or other credit extended by, any office of Agent or any Lender, including
(without limitation) pursuant to Regulation D of the Board of Governors of the
Federal Reserve System; or

 

37

 

(c)           impose on Agent or any
Lender or the London interbank Eurodollar market any other condition with
respect to this Agreement or any Other Document;

 

and the result of any of the foregoing is to
increase the cost to Agent, Term Lender or any Lender of making, renewing or
maintaining its Advances or Term Loan hereunder by an amount that Agent, Term
Lender or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances or the Term Loan by an amount that Agent, Term Lender or such Lender
deems to be material, then, in any case Borrower shall promptly pay Agent, Term
Lender or such Lender, upon its demand, such additional amount as will
compensate Agent, Term Lender or such Lender for such additional cost or such
reduction, as the case may be, provided that the foregoing shall not apply to
increased costs which are reflected in the Adjusted LIBO Rate.  Agent, Term Lender or such Lender shall
certify the amount of such additional cost or reduced amount to Borrower, and
such certification shall be conclusive absent manifest error.

 

3.7.          Basis For Determining
Interest Rate Inadequate or Unfair.  In the event
that Agent or any Lender or Term Lender shall have determined that:

 

(a)           reasonable means do not
exist for ascertaining the Adjusted LIBO Rate applicable pursuant to
Section 2.2 for any Interest Period; or

 

(b)           Dollar deposits in the
relevant amount and for the relevant maturity are not available in the London
interbank Eurodollar market, with respect to an outstanding Eurodollar Rate
Loan, a proposed Eurodollar Rate Loan, or a proposed conversion of a Domestic
Rate Loan into a Eurodollar Rate Loan,

 

then Agent shall give Borrower prompt written,
telephonic or telegraphic notice of such determination.  If such notice is given, then with respect to
any Eurodollar Rate Loan requested on or after the Business Day that Borrower
receives Agent’s notice, (i) any such requested Eurodollar Rate Loan shall
be made as a Domestic Rate Loan, unless Borrower shall notify Agent no later
than 10:00 a.m. (New York City time) two (2) Business Days prior to
the date of such proposed borrowing, that its request for such borrowing shall
be cancelled or made as an unaffected type of Eurodollar Rate Loan,
(ii) any Domestic Rate Loan or Eurodollar Rate Loan which was to have been
converted to an affected type of Eurodollar Rate Loan shall be continued as or
converted into a Domestic Rate Loan, or, if Borrower shall notify Agent, no
later than 10:00 a.m. (New York City time) two (2) Business Days
prior to the proposed conversion, shall be maintained as an unaffected type of
Eurodollar Rate Loan, and (iii) any outstanding affected Eurodollar Rate
Loans shall be converted into a Domestic Rate Loan, or, if Borrower shall
notify Agent, no later than 10:00 a.m. (New York City time) two
(2) Business Days prior to the last Business Day of the then current
Interest Period applicable to such affected Eurodollar Rate Loan, shall be
converted into an unaffected type of Eurodollar Rate Loan, on the last Business
Day of the then current Interest Period for such affected Eurodollar Rate
Loans.  Until such notice has been
withdrawn, Lenders and Term Lender shall have no obligation to make an affected
type of Eurodollar Rate Loan or maintain outstanding affected Eurodollar Rate
Loans and Borrower shall have no right to convert a Domestic Rate Loan or an
unaffected type of Eurodollar Rate Loan into an affected type of Eurodollar
Rate Loan.

 

38

 

3.8.          Capital Adequacy.

 

(a)           In the event that Agent, any
Lender or Term Lender shall have determined that any applicable law, rule,
regulation or guideline regarding capital adequacy, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Agent, Term Lender or any Lender (for
purposes of this Section 3.8, the term “Lender” shall include Agent or any
Lender or Term Lender and any corporation or bank controlling Agent or any
Lender or Term Lender) and the office or branch where Agent or any Lender (as
so defined) makes or maintains any Eurodollar Rate Loans with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on Agent, Term Lender or any Lender’s
capital as a consequence of its obligations hereunder to a level below that
which Agent, Term Lender or such Lender could have achieved but for such
adoption, change or compliance (taking into consideration Agent’s, Term
Lender’s  and each Lender’s policies with
respect to capital adequacy) by an amount deemed by Agent, Term Lender or any
Lender to be material, then, from time to time, Borrower shall pay upon demand
to Agent, Term Lender or such Lender such additional amount or amounts as will
compensate Agent, Term Lender or such Lender for such reduction.  In determining such amount or amounts, Agent
or such Lender may use any reasonable averaging or attribution methods.  The protection of this Section 3.8 shall
be available to Agent, Term Lender and each Lender regardless of any possible
contention of invalidity or inapplicability with respect to the applicable law,
regulation or condition.

 

(b)           A certificate of Agent, Term
Lender or such Lender setting forth such amount or amounts as shall be
necessary to compensate Agent, Term Lender or such Lender with respect to
Section 3.8(a) when delivered to Borrower shall be conclusive absent
manifest error.

 

3.9.          Gross-Up for Taxes.

 

If Borrower shall be required
by applicable law to withhold or deduct any taxes (excluding taxes imposed on
or measured by Agent’s or any Lender’s or Term Lender’s income, and franchise
or similar taxes imposed on it, as a result of a present or former connection
between Agent or such Lender or Term Lender and the jurisdiction of the taxing
authority imposing such tax) from or in respect of any sum payable under this
Agreement or any of the Other Documents to Agent, or any Lender or Term Lender,
assignee of any Lender or Term Lender, or Participant (each, individually, a “Payee”
and collectively, the “Payees”), (a) the sum payable to such Payee
or Payees, as the case may be, shall be increased as may be necessary so that,
after making all required withholding or deductions, the applicable Payee or
Payees receives an amount equal to the sum it would have received had no such
withholding or deductions been made (the “Gross-Up Payment”),
(b) Borrower shall make such withholding or deductions, and
(c) Borrower shall pay the full amount withheld or deducted to the
relevant taxation authority or other authority in accordance with applicable
law.  Notwithstanding the foregoing,
Borrower shall not be obligated to make any portion of the Gross-Up Payment
that is attributable to any withholding or deductions that would not have been
paid or claimed had the applicable Payee or Payees properly claimed a complete
exemption with respect thereto pursuant to Section 16.3(f).

 

39

 

IV.           COLLATERAL: GENERAL TERMS.

 

4.1.          Security Interest in the
Collateral.

 

To secure the prompt payment
and performance to Agent, each Issuer, each Lender and Term Lender of the
Obligations under the Original Financing Agreement and under this Agreement,
each Loan Party hereby ratifies, confirms, and acknowledges its prior grant of
security interest to Agent (for its benefit and for the ratable benefit of each
Issuer and each Lender) in and to all of its Collateral, whether pursuant to
the Original Financing Agreement or the Other Documents, and each Loan Party
hereby further assigns, pledges, hypothecates and grants to Agent for its
benefit and for the ratable benefit of each Issuer, Lender and Term Lender a
continuing security interest in and to all of its Collateral, whether now owned
or existing or hereafter acquired or arising and wheresoever located, subject,
however, to the provisions of Section 11.2 hereof.  Each Loan Party shall mark its books and
records as may be necessary or appropriate to evidence, protect and perfect
Agent’s security interest and shall cause its financial statements to reflect
such security interest.

 

4.2.          Perfection of Security
Interest.

 

(a)           Each Loan Party shall take
all action that may be necessary or desirable, or that Agent may request, so as
at all times to maintain the validity, perfection, enforceability and priority
of Agent’s security interest in the Collateral or to enable Agent to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to, (i) immediately discharging all Liens other than Permitted
Encumbrances, (ii) obtaining landlords’ or mortgagees’ lien waivers,
(iii) delivering to Agent, endorsed or accompanied by such instruments of
assignment as Agent may specify, and stamping or marking, in such manner as
Agent may specify, any and all chattel paper, instruments, letters of credits
and advices thereof and documents evidencing or forming a part of the
Collateral in excess of $500,000, (iv) entering into lockbox arrangements
satisfactory to Agent, and (v) executing and delivering financing
statements, instruments of pledge, mortgages, notices and assignments, in each
case in form and substance reasonably satisfactory to Agent, relating to the
creation, validity, perfection, maintenance or continuation of Agent’s security
interest under the UCC or other applicable law.

 

(b)           Agent may at any time and
from time to time file, without the signature of any Loan Party in accordance
with Section 9-509 of the UCC, financing statements, continuation statements
and amendments thereto that describe the Collateral as “all assets” of the
applicable Loan Party and which contain any other information required by the
UCC for the sufficiency or filing office acceptance of any financing
statements, continuation statements or amendments.  Each Loan Party agrees to furnish any such
information to Agent promptly upon request.

 

(c)           Each Loan Party shall, at
any time and from time to time, take such steps as Agent may reasonably request
(i) to obtain an acknowledgment, in form and substance reasonably
satisfactory to Agent, of any bailee having possession of any of the
Collateral, stating that the bailee holds such Collateral for Agent,
(ii) to obtain “control” of any letter-of-credit rights, deposit accounts
or electronic chattel paper (as such terms are defined in the UCC with
corresponding provisions thereof defining what constitutes “control” for such
items of Collateral), with any agreements establishing control to be in form
and substance reasonably 

 

40

 

satisfactory to Agent, and
(iii) otherwise to insure the continued perfection and priority of Agent’s
security interest in any of the Collateral for the benefit of the Lenders and
Term Lender and of its rights therein. 
If any Loan Party shall at any time, acquire a “commercial tort claim”
(as such term is defined in the UCC) in excess of $100,000, such Loan Party
shall promptly notify Agent thereof in writing, therein providing a reasonable
description and summary thereof, and upon delivery thereof to Agent, such Loan
Party shall be deemed to thereby grant to Agent for the benefit of the Issuer,
Lenders and Term Lender (and each Loan Party hereby grants to Agent, for the
benefit of each Issuer, Lender and Term Lender) a security interest and lien in
and to such commercial tort claim and all proceeds thereof, all upon the terms
of and governed by this Agreement.

 

(d)           Each Loan Party hereby
confirms and ratifies all UCC financing statements filed by Agent with respect
to such Loan Party on or prior to the date of the Agreement.

 

(e)           All charges, expenses and
fees Agent may incur in doing any of the foregoing, and any local taxes
relating thereto, shall be charged to Borrower’s Account as a Revolving Advance
and added to the Obligations, or, at Agent’s option, shall be paid to Agent for
the ratable benefit of Lenders immediately upon demand.

 

4.3.          Disposition of Collateral.

 

Each Loan Party will
safeguard and protect all Collateral for Agent’s general account and make no
disposition thereof whether by sale, lease or otherwise except (a) the
sale of Inventory in the ordinary course of business and (b) the
disposition or transfer of obsolete and worn-out Equipment in the ordinary
course of business during any fiscal year having an aggregate fair market value
of not more than $500,000 and only to the extent that the proceeds of such
disposition of Equipment are remitted to Agent as a prepayment on the Advances
as required by Section 2.14.

 

4.4.          Preservation of Collateral.

 

In addition to the rights
and remedies set forth in Section 11.1, after the occurrence and during
the continuance of an Event of Default (but without limiting the rights of
Agent and Lenders and Term Lender under Section 4.10) Agent: (a) may
at any time take such steps as Agent in good faith deems necessary to protect
Agent’s interest in and to preserve the Collateral, including the hiring of
such security guards or the placing of other security protection measures as
Agent may deem appropriate; (b) may employ and maintain at each Loan
Party’s premises a custodian who shall have full authority to do all acts
necessary to protect Agent’s interests in the Collateral; (c) may lease
warehouse facilities to which Agent may move all or part of the Collateral; (d) may
use any Loan Party’s owned or leased lifts, hoists, trucks and other facilities
or equipment for handling or removing the Collateral; and (e) shall have,
and is hereby granted, a right of ingress and egress to the places where the
Collateral is located, and may proceed over and through any Loan Party’s owned
or leased property.  Loan Parties shall
cooperate fully with all of Agent’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may direct.  All of Agent’s expenses of preserving the 

 

41

 

Collateral, including any
expenses relating to the bonding of a custodian, shall be charged to Borrower’s
Account as a Revolving Advance and added to the Obligations.

 

4.5.          Ownership of Collateral.

 

With respect to the
Collateral, at the time the Collateral becomes subject to Agent’s security
interest: (a) each Loan Party shall be the sole owner of and fully
authorized and able to sell, transfer, pledge and/or grant a first priority
security interest in each and every item of its respective Collateral to Agent;
and, except for Permitted Encumbrances the Collateral shall be free and clear
of all Liens and encumbrances whatsoever; (b) each document and agreement
executed by each Loan Party or delivered to Agent or any Lender or Term Lender
in connection with this Agreement shall be enforceable in all material
respects; (c) all signatures and endorsements of each Loan Party that
appear on such documents and agreements shall be genuine and each Loan Party
shall have full capacity to execute same; and (d) each Loan Party’s
Equipment and Inventory shall be located as set forth on Schedule 4.5
and shall not be removed from such location(s) without the prior written
consent of Agent except with respect to the sale of Inventory in the ordinary
course of business and Equipment to the extent permitted in Section 4.3.

 

4.6.          Defense of Agent’s and
Lenders’ Interests.

 

Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent’s security interests in and Liens upon the Collateral shall
continue in full force and effect. 
During such period no Loan Party shall, without Agent’s prior written
consent, pledge, sell (except Inventory in the ordinary course of business and
Equipment to the extent permitted in Section 4.3), assign, transfer,
create or suffer to exist a Lien upon or encumber or allow or suffer to be
encumbered in any way except for Permitted Encumbrances, any part of the
Collateral.  Each Loan Party shall defend
Agent’s security interests in and Liens upon the Collateral against any and all
Persons whatsoever.  At any time after an
Event of Default has occurred and is continuing, Agent shall have the right to
take possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation, labels, stationery,
documents, instruments and advertising materials.  If Agent exercises this right to take possession
of the Collateral, Loan Parties shall, upon demand, assemble it in the best
manner possible and make it available to Agent at a place reasonably convenient
to Agent.  In addition, with respect to
all Collateral, Agent and Lenders and Term Lender shall be entitled to all of
the rights and remedies set forth herein and further provided by the UCC or
other applicable law.  Each Loan Party
shall, and Agent may, at its option, instruct all suppliers, carriers,
forwarders, warehouses or others receiving or holding cash, checks, documents
or instruments and, when an Event of Default has occurred which is then
continuing Inventory, in which Agent holds a security interest to deliver same
to Agent and/or subject to Agent’s order and if they shall come into any Loan
Party’s possession, they, and each of them, shall be held by such Loan Party in
trust as Agent’s trustee, and such Loan Party will immediately deliver them to
Agent in their original form together with any necessary endorsement.

 

42

 

4.7.          Books and Records.

 

Each Loan Party shall
(a) keep proper books of record and account in which full, true and
correct entries will be made of all dealings or transactions of or in relation
to its business and affairs; (b) set up on its books accruals with respect
to all taxes, assessments, charges, levies and claims; and (c) on a
reasonably current basis set up on its books, from its earnings, allowances
against doubtful Receivables, advances and investments and all other proper
accruals (including without limitation by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business. 
All determinations pursuant to this Section 4.7 shall be made in
accordance with, or as required by, GAAP consistently applied in the opinion of
the Accountants.

 

4.8.          Financial Disclosure.

 

Each Loan Party hereby
irrevocably authorizes and directs all accountants and auditors employed by
such Loan Party at any time during the Term to exhibit and deliver to Agent and
each Lender and Term Lender copies of any of Loan Parties’ financial
statements, trial balances or other accounting records of any sort in the accountant’s
or auditor’s possession, and to disclose to Agent and each Lender and Term
Lender any information such accountants may have concerning such Loan Party’s
financial status and business operations. 
However, Agent and each Lender and Term Lender will attempt to obtain
such information or materials directly from such Loan Party prior to obtaining
such information or materials from such accountants and auditors.

 

4.9.          Compliance with Laws.

 

Each Loan Party shall comply
with all acts, rules, regulations and orders of any legislative, administrative
or judicial body or official applicable to its respective Collateral or any
part thereof or to the operation of such Loan Party’s business the
non-compliance with which could reasonably be expected to have a Material
Adverse Effect.  The Collateral at all
times shall be maintained in accordance with the requirements of all insurance
carriers which provide insurance with respect to the Collateral so that such
insurance shall remain in full force and effect.

 

4.10.        Inspection of Premises.

 

At all reasonable times
following the occurrence and during the continuance of an Event of Default and
otherwise on reasonable prior written notice and during normal business hours,
Agent and each Lender and Term Lender shall have full access to and the right
to audit, check, inspect and make abstracts and copies from each Loan Party’s
books, records, audits, correspondence and all other papers relating to the
Collateral and the operation of each Loan Party’s business.  Agent, any Lender and Term Lender and their
agents may enter upon any of such Loan Party’s premises at any time during
business hours and at any other reasonable time, and from time to time, for the
purpose of inspecting the Collateral and any and all records pertaining thereto
and the operation of such Loan Party’s business.

 

43

 

4.11.        Insurance.

 

Each Loan Party shall bear
the full risk of any loss of any nature whatsoever with respect to the
Collateral.  At each Loan Party’s own
cost and expense in amounts and with carriers reasonably acceptable to Agent,
each Loan Party shall (a) keep all its insurable properties insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to such Loan
Party’s including, without limitation, business interruption insurance;
(b) maintain a bond in such amounts as is customary in the case of
companies engaged in businesses similar to such Loan Party insuring against
larceny, embezzlement or other criminal misappropriation of insured’s officers
and employees who may either singly or jointly with others at any time have access
to the assets or funds of such Loan Party either directly or through authority
to draw upon such funds or to direct generally the disposition of such assets;
(c) maintain public and product liability insurance against claims for
personal injury, death or property damage suffered by others; (d) maintain
all such worker’s compensation or similar insurance as may be required under
the laws of any state or jurisdiction in which Loan Parties is engaged in
business; (e) furnish Agent with (i) copies of all policies and
evidence of the maintenance of such policies by the renewal thereof at least
thirty (30) days before any expiration date, and (ii) appropriate loss
payable endorsements in form and substance satisfactory to Agent, naming Agent
as a co-insured and loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a) and (c) above, and
providing (A) that all proceeds thereunder shall be payable to Agent,
(B) no such insurance shall be affected by any act or neglect of the
insured or owner of the property described in such policy, and (C) that
such policy and loss payable clauses may not be cancelled, amended or
terminated unless at least thirty (30) days’ prior written notice (or ten
(10) days’ prior written notice in the case of cancellation for
non-payment of premiums) is given to Agent. 
In the event of any loss thereunder, the carriers named therein hereby
are directed by Agent and the applicable Loan Party to make payment for such
loss to Agent and not to such Loan Party and Agent jointly.  If any insurance losses are paid by check,
draft or other instrument payable to any Loan Party and Agent jointly, Agent
may endorse such Loan Party’s name thereon and do such other things as Agent
may deem advisable to reduce the same to cash. 
Agent is hereby authorized during the continuance of an Event of Default
to adjust and compromise claims under insurance coverage referred to in clauses
(a) and (c) above.  All loss
recoveries received by Agent upon any such insurance may be applied to the
Obligations, in such order as Agent in its sole discretion shall
determine.  Any surplus shall be paid by
Agent to Loan Parties or applied as may be otherwise required by law.

 

4.12.        Failure to Pay Insurance.

 

If any Loan Party fails to
obtain insurance as hereinabove provided, or to keep the same in force, Agent,
if Agent so elects, may obtain such insurance and pay the premium therefor for
Borrower’s Account, and charge Borrower’s Account therefor and such expenses so
paid shall be part of the Obligations.

 

44

 

4.13.        Payment of Taxes.

 

Each Loan Party will pay,
when due, all material taxes, assessments and other Charges lawfully levied or
assessed upon such Loan Party or any of the Collateral including, without
limitation, real and personal property taxes, assessments and charges and all
franchise, income, employment, social security benefits, withholding, and sales
taxes other than those  taxes,
assessments or Charges that any Loan Party has contested or disputed in good faith,
by expeditious protest, administrative or judicial appeal or similar proceeding
provided that any related tax lien is stayed and sufficient reserves are
established to the reasonable satisfaction of Agent to protect Agent’s security
interest in or Lien on the Collateral. 
If any tax by any governmental authority (i) is or may be imposed
on or as a result of any transaction between any Loan Party and Agent or any
Lender or Term Lender which Agent or any Lender or Term Lender may be required
to withhold or pay, or (ii) if any material taxes, assessments, or other
Charges remain unpaid after the date fixed for their payment, or (iii) if
any claim shall be made which, in Agent’s or any Lender’s or Term Lender’s
opinion, may possibly create a valid Lien on the Collateral, Agent may, following
written notice to Borrower and Borrower’s failure to pay the same within ten
(5) Business Days following receipt of such notice (except no such notice
is required for payments under clause (i)), pay the taxes, assessments or other
Charges and each Loan Party hereby indemnifies and holds Agent and each Lender
and Term Lender harmless in respect thereof. 
Agent will not pay any taxes, assessments or Charges as provided above
to the extent that any Loan Party has contested or disputed those taxes,
assessments or Charges in good faith, by expeditious protest, administrative or
judicial appeal or similar proceeding provided that any related tax lien is
stayed and sufficient reserves are established to the reasonable satisfaction
of Agent to protect Agent’s security interest in or Lien on the
Collateral.  The amount of any payment by
Agent under this Section 4.13 shall be charged to Borrower’s Account as a
Revolving Advance and added to the Obligations.

 

4.14.        Payment of Leasehold
Obligations.

 

Each Loan Party shall at all
times pay, when and as due, its rental obligations under all leases under which
it is a tenant (unless contesting such payments in good faith), and shall
otherwise comply, in all material respects, with all other terms of such leases
and keep them in full force and effect and, at Agent’s request will provide
evidence of having done so.

 

4.15.        Receivables.

 

(a)           Nature of Receivables.  Each of the Receivables shall be a bona fide
and valid account representing a bona fide indebtedness incurred by the Customer
therein named, for a fixed sum as set forth in the invoice relating thereto
(provided immaterial or unintentional invoice errors shall not be deemed to be
a breach hereof) with respect to an absolute sale or lease and delivery of
goods upon stated terms of a Loan Party, or work, labor or services theretofore
rendered by a Loan Party as of the date each Receivable is created.  Same shall be due and owing in accordance
with the applicable Loan Party’s standard terms of sale without dispute, setoff
or counterclaim except as may be stated on the accounts receivable schedules
delivered by Loan Parties to Agent.

 

45

 

(b)           Solvency of Customers.  Each Customer, to the best of each Loan
Party’s knowledge, as of the date each Receivable is created, is solvent and
able to pay all Receivables on which the Customer is obligated in full when due
or with respect to such Customers of Loan Parties who are not solvent such Loan
Party has set up on its books and in its financial records bad debt reserves
adequate to cover such Receivables.

 

(c)           Locations of Loan Parties.  Each Loan Party’s chief executive office is
located at the addresses set forth on Schedule 4.15(c).  Until written notice is given to Agent by
Borrower of any other office at which any Loan Party keeps its records
pertaining to Receivables, all such records shall be kept at such executive
office.

 

(d)           Collection of Receivables.  Until any Loan Party’s authority to do so is
terminated by Agent (which notice Agent may give at any time following the
occurrence of an Event of Default or a Default), each Loan Party will, at such
Loan Party’s sole cost and expense, but on Agent’s behalf and for Agent’s
account, subject to the terms of the Factoring Agreement (as applicable with
respect to the Eligible Factored Receivables), collect or cause Factor to
collect as Agent’s property and in trust for Agent all amounts received on
Receivables, and shall not commingle such collections with any Loan Party’s
funds or use the same except to pay Obligations.  Each Loan Party shall, upon request, deliver
to Agent, or deposit in the Blocked Account, in original form and on the date
of receipt thereof, all checks, drafts, notes, money orders, acceptances, cash
and other evidences of Indebtedness.

 

(e)           Notification of Assignment
of Receivables.  Subject to
the terms of the Factoring Agreement (as applicable with respect to the
Eligible Factored Receivables) during the continuance of an Event of Default,
Agent shall have the right to send notice of the assignment of, and Agent’s
security interest in, the Receivables to any and all Customers or any third
party holding or otherwise concerned with any of the Collateral.  Thereafter, Agent shall have the sole right
to collect the Receivables, take possession of the Collateral, or both.  Agent’s actual collection expenses,
including, but not limited to, stationery and postage, telephone and telecopy,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrower’s Account and added to the
Obligations.

 

(f)            Power of Agent to Act on
Loan Parties’ Behalf.  Subject to
the terms of the Factoring Agreement (as applicable with respect to the
Eligible Factored Receivables), Agent shall have the right to receive, endorse,
assign and/or deliver in the name of Agent or any Loan Party any and all
checks, drafts and other instruments for the payment of money relating to the
Receivables, and each Loan Party hereby waives notice of presentment, protest
and non-payment of any instrument so endorsed. 
Subject to the terms of the Factoring Agreement (as applicable with
respect to the Eligible Factored Receivables), each Loan Party hereby
constitutes Agent or Agent’s designee as such Loan Party’s attorney with power
(i) to endorse such Loan Party’s name upon any notes, acceptances, checks,
drafts, money orders or other evidences of payment or Collateral; (ii) to
sign such Loan Party’s name on any invoice or bill of lading relating to any of
the Receivables, drafts against Customers, assignments and verifications of
Receivables; (iii) to send verifications of Receivables to any Customer;
(iv) to sign such Loan Party’s name on all financing statements or any
other documents or instruments deemed necessary or appropriate by Agent to
preserve, protect, or perfect Agent’s interest in the Collateral and to file
same; (v) to demand payment of the Receivables; (vi) to enforce
payment of the Receivables by legal 

 

46

 

proceedings or otherwise;
(vii) to exercise all of such Loan Party’s rights and remedies with
respect to the collection of the Receivables and any other Collateral;
(viii) to settle, adjust, compromise, extend or renew the Receivables;
(ix) to settle, adjust or compromise any legal proceedings brought to
collect Receivables; (x) to prepare, file and sign such Loan Party’s name
on a proof of claim in bankruptcy or similar document against any Customer;
(xi) to prepare, file and sign such Loan Party’s name on any notice of Lien,
assignment or satisfaction of Lien or similar document in connection with the
Receivables; and (xii) to do all other acts and things necessary to carry out
this Agreement.  Agent shall not exercise
the power of attorney under clauses (v), (vi), (vii), (viii), (ix) or
(x) unless an Event of Default has occurred and is continuing.  All acts of said attorney or designee are
hereby ratified and approved, and said attorney or designee shall not be liable
for any acts of omission or commission nor for any error of judgment or mistake
of fact or of law, unless done maliciously or with gross (not mere) negligence;
this power being coupled with an interest is irrevocable while any of the
Obligations remain unpaid.  Subject to
the terms of the Factoring Agreement (as applicable with respect to the
Eligible Factored Receivables), Agent shall have the right at any time when an
Event of Default has occurred which is then continuing, to change the address
for delivery of mail addressed to any Loan Party to such address as Agent may
designate and to receive, open and dispose of all mail addressed to any Loan
Party.

 

(g)           No Liability.  Neither Agent nor any Lender or Term Lender
shall, under any circumstances or in any event whatsoever, have any liability
for any error or omission or delay of any kind occurring in the settlement,
collection or payment of any of the Receivables or any instrument received in
payment thereof, or for any damage resulting therefrom.  Subject to the terms of the Factoring
Agreement (as applicable with respect to the Eligible Factored Receivables),
Agent may, during the continuance of an Event of Default, without notice or
consent from any Loan Party, sue upon or otherwise collect, extend the time of
payment of, compromise or settle for cash, credit or upon any terms any of the
Receivables or any other securities, instruments or insurance applicable
thereto and/or release any obligor thereof. 
Agent is authorized and empowered to accept the return of the goods
represented by any of the Receivables, without notice to or consent by any Loan
Party, all without discharging or in any way affecting any Loan Party’s
liability hereunder.

 

(h)           Establishment of a Lockbox
Account, Dominion Account.  All
proceeds of Collateral shall, at the direction of Agent, be deposited by Loan
Parties into a lockbox account, dominion account or such other blocked account
(collectively, the “Blocked Accounts”) as Agent may require pursuant to
an arrangement with such bank as may be selected by Loan Parties and be
reasonably acceptable to Agent.  Loan
Parties shall issue to any such bank, an irrevocable letter of instruction
directing said bank to transfer such funds so deposited to Agent, either to any
account maintained by Agent at said bank or by wire transfer to appropriate
account(s) of Agent.  All funds
deposited in a Blocked Account shall immediately become the property of Agent
and Loan Parties shall obtain the agreement by such bank to waive any offset
rights against the funds so deposited (except with respect to its fees and
charges for the Blocked Accounts and for the chargeback of returned or
dishonored items).  Neither Agent nor any
Lender or Term Lender assumes any responsibility for any Blocked Account
arrangement, including without limitation, any claim of accord and satisfaction
or release with respect to deposits accepted by any bank thereunder.  Alternatively, Agent may establish depository
accounts (collectively, the “Depository Accounts”) in the name of Agent
at a bank or banks for 

 

47

 

the deposit of such funds
and Loan Parties shall deposit all proceeds of Collateral or cause same to be
deposited, in kind, in such Depository Accounts of Agent in lieu of depositing
same to the Blocked Accounts.

 

(i)            Adjustments.  No Loan Party will, without Agent’s consent,
compromise or adjust any Receivables (or extend the time for payment thereof)
or accept any returns of merchandise or grant any additional discounts,
allowances or credits thereon except for those compromises, adjustments,
returns, discounts, credits and allowances as have been heretofore customary in
the business of such Loan Party.

 

4.16.        Inventory.

 

To the extent Inventory held
for sale or lease has been produced by any Loan Party, it has been and will be
produced by such Loan Party in accordance with the Federal Fair Labor Standards
Act of 1938, as amended, and all rules, regulations and orders thereunder.

 

4.17.        Maintenance of Equipment.

 

The Equipment shall be
maintained in good operating condition and repair (reasonable wear and tear
excepted) and all necessary replacements of and repairs thereto shall be made
so that the value and operating efficiency of the Equipment, subject to
customary depreciation, shall be maintained and preserved.  No Loan Party shall use or operate the
Equipment in violation of any law, statute, ordinance, code, rule or
regulation if such violation could reasonably be expected to cause a Material
Adverse Effect.  Each Loan Party shall
have the right to sell Equipment to the extent set forth in Section 4.3.

 

4.18.        Exculpation of Liability.

 

Nothing herein contained
shall be construed to constitute Agent or any Lender or Term Lender as any Loan
Party’s agent for any purpose whatsoever, nor shall Agent or any Lender or Term
Lender be responsible or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may be located and
regardless of the cause thereof.  Neither
Agent nor any Lender or Term Lender, whether by anything herein or in any
assignment or otherwise, assume any of such Loan Party’s obligations under any
contract or agreement assigned to Agent or such Lender or Term Lender, and
neither Agent nor any Lender or Term Lender shall be responsible in any way for
the performance by any Loan Party of any of the terms and conditions thereof.

 

4.19.        Environmental Matters.

 

(a)           Loan Parties shall ensure
that the Real Property remains in compliance in all material respects, with all
Environmental Laws and they shall not place or permit to be placed any
Hazardous Substances on any Real Property except as not prohibited by
applicable law or appropriate governmental authorities.

 

(b)           Loan Parties shall establish
and maintain a system to assure and monitor continued compliance with all
applicable Environmental Laws which system shall include periodic reviews of
such compliance.

 

48

 

(c)           Loan Parties shall dispose
of any and all Hazardous Waste generated at the Real Property only at
facilities and with carriers that maintain valid permits under RCRA and any
other applicable Environmental Laws. 
Loan Parties shall use their best efforts to obtain certificates of
disposal, such as hazardous waste manifest receipts, from all treatment,
transport, storage or disposal facilities or operators employed by Loan Parties
in connection with the transport or disposal of any Hazardous Waste generated
at the Real Property.

 

(d)           In the event any Loan Party
obtains, gives or receives notice of any Release or threat of Release of a
reportable quantity of any Hazardous Substances at the Real Property (any such
event being hereinafter referred to as a “Hazardous Discharge”) or
receives any notice of violation, request for information or notification that
it is potentially responsible for investigation or cleanup of environmental
conditions at the Real Property, demand letter or complaint, order, citation,
or other written notice with regard to any Hazardous Discharge or violation of
Environmental Laws affecting the Real Property or any Loan Party’s interest
therein (any of the foregoing is referred to herein as an “Environmental
Complaint”) from any Person, including any state agency responsible in
whole or in part for environmental matters in the state in which the Real
Property is located or the United States Environmental Protection Agency (any
such person or entity hereinafter the “Authority”), then Loan Parties
shall, within five (5) Business Days, give written notice of same to Agent
detailing facts and circumstances of which any Loan Party is aware giving rise
to the Hazardous Discharge or Environmental Complaint.  Such information is to be provided to allow
Agent to protect its security interest in the Real Property and is not intended
to create nor shall it create any obligation upon Agent or any Lender or Term
Lender with respect thereto.

 

(e)           Loan Parties shall promptly
forward to Agent copies of any request for information, notification of
potential liability, demand letter relating to potential responsibility with
respect to the investigation or cleanup of Hazardous Substances at any other
site owned, operated or used by any Loan Party to dispose of Hazardous
Substances and shall continue to forward copies of correspondence between any
Loan Party and the Authority regarding such claims to Agent until the claim is
settled.  Loan Parties shall promptly
forward to Agent copies of all documents and reports concerning a Hazardous
Discharge at the Real Property that any Loan Party is required to file under
any Environmental Laws.  Such information
is to be provided solely to allow Agent to protect Agent’s security interest in
the Real Property and the Collateral.

 

(f)            Loan Parties shall respond
promptly to any Hazardous Discharge or Environmental Complaint and take all
necessary action in order to avoid or mitigate any liability therefrom that
would have a Material Adverse Effect and to avoid subjecting the Collateral or
Real Property to any Lien.  If any Loan
Party shall fail to respond promptly to any Hazardous Discharge or
Environmental Complaint after demand from Agent or any Loan Party shall fail to
comply with any of the requirements of any Environmental Laws after demand from
Agent, and if such failure could reasonably be expected to cause a Material
Adverse Effect, Agent on behalf of Lenders and Term Lender may, but without the
obligation to do so, for the sole purpose of protecting Agent’s interest in
Collateral: (A) give such notices or (B) enter onto the Real Property
(or authorize third parties to enter onto the Real Property) and take such
actions as Agent and Term Lender (or such third parties as directed by Agent)
deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental
Complaint.  All reasonable costs and
expenses incurred by Agent and Lenders 

 

49

 

(or such third parties) in
the exercise of any such rights, including any sums paid in connection with any
judicial or administrative investigation or proceedings, fines and penalties,
together with interest thereon from the date expended at the Default Rate for
Domestic Rate Loans constituting Revolving Advances shall be paid upon demand
by Loan Parties, and until paid shall be added to and become a part of the
Obligations secured by the Liens created by the terms of this Agreement or any
Other Documents between Agent, any Lender or Term Lender and any Loan Party.

 

(g)           Promptly upon the written
request of Agent from time to time, Loan Parties shall provide Agent, at Loan
Parties’ expense, with an environmental site assessment or environmental audit
report prepared by an environmental engineering firm acceptable in the
reasonable opinion of Agent, to assess with a reasonable degree of certainty
the existence of a Hazardous Discharge and the potential costs in connection
with abatement, cleanup and removal of any Hazardous Substances found on,
under, at or within the Real Property, in either case that could reasonably be
expected to have a Material Adverse Effect. 
Any report or investigation of such Hazardous Discharge proposed and
acceptable to an appropriate Authority that is charged to oversee the clean-up
of such Hazardous Discharge shall be acceptable to Agent.  If such estimates, individually or in the
aggregate, exceed $500,000, Agent shall have the right to require Loan Parties
to post a bond, letter of credit or other security reasonably satisfactory to
Agent to secure payment of these costs and expenses.

 

(h)           Loan Parties shall defend
and indemnify Agent and Lenders and Term Lender and hold Agent, Lenders and
Term Lender and their respective employees, agents, directors and officers
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including attorney’s fees, suffered or incurred by
Agent or Lenders or Term Lender under or on account of any Environmental Laws,
including, without limitation, the assertion of any Lien thereunder, with
respect to any Hazardous Discharge, or the presence of any Hazardous Substances
affecting the Real Property, whether or not the same originates or emerges from
the Real Property or any contiguous real estate, including any loss of value of
the Real Property as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge
resulting from actions on the part of Agent or any Lender or Term Lender.  Loan Parties’ obligation and the
indemnification hereunder shall survive the termination of this Agreement.

 

(i)            For purposes of Sections
4.19 and 5.7, all references to Real Property shall be deemed to include all of
Loan Parties’ right, title and interest in and to its owned and leased
premises.

 

4.20.        Financing Statements.

 

Except as respects the
financing statements filed by Agent and the financing statements described on Schedule 7.2, on the Closing Date no
financing statement covering any of the Collateral or any proceeds thereof is
on file in any public office.

 

50

 

4.21.        Collateral Audits.

 

At the request of Agent in
its sole discretion, but no less frequently than twice in each fiscal year,
Loan Parties shall permit Agent or one or more designees of Agent to perform, at
Loan Parties’ expense, such appraisals of Inventory or other Collateral, field
examinations, collateral analysis, monitoring, including, without limitation,
testing of Inventory orders against undrawn Documentary Letters of Credit to
confirm Loan Parties’ compliance with the covenant set forth in
Section 6.8(c), or other business analysis, as required by Agent and shall
provide Agent with access to all facilities and all book and records of Loan
Parties reasonably required by Agent to conduct such audits.

 

V.            REPRESENTATIONS AND
WARRANTIES.

 

Each Loan Party represents
and warrants as follows:

 

5.1.          Authority.

 

Each Loan Party has full
power, authority and legal right to enter into this Agreement and the Other
Documents and to perform all its respective Obligations hereunder and
thereunder.  The execution, delivery and
performance of this Agreement and of the Other Documents (a) are within
such Loan Party’s limited liability company, partnership or corporate powers,
have been duly authorized, are not in contravention of (i) law or
(ii) the terms of such Loan Party’s certificate of formation, partnership
agreement, limited liability company agreement, by-laws, certificate of
incorporation or other applicable documents relating to such Loan Party’s formation
or to the conduct of such Loan Party’s business or (iii) of any material
agreement or undertaking to which such Loan Party is a party or by which such
Loan Party is bound except in the case of clause (iii) for customary
restrictions on the assignability thereof and except in the case of clauses
(i) and (ii) to the extent such violation could not reasonably be
expected to have a Material Adverse Effect, and (b) will not conflict with
nor result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien except Permitted Encumbrances upon any
asset of such Loan Party under the provisions of any agreement, charter
document, by-law, or other instrument to which such Loan Party or its property
is a party or by which it may be bound. 
This Agreement and the Other Documents, as applicable, constitute the
legal, valid and binding obligation of each Loan Party, enforceable in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors’ rights generally or by equitable principles
relating to enforceability.

 

5.2.          Formation and Qualification.

 

(a)           Each Loan Party is duly
formed or incorporated and in good standing under the laws of the state listed
on Schedule 5.2(a) and is
qualified to do business and is in good standing in the states listed on Schedule 5.2(a) which
constitute all states in which qualification and good standing are necessary
for such Loan Party to conduct its business and own its property and where the
failure to so qualify could reasonably be expected to have a Material Adverse
Effect.   The exact State organizational
number of Borrower is set forth on Schedule 5.2(a).  Each Loan Party has delivered to Agent true
and complete copies of its 

 

51

 

certificate of formation,
certificate of limited partnership, partnership agreement, limited liability
company agreement, or certificate of incorporation and by-laws, as the case may
be and will promptly notify Agent of any amendment or changes thereto that
adversely affects Agent or Lenders or Term Lender.

 

(b)           The only Subsidiaries of and
equityholders in each Loan Party are listed on Schedule
5.2(b).

 

5.3.          Survival of Representations
and Warranties.

 

All representations and
warranties of such Loan Party contained in this Agreement and the Other
Documents shall be true at the time of such Loan Party’s execution of this
Agreement and the Other Documents, and shall survive the execution, delivery
and acceptance thereof by the parties thereto and the closing of the
transactions described therein or related thereto.

 

5.4.          Tax Returns.

 

Each Loan Party’s federal
tax identification number is set forth on Schedule 5.4.  Each Loan Party has filed all material
federal, state and local tax returns and other reports each is required by law
to file and has paid all material taxes, assessments, fees and other
governmental charges that are due and payable (other than those taxes,
assessments, fees and other governmental charges that are currently being
contested in good faith and with respect to which reserves or other appropriate
provisions, if any, as shall be required in conformity with GAAP shall have been
made or provided for).  The provision for
taxes on the books of Loan Parties are adequate for all years not closed by
applicable statutes, and for its current fiscal year, and no Loan Party has any
knowledge of any deficiency or additional assessment in connection therewith
not provided for on its books.

 

5.5.          Financial Statements.

 

The
audited balance sheet of Loan Parties on a Consolidated Basis as of
June 30, 2009, and the related statements of income, changes in
stockholder’s equity, and changes in cash flow for the period ended on such
date, all accompanied by reports thereon containing opinions without
qualification by independent certified public accountants, copies of which have
been delivered to Agent, have been prepared in accordance with GAAP, consistently
applied (except for changes in application in which such accountants concur and
present fairly the financial position of Loan Parties on a Consolidated Basis
at such date and the results of its operations for such period).  Since June 30, 2009, there has been no
change in the condition, financial or otherwise, of Loan Parties on a
Consolidated Basis from that shown on the balance sheet as of such date, the
effect of which could reasonably be expected to have a Material Adverse Effect
individually or in the aggregate.

 

5.6.          Organization Name.

 

The exact name of each Loan
Party is set forth on the signature pages of this Agreement.  No Loan Party has been known by any other
corporate, limited liability company or partnership name in the past five years
and no Loan Party sells Inventory under any other name 

 

52

 

except as set forth on Schedule 5.6, nor has any Loan Party
been the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five
(5) years except for the recapitalization of Loans Parties as of the
Original Closing Date.

 

5.7.          O.S.H.A. and Environmental
Compliance.

 

(a)           Each Loan Party has duly
complied in all material respects with, and its facilities, business, assets,
property, leaseholds and Equipment are in compliance in all material respects
with, the provisions of the Federal Occupational Safety and Health Act, the
Environmental Protection Act, RCRA and all other Environmental Laws; there have
been no outstanding citations, notices or orders of non-compliance issued to
any Loan Party or relating to its business, assets, property, leaseholds or
Equipment under any such laws, rules or regulations, in each case except
as set forth on Schedule 5.7.

 

(b)           Each Loan Party has been
issued all required federal, state and local licenses, certificates or permits
relating to all applicable Environmental Laws, except as set forth on Schedule 5.7.

 

(c)           (i) There are no visible
signs of releases, spills, discharges, leaks or disposal (each, a “Release”)
of Hazardous Substances at, upon, under or within any Real Property;
(ii) to the best knowledge of the Loan Parties, there are no underground
storage tanks or polychlorinated biphenyls on any Real Property; (iii) to
the best knowledge of the Loan Parties, the Real Property has never been used
as a treatment, storage or disposal facility of Hazardous Waste; and
(iv) no Hazardous Substances are present on any Real Property, excepting
such quantities as are handled in accordance with all applicable manufacturer’s
instructions and governmental regulations and in proper storage containers and
as are necessary for the operation of the commercial business of any Loan Party
or of its tenants, in each case except as set forth on Schedule
5.7.

 

5.8.          Solvency; No Litigation,
Violation, Indebtedness or Default.

 

(a)           Borrower and Verrazano taken
as a whole is solvent, able to pay its debts as they mature, has capital
sufficient to carry on its business and all businesses in which it is about to
engage, and (i) as of the Closing Date, the fair present saleable value of
the assets of Borrower and Verrazano taken as a whole, calculated on a going
concern basis, is in excess of the amount of its liabilities and
(ii) subsequent to the Closing Date, the fair saleable value of the assets
of Borrower and Verrazano taken as a whole (calculated on a going concern
basis) will be in excess of the amount of its liabilities.

 

(b)           Except as disclosed in Schedule 5.8(b), no Loan Party has
(i) any pending or threatened litigation, arbitration, actions or
proceedings which could reasonably be expected to have a Material Adverse
Effect, and (ii) any Indebtedness for borrowed money other than the
Obligations.

 

(c)           No Loan Party is in
violation of any applicable statute, regulation or ordinance in any respect
which could reasonably be expected to have a Material Adverse Effect, nor is
any Loan Party in violation of any order of any court, governmental authority
or 

 

53

 

arbitration board or
tribunal which could reasonably be expected to have a Material Adverse Effect.

 

(d)           No Loan Party nor any member
of the Controlled Group maintains or contributes to any Plan other than those
listed on Schedule 5.8(d).  Except as set forth in Schedule
5.8(d), (i) no Plan has incurred any “accumulated funding
deficiency,” as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the Code, whether or not waived, and each Loan
Party and each member of the Controlled Group have met all applicable minimum
funding requirements under Section 302 of ERISA in respect of each Plan,
(ii) each Plan which is intended to be a qualified plan under
Section 401(a) of the Code as currently in effect has been determined
by the Internal Revenue Service to be qualified under
Section 401(a) of the Code and the trust related thereto is exempt
from federal income tax under Section 501(a) of the Code,
(iii) no Loan Party nor any member of the Controlled Group has incurred
any liability to the PBGC other than for the payment of premiums, and there are
no premium payments which have become due which are unpaid, (iv) no Plan
has been terminated by the plan administrator thereof nor by the PBGC, and
there is no occurrence which would cause the PBGC to institute proceedings
under Title IV of ERISA to terminate any Plan, (v) at this time, the
current value of the assets of each Plan exceeds the present value of the
accrued benefits and other liabilities of such Plan and no Loan Party nor any
member of the Controlled Group knows of any facts or circumstances which would
materially change the value of such assets and accrued benefits and other
liabilities, (vi) no Loan Party or any member of the Controlled Group has
breached any of the responsibilities, obligations or duties imposed on it by
ERISA with respect to any Plan, except where any breach could not reasonably be
expected to result in a Material Adverse Effect, (vii) no Loan Party nor
any member of a Controlled Group has incurred any liability for any excise tax
arising under Section 4972 or 4980B of the Code, and no fact exists which
could give rise to any such liability, except where any breach could not
reasonably be expected to result in a Material Adverse Effect, (viii) no
Loan Party nor any member of the Controlled Group nor any fiduciary of, nor any
trustee to, any Plan, has engaged in a “prohibited transaction” described in
Section 406 of ERISA or Section 4975 of the Code nor taken any action
which would constitute or result in a Termination Event with respect to any
such Plan which is subject to ERISA, (ix) each Loan Party and each member
of the Controlled Group has made all contributions due and payable with respect
to each Plan, (x) there exists no event described in
Section 4043(b) of ERISA, for which the thirty (30) day notice period
contained in 29 CFR §2615.3 has not been waived, (xi) no Loan Party nor any
member of the Controlled Group has any fiduciary responsibility for investments
with respect to any plan existing for the benefit of persons other than
employees or former employees of any Loan Party and any member of the
Controlled Group, and (xii) no Loan Party nor any member of the Controlled
Group has withdrawn, completely or partially, from any Multiemployer Plan so as
to incur liability under the Multiemployer Pension Plan Amendments Act of 1980.

 

5.9.          Patents, Trademarks,
Copyrights and Licenses.

 

All material patents, patent
applications, trademark registrations, trademark applications, service mark
registrations, service mark applications, copyright registrations, copyright
applications, trade names, assumed names, trade secrets, and licenses (except
for licenses to use computer software with a price or license fee of less than
$10,000) (the “Intellectual Property”) owned or used by any Loan Party are set
forth on Schedule 5.9.  To the 

 

54

 

knowledge of each Loan
Party, all registrations and applications for all Intellectual Property owned
by a Loan Party are valid and, as indicated on Schedule 5.9, have been duly registered
or applied for with appropriate governmental authorities.  The Intellectual Property set forth on Schedule 5.9
constitutes all material Intellectual Property rights which are necessary for
the operation of each Loan Party’s business; there are no claims or proceedings
pending against a Loan Party or threatened against a Loan Party in writing
challenging the validity of any such Intellectual Property owned by a Loan
Party and no Loan Party is aware of any valid grounds for any such challenge,
except as set forth in Schedule 5.9.  All material Intellectual Property used by
any Loan Party is owned by such Loan Party or is used by such Loan Party with
the permission of the owner thereof. 
Each Loan Party has taken reasonable measures to preserve the value of
each item of material Intellectual Property owned by such Loan Party from the
date of creation or acquisition thereof. 
With respect to all material software used by any Loan Party (other than
commercially available software with a price or license fee of less than
$10,000), such Loan Party is in possession of all source and object codes
related to each piece of software or is the beneficiary of a source code escrow
agreement, each such source code escrow agreement being listed on Schedule 5.9.

 

5.10.        Licenses and Permits.

 

Except as set forth in Schedule 5.10, each Loan Party
(a) is in compliance with and (b) has procured and is now in
possession of, all material licenses or permits required by any applicable
federal, state or local law or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits could reasonably be
expected to have a Material Adverse Effect.

 

5.11.        No Defaults.

 

(a)           No Loan Party is in default
in the payment of the principal of or interest on any material Indebtedness or
under any material instrument or agreement under or subject to which any material
Indebtedness has been issued and no event has occurred under the provisions of
any such instrument or agreement which with or without the lapse of time or the
giving of notice, or both, constitutes or would constitute an event of default
thereunder.

 

(b)           No Loan Party is in default
in the payment or performance of any other contractual obligations except as
could not reasonably be expected to have a Material Adverse Effect and no
Default has occurred.

 

5.12.        No Burdensome Restrictions.

 

No Loan Party is party to
any contract or agreement the performance of which could reasonably be expected
to have a Material Adverse Effect.  No
Loan Party has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien which is not a Permitted
Encumbrance.

 

55

 

5.13.        No Labor Disputes.

 

No Loan Party is involved in
any labor dispute; there are no strikes or walkouts or union organization of
any Loan Party’s employees threatened or in existence and no labor contract is
scheduled to expire during the Term other than as set forth on Schedule 5.13.

 

5.14.        Margin Regulations.

 

No Loan Party is engaged
principally or as one of its important activities, in the business of extending
credit for the purpose of “purchasing” or “carrying” any “margin stock” within
the meaning of the quoted term under Regulation U of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in
effect.  No part of the proceeds of any
Advance will be used for “purchasing” or “carrying” “margin stock” as defined in
Regulation U of such Board of Governors.

 

5.15.        Investment Company Act.

 

No Loan Party is an
“investment company” registered or required to be registered under the
Investment Company Act of 1940, as amended, nor is it controlled by such a
company.

 

5.16.        Disclosure.

 

No representation or
warranty made by any Loan Party in this Agreement or in any financial
statement, report, certificate or any other document furnished in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein, taken as a
whole, not misleading.  There is no fact
known to any Loan Party or which reasonably should be known to any Loan Party
which such Loan Party has not disclosed to Agent in writing with respect to the
transactions contemplated by this Agreement which could reasonably be expected
to have a Material Adverse Effect.

 

5.17.        Delivery of Senior Note
Documentation and Factoring Agreement.

 

Agent has been provided with
complete copies of Senior Note Documentation and the Factoring Agreement
(including all exhibits, schedules and disclosure letters referred to therein
or delivered pursuant thereto, if any) and all amendments thereto, waivers
relating thereto and other side letters or agreements affecting the terms
thereof, all as in effect as of the Closing Date.  None of such documents and agreements has
been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been provided to Agent.

 

5.18.        Swaps.

 

As of the Closing Date, no
Loan Party is a party to any swap agreement whereby such Loan Party has agreed
or will agree to swap interest rates or currencies.

 

56

 

5.19.        Conflicts.

 

No provision of any
mortgage, indenture, contract, agreement, judgment, decree or order binding on
any Loan Party or affecting the Collateral or any provision of applicable law
of any Governmental Body conflicts with, or requires any Consent which has not
already been obtained to, or would in any way prevent the execution, delivery
or performance of, the terms of this Agreement or the Other Documents.

 

5.20.        Application of Certain Laws
and Regulations.

 

No Loan Party nor any
Affiliate of any Loan Party is subject to any statute, rule or regulation
which regulates the incurrence of any Indebtedness, including without
limitation, statutes or regulations relative to common or interstate carriers
or to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.

 

5.21.        Business and Property of
Loan Parties.

 

Upon and after the Closing
Date, Loan Parties do not propose to engage in any business other than
designing, sourcing and marketing one or more lines of women’s apparel.  On the Closing Date, each Loan Party will own
all the property and possess all of the rights and Consents necessary for the
conduct of the business of such Loan Party.

 

5.22.        Material Contracts.

 

Schedule 5.22 contains a
true, correct and complete list of all contracts the termination of which could
reasonably be expected to have a Material Adverse Effect.  Except as set forth on Schedule
5.22, each such contract is in full force and effect and no
material defaults enforceable against such Loan Party exist thereunder.  No Loan Party has received written notice
from any party to such contract stating that it intends to terminate or amend
such contract.

 

VI.           AFFIRMATIVE COVENANTS.

 

Each Loan Party shall, until
payment in full of the Obligations and termination of this Agreement:

 

6.1.          Payment of Fees.

 

Pay to Agent on demand all
usual and customary fees and expenses which Agent incurs in connection with
(a) the forwarding of Advance proceeds and (b) the establishment and
maintenance of any Blocked Accounts or Depository Accounts as provided for in
Section 4.15(h).  Agent may, without
making demand, charge Borrower’s Account for all such fees and expenses.

 

6.2.          Conduct of Business and
Maintenance of Existence and Assets.

 

Conduct continuously and
operate actively its business according to good business practices and maintain
all of its properties useful or necessary in its business in good working order
and condition (reasonable wear and tear excepted and except as may be disposed 

 

57

 

of in accordance with the
terms of this Agreement), including, without limitation, all material
Intellectual Property and take all commercially reasonable actions necessary to
enforce and protect the validity of any material Intellectual Property right or
other right included in the Collateral except where the failure to do the
foregoing could not reasonably be expected to have a Material Adverse Effect;
(ii) keep in full force and effect its existence and comply in all
material respects with the laws and regulations governing the conduct of its
business where the failure to do so could reasonably be expected to have a
Material Adverse Effect; and (iii) make all such reports and pay all such
franchise and other taxes and license fees and do all such other acts and
things as may be lawfully required to maintain its rights, licenses, powers and
franchises under the laws of the United States or any political subdivision
thereof, except where the failure to do the foregoing could not reasonably be
expected to have a Material Adverse Effect. 
Notwithstanding anything herein to the contrary, so long as no Event of
Default has occurred and is continuing, no Loan Party shall have an obligation
to use or to maintain any trademark, service mark, patent or copyright
(A) that relates solely to any product, brand or work that has been, or is
in the process of being, discontinued, abandoned or terminated, (B) that
is being replaced with a trademark, service mark, patent or copyright
substantially similar to the trademark, service mark, patent or copyright that
may be abandoned or otherwise become invalid, so long as the failure to use or
maintain such trademark, service mark, patent or copyright does not materially adversely
affect the validity of such replacement trademark, service mark, patent or
copyright, and so long as such replacement trademark, service mark, patent or
copyright is subject to the Lien and security interest created by this
Agreement, (C) that is substantially the same as another trademark,
service mark, patent or copyright that is in full force, so long as the failure
to use or maintain such trademark, service mark, patent or copyright does not
materially adversely affect the validity of such other trademark, service mark,
patent or copyright, and so long as such other trademark, service mark, patent
or copyright is subject to the Lien and security interest created by this
Agreement or (D) that is or becomes the subject of any formal or informal
dispute and/or any administrative or legal proceeding (whether ex parte or
inter partes) or other circumstances such that the Loan Party, using good faith
business judgment, reasonably determines it to be imprudent to maintain or
continue use of such trademark, service mark, patent or copyright.

 

6.3.          Violations.

 

Promptly notify Agent in
writing of any violation of any law, statute, regulation or ordinance of any
Governmental Body, or of any agency thereof, applicable to any Loan Party which
could reasonably be expected to have a Material Adverse Effect.

 

6.4.          Government Receivables.

 

Take all steps necessary to
protect Agent’s interest in the Collateral under the Federal Assignment of
Claims Act or other applicable state or local statutes or ordinances and deliver
to Agent appropriately endorsed, any instrument or chattel paper connected with
any Receivable arising out of contracts between any Loan Party and the United
States, any state or any department, agency or instrumentality of any of them.

 

58

 

6.5.          Execution of Supplemental
Instruments.

 

Execute and deliver to Agent
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may reasonably request, in
order to maintain the validity, perfection and priority of Agent’s Liens and
security interests and the preservation of its rights and remedies hereunder.

 

6.6.          Payment of Indebtedness.

 

Subject at all times to any
applicable subordination arrangement in favor of Agent and/or Lenders or Term
Lender, pay, discharge or otherwise satisfy at or before maturity (subject,
where applicable, to specified grace periods and, in the case of the trade
payables, to normal payment practices) all its obligations and liabilities of
whatever nature, except when the failure to do so could not reasonably be
expected to have a Material Adverse Effect or when the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and each Loan Party shall have provided for reserves in accordance with GAAP.

 

6.7.          Standards of Financial
Statements.

 

Cause all financial
statements referred to in Sections 9.7, 9.8, 9.9, 9.10 and 9.12 as to which
GAAP is applicable to be complete and correct in all material respects
(subject, in the case of interim financial statements, to normal year-end audit
adjustments and the absence of footnotes) and to be prepared in reasonable
detail and in accordance with GAAP applied consistently throughout the periods
reflected therein (except as concurred in by the reporting accountants or
officer, as the case may be, and disclosed therein).

 

6.8.          Financial Covenants.

 

(a)           Minimum Working Capital.  Maintain as of the end of each fiscal quarter
set forth below Working Capital in an amount not less than the amount set forth
below as of the end of the applicable fiscal quarter corresponding thereto:

 

	
  Period

  	
   

  	
  Minimum Working

  Capital Amount

  	
   

  
	
  Fiscal quarter ending
  March 31, 2010

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  Fiscal quarter ending
  June 30, 2010

  	
   

  	
  $

  	
  17,500,000

  	
   

  
	
  Fiscal quarter ending
  December 31, 2010

  	
   

  	
  $

  	
  19,000,000

  	
   

  
	
  Fiscal quarter ending
  March 31, 2011, and as of the end of each fiscal quarter ending
  thereafter

  	
   

  	
  $

  	
  23,000,000

  	
   

  

 

59

 

(b)           Net Income.  Maintain (x) Net Income in excess of $0
during each period of two consecutive fiscal quarters (on a rolling basis)
ending on December 31, 2009 and March 31, 2010, (y) negative Net
Income of not more than a loss of $1,300,000 during each period of two
consecutive fiscal quarters (on a rolling basis) ending on June 30, 2010
and September 30, 2010, and (z) Net Income in excess of $0 during
each period of two consecutive fiscal quarters (on a rolling basis) ending on
December 31, 2010 and March 31, 2011; provided, further, for purposes
of determining compliance with this Section 6.8(b), Net Income shall be
calculated so that, to the extent in calculating Net Income for such period Net
Income was decreased by noncash expenses consisting of (i) amortization
for customer relationships and non-compete agreements, (ii) original issue
discount on the Senior Secured Notes, (iii) deferred financing costs, and
(iv) reduction in value of intangible assets, the amounts which were
deducted in calculating Net Income for such period for the items described in
clauses (i) through (iv) above shall be added back to Net Income as
calculated in accordance with GAAP.

 

(c)           Cash Collateral.  Maintain on deposit with Agent, pursuant to
documentation in form and substance satisfactory to Agent in all respects, cash
collateral for the Obligations (“Cash Collateral”) in an amount from time to
time not less than the amount included in the Formula Amount pursuant to Section 2.1(b)(y)(iii);
provided, however, that to the extent necessary to prevent the
occurrence of an Event of Default, including without limitation under
Section 2.7, Cash Collateral deposited during the period between the end
of any calendar month and the date of submission of the Borrowing Base
Certificate for such month (as required pursuant to Section 9.2(a)) shall
be deemed to have been deposited as Cash Collateral as of the last day of such
immediately preceding calendar month.

 

6.9.          Subsidiaries.

 

In the event that any Person
becomes a Subsidiary of Borrower, Borrower shall promptly cause such
Subsidiary, if organized under the laws of any state of the United States of
America or the District of Columbia, to become a Guarantor hereunder by
executing and delivering to Agent a counterpart agreement in the form attached
as Exhibit 6.9 hereto.  With respect
to each such Subsidiary, Borrower shall promptly send to Agent written notice
setting forth with respect to such Person (i) the date on which such Person
became a Subsidiary of Borrower, and (ii) all of the data required to be
set forth in Schedules 4.5, 4.15(c), 5.2(a), 5.2(b), 5.4 and 5.6 and with
respect to Subsidiaries of Borrower; provided, such written notice shall
be deemed to supplement such Schedules for all purposes hereof.

 

VII.          NEGATIVE COVENANTS.

 

No Loan Party shall, until
satisfaction in full of the Obligations and termination of this Agreement:

 

7.1.          Merger, Consolidation,
Acquisition and Sale of Assets.

 

(a)           Enter into any merger,
consolidation or other reorganization with or into any other Person or acquire
all or a substantial portion of the assets or stock of any Person or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution) or permit
any other Person to consolidate with or merge with it other than a merger or
consolidation of a Subsidiary 

 

60

 

of any Loan Party into such
Loan Party; provided, however that any Subsidiary of any Loan party may merge
with and into any other Subsidiary of any Loan party which is also a Loan
Party.

 

(b)           Other than Permitted
Dispositions, sell, lease, transfer or otherwise dispose of any of its
properties or assets.

 

7.2.          Creation of Liens; Negative
Pledges.

 

Create or suffer to exist
any Lien upon or against any of its property or assets now owned or hereafter
acquired, except Permitted Encumbrances, or enter into any agreement
prohibiting the creation or assumption of any Lien upon its properties or
assets now owned or hereafter acquired except for (a) restrictions on
Liens on specific property securing payment of other Indebtedness permitted
hereunder or to be sold pursuant to an executed agreement with respect to a
permitted sale or other disposition of assets or property, (b) the Senior
Note Documentation as in effect on the date hereof, and (c) restrictions
by reason of customary provisions restricting assignments, subletting or other
transfers contained in leases, licenses and similar agreements entered into in
the ordinary course of business (provided that such restrictions are limited to
the property or assets secured by such Liens or the property or assets subject
to such leases, licenses or similar agreements, as the case may be).

 

7.3.          Guarantees.

 

Become liable upon the obligations
of any Person by assumption, endorsement or guaranty thereof or otherwise
(other than to Lenders under this Agreement or to the holders of the Senior
Secured Notes under the Senior Note Documentation) except the endorsement of
checks in the ordinary course of business and guarantees of other Indebtedness
permitted by Section 7.8.

 

7.4.          Investments.

 

Purchase or acquire
obligations or stock of, or any other interest in, any Person, except Permitted
Investments.

 

7.5.          Loans.

 

Make advances, loans or extensions
of credit to any Person, including without limitation, any Parent, Subsidiary
or Affiliate except with respect to (i) the extension of commercial trade
credit in connection with the sale of Inventory in the ordinary course of its
business, (ii) loans to employees on an arm’s-length basis in the ordinary
course of business consistent with past practices for travel expenses,
relocation costs and similar purposes up to a maximum of $500,000 in the
aggregate at any one time outstanding, (iii) so long as no Default or
Event of Default shall exist before and after giving effect thereto, loans or
extensions of credit to another Loan Party that are unsecured and subordinated
in right of payment to the payment in full of the Obligations pursuant to terms
reasonably satisfactory to Agent, (iv) so long as no Default or Event of
Default shall exist before and after giving effect thereto and Borrower would
be able to obtain Advances of at least $500,000 after giving effect thereto,
other advances, loans 

 

61

 

or extensions of credit not
to exceed $1,500,000 outstanding at any one time, and (v) loans, advances
or extensions of credit that constitute Permitted Investments.

 

7.6.          Intentionally Omitted.

 

7.7.          Dividends and Distributions.

 

Declare, pay or make any
dividend or distribution on any shares of the common stock, preferred stock or
other equity interests of any Loan Party (other than dividends or distributions
payable in its stock or other equity interests or split-ups or
reclassifications of its stock or other equity interests) or apply any of its
funds, property or assets to the purchase, redemption or other retirement of
any common or preferred stock, or of any options to purchase or acquire any
such shares of common or preferred stock or other equity interests of any Loan
Party, provided, however, that (a) any Loan Party which is a
Subsidiary of Borrower (or any Subsidiary of such Subsidiary) shall be
permitted to pay dividends to Borrower (or its parent which is a Subsidiary of
Borrower) and (b) so long as (i) a notice of termination with regard
to this Agreement shall not be outstanding (ii) no Event of Default or
Default shall have occurred and be continuing or would occur after giving effect
to any dividend payment hereunder, and (iii) the purpose for such
purchase, redemption or dividend shall be as set forth in writing to Agent at
least ten (10) days prior to such purchase, redemption or dividend and
such purchase, redemption or dividend shall in fact be used for such purpose:
(A) Borrower shall be permitted to pay dividends to its shareholders so
long as after giving effect to such dividend, Loan Parties shall be in
compliance with the financial covenants set forth in Section 6.8 hereof as
of the most recently ended fiscal period calculated assuming that the dividend
had been paid during such fiscal period, (B) Borrower shall be permitted
to pay dividends to its Parent in an aggregate amount not to exceed $500,000 in
any Fiscal Year, to the extent necessary to permit its Parent to pay general
administrative costs and expenses and out-of-pocket legal, accounting and
filing and other general corporate overhead costs of Parent actually incurred
by Parent, and to the extent necessary to permit Parent to pay franchise taxes
and other fees required to maintain its existence, in each case so long as
Parent applies the amount of any such distribution for such purpose, and
(C) the Borrower or any of its Subsidiaries may repurchase, redeem or
otherwise acquire or retire for value any capital stock of Borrower or any of
its Subsidiaries held by any current or former officer, director, consultant or
employee of Borrower or any of its Subsidiaries, or his or her estate, spouse,
former spouse, or family member (or pay principal or interest on any
Indebtedness issued in connection with such repurchase, redemption or other
acquisition) and may make distributions to the Borrower’s Parent utilized for
the repurchase, redemption or other acquisition or retirement for value of any
capital stock of Borrower’s Parent held by any current or former officer,
director, employee or consultant of the Borrower or any of its Subsidiaries, or
his or her estate, spouse, former spouse, or family member (or for the payment
of principal or interest on any Indebtedness issued in connection with such
repurchase, redemption or other acquisition) in each case, pursuant to any
equity subscription agreement, stock option agreement, shareholders’ agreement
or similar agreement or benefit plan of any kind; provided that the aggregate
price paid for all such repurchased, redeemed, acquired or retired equity
interests may not exceed $2,000,000 in any calendar year period (with unused
amounts in any immediately preceding calendar year being carried over to the
succeeding calendar year subject to a maximum carry-over amount of $4,000,000
in any calendar year); provided further, that such amount in any calendar year
may be increased by an amount not to exceed: (I) to the extent of any such

 

62

 

proceeds that are not
required to be applied to prepay Loans in accordance with Section 2.14,
the cash proceeds from the sale of capital stock of Borrower and, to the extent
contributed to Borrower as common equity capital, capital stock of any of
Borrower’s direct or indirect parent entities, in each case to members of
management, directors or consultants of Borrower, any of its Subsidiaries or
any of its direct or indirect parent entities that occurs after the Original Closing
Date, plus (II) the cash proceeds of key person life insurance policies
received by Borrower and its Subsidiaries after the Original Closing Date, less
(III) the amount of any payments previously made pursuant to clauses
(I) and (II) of this clause (C).

 

7.8.          Indebtedness.

 

Create, incur, assume or
suffer to exist any Indebtedness (exclusive of trade debt) except in respect of
(i) Indebtedness to the Lenders and Term Lender pursuant to this Agreement
and the Other Documents; (ii) Indebtedness to the Factors pursuant to the
Factoring Agreement as in effect on the date hereof; (iii) Indebtedness
under the Senior Secured Notes; (iv) Indebtedness existing as of the date
hereof as set forth on Schedule 7.8;  (v) Indebtedness with respect
to capital leases and purchase money Indebtedness in an aggregate amount not to
exceed at any time $5,000,000; provided, any such Indebtedness
(A) shall be secured only by the asset acquired in connection with the
incurrence of such Indebtedness; (vi) refinancings, renewals, or
extensions of Indebtedness permitted under clauses (iii), (iv), (v) and
(ix) (and continuance or renewal of any Permitted Encumbrances associated
therewith) so long as: (A) such refinancings, renewals, or extensions do
not result in an increase in the principal amount of the Indebtedness so
refinanced, renewed, or extended (other than principal increases attributable
to the costs and expenses attributable to, or any premium or penalty payable in
connection with, such refinancing, renewal or extension) , (B) such
refinancings, renewals, or extensions do not result in a shortening of the
average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, nor are they on terms or conditions that are not at least as
favorable to the Lenders and Term Lender as those that were applicable to the
refinanced, renewed, or extended Indebtedness, and (C) the Indebtedness
that is refinanced, renewed, or extended is not recourse to any Person that is
liable on account of the Obligations other than those Persons which were
obligated with respect to the Indebtedness that was refinanced, renewed, or
extended; (vii) endorsement of instruments or other payment items for
deposit; (viii) Indebtedness under Hedge Agreements entered into in the
ordinary course of business; (ix) Indebtedness of any Loan Party to any
other Loan Party; (x) guaranties by a Loan Party of Indebtedness of any
other Loan Party with respect to Indebtedness otherwise permitted to be
incurred pursuant to this Section 7.8; (xi) Indebtedness which may be
deemed to exist pursuant to any guaranties, performance, surety, statutory,
appeal or similar obligations incurred in the ordinary course of business;
(xii) Indebtedness in respect of overdraft protections and otherwise in
connection with deposit accounts; (xiii) obligations on account of non-current
accounts payable which the applicable Loan Party is contesting in good faith
and by appropriate proceedings diligently conducted and with respect to which
adequate reserves have been established and are being maintained in accordance
with GAAP; and (xiv) other unsecured Indebtedness of any Loan Party not to
exceed $1,000,000 in the aggregate at any time.

 

63

 

7.9.          Nature of Business.

 

Without the consent of
Agent, engage in any business other than the business in which it is presently
engaged and businesses related or complimentary to the business now engaged in
by the Loan Parties.

 

7.10.        Transactions with
Affiliates.

 

Directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, any Affiliate, except transactions
disclosed in the ordinary course of business, on an arm’s-length basis on terms
no less favorable than terms which would have been obtainable from a Person
other than an Affiliate; provided, the foregoing restriction shall not
apply to (a) reimbursement of reasonable expenses actually incurred by
(i) Cerberus and its Affiliates or (ii) Ronald Frankel and Robert
Newman, in their capacity as directors of the Borrower, in each case in
connection with the Transactions or the negotiation, execution and delivery of
this Agreement, (b) the amounts payable to Cerberus or its Affiliates
under this Agreement, (c) the Recapitalization transactions, (d) the
Transactions (e) any transaction between and among Loan Parties and their
Subsidiaries which are also Loan Parties, (f) reasonable fees paid to,
reasonable compensation paid to, and reasonable indemnification arrangements
provided on behalf of (which shall in no event include indemnification against
gross negligence or willful misconduct), officers, directors, employees and
consultants of Borrower, its Parent and Borrower’s Subsidiaries, and
(f) any transaction otherwise permitted by Sections 7.1, 7.2, 7.4, 7.7 or
7.8.

 

7.11.        Intentionally Omitted.

 

7.12.        Subsidiaries.

 

(a)           Form any Subsidiary
unless such Subsidiary expressly joins in this Agreement as a Guarantor
pursuant to the provisions of Section 6.9 hereof.

 

(b)           Enter into any partnership,
joint venture or similar arrangement.

 

7.13.        Fiscal Year and Accounting
Changes.

 

Without the consent of
Agent, change its fiscal year from June 30 of each calendar year or make
any material change (i) in accounting treatment and reporting practices
except as required by GAAP, or (ii) in tax reporting treatment except as
required by law.

 

7.14.        Pledge of Credit.

 

Other than in accordance
with Article II hereof, now or hereafter pledge Agent’s or any Lender’s or
Term Lender’s credit on any purchases or for any purpose whatsoever or use any
portion of any Advance in or for any business other than the applicable Loan
Party’s business as conducted on the date of this Agreement or as permitted
under Section 7.9.

 

64

 

7.15.        Amendment of Organizational
Documents and Material Agreements.

 

Amend, modify or waive any
term or provision of (a) its certificate of incorporation or by-laws, or
any shareholders’ agreement in a manner adverse to Agent or Lenders or Term
Lender, unless required by law or (b) any of the agreements set forth on Schedule 5.22 in any material
respect without the consent of Agent.

 

7.16.        Compliance with ERISA.

 

(i) (x) Maintain,
or permit any member of the Controlled Group to maintain, or (y) become
obligated to contribute, or permit any member of the Controlled Group to become
obligated to contribute, to any Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage,
or permit any member of the Controlled Group to engage, in any non-exempt
“prohibited transaction”, as that term is defined in section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the
Controlled Group to incur, any “accumulated funding deficiency”, as that term
is defined in Section 302 of ERISA or Section 412 of the Code,
(iv) terminate, or permit any member of the Controlled Group to terminate,
any Plan where such event could result in any liability of any Loan Party or
any member of the Controlled Group or the imposition of a lien on the property
of any Loan Party or any member of the Controlled Group pursuant to
Section 4068 of ERISA, (v) assume, or permit any member of the
Controlled Group to assume, any obligation to contribute to any Multiemployer
Plan not disclosed on Schedule 5.8(d),
(vi) incur, or permit any member of the Controlled Group to incur, any
withdrawal liability to any Multiemployer Plan; (vii) fail promptly to
notify Agent of the occurrence of any Termination Event, (viii) fail to
materially comply, or permit a member of the Controlled Group to fail to
materially comply, with the requirements of ERISA or the Code or other
applicable laws in respect of any Plan, (ix) fail to meet, or permit any
member of the Controlled Group to fail to meet, all minimum funding requirements
under ERISA or the Code or postpone or delay or allow any member of the
Controlled Group to postpone or delay any funding requirement with respect of
any Plan.

 

7.17.        Prepayment of Indebtedness.

 

Except as permitted pursuant
to Section 7.18, at any time, directly or indirectly, prepay any
Indebtedness (other than to Lenders or, subject to Section 2.17, Term
Lender), or repurchase, redeem, retire or otherwise acquire any Indebtedness of
any Loan Party including, without limitation, except as otherwise provided in
Section 2.17, the Term Loan.

 

7.18.        Senior Secured Notes.

 

At any time, directly or
indirectly, pay, prepay, repurchase, redeem, retire or otherwise acquire, or
make any payment on account of any principal of, interest on or premium payable
in connection with the repayment or redemption of the Senior Secured Notes,
except as expressly required by the terms of the Senior Secured Notes as in
effect on the Original Closing Date. 
Notwithstanding the foregoing, Borrower may voluntarily prepay, redeem
or purchase Senior Secured Notes so long as (x) no Default or Event of
Default has occurred and is continuing or would occur after giving effect to
such prepayment and Agent receives a certificate from the President or Chief
Financial Officer of Borrower not less than two (2) Business Days 

 

65

 

and not more than one week
prior to the proposed prepayment certifying as to the amount of such prepayment
and that no Default or Event of Default exists or would occur after giving
effect to such prepayment, (y) Borrower has made a written request to
Agent to make such voluntary prepayment, which written request shall be
accompanied by a Borrowing Base Certificate evidencing that the aggregate
balance of Revolving Advances outstanding after giving effect to such
prepayment shall not exceed the Formula Amount, and (z) Borrower has
obtained the written consent of Agent to such prepayment, which consent shall
not be unreasonably withheld. 
Notwithstanding the foregoing, it is specifically agreed by the Agent,
Lenders and Term Lender that, on or about the Closing Date, Borrower may
purchase Senior Secured Notes pursuant to the Transactions, pay accrued
interest through the date of purchase on such Senior Secured Notes purchased by
Borrower and pay fees and expenses relating to the Transaction, utilizing
(i) Borrower’s cash as of such date, (ii) the cash proceeds of the
Term Loan and (iii) if the full Term Loan is funded to consummate the
Transactions and to pay fees and expenses thereof, Advances available under
this Agreement as of such date.

 

7.19.        State of Organization.

 

Change the State in which it
is incorporated or otherwise organized, unless it has given Agent not less than
thirty (30) days prior written notice thereof.

 

7.20.        Other Agreements.

 

Enter into any material
amendment, waiver or modification of the Factoring Agreement or any related
agreements.

 

VIII.        CONDITIONS PRECEDENT.

 

8.1.          Closing Conditions.  The amendment and restatement of the Original
Financing Agreement as set forth herein shall become effective only upon, and
the agreement of Term Lender to extend the Term Loan to be made on the Closing
Date is subject to the satisfaction, or waiver by Lenders and the Term Lender,
of the following conditions precedent:

 

(a)           Notes.  Agent shall have received the Notes duly
executed and delivered by an authorized officer of Borrower;

 

(b)           Searches.  Agent shall have received UCC, tax and
judgment lien searches with respect to each Loan Party in such jurisdictions as
Agent shall require, and the results of such searches shall be satisfactory to
Agent;

 

(c)           Corporate Proceedings of
Loan Parties.  Agent shall
have received a copy of the resolutions, in form and substance reasonably
satisfactory to Agent, of the Board of Directors (or equivalent authority) of
each Loan Party authorizing (i) the execution, delivery and performance of
this Agreement and the Other Documents, the Notes and any related agreements,
(ii) the granting by each Loan Party of the security interests in and
liens upon the Collateral, and (iii) with respect to Borrower, authorizing
the final Minimum Tender Amount and Maximum Tender Amount for and other terms
and conditions of the Transactions; in each case certified by the Secretary or
an Assistant Secretary of each Loan Party as of the Closing Date; and, such
certificate shall state that the resolutions thereby certified have not been
amended, modified, 

 

66

 

revoked or rescinded as of
the date of such certificate.  The terms
“Minimum Tender Amount” and “Maximum Tender Amount” shall have the respective
meanings ascribed to such terms in the Borrower’s Offer to Purchase dated
February 22, 2010, as such terms and such Offer to Purchase may be
amended;

 

(d)           Incumbency Certificates of
Loan Parties.  Agent shall
have received a certificate of the Secretary or an Assistant Secretary of each
Loan Party, dated the Closing Date, as to the incumbency and signature of the
officers of each Loan Party executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;

 

(e)           Organizational Documents.  Agent shall have received a copy of the
organization documents of each Loan Party, and all amendments thereto,
certified by the Secretary of State or other appropriate official of its
jurisdiction of organization together with copies of the bylaws or operating
agreement, as applicable, of each Loan Party, certified as accurate and
complete by the Secretary of each Loan Party;

 

(f)            Good Standing Certificates.  Agent shall have received good standing
certificates (or the equivalent thereof) for each Loan Party dated not more
than thirty (30) days prior to the Closing Date, issued by the Secretary of
State or other appropriate official of each Loan Party’s jurisdiction of
organization and each jurisdiction where the conduct of each Loan Party’s
business activities or the ownership of its properties necessitates qualification,
except where the failure to qualify could not reasonably be expected to have a
Material Adverse Effect;

 

(g)           Legal Opinion.  Agent shall have received the executed legal
opinion of Zukerman Gore Brandeis & Crossman, LLP, special counsel to
the Loan Parties, in form and substance reasonably satisfactory to Agent which
shall cover such matters incident to the transactions contemplated by this
Agreement and the Other Documents as Agent and Term Lender may reasonably
require and each Loan Party hereby authorizes and directs such counsel to
deliver such opinions to Agent and Lenders and Term Lender;

 

(h)           No Litigation.  (i) No litigation, investigation or
proceeding before or by any arbitrator or Governmental Body shall be continuing
or threatened in writing against any Loan Party or against the officers or
directors of any Loan Party in connection with this Agreement and/or the Other
Documents or any of the transactions contemplated thereby and which could
reasonably be expected to have a Material Adverse Effect; and (ii) no
injunction, writ, restraining order or other order of any nature materially
adverse to any Loan Party or the conduct of its business or inconsistent with
the due consummation of the Transactions shall have been issued by any Governmental
Body;

 

(i)            Fees and Expenses.  Agent shall have received all fees payable to
Agent, Lenders or Term Lender on or prior to the Closing Date pursuant to
Article III and all other fees and expenses incurred by Agent in
connection with the Transactions on or prior to the Closing Date;

 

67

 

(j)            Payment Instructions.  Agent shall have received written
instructions from Borrower directing the application of proceeds of the Term
Loan and any Advances to be made on the Closing Date;

 

(k)           Consents.  Agent shall have received any and all
Consents necessary to permit the effectuation of the transactions contemplated
by this Agreement and the Other Documents; and, Agent shall have received such
Consents and waivers of such third parties as might assert claims with respect
to the Collateral, as Agent and its counsel may reasonably request;

 

(l)            No Material Adverse Change.  (i) Since June 30, 2009, there
shall not have occurred any event, condition or state of facts, with respect to
Borrower or any Loan Party, which could reasonably be expected to have a
Material Adverse Effect; and (ii) no representations made or information
supplied to Agent and Lenders or Term Lender shall have been proven to be
inaccurate or misleading in any material respect;

 

(m)          Closing Certificate.  Agent shall have received a closing
certificate signed by the Chief Financial Officer of Loan Parties dated as of
the Closing Date, stating that (i) all representations and warranties set
forth in this Agreement and the Other Documents are true and correct on and as
of such date, (ii) each Loan Party is on such date in compliance with all
the terms and provisions set forth in this Agreement and the Other Documents
and (iii) on such date no Default or Event of Default has occurred or is
continuing or would result from the consummation of the Transactions;

 

(n)           Borrowing Base.  Agent shall have received a duly executed
Borrowing Base Certificate which shall indicate that the Formula Amount is
sufficient to support Advances in the amount requested by Loan Parties on the
Closing Date;

 

(o)           Amount of Term Loan.  The original principal amount of the Term
Loan that the Borrower requests to borrow does not exceed an amount equal to
the lesser of: (i) $10,000,000 and (ii) the sum of the aggregate
Tender Offer Consideration payable for all Senior Secured Notes accepted for
purchase pursuant to the Transactions, plus interest payable on such Senior
Secured Notes plus the fees and expenses related to the Transactions, minus
Borrower’s cash available for the tender offer as of the Closing Date;

 

(p)           Tender Offer Consideration.  The aggregate Tender Offer Consideration is
not in excess of the Maximum Aggregate Purchase Price.  The term “Maximum Aggregate Purchase Price”
shall have the meaning ascribed to such term in the Borrower’s Offer to
Purchase dated February 22, 2010, as such term and such Offer to Purchase
may be amended;

 

(q)           Satisfaction or Waiver of
Conditions for and Consummation of Transactions.  The conditions to Borrower’s obligations to
accept for purchase Senior Secured Notes and pay the Tender Offer Consideration
pursuant to the Transactions have been satisfied or, with the consent of the
Term Lender, waived and, simultaneously with the making of the Term Loan,
Borrower shall be consummating the purchase of such Senior Secured Notes pursuant
to the Transactions;

 

68

 

(r)            Closing Date.  The Closing Date shall have occurred on or
prior to April 2, 2010;

 

(s)           Other.  All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
Transactions shall be reasonably satisfactory in form and substance to Agent,
Lenders, Term Lender and their respective counsel.

 

Each Lender and Term Lender,
by delivering its signature page to this Agreement and funding a Loan on
the Closing Date, shall be deemed to have acknowledged receipt of, and
consented to and approved this Agreement and each Other Document and each other
document required to be approved by any Agent, the Required Lenders, Term
Lender, or Lenders, as applicable on the Closing Date.

 

8.2.          Conditions to Each Advance.

 

The agreement of Lenders to
make any Advance requested to be made on any date (including, without
limitation, the initial Advance, and the agreement of Term Lender to make the
Term Loan), is subject to the satisfaction of the following conditions
precedent as of the date such Advance or the Term Loan (provided satisfaction
of clause (c) below is not applicable to the Term Loan) is made:

 

(a)           Representations and
Warranties.  Each of the
representations and warranties made by any Loan Party in or pursuant to this
Agreement and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date
(unless such representation or warranty is stated to be true as of an earlier
date, in which case it shall have been true as of such date);

 

(b)           No Default.  No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Advances requested to be made, on such date; provided, however
that Lenders in their sole discretion, may continue to make Advances
notwithstanding the existence of an Event of Default or Default and that any
Advances so made shall not be deemed a waiver of any such Event of Default or
Default; and

 

(c)           Maximum Revolving Advances
and Swingline Loans.  In the case
of any Revolving Advances requested to be made, after giving effect thereto,
the aggregate Revolving Advances shall not exceed the maximum amount of
Revolving Advances permitted under Section 2.1, and in the case of any
Swingline Loans requested to be made, after giving effect thereto, the
aggregate outstanding principal amount of Swingline Loans shall not exceed the
Maximum Swingline Loan Amount.

 

Each request for an Advance by Borrower hereunder
shall constitute a representation and warranty by Loan Parties as of the date
of such Advance that the conditions contained in this subsection shall have
been satisfied.

 

69

 

IX.           INFORMATION AS TO BORROWER.

 

Each Loan Party shall, until
satisfaction in full of the Obligations and the termination of this Agreement:

 

9.1.          Disclosure of Material
Matters.

 

Immediately upon learning
thereof, report to Agent all matters materially affecting the value,
enforceability or collectability of any material portion of the Collateral
including, without limitation, any Loan Party’s reclamation or repossession of,
or the return to any Loan Party of, a material amount of goods or claims or
disputes asserted by any Customer or other obligor with respect to any material
amount of Receivables.

 

9.2.          Schedules.

 

(a)           Deliver to Agent, on or
before the twentieth (20th) day of each month as and for the prior month (or
more frequently if required by Agent), (i) a Borrowing Base Certificate
(which shall be calculated as of the last day of the immediately preceding
month and which shall not be binding upon Agent or restrictive of Agent’s
rights under this Agreement), (ii) accounts receivable agings,
(iii) accounts payable agings, (iv) Inventory reports and
(iv) management reports setting forth the order, shipping and production
position of Loan Parties.  In addition,
each Loan Party shall deliver to Agent at such intervals as Agent may
require:  (i) confirmatory assignment
schedules, (ii) copies of Customer’s invoices, (iii) evidence of
shipment or delivery, and (iv) such further schedules, documents and/or
information regarding the Collateral as Agent may require including, without
limitation, trial balances and test verifications.  Agent shall have the right to confirm and
verify all Receivables by any manner and through any medium it considers
advisable and do whatever it may deem reasonably necessary to protect its
interests hereunder so long as it acts in good faith and otherwise accordance
with the terms of this Agreement.

 

(b)           The items to be provided
under Section 9.2(a) are to be in form satisfactory to Agent and
executed by each Loan Party and delivered to Agent from time to time solely for
Agent’s convenience in maintaining records of the Collateral, and any Loan
Party’s failure to deliver any of such items to Agent shall not affect,
terminate, modify or otherwise limit Agent’s Lien with respect to the
Collateral.

 

9.3.          Environmental Reports.

 

Furnish Agent, concurrently
with the delivery of the financial statements referred to in Sections 9.7 and
9.8, with a certificate signed by the President of each Loan Party stating, to
the best of his knowledge, that each Loan Party is in compliance in all
material respects with all federal, state and local laws relating to
environmental protection and control and occupational safety and health.  To the extent any Loan Party is not in
compliance in all material respects with the foregoing laws, the certificate
shall set forth with specificity all areas of non-compliance and the proposed
action Loan Parties will implement in order to achieve full compliance.

 

70

 

9.4.          Litigation.

 

Promptly notify Agent in
writing of any litigation, suit or administrative proceeding affecting any Loan
Party, whether or not the claim is covered by insurance which in any such case
could reasonably be expected to have a Material Adverse Effect.

 

9.5.          Material Occurrences.

 

Promptly notify Agent in
writing upon the occurrence of (a) any Event of Default or Default;
(b) any event of default under the Senior Note Documentation; (c) any
event which with the giving of notice or lapse of time, or both, would
constitute an event of default under the Senior Note Documentation;
(d) any event, development or circumstance whereby any financial
statements or other reports furnished to Agent fail in any material respect to
present fairly, in accordance with GAAP consistently applied, the financial
condition or operating results of any Loan Party as of the date of such
statements; (e) any accumulated retirement plan funding deficiency which,
if such deficiency continued for two plan years and was not corrected as
provided in Section 4971 of the Code, could subject any Loan Party to a
tax imposed by Section 4971 of the Code; (f) each and every default
of which a Loan Party has received a default notice which might result in the
acceleration of the maturity of any Indebtedness in excess of $1,000,000,
including the names and addresses of the holders of such Indebtedness with
respect to which there is a default existing or with respect to which the
maturity has been or could be accelerated, and the amount of such Indebtedness;
and (g) any other development in the business or affairs of any Loan
Parties which could reasonably be expected to have a Material Adverse Effect;
in each case describing the nature thereof and the action Loan Parties propose
to take with respect thereto.

 

9.6.          Government Receivables.

 

Notify Agent immediately if
any of its Receivables in excess of $500,000 arise out of contracts between any
Loan Party and the United States, any state, or any department, agency or
instrumentality of any of them.

 

9.7.          Annual Audited Financial
Statements.

 

Furnish Agent and Lenders
and Term Lender within one hundred twenty (120) days after the end of each
fiscal year of Loan Parties annual information that would be required to be
contained in a filing with the SEC on Form 10-K if Borrower was required
to file such form, including a “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” that describes the financial
condition and results of the Loan Parties on a Consolidated Basis (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management’s Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of Borrower and its Restricted Subsidiaries (as that term is defined
in the Senior Note Indenture) separate from the financial condition and results
of operations of the Unrestricted Subsidiaries (as that term is defined in the
Senior Note Indenture) of the Borrower, if any), audited by an independent
public accounting firm selected by Loan Parties and satisfactory to Agent (the
“Accountants”).   The report of the
Accountants shall be accompanied by a statement of the Accountants certifying
that 

 

71

 

(i) they have caused
the Agreement to be reviewed, and (ii) in making the examination upon
which such report was based either no information came to their attention which
to their knowledge constituted an Event of Default or a Default under this
Agreement or any related agreement or, if such information came to their
attention, specifying any such Default or Event of Default, its nature, when it
occurred and whether it is continuing, and such report shall contain or have
appended thereto calculations which set forth Loan Parties’ compliance with the
requirements or restrictions imposed by Section 6.8.  In addition, the reports shall be accompanied
by a certificate of Borrower’s Chief Financial Officer which shall state that,
based on an examination sufficient to permit him to make an informed statement,
no Default or Event of Default exists, or, if such is not the case, specifying
such Default or Event of Default, its nature, when it occurred, whether it is
continuing and the steps being taken by Loan Parties with respect to such event,
and such certificate shall have appended thereto calculations which set forth
Loan Parties’ compliance with the requirements or restrictions imposed by
Section 6.8.

 

9.8.          Semi-Annual Reviewed
Financial Statements.

 

Furnish to Agent and Lenders
and Term Lender within one hundred twenty (120) days after the end of the
second fiscal quarter of Loan Parties quarterly information that would be
required to be contained in a filing with the SEC on Form 10-Q if Borrower
were required to file such forms, including a “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” that describes the
financial condition and results of operations of Loan Parties on a Consolidated
Basis (showing in reasonable detail, either on the face of the financial
statements or in the footnotes thereto and in Management’s Discussion and
Analysis of Financial Condition and Results of Operations, the financial
condition and results of operations of Borrower and its Restricted Subsidiaries
(as that term is defined in the Senior Note Indenture) separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
(as that term is defined in the Senior Note Indenture) of the Borrower, if
any), reviewed by the Accountants.  In
addition to the financial information provided above, Borrower will provide a
balance sheet, statement of income and equityholders’ equity and statement of
cash flow setting forth a comparison of the figures for (x) the current
year-to-date with the figures for (y) the same year-to-date period of the
immediately preceding fiscal year, and (z) the projections for such
year-to-date period delivered pursuant to Section 5.5(b) or
Section 9.12, as applicable.  The
financial statements shall be accompanied by a certificate signed by the Chief
Financial Officer of Borrower, which shall state that, based on an examination
sufficient to permit him to make an informed statement, no Default or Event of
Default exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Loan Parties with respect to such default and, such certificate
shall have appended thereto calculations which set forth Loan Parties’
compliance with the requirements or restrictions imposed by Section 6.8.

 

9.9.          Quarterly Internally
Prepared Financial Statements.

 

Furnish Agent and Lenders
and Term Lender within sixty (60) days after the end of each first and third
fiscal quarter of Loan Parties, an unaudited balance sheet of Loan Parties on a
Consolidated Basis and unaudited statements of income and equityholders’ equity
and cash flow of Loan Parties on a Consolidated Basis reflecting results of
operations from the beginning of the fiscal year to the end of such fiscal
quarter and for such fiscal quarter prepared on a basis 

 

72

 

consistent with prior
practices and complete and correct in all material respects, subject to normal
and recurring year end adjustments that individually and in the aggregate are
not material to the business of Loan Parties. 
Each such balance sheet, statement of income and stockholders’ equity
and statement of cash flow shall set forth a comparison of the figures for
(w) the current fiscal period and (x) the current year-to-date with
the figures for (y) the same fiscal period and year-to-date period of the
immediately preceding fiscal year and (z) the projections for such fiscal
period and year-to-date period delivered pursuant to Section or
Section 9.12, as applicable.  The
financial statements shall be accompanied by a certificate of Borrower’s Chief
Financial Officer, which shall state that, based on an examination sufficient
to permit him to make an informed statement, no Default or Event of Default
exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Loan Parties with respect to such event and, such certificate
shall have appended thereto calculations which set forth Loan Parties’
compliance with the requirements or restrictions imposed by Section 6.8.

 

9.10.        Other Reports.

 

Furnish Agent as soon as
available, but in any event within ten (10) days after the issuance
thereof, with copies of (i) such financial statements, reports and returns
as Loan Parties shall send to their stockholders or members and (ii) all
notices sent pursuant to the Senior Note Documentation.

 

9.11.        Additional Information.

 

Furnish Agent with such
additional information as Agent shall reasonably request in order to enable
Agent to determine whether the terms, covenants, provisions and conditions of
this Agreement and the Notes have been complied with by Loan Parties including,
without limitation and without the necessity of any request by Agent,
(a) copies of all environmental audits and reviews, (b) at least
thirty (30) days prior thereto, notice of any Loan Party’s opening of any new
office or place of business or any Loan Party’s closing of any existing office
or place of business, and (c) promptly upon any Loan Party’s learning
thereof, notice of any labor dispute to which any Loan Party may become a
party, any strikes or walkouts relating to any of its plants or other
facilities, or the expiration of any labor contract to which any Loan Party is
a party or by which any Loan Party is bound, in the case of this clause (c),
which could reasonably be expected to have a Material Adverse Effect.

 

9.12.        Projected Operating Budget.

 

Furnish Agent, no later than
May 31 of each year, a month by month projected operating budget and cash
flow of Loan Parties on a Consolidated Basis for the fiscal year to commence on
the succeeding July 1 (including an income statement for each month and a
balance sheet as at the end of the last month in each fiscal quarter and
proposed business plan for such fiscal year including, without limitation,
Letters of Credit anticipated to be required during each such period), such
projections to be accompanied by a certificate signed by the President or Chief
Financial Officer of each Loan Party to the effect that such projections have
been prepared on the basis of sound financial planning practice consistent with
past budgets and financial statements and that such officer has no reason to question
the reasonableness of any material 

 

73

 

assumptions on which such
projections were prepared.  In addition,
Loan Parties will provide Agent with such projections and business plans as and
when requested by Agent in connection with any request by Loan Parties to
increase or permanently reduce the amount of Advances available under this
Agreement.  All such projections and
business plans are subject to the written approval of Agent in its sole
discretion before such projections and business plans shall be effective for
purposes of this Agreement.

 

9.13.        Variances From Operating
Budget.

 

Furnish Agent, concurrently
with the delivery of the financial statements referred to in Section 9.7,
9.8 and 9.9, a written report summarizing all material variances from budgets
submitted by Loan Parties pursuant to Section 9.12, and a discussion and
analysis by management with respect to such variances.

 

9.14.        Notice of Suits, Adverse
Events.

 

Furnish Agent with prompt notice
of (i) any lapse or other termination of any Consent issued to any Loan
Party by any Governmental Body or any other Person that is material to the
operation of any Loan Party’s business, (ii) any refusal by any
Governmental Body or any other Person to renew or extend any such Consent; and
(iii) copies of any periodic or special reports filed by any Loan Party
with any Governmental Body or Person, if such reports indicate any material
change in the business, operations, affairs or condition of any Loan Party, or
if copies thereof are requested by Agent or any Lender or Term Lender, and
(iv) copies of any material notices and other communications from any
Governmental Body or Person which specifically relate to any Loan Parties.

 

9.15.        ERISA Notices and Requests.

 

Furnish Agent with immediate
written notice in the event that (i) any Loan Party or any member of the
Controlled Group knows or has reason to know that a Termination Event has
occurred, together with a written statement describing such Termination Event
and the action, if any, which such Loan Party or member of the Controlled Group
has taken, is taking, or proposes to take with respect thereto and, when known,
any action taken or threatened by the Internal Revenue Service, Department of
Labor or PBGC with respect thereto, (ii) any Loan Party or any member of
the Controlled Group knows or has reason to know that a prohibited transaction
(as defined in Sections 406 of ERISA and 4975 of the Code) has occurred
together with a written statement describing such transaction and the action
which such Loan Party or any member of the Controlled Group has taken, is
taking or proposes to take with respect thereto, (iii) a funding waiver
request has been filed with respect to any Plan together with all communications
received by any Loan Party or any member of the Controlled Group with respect
to such request, (iv) any increase in the benefits of any existing Plan or
the establishment of any new Plan or the commencement of contributions to any
Plan to which any Loan Party or any member of the Controlled Group was not
previously contributing shall occur, (v) any Loan Party or any member of
the Controlled Group shall receive from the PBGC a notice of intention to
terminate a Plan or to have a trustee appointed to administer a Plan, together
with copies of each such notice, (vi) any Loan Party or any member of the
Controlled Group shall receive any favorable or unfavorable determination
letter from the Internal Revenue Service regarding the 

 

74

 

qualification of a Plan
under Section 401(a) of the Code, together with copies of each such
letter; (vii) any Loan Party or any member of the Controlled Group shall
receive a notice regarding the imposition of withdrawal liability, together
with copies of each such notice; (viii) any Loan Party or any member of
the Controlled Group shall fail to make a required installment or any other
required payment under Section 412 of the Code on or before the due date
for such installment or payment; (ix) any Loan Party or any member of the
Controlled Group knows that (a) a Multiemployer Plan has been terminated,
(b) the administrator or plan sponsor of a Multiemployer Plan intends to
terminate a Multiemployer Plan, or (c) the PBGC has instituted or will
institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan.

 

9.16.        Additional Documents.

 

Execute and deliver to
Agent, upon request, such documents and agreements as Agent may, from time to
time, reasonably request to carry out the purposes, terms or conditions of this
Agreement.

 

X.            EVENTS OF DEFAULT.

 

The occurrence of any one or
more of the following events shall constitute an “Event of Default”:

 

10.1         Failure by any Loan Party to
pay any principal or interest on the Obligations when due, whether at maturity
or by reason of acceleration pursuant to the terms of this Agreement or by
notice of intention to prepay, or by required prepayment or failure to pay any
other liabilities or make any other payment, fee or charge provided for herein
when due or in any Other Document;

 

10.2         (i) Failure by any Loan
Party to perform, keep or observe any provision of Sections 4.2, 4.3, 4.4, 4.5,
4.6, 4.9 (except with respect to the (x) first sentence thereof if
non-compliance has not, in Agent’s reasonable credit judgment, resulted in a
Material Adverse Effect, and (y) second sentence thereof), 4.10, 4.11,
6.8, Article VII or (ii) any representation or warranty made or
deemed made by any Loan Party in this Agreement or any related agreement or in
any certificate, document or financial or other statement furnished at any time
in connection herewith or therewith shall prove to have been misleading in any
material respect on the date when made or deemed to have been made;

 

10.3         Failure by any Loan Party to
(i) furnish financial information when due or when requested which is
unremedied for a period of fifteen (15) days, or (ii) permit the
inspection of its books or records;

 

10.4         Issuance of a notice of
Lien, levy, assessment, injunction or attachment (other than Permitted
Encumbrances) against a material portion of any Loan Party’s property which is
not stayed or lifted within thirty (30) days;

 

10.5         Failure or neglect of any
Loan Party to perform, keep or observe any term, provision, condition, covenant
herein contained, or contained in any Other Document, now or hereafter entered
into between any Loan Party, Agent and/or any Lender or Term Lender (to the
extent such breach is not otherwise embodied in any other provision of this
Article X for which a 

 

75

 

different grace or cure
period is specified or which constitute an immediate Event of Default under
this Agreement or the Other Documents), which is not cured within twenty (20)
days after the occurrence of such Event of Default;

 

10.6         Any judgment or judgments
are rendered or judgment liens filed against one or more of Loan Parties for an
aggregate amount in excess of $1,000,000 which within thirty (30) days of such
rendering or filing is not either satisfied, stayed or discharged of record;

 

10.7         Any Loan Party shall
(i) apply for, consent to or suffer the appointment of, or the taking of
possession by, a receiver, custodian, trustee, liquidator or similar fiduciary
of itself or of all or a substantial part of its property, (ii) make a
general assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vi) acquiesce to, or fail to have dismissed, within forty-five
(45) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (vii) take any action for the purpose of effecting any
of the foregoing;

 

10.8         Any Loan Party shall admit
in writing its inability, or be generally unable, to pay its debts as they
become due or cease operations of its present business;

 

10.9         Intentionally Omitted;

 

10.10       Intentionally Omitted;

 

10.11       Any Lien created hereunder
or provided for hereby or under any Other Document for any reason ceases to be
or is not a valid and perfected Lien having a first priority interest, except
with respect to Liens on Collateral subject to such Permitted Encumbrances
which pursuant to provisions of this Agreement, may be senior to the Liens in
favor of Agent for the benefit of Issuers, Lenders and Term Lender;

 

10.12       An event of default has
occurred and been declared under the Senior Note Documentation or any Factoring
Agreement which default shall not have been cured or waived within any
applicable grace period and for which Senior Note Agent or the Factor, as
applicable, is permitted to take action pursuant to the terms of the Senior
Secured Notes as in effect on the Closing Date or any Factoring Agreement, as
applicable;

 

10.13       A default of the obligations
of any Loan Party under any other agreement to which it is a party shall occur
which could or does result in at least $1,000,000 of Indebtedness becoming due
and payable prior to its scheduled maturity which default is not cured within
any applicable grace period;

 

10.14       Termination or breach of any
Guaranty, or if any Guarantor attempts to terminate, challenges the validity
of, or its liability under, any Guaranty;

 

10.15       Any Change of Control shall
occur;

 

10.16       Any material provision of
this Agreement shall, for any reason, cease to be valid and binding on any Loan
Party, or any Loan Party shall so claim in writing to Agent;

 

76

 

10.17       (i) Any Governmental
Body shall revoke, terminate, suspend or adversely modify any license, permit,
patent trademark or tradename of any Loan Party (the continuation of which is
material to the continuation of any Loan Party’s business), (ii) any
agreement which is necessary or material to the operation of any Loan Party’s
business shall be revoked or terminated and not replaced by a substitute
acceptable to Agent within thirty (30) days after the date of such revocation
or termination, and such revocation or termination and non-replacement would
reasonably be expected to have a Material Adverse Effect;

 

10.18       Any portion of the
Collateral having a value in excess of $1,000,000 shall be seized or taken by a
Governmental Body; or

 

10.19       An event or condition
specified in Section 7.16 or Section 9.15 shall occur or exist with
respect to any Plan and, as a result of such event or condition, together with
all other such events or conditions, Loan Parties or any member of the
Controlled Group shall incur, or in the opinion of Agent be reasonably likely
to incur, a liability to a Plan or the PBGC (or both) which, in the reasonable
judgment of Agent, would have a Material Adverse Effect.

 

XI.           LENDERS’ RIGHTS AND REMEDIES
AFTER DEFAULT.

 

11.1.        Rights and Remedies.

 

Upon the occurrence of
(i) an Event of Default pursuant to Section X.10.7, all Obligations
shall be immediately due and payable and this Agreement and the obligation of
Lenders to make Advances shall be deemed terminated, (ii) any of the other
Events of Default and at any time thereafter (such default not having
previously been cured), at the option of Required Lenders all Obligations shall
be immediately due and payable and Lenders shall have the right to terminate
this Agreement and to terminate the obligation of Lenders to make Advances, and
(iii) a filing of a petition against any Loan Party in any involuntary
case under any state or federal bankruptcy laws, the obligation of Lenders to
make Advances hereunder shall be terminated other than as may be required by an
appropriate order of the bankruptcy court having jurisdiction over any Loan
Party.  Upon the occurrence of any Event
of Default, Agent shall have the right to exercise any and all other rights and
remedies provided for herein, under the UCC and at law or equity generally,
including, without limitation, the right to foreclose the security interests
granted herein and to realize upon any Collateral by any available judicial
procedure and/or to take possession of and sell any or all of the Collateral
with or without judicial process. 
Subject to Section 4.10, following the occurrence and during the
continuance of an Event of Default, Agent may enter any Loan Party’s premises
or other premises without legal process and, subject to applicable law, without
incurring liability to any Loan Party therefor, and Agent may thereupon, or at
any time thereafter, in its discretion without notice or demand, take the
Collateral and remove the same to such place as Agent may deem advisable and
Agent may require Loan Parties to make the Collateral available to Agent at a
convenient place.  With or without having
the Collateral at the time or place of sale, Agent may following the occurrence
and during the continuance of an Event of Default sell the Collateral, or any
part thereof, at public or private sale, at any time or place, in one or more
sales, at such price or prices, and upon such terms, either for cash, credit or
future delivery, as Agent may elect. 
Except as to that part of the Collateral which is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Agent shall give Loan Parties reasonable notification 

 

77

 

of such sale or sales, it
being agreed that in all events written notice mailed to Loan Parties at least
ten (10) days prior to such sale or sales is reasonable notification.  At any public sale Agent or any Lender or
Term Lender may bid for and become the purchaser, and Agent, any Lender, Term
Lender or any other purchaser at any such sale thereafter shall hold the
Collateral sold absolutely free from any claim or right of whatsoever kind,
including any equity of redemption and such right and equity are hereby
expressly waived and released by each Loan Party.  Agent may specifically disclaim any
warranties of title or the like at any sale of Collateral.  In connection with the exercise of the
foregoing remedies, Agent is granted permission to use all of each Loan Party’s
trademarks, trade styles, trade names, patents, patent applications, licenses,
franchises and other proprietary rights which are used in connection with
(a) Inventory for the purpose of disposing of such Inventory and
(b) Equipment for the purpose of completing the manufacture of unfinished
goods.

 

11.2.        Allocation of Payments After
Event of Default.

 

Notwithstanding any other
provisions of this Agreement to the contrary, after the occurrence and during
the continuance of an Event of Default, all amounts collected or received by
Agent on account of the Obligations or any other amounts outstanding under any
of the Other Documents or in respect of the Collateral shall be paid over or
delivered by Agent as follows:

 

FIRST, to the payment of all
reasonable out-of-pocket costs and expenses (including without limitation,
reasonable attorneys’ fees) of Agent in connection with enforcing the rights of
Term Lender and the Lenders under this Agreement and the Other Documents and
any protective advances made by Agent with respect to the Collateral under or
pursuant to the terms of this Agreement until paid in full;

 

SECOND, to payment of any
fees owed to Agent until paid in full;

 

THIRD, to the payment of all
Swingline Advances (including, without limitation, accrued fees and interest
(including all interest accruing after the commencement of any bankruptcy or
similar proceeding whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding)) until paid in full;

 

FOURTH, to the payment of
all Obligations relating to accrued fees and interest (including without
limitation all interest accruing after the commencement of any bankruptcy or
similar proceeding whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) on Advances (other than with respect to the
Swingline Advances) until paid in full;

 

FIFTH, to the payment of the
outstanding principal amount of the Obligations (including the payment or cash
collateralization of any outstanding Letters of Credit in an amount not to
exceed 105% of the undrawn amount of such Letters of Credit), other than
Swingline Advances, Bank Products and the Term Loan, pro rata according to the
applicable Lenders’ Commitment Percentages, until paid in full

 

SIXTH, to the payment of the
outstanding amount of the Obligations consisting of Bank Products, until paid
in full;

 

78

 

SEVENTH, to the payment of
all accrued fees and interest on the Term Loan owed to Term Lender until paid
in full;

 

EIGHTH, to the outstanding
principal amount of the Term Loan owed to Term Lender until paid in full;

 

NINTH, to all other
Obligations and other obligations which shall have become due and payable under
the Other Documents or otherwise and not repaid pursuant to clauses “FIRST”
through “EIGHTH” above;

 

TENTH, to the payment of the
surplus, if any, to Borrower or whoever else may be lawfully entitled to
receive such surplus.

 

In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (ii) each of the Lenders shall receive (so long as it
is not a Defaulting Lender) an amount equal to its pro rata share (based on the
proportion that the then outstanding Advances (excluding the Term Loan) held by
such Lender bears to the aggregate then outstanding Advances (excluding the
Term Loan)) of amounts available to be applied pursuant to clauses “FOURTH”,
“FIFTH”, “SIXTH”, and “NINTH” above; (iii) Term Lender shall receive an
amount equal to its pro rata share (based on the proportion that the then
outstanding Term Loan held by such Term Lender bears to the aggregate then
outstanding Term Loan) of amounts available to be applied pursuant to clauses
“SEVENTH”, “EIGHTH” and “NINTH” above; and (iv) to the extent that any
amounts available for distribution pursuant to clause “FIFTH” above are attributable
to the issued but undrawn amount of outstanding Letters of Credit, such amounts
shall be held by Agent in a cash collateral account and applied (A) first,
to reimburse the Issuer from time to time for any drawings under such Letters
of Credit and (B) then, following the expiration of all Letters of Credit,
to all other obligations of the types described in clauses “SIXTH”, “SEVENTH”,
“EIGHTH” and “NINTH” above in the manner provided in this Section 11.2.

 

For purposes of the foregoing, (other than clause “NINTH”),
“paid in full” means payment in cash of all amounts owing under this Agreement
and the Other Documents according to the terms thereof, including loan fees, service
fees, professional fees, interest (and specifically including interest accrued
after the commencement of any bankruptcy or similar proceeding), default
interest, interest on interest, and expense reimbursements, whether or not same
would be or is allowed or disallowed in whole or in part in any bankruptcy or
similar proceeding, except to the extent that default or overdue interest (but
not any other interest) and loan fees, each arising from or related to a
default, are disallowed in any bankruptcy or similar proceeding; provided,
however, that for the purposes of clause “NINTH”, “paid in full” means
payment in cash of all amounts owing under this Agreement and the Other
Documents according to the terms thereof which are not covered by clauses
“FIRST” through “EIGHTH”, including, without duplication, loan fees, service
fees, professional fees, interest (and specifically including interest accrued
after the commencement of any bankruptcy or similar proceeding), default
interest, interest on interest, and expense reimbursements, whether or not the
same would be or is allowed or disallowed in whole or in part in any bankruptcy
or similar proceeding.

 

79

 

Proceeds arising from the
sale or other disposition of any Collateral at a time when no Event of Default
exists shall only be applied to Obligations relating to Advances and not to
Obligations relating to the Term Loan unless Agent and Required Lenders, in
their sole and absolute discretion, otherwise consent to such application of
proceeds to Obligations relating to the Term Loan.

 

11.3.        Agent’s Discretion.

 

Agent shall have the right
in its sole discretion to determine which rights, Liens, security interests or
remedies Agent may at any time pursue, relinquish, subordinate, or modify or to
take any other action with respect thereto and such determination will not in
any way modify or affect any of Agent’s or Lenders’ or Term Lender’s rights
hereunder.

 

11.4.        Setoff.

 

In addition to any other
rights which Agent, any Lender, Term Lender, or any Issuer may have under
applicable law, upon the occurrence of an Event of Default hereunder, Agent,
such Lender, Term Lender and such Issuer shall have a right to apply any Loan
Party’s property held by Agent, such Lender, Term Lender, or such Issuer to
reduce the Obligations, in the order and manner provided in this Agreement.

 

11.5.        Rights and Remedies not
Exclusive.

 

The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies provided for herein or otherwise provided by law, all of which shall
be cumulative and not alternative.

 

XII.         WAIVERS AND
JUDICIAL PROCEEDINGS.

 

12.1.        Waiver of Notice.

 

Each Loan Party hereby
waives notice of non-payment of any of the Receivables, demand, presentment,
protest and notice thereof with respect to any and all instruments, notice of
acceptance hereof, notice of loans or advances made, credit extended,
Collateral received or delivered, or any other action taken in reliance hereon,
and all other demands and notices of any description, except such as are
expressly provided for herein or which cannot be waived under applicable law.

 

12.2.        Delay.

 

No delay or omission on
Agent’s or any Lender’s part in exercising any right, remedy or option shall
operate as a waiver of such or any other right, remedy or option or of any
default.

 

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12.3.        Jury Waiver.

 

EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS
OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER
NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

 

XIII.        EFFECTIVE DATE
AND TERMINATION.

 

13.1.        Term.

 

This Agreement, which shall
inure to the benefit of and shall be binding upon the respective successors and
permitted assigns of Loan Parties, Agent and each Lender and Term Lender, shall
become effective on the date hereof and shall continue in full force and effect
until the earliest of (x) April 1, 2011 (the “Original Term”),
(y) the acceleration of all Obligations pursuant to the terms of this
Agreement or (z) the date on which this Agreement shall be terminated in
accordance with the provisions hereof or by operation of law  (the “Termination Date”). 
Loan Parties may terminate this Agreement at any time upon ninety (90)
days’ prior written notice upon payment in full of the Obligations.

 

13.2.        Termination.

 

The termination of the
Agreement shall not affect any Loan Party’s, Agent’s or any Issuer’s or any
Lender’s or Term Lender’s rights, or any of the Obligations having their
inception prior to the effective date of such termination, and the provisions
hereof shall continue to be fully operative until all transactions entered
into, rights or interests created or Obligations have been fully disposed of,
concluded or liquidated.  The security
interests, Liens and rights granted to Agent, Issuers, Lenders and Term Lender
hereunder and the financing statements filed hereunder shall continue in full force
and effect, notwithstanding the termination of this Agreement or the fact that
Borrower’s Account may from time to time be temporarily in a zero or credit
position, until all of the Obligations of each Loan Party have been paid or
performed in full after the termination of this Agreement or each Loan Party
has furnished Agent, Issuers, Lenders and Term Lender with an indemnification
satisfactory to Agent, Term Lender, Issuers, and Lenders with respect
thereto.  Accordingly, each Loan Party
waives any rights which it may have under Section 9-513(c) of the UCC
to demand the filing of termination statements with

 

81

 

respect to the Collateral,
and Agent shall not be required to send such termination statements to each
Loan Parties, or to file them with any filing office, unless and until this
Agreement shall have been terminated in accordance with its terms and all
Obligations paid in full in immediately available funds.  All representations, warranties, covenants,
waivers and agreements contained herein shall survive termination hereof until
all Obligations are paid or performed in full.

 

XIV.        REGARDING AGENT.

 

14.1.        Appointment.

 

Each Lender, and Term
Lender, hereby designates HSBC to act as Agent for such Lender or Term Lender
under this Agreement and the Other Documents. 
Each Lender, and Term Lender, hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of this Agreement and the
Other Documents and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of Agent
by the terms hereof and thereof and such other powers as are reasonably
incidental thereto and Agent shall hold all Collateral, payments of principal
and interest, fees, charges and collections received pursuant to this
Agreement, for the ratable benefit of Lenders, or for the benefit of Term
Lender, as applicable.  Agent may perform
any of its duties hereunder by or through its agents or employees.  As to any matters not expressly provided for
by this Agreement (including without limitation, collection of the Notes) Agent
shall not be required to exercise any discretion or take any action, but shall
be required to act or to refrain from acting (and shall be fully protected in
so acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding; provided, however,
that Agent shall not be required to take any action which exposes Agent to
liability or which is contrary to this Agreement or the Other Documents or
applicable law unless Agent is furnished with an indemnification reasonably
satisfactory to Agent with respect thereto.

 

14.2.        Nature of Duties.

 

Agent shall have no duties
or responsibilities except those expressly set forth in this Agreement and the
Other Documents.  None of Agent, any
Lender, Term Lender or any Issuer nor any of their respective officers,
directors, employees or agents shall be (i) liable for any action taken or
omitted by them as such hereunder or in connection herewith, unless caused by
their gross (not mere) negligence or willful misconduct, or (ii) responsible
in any manner for any recitals, statements, representations or warranties made
by any Loan Party or any officer thereof contained in this Agreement, or in any
of the Other Documents or in any certificate, report, statement or other
document referred to or provided for in, or received by Agent under or in
connection with, this Agreement or any of the Other Documents or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, or any of the Other Documents or for any failure of Loan Parties to
perform their respective obligations hereunder. 
Agent shall not be under any obligation to any Lender or Term Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any of the Other
Documents, or to inspect the properties, books or records of any Loan Party.  The duties of Agent as respects the Advances
and the Term Loan shall be mechanical and administrative in nature; Agent shall
not have by reason of this Agreement a fiduciary relationship in respect of any
Lender or Term Lender; and nothing in this Agreement,

 

82

 

expressed or implied, is
intended to or shall be so construed as to impose upon Agent any obligations in
respect of this Agreement except as expressly set forth herein.

 

14.3.        Lack of Reliance on Agent
and Resignation.

 

(a)           Independently and without
reliance upon Agent, any Issuer or any other Lender or Term Lender, each Lender
and Term Lender has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of each Loan
Party in connection with the making and the continuance of the Advances and
Term Loan hereunder and the taking or not taking of any action in connection
herewith, and (ii) its own appraisal of the creditworthiness of each Loan
Party.  Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Lender or Term Lender with any credit or other information with respect
thereto, whether coming into its possession before making of the Advances or
the Term Loan or at any time or times thereafter except as shall be provided by
any Loan Party pursuant to the terms hereof. 
Agent shall not be responsible to any Lender or Term Lender for any
recitals, statements, information, representations or warranties herein or in
any agreement, document, certificate or a statement delivered in connection
with or for the execution, effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of this Agreement or any Other
Document, or of the financial condition of any Loan Party, or be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement, the Notes, the Other
Documents or the financial condition of any Loan Party, or the existence of any
Event of Default or any Default.

 

(b)           Agent may resign on sixty
(60) days’ written notice to each of the Lenders, Term Lender and Borrower and
upon such resignation, the Required Lenders will promptly designate a successor
Agent reasonably satisfactory to Loan Parties. 
If no such successor Agent is appointed at the end of such sixty (60)
day period, Agent may designate one of the Lenders as a successor Agent.

 

(c)           Any such successor Agent
shall succeed to the rights, powers and duties of Agent, and the term “Agent”
shall mean such successor agent effective upon its appointment, and the former
Agent’s rights, powers and duties as Agent shall be terminated, without any
other or further act or deed on the part of such former Agent.  After any Agent’s resignation as Agent, the
provisions of this Article XIV shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement.

 

14.4.        Certain Rights of Agent.

 

If Agent shall request
instructions from Lenders and/or Term Lender with respect to any act or action
(including failure to act) in connection with this Agreement or any Other
Document, Agent shall be entitled to refrain from such act or taking such
action unless and until Agent shall have received instructions from the
Required Lenders; and Agent shall not incur liability to any Person by reason
of so refraining.  Without limiting the
foregoing, neither any of the Lenders nor Term Lender shall have any right of
action whatsoever against Agent as a result of its acting or refraining from
acting hereunder in accordance with the instructions of the Required Lenders
given in good faith.

 

83

 

14.5.        Reliance.

 

Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, statement, certificate, telex, teletype or telecopier
message, cablegram, order or other document or telephone message believed by it
to be genuine and correct and to have been signed, sent or made by the proper
person or entity, and, with respect to all legal matters pertaining to this
Agreement and the Other Documents and its duties hereunder, upon advice of
counsel selected by it.  Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.

 

14.6.        Notice of Default.

 

Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder or under the Other Documents, unless Agent has received notice from a
Lender, Term Lender or a Loan Party referring to this Agreement or the Other
Documents, describing such Default or Event of Default and stating that such
notice is a “notice of default”.  In the
event that Agent receives such a notice, Agent shall give notice thereof to
Lenders and Term Lender.  Agent shall
take such action with respect to such Default or Event of Default (including,
without limitation, the institution of the Default Rate pursuant to Section 3.1
hereof) as shall be reasonably directed by the Required Lenders; provided,
that, unless and until Agent shall have received such directions, Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default (including,
without limitation, the institution of the Default Rate pursuant to Section 3.1
hereof) as it shall deem advisable in the best interests of Lenders and Term
Lender.

 

14.7.        Indemnification.

 

To the extent Agent is not
reimbursed and indemnified by Loan Parties, each Lender and Term Lender will
reimburse and indemnify Agent and each Issuer in proportion to its then
outstanding Commitment Percentage of the Maximum Loan Amount and the then
outstanding Term Loan, on a combined basis, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent and such Issuer in
performing its duties hereunder, or in any way relating to or arising out of
this Agreement or any Other Document; provided  that, neither
Lenders nor Term Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the indemnified party’s gross (not
mere) negligence or willful misconduct.

 

14.8.        Agent in its Individual
Capacity.

 

With respect to the
obligation of Agent to lend under this Agreement, the Advances made by it shall
have the same rights and powers hereunder as any other Lender and as if it were
not performing the duties as Agent specified herein; and the term “Lender” or
any similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity as a Lender. 
Agent may engage in business with any Loan Party as if it were not

 

84

 

performing the duties
specified herein, and may accept fees and other consideration from Borrower for
services in connection with this Agreement or otherwise without having to
account for the same to Lenders or Term Lender.

 

14.9.        Delivery of Documents.

 

To the extent Agent receives
documents and information from Loan Parties pursuant to Sections 9.7, 9.8 and
9.9 and any Lender or Term Lender does not receive such items, Agent will
promptly upon request furnish such documents and information to any Lender or
Term Lender requesting same.

 

14.10.      Intentionally Deleted.

 

14.11.      Agent under Collateral
Documents and Guaranty.

 

Subject to Section 16.2,
without further written consent or authorization from Lenders or Term Lender,
Agent may execute any documents or instruments necessary to (i) release
any Lien encumbering any item of Collateral that is the subject of a sale or
other disposition of assets permitted hereby or to which Required Lenders (or
such other Lenders as may be required to give such consent under Section 16.2)
have otherwise consented or (ii) release any Guarantor from the Guaranty
pursuant to Section 15.14 or with respect to which Required Lenders (or
such other Lenders as may be required to give such consent under Section 16.2)
have otherwise consented.  Without
limiting the generality of the foregoing, upon the termination of the
Commitments and the payment of all Obligations then due and payable and the
cancellation, expiration or cash collateralization (in a manner reasonably
acceptable to Agent, but in no event to exceed 105% of the face amount thereof)
of all Letters of Credit, (i) the Liens created by the Collateral
Documents shall terminate and all rights to the Collateral shall revert to the
applicable Loan Party, and (ii) Agent will, upon a Loan Party’s request
and at such Loan Party’s expense, (x) return to such Loan Party such of
the Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms of this Agreement and the Other Documents and (y) at
such Loan Party’s expense, execute and deliver to such Loan Party such UCC
termination statements, releases, mortgage releases, discharges of security
interests, reassignments of Intellectual Property, terminations of control
agreements and other similar discharge or release documents (and, if applicable,
in recordable form) as are necessary to release, of record, the Liens and
security interests granted pursuant to this Agreement and any Other Documents
as such Loan Party shall reasonably request to evidence such termination, all
without any representation, warranty or recourse whatsoever.

 

XV.         GUARANTEE.

 

15.1.        Guaranty.

 

Each Guarantor hereby
unconditionally guarantees, as a primary obligor and not merely as a surety,
jointly and severally with each other Guarantor when and as due, whether at maturity,
by acceleration, by notice of prepayment or otherwise, the due and punctual
performance of all Obligations.  Each
payment made by any Guarantor pursuant to this Guarantee shall be made in
lawful money of the United States in immediately available funds.

 

85

 

15.2.        Waivers.

 

Each Guarantor hereby
absolutely, unconditionally and irrevocably waives (i) promptness,
diligence, notice of acceptance, notice of presentment of payment and any other
notice hereunder, (ii) demand of payment, protest, notice of dishonor or
nonpayment, notice of the present and future amount of the Obligations and any
other notice with respect to the Obligations, (iii) any requirement that
Agent, any Lender or Term Lender protect, secure, perfect or insure any
security interest or Lien or any property subject thereto or exhaust any right
or take any action against any other Loan Party, or any Person or any
Collateral, (iv) any other action, event or precondition to the
enforcement hereof or the performance by each such Guarantor of the
Obligations, and (v) any defense arising by any lack of capacity or
authority or any other defense of any Loan Party or any notice, demand or
defense by reason of cessation from any cause of Obligations other than payment
and performance in full of the Obligations by the Loan Parties and any defense
that any other guarantee or security was or was to be obtained by Agent.

 

15.3.        No Defense.

 

No invalidity, irregularity,
voidableness, voidness or unenforceability of this Agreement or any Other
Document or any other agreement or instrument relating thereto, or of all or
any part of the Obligations or of any collateral security therefor shall
affect, impair or be a defense hereunder.

 

15.4.        Guaranty of Payment.

 

The Guaranty hereunder is
one of payment and performance, not collection, and the obligations of each
Guarantor hereunder are independent of the Obligations of the other Loan
Parties, and a separate action or actions may be brought and prosecuted against
any Guarantor to enforce the terms and conditions of this Article XV,
irrespective of whether any action is brought against any other Loan Party or
other Persons or whether any other Loan Party or other Persons are joined in
any such action or actions.  Each
Guarantor waives any right to require that any resort be had by Agent, any
Lender or Term Lender to any security held for payment of the Obligations or to
any balance of any deposit account or credit on the books of Agent, any Lender
or Term Lender in favor of any Loan Party or any other Person.  No election to proceed in one form of action
or proceedings, or against any Person, or on any Obligations, shall constitute
a waiver of Agent’s right to proceed in any other form of action or proceeding
or against any other Person unless Agent has expressed any such right in
writing.  Without limiting the generality
of the foregoing, no action or proceeding by Agent against any Loan Party under
any document evidencing or securing indebtedness of any Loan Party to Agent
shall diminish the liability of any Guarantor hereunder, except to the extent
Agent receives actual payment on account of Obligations by such action or
proceeding, notwithstanding the effect of any such election, action or
proceeding upon the right of subrogation of any Guarantor in respect of any
Loan Party.

 

15.5.        Liabilities Absolute.

 

The liability of each
Guarantor hereunder shall be absolute, unlimited and unconditional and shall
not be subject to any reduction, limitation, impairment, discharge or
termination for any reason, including, without limitation, any claim of waiver,
release, surrender,

 

86

 

alteration or compromise,
and shall not be subject to any claim, defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of any other Obligation or otherwise.  Without limiting the generality of the
foregoing, the obligations of each Guarantor shall not be discharged or impaired,
released, limited or otherwise affected by:

 

(i)            any change in the manner,
place or terms of payment or performance, and/or any change or extension of the
time of payment or performance of, release, renewal or alteration of, or any
new agreements relating to any Obligation, any security therefor, or any
liability incurred directly or indirectly in respect thereof, or any rescission
of, or amendment, waiver or other modification of, or any consent to departure
from, this Agreement or any Other Document, including any increase in the
Obligations resulting from the extension of additional credit to the Borrower
or otherwise;

 

(ii)           any sale, exchange, release,
surrender, loss, abandonment, realization upon any property by whomsoever at
any time pledged or mortgaged to secure, or howsoever securing, all or any of
the Obligations, and/or any offset there against, or failure to perfect, or
continue the perfection of, any Lien in any such property, or delay in the
perfection of any such Lien, or any amendment or waiver of or consent to
departure from any other guaranty for all or any of the Obligations;

 

(iii)          the failure of Agent, any
Lender or Term Lender to assert any claim or demand or to enforce any right or
remedy against the Borrower or any other Loan Party or any other Person under
the provisions of this Agreement or any Other Document or any other document or
instrument executed and delivered in connection herewith or therewith;

 

(iv)          any settlement or compromise
of any Obligation, any security therefor or any liability (including any of
those hereunder) incurred directly or indirectly in respect thereof or hereof,
and any subordination of the payment of all or any part thereof to the payment
of any obligation (whether due or not) of any Loan Party to creditors of any
Loan Party other than any other Loan Party;

 

(v)           any manner of application of
Collateral, or proceeds thereof, to all or any of the Obligations, or any
manner of sale or other disposition of any Collateral for all or any of the
Obligations or any other assets of any Loan Party; and

 

(vi)          any other agreements or
circumstance of any nature whatsoever that may or might in any manner or to any
extent vary the risk of any Guarantor, or that might otherwise at law or in
equity constitute a defense available to, or a discharge of, the Guaranty
hereunder and/or the obligations of any Guarantor, or a defense to, or
discharge of, any Loan Party or any other Person or party hereto or the
Obligations or otherwise with respect to the Advances or other financial
accommodations to the Borrower pursuant to this Agreement and/or the Other
Documents.

 

15.6.        Waiver of Notice.

 

Agent shall have the right
to do any of the above without notice to or the consent of any Guarantor and
each Guarantor expressly waives any right to notice of, consent to,

 

87

 

knowledge of and
participation in any agreements relating to any of the above or any other
present or future event relating to Obligations whether under this Agreement or
otherwise or any right to challenge or question any of the above and waives any
defenses of such Guarantor which might arise as a result of such actions.

 

15.7.        Agent’s Discretion.

 

Agent may at any time and
from time to time (whether prior to or after the revocation or termination of
this Agreement) without the consent of, or notice to, any Guarantor, and
without incurring responsibility to any Guarantor or impairing or releasing the
Obligations, apply any sums by whomsoever paid or howsoever realized to any
Obligations regardless of what Obligations remain unpaid.

 

15.8.        Reinstatement.

 

(a)           The Guaranty provisions
herein contained shall continue to be effective or be reinstated, as the case
may be, if claim is ever made upon Agent or any Lender or Term Lender for
repayment or recovery of any amount or amounts received by such Person in
payment or on account of any of the Obligations and such Person repays all or
part of said amount for any reason whatsoever, including, without limitation,
by reason of any judgment, decree or order of any court or administrative body
having jurisdiction over such Person or the respective property of each, or any
settlement or compromise of any claim effected by such Person with any such
claimant (including any Loan Party); and in such event each Guarantor hereby
agrees that any such judgment, decree, order, settlement or compromise or other
circumstances shall be binding upon such Guarantor, notwithstanding any
revocation hereof or the cancellation of any note or other instrument
evidencing any Obligation, and each Guarantor shall be and remain liable to
Agent and/or Lenders and Term Lender for the amount so repaid or recovered to
the same extent as if such amount had never originally been received by such
Person(s).

 

(b)           Agent shall not be required
to marshal any assets in favor of any Guarantor, or against or in payment of
Obligations.

 

(c)           No Guarantor shall be
entitled to claim against any present or future security held by Agent from any
Person for Obligations in priority to or equally with any claim of Agent, or
assert any claim for any liability of any Loan Party to any Guarantor in
priority to or equally with claims of Agent for Obligations, and no Guarantor
shall be entitled to compete with Agent with respect to, or to advance any
equal or prior claim to any security held by Agent for Obligations.

 

(d)           If any Loan Party makes any
payment to Agent, which payment is wholly or partly subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid
to any Person under any federal or provincial statute or at common law or under
equitable principles, then to the extent of such payment, the Obligation
intended to be paid shall be revived and continued in full force and effect as
if the payment had not been made, and the resulting revived Obligation shall
continue to be guaranteed, uninterrupted, by each Guarantor hereunder.

 

88

 

(e)           Excluding all intercompany
transfers permitted under this Agreement (except following the occurrence and
during the continuance of an Event of Default), all present and future monies
payable by any Loan Party to any Guarantor, whether arising out of a right of
subrogation or otherwise, are assigned to Agent for its benefit and for the
ratable benefit of Issuers, Lenders and Term Lender as security for such
Guarantor’s liability to Agent, Issuers, Lenders and Term Lender hereunder and
are postponed and subordinated to Agent’s prior right to payment in full of
Obligations.  Except to the extent
prohibited otherwise by this Agreement, all monies (but if no Event of Default
has occurred and is continuing, excluding those intercompany transfers
permitted under this Agreement) received by any Guarantor from any Loan Party
shall be held by such Guarantor as agent and trustee for Agent.  This assignment, postponement and
subordination shall only terminate when the Obligations are paid in full in
cash and this Agreement is irrevocably terminated.

 

(f)            Each Loan Party acknowledges
this assignment, postponement and subordination and, except as otherwise set
forth herein, agrees to make no payments to any Guarantor without the prior
written consent of Agent.  Each Loan
Party agrees to give full effect to the provisions hereof.

 

15.9.        Action Upon Event of
Default.

 

Upon the occurrence and
during the continuance of any Event of Default, Agent may and upon written
request of the Required Lenders shall, without notice to or demand upon any
Loan Party or any other Person, declare any obligations of such Guarantor
hereunder immediately due and payable, and shall be entitled to enforce the
obligations of each Guarantor.  Upon such
declaration by Agent, Agent and Lenders are hereby authorized at any time and
from time to time to set off and apply any and all deposits (general or
special, time or demand, provisions or final) at any time held and other
indebtedness at any time owing by Agent or Lenders to or for the credit or the
account of any Guarantor against any and all of the obligations of each
Guarantor now or hereafter existing hereunder, whether or not Agent or Lenders
shall have made any demand hereunder against any other Loan Party and although
such obligations may be contingent and unmatured.  The rights of Agent and Lenders hereunder are
in addition to other rights and remedies (including other rights of set-off)
which Agent and Lenders may have.  Upon
such declaration by Agent, with respect to any claims (other than those claims
referred to in the immediately preceding paragraph) of any Guarantor against
any Loan Party (the “Claims”), Agent shall have the full right on the
part of Agent in its own name or in the name of such Guarantor to collect and
enforce such Claims by legal action, proof of debt in bankruptcy or other
liquidation proceedings, vote in any proceeding for the arrangement of debts at
any time proposed, or otherwise, Agent and each of its officers being hereby
irrevocably constituted attorneys-in-fact for each Guarantor for the purpose of
such enforcement and for the purpose of endorsing in the name of each Guarantor
any instrument for the payment of money. 
Each Guarantor will receive as trustee for Agent and will pay to Agent
forthwith upon receipt thereof any amounts which such Guarantor may receive
from any Loan Party on account of the Claims. 
Each Guarantor agrees that at no time hereafter will any of the Claims
be represented by any notes, other negotiable instruments or writings, except
and in such event they shall either be made payable to Agent, or if payable to
any Guarantor, shall forthwith be endorsed by such Guarantor to Agent.  Each Guarantor agrees that no payment on
account of the Claims or any security interest therein shall be created,
received, accepted or retained during the continuance of

 

89

 

any Event of Default nor
shall any financing statement be filed with respect thereto by any Guarantor.

 

15.10.      Statute of Limitations.

 

Any acknowledgment or new
promise, whether by payment of principal or interest or otherwise and whether
by any Loan Party or others (including any Lenders or Term Lender) with respect
to any of the Obligations shall, if the statute of limitations in favor of any
Guarantor against Agent, Lenders or Term Lender shall have commenced to run,
toll the running of such statute of limitations and, if the period of such
statute of limitations shall have expired, prevent the operation of such
statute of limitations.

 

15.11.      Interest.

 

All amounts due, owing and
unpaid from time to time by any Guarantor hereunder shall bear interest at the
interest rate per annum then chargeable with respect to Domestic Rate Loans
constituting Revolving Advances.

 

15.12.      Guarantor’s Investigation.

 

Each Guarantor acknowledges
receipt of a copy of each of this Agreement and the Other Documents.  Each Guarantor has made an independent
investigation of the Loan Parties and of the financial condition of the Loan
Parties.  Neither Agent nor any Lender
nor Term Lender has made and neither Agent nor any Lender nor Term Lender does
make any representations or warranties as to the income, expense, operation,
finances or any other matter or thing affecting any Loan Party nor has Agent or
any Lender or Term Lender made any representations or warranties as to the
amount or nature of the Obligations of any Loan Party to which this Article XV
applies as specifically herein set forth, nor has Agent, any Lender or Term
Lender, or any officer, agent or employee of Agent, any Lender or Term Lender,
or any representative thereof, made any other oral representations, agreements
or commitments of any kind or nature, and each Guarantor hereby expressly
acknowledges that no such representations or warranties have been made and such
Guarantor expressly disclaims reliance on any such representations or
warranties.

 

15.13.      Termination.

 

The provisions of this Article XV
shall remain in effect until the indefeasible payment in full in cash of all
Obligations and irrevocable termination of this Agreement.

 

15.14.      Discharge of Guaranty Upon
Sale of Guarantor.

 

If all of the stock (or
other ownership interest) of any Guarantor or any of its successors in interest
hereunder shall be sold or otherwise disposed of (including by merger or
consolidation) in accordance with the terms and conditions hereof, the Guaranty
of such Guarantor or such successor in interest, as the case may be, hereunder
shall automatically be discharged and released without any further action by
any beneficiary or any other Person effective as of the time of such sale.

 

90

 

 

XVI.        MISCELLANEOUS.

 

16.1.        Governing Law.

 

This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applied to contracts to be performed wholly within the State of New York.  Any judicial proceeding brought by or against
any Loan Party with respect to any of the Obligations, this Agreement or any
related agreement may be brought in any court of competent jurisdiction in New
York County, State of New York, United States of America, and, by execution and
delivery of this Agreement, each Loan Party accepts for itself and in
connection with its properties, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to
be bound by any judgment rendered thereby in connection with this
Agreement.  Each Loan Party hereby waives
personal service of any and all process upon it and consents that all such
service of process may be made by registered mail (return receipt requested)
directed to each Loan Party at its address set forth in Section 16.6 and
service so made shall be deemed completed five (5) days after the same
shall have been so deposited in the mails of the United States of America.  Nothing herein shall affect the right to
serve process in any manner permitted by law or shall limit the right of Agent
or any Lender or Term Lender to bring proceedings against any Loan Party in the
courts of any other jurisdiction.  Each
Loan Party waives any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens.  Any judicial proceeding by any Loan Party
against Agent or any Lender or Term Lender involving, directly or indirectly,
any matter or claim in any way arising out of, related to or connected with
this Agreement or any related agreement, shall be brought only in a federal or
state court located in the City of New York, State of New York.

 

16.2.        Entire Understanding;
Amendments.

 

(a)           This Agreement and the
documents executed concurrently herewith contain the entire understanding
between each Loan Party, Agent and each Lender and Term Lender and supersedes
all prior agreements and understandings, if any, relating to the subject matter
hereof.  Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have
no force and effect unless in writing, signed by Loan Parties’, Agent’s, each
Lender’s and Term Lender’s respective officers. 
Neither this Agreement nor any portion or provisions hereof may be
changed, modified, amended, waived, supplemented, discharged, cancelled or
terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged.  Each Loan Party acknowledges that it has been
advised by counsel in connection with the execution of this Agreement and Other
Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.

 

(b)           The Required Lenders, Agent
with the consent in writing of the Required Lenders, and Loan Parties may,
subject to the provisions of this Section 16.2(b), from time to time enter
into written supplemental agreements to this Agreement or the Other Documents
executed by Loan Parties, for the purpose of adding or deleting any provisions
or otherwise changing, varying or waiving in any manner the rights of Lenders,
Agent or Loan Parties thereunder or the conditions, provisions or terms thereof
or waiving any Event of Default

 

91

 

thereunder, but only to the
extent specified in such written agreements; provided, however,
that no such supplemental agreement shall, without the consent of all Lenders:

 

(i)            increase the Commitment
Percentage of any Lender;

 

(ii)           increase the Inventory
Advance Cap or the Maximum Loan Amount;

 

(iii)          extend the Term or the due
date for any amount payable hereunder, or decrease the rate of interest or
reduce any scheduled principal payment or fee payable by Loan Parties to
Lenders pursuant to this Agreement;

 

(iv)          alter the definition of the
term Required Lenders or alter, amend or modify this Section 16.2(b);

 

(v)           release any Collateral
during any calendar year (other than in accordance with the provisions of this
Agreement) having an aggregate value in excess of $1,000,000;

 

(vi)          change the rights and duties
of Agent;

 

(vii)         permit any Revolving Advance
to be made if after giving effect thereto the total of Revolving Advances
outstanding hereunder would exceed the Formula Amount for more than sixty (60)
consecutive Business Days or exceed one hundred and ten percent (110%) of the
Formula Amount; or

 

(viii)        increase the Advance Rates
above the Advance Rates in effect on the Closing Date.

 

and provided, further, that (A) the
Maximum Swingline Loan Amount may not be increased without the consent of the
Swingline Lender and (B) without the consent of Term Lender, neither the
Term nor the due date for any amount payable hereunder with respect to the Term
Loan may be extended, nor the rate of interest applicable to the Term Loan or
the principal amount of the Term Loan may be reduced.

 

Any such supplemental agreement shall apply equally
to each Lender and Term Lender and shall be binding upon Loan Parties, Lenders,
Term Lender and Agent and all future holders of the Obligations.  In the case of any waiver, Loan Parties,
Agent and Lenders and Term Lender shall be restored to their former positions
and rights, and any Event of Default waived shall be deemed to be cured and not
continuing, but no waiver of a specific Event of Default shall extend to any
subsequent Event of Default (whether or not the subsequent Event of Default is
the same as the Event of Default which was waived), or impair any right consequent
thereon.

 

(c)           In the event that Agent
requests the consent of a Lender pursuant to this Section 16.2 and such
Lender shall not respond or reply to Agent in writing within ten (10) days
of delivery of such report, such Lender shall be deemed to have consented to
the matter that was the subject of the request. 
In the event that Agent requests the consent of a Lender pursuant to
this Section 16.2 and such consent is denied, then HSBC may, at its
option, require such Lender

 

92

 

to assign its interest in
the Advances to HSBC or to another Lender or to any other Person designated by
Agent (the “Designated Lender”), for a price equal to the then
outstanding principal amount thereof plus accrued and unpaid interest and fees
due such Lender, which interest and fees shall be paid when collected from Loan
Parties.  In the event HSBC elects to
require any Lender to assign its interest to HSBC or to the Designated Lender,
HSBC will so notify such Lender in writing within forty five (45) days
following such Lender’s denial, and such Lender will assign its interest to
HSBC or the Designated Lender no later than five (5) days following
receipt of such notice pursuant to a Commitment Transfer Supplement executed by
such Lender, HSBC or the Designated Lender, as appropriate, and Agent.

 

(d)           Notwithstanding the
foregoing, Agent may at its discretion and without the consent of the Required
Lenders, voluntarily permit the outstanding Revolving Advances at any time to
exceed the Formula Amount by up to one hundred and ten percent (110%) of the
Formula Amount for up to thirty (30) consecutive Business Days.  For purposes of the preceding sentence, the
discretion granted to Agent hereunder shall not preclude involuntary overadvances
that may result from time to time due to the fact that the Formula Amount was
unintentionally exceeded for any reason, including, but not limited to,
Collateral previously deemed to be either “Eligible Factored Receivables”, “Eligible
Receivables” or “Eligible Inventory”, as applicable, becomes ineligible,
collections of Receivables applied to reduce outstanding Advances are
thereafter returned for insufficient funds or overadvances are made to protect
or preserve the Collateral.  In the event
Agent involuntarily permits the outstanding Revolving Advances to exceed the
Formula Amount by more than ten percent (10%), Agent shall decrease such excess
in as expeditious a manner as is practicable under the circumstances and not
inconsistent with the reason for such excess. 
Revolving Advances made after Agent has determined the existence of
involuntary overadvances shall be deemed to be involuntary overadvances and
shall be decreased in accordance with the preceding sentence.

 

(e)           Anything contained herein to
the contrary notwithstanding, in connection with any proposed amendment,
modification, termination, waiver or consent with respect to any of the
provisions hereof as contemplated by Section 16.2, the consent of Required
Lenders shall have been obtained but the consent of one or more of such other
Lenders (each a “Non-Consenting Lender”) whose consent is
required shall not have been obtained; then, with respect to each such
Non-Consenting Lender, Borrower may, by giving written notice to Agent and any
Non-Consenting Lender of its election to do so, elect to cause such
Non-Consenting Lender (and such Non-Consenting Lender irrevocably agrees) to
assign its outstanding Loans and its Commitments to a Transferee (each a “Replacement
Lender”) in accordance with the provisions of Section 16.3; provided,
(1) on the date of such assignment, the Replacement Lender shall pay to
Non-Consenting Lender an amount equal to the sum of (A) an amount equal to
the principal of, and all accrued interest on, all outstanding Advances of the
Non-Consenting Lender, (B) an amount equal to all unreimbursed drawings
that have been funded by such Non-Consenting Lender, together with all then
unpaid interest with respect thereto at such time and (C) an amount equal
to all accrued, but theretofore unpaid fees owing to such Non-Consenting Lender
pursuant to Section 3.3; (2) on the date of such assignment, Borrower
shall pay any amounts payable to such Non-Consenting Lender pursuant to Section 2.2(g),
3.6, 3.8 or 3.9.  Upon the prepayment of
all amounts owing to any Non-Consenting Lender and the termination of such
Non-Consenting Lender’s Commitments, if any, such Non-Consenting Lender shall
no longer constitute a

 

93

 

“Lender” for purposes hereof;
provided, any rights of such Non-Consenting Lender to indemnification
hereunder shall survive as to such Non-Consenting Lender.

 

16.3.        Successors and Assigns;
Participations; New Lenders.

 

(a)           This Agreement shall be
binding upon and inure to the benefit of Loan Parties, Agent, each Lender, Term
Lender, all future holders of the Obligations and their respective successors
and assigns, except that no Loan Party may assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of Agent
and each Lender.

 

(b)           Each Loan Party acknowledges
that in the regular course of commercial banking business one or more Lenders
or Term Lender may at any time and from time to time sell participating
interests in the Advances or the Term Loan to other financial institutions or
entities regularly engaged in making or investing in loans or debt securities
(each such transferee or purchaser of a participating interest, a “Transferee”).  Each Transferee may exercise all rights of
payment (including without limitation rights of set-off) with respect to the
portion of such Advances or the Term Loan held by it or other Obligations
payable hereunder as fully as if such Transferee were the direct holder thereof
provided that Loan Parties shall not be required to pay to any Transferee more
than the amount which it would have been required to pay to Lender or Term
Lender which granted an interest in its Advances or Term Loan or other
Obligations payable hereunder to such Transferee had such Lender retained such
interest in the Advances or Term Loan hereunder or other Obligations payable
hereunder and in no event shall Loan Parties be required to pay any such amount
arising from the same circumstances and with respect to the same Advances or
Term Loan or other Obligations payable hereunder to both such Lender or Term
Lender and such Transferee.  Loan Parties
hereby grant to any Transferee a continuing security interest in any deposits,
moneys or other property actually or constructively held by such Transferee as
security for the Transferee’s interest in the Advances.

 

(c)           Any Lender or Term Lender
may, with the consent of Agent and Loan Parties, which consent shall not be
unreasonably withheld or delayed, sell, assign or transfer all or any part of
its rights under this Agreement and the Other Documents to one or more
additional banks or financial institutions or other entities regularly engaged
in making or investing in loans or debt securities, and one or more additional
banks or financial institutions may commit to make Advances hereunder, in
minimum amounts of not less than $5,000,000, and prior to the making if the
Term Loan, the Term Lender may transfer its Term Loan Commitment to one or more
of its Affiliates (each of the foregoing assignees and transferees, a “Purchasing
Lender”), in each case pursuant to a Commitment Transfer Supplement, executed
by a Purchasing Lender, the transferor Lender or Term Lender, and Agent and
delivered to Agent for recording. 
Notwithstanding the foregoing, the consent of Agent and Loan Parties
shall not be required in the case of an assignment by a Lender or Term Lender
to another Lender or to an Affiliate of a Lender or Term Lender, and the
consent of Loan Parties shall not be required at any time that an Event of
Default or a Default has occurred and is continuing hereunder.   Upon such execution, delivery, acceptance
and recording, from and after the transfer effective date determined pursuant
to such Commitment Transfer Supplement, (i) Purchasing Lender thereunder
shall be a party hereto and, to the extent provided in such Commitment Transfer
Supplement, have the rights and obligations of a Lender or Term Lender
thereunder with (if applicable) a Commitment

 

94

 

Percentage as set forth
therein, and (ii) the transferor Lender or Term Lender thereunder shall,
to the extent provided in such Commitment Transfer Supplement, be released from
its obligations under this Agreement, the Commitment Transfer Supplement
creating a novation for that purpose. 
Such Commitment Transfer Supplement shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages (if applicable) arising from the purchase by such
Purchasing Lender of all or a portion of the rights and obligations of such
transferor Lender or Term Lender under this Agreement and the Other
Documents.  Loan Parties hereby consent
to the addition of such Purchasing Lender and the resulting adjustment of the
Commitment Percentages arising from the purchase by such Purchasing Lender of
all or a portion of the rights and obligations of such transferor Lender or
Term Lender under this Agreement and the Other Documents in accordance with
this subsection.  Loan Parties shall
execute and deliver such further documents and do such further acts and things
in order to effectuate the foregoing.

 

(d)           Agent shall maintain at its
address a copy of each Commitment Transfer Supplement delivered to it and a
register (the “Register”) for the recordation of the names and addresses
of the Advances or Term Loan owing to each Lender and Term Lender from time to
time.  The entries in the Register shall
be conclusive, in the absence of manifest error, and Loan Parties, Agent and
Lenders and Term Lender may treat each Person whose name is recorded in the
Register as the owner of the Advance or Term Loan recorded therein for the
purposes of this Agreement.  The Register
shall be available for inspection by Loan Parties or any Lender or Term Lender
at any reasonable time and from time to time upon reasonable prior notice.  Agent shall receive a fee in the amount of
$3,500 payable by the applicable Purchasing Lender upon the effective date of
each transfer or assignment to such Purchasing Lender.

 

(e)           Subject to Section 16.15,
Loan Parties authorize each Lender and Term Lender to disclose to any
Transferee or Purchasing Lender and any prospective Transferee or Purchasing
Lender any and all financial information in such Lender’s or Term Lender’s
possession concerning Loan Parties which has been delivered to such Lender or
Term Lender by or on behalf of Loan Parties pursuant to this Agreement or in
connection with such Lender’s or Term Lender’s credit evaluation of Loan
Parties.

 

(f)            (i)            Each Lender and Term Lender
or Participant agrees that it will deliver to Borrower and Agent two (2) duly
completed appropriate valid Withholding Certificates (as defined under
§1.1441-1(c)(16) of the Income Tax Regulations (“Regulations”)) certifying its
status (i.e., U.S. or foreign person) and, if a foreign person, making a claim
of exemption from, U.S. withholding tax on the basis of an income tax treaty or
an exemption provided by the Code.  Such
delivery may be made by electronic transmission as described in §1.1441-1(e)(4)(iv) of
the Regulations if Agent establishes an electronic delivery system.  The term “Withholding Certificate” means a Form W-9;
a Form W-8BEN; a Form W-8ECI; a Form W-8IMY and the related
statements and certifications as required under §1.1441-1(e)(3) of the
Regulations; a statement described in §1.871-14(c)(2)(v) of the
Regulations; or any other certificates under the Code or Regulations that
certify or establish the status of a payee or beneficial owner as a U.S. or
foreign person.

 

95

 

(ii)           Each Lender and Term Lender
or Participant required to deliver to Borrower and Agent a valid Withholding
Certificate pursuant to Section 16.3(f)(i) hereof shall deliver such
valid Withholding Certificate as follows: 
(A) each Lender and Term Lender which is a party hereto on the
Closing Date shall deliver such valid Withholding Certificate at least five (5) Business
Days prior to the first date on which any interest or fees are payable by Loan
Parties hereunder for the account of such Lender or Term Lender; (B) each
Purchasing Lender or Participant shall deliver such valid Withholding
Certificate at least five (5) Business Days before the effective date of
any applicable assignment or participation. 
Each Lender and Term Lender or Participant which so delivers a valid
Withholding Certificate further undertakes to deliver to Loan Parties and Agent
two (2) additional copies of such Withholding Certificate (or a successor
form) on or before the date that such Withholding Certificate expires or
becomes obsolete or after the occurrence of any event requiring a change in the
most recent Withholding Certificate so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by Loan
Parties or Agent.

 

(iii)          Notwithstanding the
submission of a Withholding Certificate claiming any exemption from U.S.
withholding tax required under Section 16.3(f)(ii) hereof, Agent
shall be entitled to withhold United States federal income taxes at the full
30% withholding rate if in its reasonable judgment it is required to do so
under the due diligence requirements imposed upon a withholding agent under
§1.1441-7(b) of the Regulations. 
Further, Agent is indemnified under §1.1461-1(e) of the Regulations
against any claims and demands of any Lender or Term Lender or Participant for
the amount of any tax it deducts and withholds in accordance with regulations
under §1441 of the Code.

 

(iv)          No Purchasing Lender,
Participant or Transferee shall be entitled to receive any greater amount
pursuant to Section 3.9 than the transferor Lender or Term Lender would
have been entitled to receive in respect of the amount assigned or transferred
by such transferor Lender or Term Lender to such Purchasing Lender, Participant
or Transferee had no such assignment or transfer occurred.

 

16.4.        Application of Payments.

 

Agent shall have the
continuing and exclusive right to apply or reverse and re-apply any payment and
any and all proceeds of Collateral to any portion of the Obligations.  To the extent that any Loan Party makes a
payment or Agent, any Lender or Term Lender receives any payment or proceeds of
the Collateral for any Loan Party’s benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession, receiver, custodian or any
other party under any bankruptcy law, common law or equitable cause, then, to
such extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Agent or such Lender or Term Lender.

 

16.5.        Indemnity.

 

(a)           Each Loan Party shall
indemnify Agent, each Issuer, each Lender, Term Lender and each of their
respective officers, directors, Affiliates, employees and agents from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits,

 

96

 

and reasonable costs,
expenses and disbursements of any kind or nature whatsoever (including, without
limitation, reasonable fees and disbursements of counsel) which may be imposed
on, incurred by, or asserted against Agent, such Issuer or any Lender or Term
Lender in any litigation, proceeding or investigation instituted or conducted
by any governmental agency or instrumentality or any other Person with respect
to any aspect of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement or the Other Documents, whether or not Agent,
any Issuer, any Lender or Term Lender is a party thereto, except to the extent
that any of the foregoing arises out of the gross negligence or willful
misconduct of the party being indemnified.

 

(b)           In connection with the
issuance of any Letter of Credit or Air Release/Steamship Guarantee, each Loan
Party shall indemnify, save and hold Agent, each Lender and each Issuer
harmless from any loss, reasonable cost, expense or liability, including,
without limitation, any claims, damages, costs and expenses, and reimbursement
obligations with respect to cargo value, incurred by the issuer of any Air
Release/Steamship Guarantee to the steamship line or airway carrier to which
such Air Release/Steamship Guarantee is issued, and other payments made by
Agent, any Lender or any Issuer and expenses and reasonable attorneys’ fees
incurred by Agent, any Lender or any Issuer arising out of, or in connection
with, any Letter of Credit or Air Release/Steamship Guarantee to be issued or
created for the Borrower

 

(c)           Each Loan Party shall defend
and indemnify Agent, Lenders and Term Lender, and hold Agent, Lenders, Term
Lender and their respective employees, agents, directors and officers harmless
from and against all loss, liability, damage and expense, claims, costs, fines
and penalties, including reasonable attorney’s fees, suffered or incurred by
Agent, Lenders or Term Lender (i) under or on account of such Loan Party’s
violation of any applicable Environmental Laws, including, without limitation,
the assertion of any Lien thereunder, and/or (ii) with respect to any
Hazardous Discharge, the presence of any Hazardous Substances affecting the
Real Property, whether or not the same originates or emerges from the Real
Property or any contiguous real estate, including any loss of value of the Real
Property as a result of the foregoing except to the extent such loss,
liability, damage and expense is attributable to any Hazardous Discharge or
presence of Hazardous Substances resulting from actions on the part of Agent or
any Lender or Term Lender.

 

16.6.        Notice.

 

Any notice or request
hereunder may be given to any Loan Party or to Agent, any Lender or Term Lender
at their respective addresses set forth below or at such other address as may
hereafter be specified in a notice designated as a notice of change of address
under this Section 16.6.  Any notice
or request hereunder shall be given by (a) hand delivery, (b) overnight
courier, (c) registered or certified mail, return receipt requested, or (d) telecopy
to the number set out below (or such other number as may hereafter be specified
in a notice designated as a notice of change of address) with electronic
confirmation of its receipt.  Any notice
or other communication required or permitted pursuant to this Agreement shall
be deemed given (a) when personally delivered to any officer of the party
to whom it is addressed, (b) on the earlier of actual receipt thereof or
three (3) days following posting thereof by certified or registered mail,
postage prepaid, or (c) upon actual receipt thereof when sent by a
recognized overnight delivery service or (d) upon actual receipt thereof
when sent by telecopier to the number set forth

 

97

 

below with electronic
confirmation of its receipt, in each case addressed to each party at its
address set forth below or at such other address as has been furnished in
writing by a party to the other by like notice:

 

	
  (A)        If
  to Agent or HSBC:

  	
  HSBC
  Bank USA

  
	
   

  	
  452
  Fifth Avenue

  
	
   

  	
  New
  York, New York 10018

  
	
   

  	
  Attention:

  	
  Lisa
  Augustus

  
	
   

  	
  Telephone:

  	
  212-525-5147

  
	
   

  	
  Facsimile:

  	
  212-525-6905

  
	
   

  	
   

  
	
  with
  a copy to:

  	
  Hahn &
  Hessen LLP

  
	
   

  	
  488
  Madison Avenue

  
	
   

  	
  New
  York, New York 10022

  
	
   

  	
  Attention:

  	
  Steven
  Seif, Esq.

  
	
   

  	
  Telephone:

  	
  212-478-7200

  
	
   

  	
  Telecopier:

  	
  212-478-7400

  
	
   

  	
   

  	
   

  
	
  (B)        If
  to any other Lender or Term Lender, as specified on the signature pages hereof.

  
	
   

  	
   

  	
   

  
	
  (C)        If
  to Borrower

  	
  Rafaella
  Apparel Group, Inc.

  
	
   or any Loan Party:

  	
  1411
  Broadway

  
	
   

  	
  New
  York, NY 10018

  
	
   

  	
  Attention:

  	
  Lance
  Arneson

  
	
   

  	
  Telephone:

  	
  212-403-0300

  
	
   

  	
  Facsimile:

  	
  212-764-9275

  
	
   

  	
   

  
	
  with
  a copy to:

  	
  Zukerman
  Gore Brandeis &Crossman LLP

  
	
   

  	
  875
  Third Avenue

  
	
   

  	
  New
  York, New York 10022

  
	
   

  	
  Attention:

  	
  Clifford
  A. Brandeis, Esq.

  
	
   

  	
  Telephone:

  	
  212-223-6700

  
	
   

  	
  Facsimile:

  	
  212-223-6433

  
					

 

16.7.        Survival.

 

The obligations of Loan
Parties under Sections 2.2(g), 3.6, 3.8, 4.19(h) and 16.5 and the
obligations of Lenders and Term Lender under Section 14.7 shall survive
termination of this Agreement and the Other Documents and payment in full of
the Obligations.

 

16.8.        Severability.

 

If any part of this
Agreement is contrary to, prohibited by, or deemed invalid under applicable
laws or regulations, such provision shall be inapplicable and deemed omitted to
the extent so contrary, prohibited or invalid, but the remainder hereof shall
not be invalidated thereby and shall be given effect so far as possible.

 

98

 

16.9.        Expenses.

 

All costs and expenses
including, without limitation:

 

(a)           reasonable attorneys’ fees
and disbursements incurred by Agent and, with respect to clause (iv) below,
the applicable Lenders or Term Lender, (i) in all efforts made to enforce
payment of any Obligation or effect collection of any Collateral, or (ii) in
connection with the entering into, modification, amendment, administration and
enforcement of this Agreement or any consents or waivers hereunder and all
related agreements, documents and instruments, or (iii) in instituting,
maintaining, preserving, enforcing and foreclosing on Agent’s security interest
in or Lien on any of the Collateral, whether through judicial proceedings or
otherwise, or (iv) in defending or prosecuting any actions or proceedings
arising out of or relating to Agent’s, any Lender’s or Term Lender’s
transactions with Loan Parties under this Agreement or the Other Documents, or (v) in
connection with any advice given to Agent with respect to its rights and
obligations under this Agreement and all related agreements; and

 

(b)           reasonable fees and
disbursements incurred by Agent or Agent on behalf of Lenders and Term Lender
in connection with any appraisals of Inventory or other Collateral, field
examinations, collateral analysis or monitoring or other business analysis
conducted by outside Persons in connection with this Agreement and all related
agreements, provided that so long as no Default or Event of Default has
occurred and is continuing, the Loan Parties’ obligation with respect to such
fees and disbursements for field examinations shall be limited to two (2) such
field examinations in any calendar year;

 

may be charged to Borrower’s Account and shall be part of the
Obligations.

 

16.10.      Injunctive Relief.

 

Each Loan Party recognizes
that, in the event any Loan Party fails to perform, observe or discharge any of
its obligations or liabilities under this Agreement, any remedy at law may
prove to be inadequate relief to Lenders and Term Lender; therefore, Agent, if
Agent so requests, shall be entitled to temporary and permanent injunctive
relief in any such case without the necessity of proving that actual damages
are not an adequate remedy.

 

16.11.      Consequential Damages.

 

None of Agent, any Issuer,
any Lender, Term Lender, nor any agent or attorney for any of them, shall be
liable to any Loan Parties for consequential damages arising from any breach of
contract, tort or other wrong relating to the establishment, administration or
collection of the Obligations.

 

16.12.      Captions.

 

The captions at various places
in this Agreement are intended for convenience only and do not constitute and
shall not be interpreted as part of this Agreement.

 

99

 

16.13.      Counterparts; Telecopied
Signatures.

 

This Agreement may be executed
in any number of and by different parties hereto on separate counterparts, all
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement.  Any signature delivered by a party by facsimile
transmission or other electronic transmission (including via “pdf” or similar
format) shall be deemed to be an original signature hereto.

 

16.14.      Construction.

 

The parties acknowledge that
each party and its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.

 

16.15.      Confidentiality; Sharing
Information.

 

(a)           Agent, each Lender, Term
Lender and each Transferee shall hold all non-public information obtained by
Agent, such Lender, Term Lender or such Transferee pursuant to the requirements
of this Agreement in accordance with Agent’s, such Lender’s or Term Lender’s
and such Transferee’s customary procedures for handling confidential
information of this nature; provided, however, Agent, each
Lender, Term Lender and each Transferee may disclose such confidential
information (i) to its examiners, affiliates, outside auditors, counsel
and other professional advisors, (ii) to Agent, any Lender, Term Lender,
or to any prospective Transferees and Purchasing Lenders which agree to hold
such non-public information confidential in a manner similar to the provisions
of this Section 16.15, and (iii) as required or requested by any
Governmental Body or representative thereof or pursuant to legal process; provided,
further that (x) unless specifically prohibited by applicable law
or court order, Agent, each Lender, Term Lender and each Transferee shall use
reasonable efforts prior to disclosure thereof, to notify Loan Parties of the
applicable request for disclosure of such non-public information (A) by a
Governmental Body or representative thereof (other than any such request in
connection with an examination of the financial condition of a Lender, Term
Lender or a Transferee by such Governmental Body) or (B) pursuant to legal
process and (y) in no event shall Agent, any Lender, Term Lender or any
Transferee be obligated to return any materials furnished by any Loan Party
other than those documents and instruments in possession of Agent or any Lender
or Term Lender in order to perfect its Lien on the Collateral once the
Obligations have been paid in full and this Agreement has been terminated.

 

(b)           Each Loan Party acknowledges
that from time to time financial advisory, investment banking and other
services may be offered or provided to such Loan Party or one or more of its
Affiliates (in connection with this Agreement or otherwise) by any Lender or
Term Lender, or by one or more Subsidiaries or Affiliates of such Lender or
Term Lender, and each Loan Party hereby authorizes each Lender and Term Lender
to share any information delivered to such Lender or Term Lender by such Loan
Party and its Subsidiaries pursuant to this Agreement, or in connection with
the decision of such Lender or Term Lender to enter into this Agreement, to any
such Subsidiary or Affiliate of such Lender or Term Lender, it being understood
that any such Subsidiary or Affiliate of any Lender or Term Lender receiving
such

 

100

 

information shall be bound
by the provision of this Section 16.15 as if it were a Lender or Term
Lender hereunder.  Such authorization
shall survive the repayment of the Obligations and the termination of this
Agreement.

 

16.16.      Publicity.

 

Each Loan Party hereby
authorizes Agent, in consultation with the Borrower, to make appropriate
announcements of the financial arrangement entered into among Loan Parties,
Agent and Lenders, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Agent shall in its sole and absolute discretion deem appropriate.  In addition, each Loan Party authorizes Agent
to include such Loan Party’s name and logo in select transaction profiles and
client testimonials prepared by Agent for use in publications, company
brochures and other marketing materials of Agent.

 

101

 

Each of the parties has
signed this Financing Agreement as of the day and year first above written.

 

	
   

  	
  RAFAELLA
  APPAREL GROUP, INC.,

  
	
   

  	
  as
  Borrower

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
          /s/
  Lance D. Arneson

  
	
   

  	
  Name:
  Lance D. Arneson

  
	
   

  	
  Title:
  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VERRAZANO, INC.,

  
	
   

  	
  as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
          /s/
  Lance D. Arneson

  
	
   

  	
  Name:
  Lance D. Arneson

  
	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC
  BANK USA, NATIONAL ASSOCIATION,

  
	
   

  	
  as
  Agent and as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
     /s/
  Megan Dodd

  
	
   

  	
  Name:
  Megan Dodd

  
	
   

  	
  Title:
  Assistant Vice President

  
	
   

  	
   

  
	
   

  	
  Commitment
  Percentage

  
	
   

  	
  with
  respect to Advances: 100%

  
	
   

  	
  Commitment: $20,000,000

  

 

1821044 - Signature page to
Amended and Restated Financing Agreement

 

 

 

	
   

  	
  CERBERUS
  CAPITAL MANAGEMENT, L.P.,

  
	
   

  	
  as
  Term Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
        /s/
  Jeffrey Lomasky

  
	
   

  	
  Name:
  Jeff Lomasky

  
	
   

  	
  Title:
  Senior Managing Director

  
	
   

  	
   

  
	
   

  	
  Commitment
  Percentage

  
	
   

  	
  with
  respect to the Term Loan: 100%

  
	
   

  	
  Term Loan Commitment: $10,000,000

  

 

1821044 - Signature page to Amended
and Restated Financing Agreement

 

 

 

Exhibit A

 

Rafaella
Apparel Group, Inc. and Subsidiaries

HSBC
Bank USA, National Association

 

Financing
Agreement

As
of [period end] and for the [period] then ended

Amounts
in thousands

 

Accounts
Receivable and Sales

 

	
   

  	
   

  	
  Eligible

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Factored

  	
   

  	
  Eligible

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Receivables

  	
   

  	
  Receivables

  	
   

  	
  Combined

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Sales
  in Transit

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Current

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1 to
  30 Days

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Over
  30 Days

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Over
  60 Days

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Over
  90 Days

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  Accounts Receivable

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Gross
  Sales

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net
  Sales

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Month End Borrowings

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Direct
  Debt Advances

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Letters
  of Credit

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  Borrowings

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Letters of Credit

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Beginning
  of Period Balance*

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Net
  additions (deductions)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  End
  of Period Balance*

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

*Includes standby
L/C’s of [insert]

 

Inventory

 

	
  Year

  	
   

  	
  Season

  	
   

  	
   

  	
   

  	
  Units

  	
   

  	
  Value

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  Finished Goods Inventory

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  In-transit
  Inventory (FOB)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  In-transit
  Inventory (CMT)

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  In-transit Inventory

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total
  Inventory for Availability Calculation

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

Borrowing Base Calculation

 

	
  Availability Calculation

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible
  Receivables

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Eligible
  Factored Receivables

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Receivables (at 70% Advance Rate)*

  	
   

  	
   

  	
   

  	
  A

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Finished
  Goods Inventory

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  In-transit
  Inventory

  	
   

  	
   

  	
   

  	
  (Not
  to exceed $10,000)

  	
   

  
	
  Inventory
  Letters of Credit

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventory (at 50% Advance Rate)

  	
   

  	
   

  	
   

  	
  B

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventory Advance Cap**

  	
   

  	
  15,000

  	
   

  	
  C

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Inventory

  	
   

  	
   

  	
   

  	
  Lesser
  of B or C = D

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cash Collateral

  	
   

  	
   

  	
   

  	
  E

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Availability

  	
   

  	
   

  	
   

  	
  A+
  D+ E

  	
   

  
	
  Availability
  Reserve***

  	
   

  	
  (5,000

  	
  )

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Availability

  	
   

  	
   

  	
   

  	
  F
  (Not to exceed $20,000)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Direct
  Debt Advances

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Letters
  of Credit

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total Borrowings

  	
   

  	
   

  	
   

  	
  G

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  All Advances - Excess / Shortfall

  	
   

  	
   

  	
   

  	
  F
  - G = H

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Direct Debt - Excess / Shortfall

  	
   

  	
   

  	
   

  	
  Lesser
  of (i) H, (ii) A, or (iii) $10,000

  	
   

  

 

*From the Closing Date
through December 31, 2010, 70% and (ii) from and after January 1, 2011, 65%.

 

**Shall mean (a) $15,000
from the Closing Date through March 31, 2010, (b) $10,000 from April 1, 2010  through September 30, 2010, (c) $5,000
from October 1, 2010 through December 31, 2010 and (d) $0 from and after January
1, 2011.

 

***Shall mean (a) $5,000
from the Closing Date through December 31, 2010 and (b) $0 on and  after January 1, 2011.

 

 

Exhibit 2.1(a)

 

SECOND AMENDED AND RESTATED REVOLVING CREDIT
NOTE

 

	
  $20,000,000.00

  	
  New York, New York

  
	
   

  	
  March     ,
  2010

  

 

This Second Amended and Restated Revolving Credit Note (this “Note”) is
executed and delivered under and pursuant to the terms of that certain Amended
and Restated Financing Agreement dated as February     ,
2010 (as amended, modified, supplemented or restated from time to time, the “Financing
Agreement”) by and among RAFAELLA APPAREL GROUP, INC., a Delaware corporation (“Borrower”),
VERRAZANO, INC., a New York corporation, each other subsidiary of the Borrower
which becomes a guarantor of the obligations thereunder from time to time, HSBC
BANK USA, NATIONAL ASSOCIATION (“HSBC”), the various other financial
institutions named therein or which hereafter become a party thereto (together
with HSBC, collectively, the “Lenders”), CERBERUS CAPITAL MANAGEMENT, L.P., as
the term loan lender (“Term Lender”) and HSBC as agent for Term Lender and the
Lenders (HSBC, in such capacity, “Agent”). 
Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Financing Agreement.

 

FOR VALUE RECEIVED, Borrower hereby promises to pay to the order of HSBC,
at Agent’s offices located at 452 Fifth Avenue, New York, New York  10018 or at such other place as the holder
hereof may from time to time designate to Borrower in writing:

 

(i)            the principal sum of TWENTY MILLION DOLLARS ($20,000,000.00),
or if different from such amount, the unpaid principal balance of Revolving Advances
as may be due and owing from time to time under the Financing Agreement,
payable in accordance with the provisions of the Financing Agreement, subject
to acceleration upon the occurrence of an Event of Default under the Financing Agreement,
or earlier termination of the Financing Agreement pursuant to the terms
thereof; and

 

(ii)           interest on the principal amount of this Note from time to
time outstanding, payable at the applicable Revolving Interest Rate in
accordance with the provisions of the Financing Agreement.  Upon and after the occurrence of an Event of
Default, and during the continuation thereof, interest shall be payable at the
applicable Default Rate.  In no event,
however, shall interest hereunder exceed the maximum interest rate permitted by
law.

 

This Note is the Revolving Credit Note referred to in the Financing Agreement
and is secured, inter alia, by the liens granted pursuant to the Financing Agreement
and the Other Documents, is entitled to the benefits of the Financing Agreement
and the Other Documents, and is subject to all of the agreements, terms and
conditions therein contained.

 

This Note may be voluntarily prepaid, in whole or in part, on the terms
and conditions set forth in the Financing Agreement.

 

If an Event of Default under Section 10.7 of
the Financing Agreement shall occur, then this Note shall immediately become
due and payable, without notice, together with reasonable attorneys’ fees if
the collection hereof is placed in the hands of an attorney to obtain or
enforce payment hereof.  If any other
Event of Default shall occur under the Financing Agreement or any

 

 

of the Other Documents which
is not cured within any applicable grace period, then this Note may, as
provided in the Financing Agreement, be declared to be immediately due and
payable, without notice, together with reasonable attorneys’ fees, if the
collection hereof is placed in the hands of an attorney to obtain or enforce
payment hereof.

 

This Note shall be governed by and construed in accordance with the
laws of the State of New York.

 

This Note amends and restates in its entirety, and is given in
substitution for (but not in satisfaction of) that certain Amended and Restated
Revolving Credit Note dated as of September 25, 2009 made by the Borrower
in favor of HSBC in the principal amount of $30,000,000.

 

*            *            *

 

 

Borrower expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind except as expressly provided in the Financing Agreement.

 

 

	
   

  	
  RAFAELLA APPAREL GROUP,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name: Lance D. Arneson

  
	
   

  	
   

  	
  Title: Chief Financial Officer

  

 

 

Exhibit 2.4

 

SWINGLINE
NOTE

 

	
  $5,000,000.00

  	
  New York, New
  York

  
	
   

  	
  June 20,
  2005

  

 

This Swingline Note (this
“Note”) is executed and delivered under and pursuant to the terms of
that certain Financing Agreement dated as of the date hereof (as amended,
modified, supplemented or restated from time to time, the “Financing Agreement”)
by and among RAFAELLA APPAREL GROUP, INC., a Delaware corporation (“Borrower”),
VERRAZANO, INC., a New York corporation, each other subsidiary of the Borrower
which becomes a guarantor of the obligations thereunder from time to time, HSBC
BANK USA, NATIONAL ASSOCIATION (“HSBC”), the various other financial
institutions named therein or which hereafter become a party thereto (together
with HSBC, collectively, the “Lenders”) and HSBC as agent for the
Lenders (in such capacity, “Agent”). 
Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Financing Agreement.

 

FOR VALUE RECEIVED,
Borrower hereby promises to pay to the order of HSBC, as Swingline Lender, at
Agent’s offices located at 452 Fifth Avenue, New York, New York  10018, or at such other place as the holder
hereof may from time to time designate to Borrower in writing:

 

(i)            the principal sum of FIVE MILLION DOLLARS
($5,000,000.00), or if different from such amount, the unpaid principal balance
of Swingline Loans as may be due and owing from time to time under the Financing
Agreement, payable in accordance with the provisions of the Financing Agreement,
subject to acceleration upon the occurrence of an Event of Default under the Financing
Agreement, or earlier termination of the Financing Agreement pursuant to the
terms thereof; and

 

(ii)           interest on the unpaid principal
amount of this Note from time to time outstanding, payable in the manner set
forth in the Financing Agreement.  In no
event, however, shall interest hereunder exceed the maximum interest rate
permitted by law.

 

This Note is the
Swingline Note referred to in the Financing Agreement and is secured, inter
alia, by the liens granted pursuant to the Financing Agreement and the
Other Documents, is entitled to the benefits of the Financing Agreement and the
Other Documents, and is subject to all of the agreements, terms and conditions
therein contained.

 

This Note may be
voluntarily prepaid at any time, in whole or in part, on the terms and
conditions set forth in the Financing Agreement without premium or penalty.

 

If an Event of Default
under Section 10.7 of the Financing Agreement shall occur, then this Note
shall immediately become due and payable, without notice, together with reasonable
attorneys’ fees if the collection hereof is placed in the hands of an attorney
to obtain or enforce payment hereof.  If
any other Event of Default shall occur under the Financing Agreement or any of
the Other Documents which is not cured within any applicable grace period, then
this Note

 

 

may, as provided in the Financing
Agreement, be declared to be immediately due and payable, without notice,
together with reasonable attorneys’ fees, if the collection hereof is placed in
the hands of an attorney to obtain or enforce payment hereof.

 

This Note shall be
governed by and construed in accordance with the laws of the State of New York.

 

*            *            *

 

 

Borrower expressly waives
any presentment, demand, protest, notice of protest, or notice of any kind
except as expressly provided in the Financing Agreement.

 

	
   

  	
  RAFAELLA APPAREL GROUP,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Exhibit 2.17

 

TERM
NOTE

 

	
  $[10,000,000]

  	
  New York, New York

  
	
   

  	
  March     , 2010

  

 

This Term Note (this “Note”) is executed and delivered under and
pursuant to the terms of that certain Amended and Restated Financing Agreement
dated as of February     , 2010 (as amended, modified,
supplemented or restated from time to time, the “Financing Agreement”) by and
among RAFAELLA APPAREL GROUP, INC., a Delaware corporation (“Borrower”),
VERRAZANO, INC., a New York corporation, each other subsidiary of the Borrower
which becomes a guarantor of the obligations thereunder from time to time, HSBC
BANK USA, NATIONAL ASSOCIATION (“HSBC”), the various other financial
institutions named therein or which hereafter become a party thereto (together
with HSBC, collectively, the “Lenders”), CERBERUS CAPITAL MANAGEMENT, L.P., as
the term loan lender (“Term Lender”) and HSBC as agent for Term Lender and the
Lenders (HSBC, in such capacity, “Agent”). 
Capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the Financing Agreement.

 

FOR VALUE RECEIVED, Borrower promises to pay to the order of Term
Lender at Agent’s offices located at 452 Fifth Avenue, New York, New York  10018 or at such other place as the Term
Lender may from time to time designate to Borrower in writing:

 

(i)            the principal sum
of [TEN MILLION] DOLLARS ($[10,000,000]), or if different from such amount, the
unpaid principal balance of the Term Loan as may be due and owing from time to
time under the Financing Agreement, payable in accordance with the provisions
of the Financing Agreement, subject to acceleration upon the occurrence of an
Event of Default under the Financing Agreement or earlier termination of the Financing
Agreement pursuant to the terms thereof; and

 

(ii)           interest on the
principal amount of this Note from time to time outstanding payable at the
applicable Revolving Interest Rate in accordance with the provisions of the Financing
Agreement.  Upon and after the occurrence
of an Event of Default, and during the continuation thereof, interest shall be
payable at the applicable Default Rate. 
In no event, however, shall interest hereunder exceed the maximum
interest rate permitted by law.

 

This Note is one of the Term Notes referred to in the Financing
Agreement and is secured, inter  alia, by the liens granted
pursuant to the Financing Agreement and the Other Documents, is entitled to the
benefits of the Loan Agreement and the Other Documents, and is subject to all
of the agreements, terms and conditions therein contained.

 

This Note is subject to mandatory prepayment and may be voluntarily
prepaid, in whole or in part, on the terms and conditions set forth in the
Financing Agreement.

 

If an Event of Default under Section 10.7 of the Financing
Agreement shall occur, then this Note shall immediately become due and payable,
without notice, together with attorneys’ fees if the collection hereof is
placed in the hands of an attorney to obtain or enforce payment hereof.  If any other Event of Default shall occur
under the Financing Agreement or any of the Other Documents which is not cured
within any applicable grace period, then this Note may, as

 

 

provided in the Financing Agreement, be declared to be
immediately due and payable, without notice, together with attorneys’ fees, if
the collection hereof is placed in the hands of an attorney to obtain or
enforce payment hereof.

 

This Note shall be governed by and construed in accordance with the
laws of the State of New York.

 

2

 

Borrower expressly waives any presentment, demand, protest, notice of
protest, or notice of any kind except as expressly provided in the Financing
Agreement.

 

 

	
   

  	
  RAFAELLA APPAREL GROUP,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
  Name: Lance D. Arneson

  
	
   

  	
  Title: Chief
  Financial Officer

  

 

 

Exhibit 6.9

 

JOINDER

 

TO

 

FINANCING
AGREEMENT

 

THIS JOINDER (this “Joinder”) is entered into
as of                       , 20    ,
by and among RAFAELLA
APPAREL GROUP, INC., a Delaware corporation (“Borrower”),
Verrazano, Inc., a New York corporation (“Verrazano”),                                               ,
a                           
              
(“New Subsidiary” and, collectively with Verrazano, the “Guarantors”;
each a “Guarantor”), HSBC BANK USA, NATIONAL ASSOCIATION (“HSBC”),
the other financial institutions which are now or which hereafter become a
party hereto (each a “Lender” and collectively, the “Lenders”), CERBERUS
CAPITAL MANAGEMENT, L.P., as the term loan lender (“Term Lender”) and
HSBC, as agent for the Lenders and the Term Lender (in such capacity,  “Agent”).

 

BACKGROUND

 

Borrower, Verrazano, Agent, Lenders and the
Term Lender are parties to an Amended and Restated Financing Agreement, dated February     ,
2010 (as amended, restated, modified and/or supplemented from time to time, the
“Financing Agreement”) pursuant to which Agent, Lenders and the Term Lender
provide Borrower with certain financial accommodations.

 

Borrower has informed Agent, Lenders and the
Term Lender of the formation of New Subsidiary on                 
    , 20     and, pursuant to Section 6.9
of the Financing Agreement, Borrower has agreed to include New Subsidiary as a
Guarantor under the Financing Agreement. 
Agent, Lenders and the Term Lender have agreed to the formation of New
Subsidiary, which shall become a party to the Financing Agreement on the terms
and conditions set forth below.

 

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

 

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

 

2.                                       Joinder.

 

(a)                                  New Subsidiary
hereby agrees to be obligated as an additional Borrower under the Financing
Agreement and the Other Documents, and all references to “Guarantor” and “Guarantors”
thereunder and under the Other Documents shall include New Borrowers.

 

(b)                                 New Subsidiary
hereby adopts the Financing Agreement, assumes in full, and acknowledges that
it is jointly and severally liable for, the payment, discharge, satisfaction
and performance of all Obligations under the Financing Agreement and the Other
Documents.

 

 

New
Subsidiary hereby grants to Agent, Lenders and the Term Lender a continuing
lien and security interest in all presently existing and hereafter arising
Collateral which Subsidiary now or may hereafter own or has an interest in,
wherever located, to secure the prompt repayment of any and all Obligations
owed to Agent, Lenders and the Term Lender and to secure the prompt performance
by Borrower of each and all of its covenants and obligations under the
Financing Agreement and under the Other Documents.

 

3.                                       Conditions of
Effectiveness.  This
Agreement shall become effective, and Borrower shall be deemed to have
satisfied the provisions of Section 6.9 of the Financing Agreement as of
the date hereof upon satisfaction of the following conditions:  Agent shall have received:

 

(a)                                  Six (6) copies
of this Joinder duly executed by New Subsidiary, Borrower and each other Guarantor;

 

(b)                                 All of the data
required to be set forth on Schedules 4.5, 4.15(c), 5.2(a), 5.2(b), 5.4 and 5.6
with respect to Subsidiaries of Borrower, including New Subsidiary, the
furnishing of such data in writing shall be deemed to supplement such Schedules
for all purposes of the Financing Agreement;

 

(c)                                  a Secretary’s
Certificate and resolutions, all in form and substance reasonably satisfactory
to Agent and its counsel, of the board of directors of New Subsidiary
authorizing (1) the execution, delivery and performance of this Joinder
and (2) the granting by New Subsidiary of the liens created by the
Financing Agreement, and such certificate shall state that the resolutions
thereby certified have not been amended, modified, revoked or rescinded as of
the date of such certificate;

 

(d)                                 a copy of the
certificate of incorporation and by-laws of New Subsidiary, and all amendments
thereto, such certificate of incorporation shall have been certified by the
Secretary of State or other appropriate official of its jurisdiction of
incorporation;

 

(e)                                  good standing
certificates for New Subsidiary dated not more than thirty (30) days prior to
the date of this Joinder, issued by the Secretary of State or other appropriate
official of New Subsidiary’s jurisdiction of formation and each jurisdiction
where the conduct of New Subsidiary’s business activities or the ownership of
their respective properties necessitates qualification;

 

(f)                                    executed
opinions of counsel in form and substance satisfactory to Agent, which shall
cover such matters which were opined upon in the opinion letters furnished with
respect to Verrazano on the Closing Date, as such matters apply to New Subsidiary;
and

 

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

 

4.                                       Representations
and Warranties.  Each of
Borrower and Guarantors (including New Subsidiary) hereby represents, warrants
and covenants as follows:

 

2

 

(a)                                  This Joinder,
the Financing Agreement and the Other Documents are and shall continue to be
legal, valid and binding obligations of each of Borrower and Guarantors,
respectively, and are enforceable against Borrower and each Guarantor in
accordance with their respective terms.

 

(b)                                 Upon the
effectiveness of this Joinder, Borrower and each Guarantor hereby reaffirms all
covenants, representations and warranties made in the Financing Agreement and
Other Documents and agree that all such covenants, representations and
warranties shall be deemed to have been remade and are true and correct in all
material respects as of the effective date of this Joinder, after giving effect
to this Joinder.

 

(c)                                  Each of Borrower
and each Guarantor has the corporate power, and has been duly authorized by all
requisite corporate action, to execute and deliver this Joinder and to perform
its obligations hereunder.  This Joinder
has been duly executed and delivered by each of Borrower and each Guarantor.

 

(d)                                 Each of Borrower
and each Guarantor has no defense, counterclaim or offset with respect to the Financing
Agreement or the Other Documents.

 

(e)                                  The Financing
Agreement and Other Documents are in full force and effect, and are hereby
ratified and confirmed.

 

(f)                                    The recitals
set forth in the Background section above are truthful and accurate and are an
operative part of this Joinder.

 

(g)                                 Agent, Lenders and
the Term Lender have and will continue to have a valid first priority lien and
security interest in all Collateral except for liens permitted by the Financing
Agreement, and each of Borrower and each Guarantor expressly reaffirms all
guarantees, security interests and liens granted to Agent, Lenders and the Term
Lender pursuant to the Financing Agreement and the Other Documents.

 

(h)                                 After giving effect
to this Joinder, no Defaults or Events of Default are in existence.

 

5.                                       Effect of Joinder.

 

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

 

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

 

6.                                       Governing Law.  This Joinder shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns and shall be governed by and construed in accordance with the laws of
the State of  New York.

 

3

 

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

 

8.                                       Counterparts;
Facsimile.  This Joinder
may be executed by the parties hereto in one or more counterparts, each of
which shall be deemed an original and all of which when taken together shall
constitute one and the same document. 
Any signature delivered by a party by facsimile or electronic transmission
(including by .pdf or other similar format) shall be deemed to be an original
signature hereto.

 

4

 

IN WITNESS WHEREOF, this
Joinder to Financing Agreement has been duly executed as of the day and year
first written above.

 

 

	
   

  	
  [NEW
  SUBSIDIARY]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RAFAELLA
  APPAREL GROUP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  VERRAZANO,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
  [OTHER
  GUARANTORS, IF ANY]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

Exhibit 16.3

 

COMMITMENT TRANSFER SUPPLEMENT

 

COMMITMENT TRANSFER SUPPLEMENT, dated as of                   
    , 20     among                                                         
(“                  ”)
(                  ,
in such capacity, the “Transferor Lender”),                                                         
(“                  ”)
(                  ,
in such capacity the “Purchasing Lender”), HSBC BANK USA, NATIONAL ASSOCIATION
(“HSBC”), as Agent for Lenders and the Term Loan Lender under the Financing
Agreement (as those terms are hereafter defined) and RAFAELLA APPAREL GROUP,
INC. (“Borrower”).

 

W  I  T  N  E  S  S
E  T  H:

 

WHEREAS, this Commitment Transfer Supplement is being executed and
delivered in accordance with the Amended and Restated Financing Agreement dated
February     , 2010 (as amended, modified, restated
and supplemented from time to time, the “Financing Agreement”) by and among
Borrower, Verrazano, Inc., and each other subsidiary of the Borrower which
becomes a guarantor of the obligations thereunder from time to time, each of
the financial institutions named therein or which from time to time become a
party thereto (each individually, a “Lender” and collectively, “Lenders”), Cerberus
Capital Management, L.P., as the term loan lender (“Term Lender”) and HSBC as
agent for Lenders and the Term Lender (HSBC, in such capacity, “Agent”); and

 

WHEREAS, the Transferor Lender is selling and assigning to the
Purchasing Lender, certain rights, obligations and commitments under the
Financing Agreement and the Purchasing Lender is committing to make available
Advances [if applicable, make a portion of the Term Loan](1) under the
Financing Agreement.

 

NOW, THEREFORE, the parties hereto hereby agree as follows:

 

1.             All
capitalized terms used herein which are not defined shall have the meanings
given to them in the Financing Agreement.

 

2.             Upon
receipt by Agent of four (4) counterparts of this Commitment Transfer
Supplement, to each of which is attached a fully completed Schedule I,
and each of which has been executed by Transferor Lender, Purchasing Lender,
Borrower and Agent, Agent will transmit to Transferor Lender and Purchasing
Lender a Transfer Effective Notice, substantially in the form of Schedule II
to this Commitment Transfer Supplement (a “Transfer Effective Notice”).  Such Transfer Effective Notice shall set
forth, inter  alia, the date on which the transfer affected by
this Commitment Transfer Supplement shall become effective which date shall be                       ,
20     (the “Transfer Effective Date”).

 

(1) Select
applicable references depending on whether the transfer relates to Advances or
the Term Loan.

 

 

3.             At or before 12:00 Noon (New York
City time) on the Transfer Effective Date, Purchasing Lender shall pay to
Transferor Lender, in immediately available funds, an amount (the “Purchase
Price”) equal to such Purchasing Lender’s Commitment Percentage (as set forth
on Schedule I) (the “Purchased Commitment Percentage”) of the
outstanding [Advances] [principal balance of the Term Loan] and other amounts
owing to the Transferor Lender under the Financing Agreement and the Other
Documents in respect of Purchased Commitment Percentage of [the outstanding
Advances] [the Term Loan Commitment or Term Loan, as applicable].  Effective upon receipt by Transferor Lender
of the Purchase Price from the Purchasing Lender, Transferor Lender hereby
irrevocably sells, assigns and transfers to such Purchasing Lender, without
recourse, representation or warranty (except as hereinafter provided), and
Purchasing Lender hereby irrevocably purchases, takes and assumes from
Transferor Lender, such Purchasing Lender’s Purchased Commitment Percentage of [the
outstanding Advances and the Commitments] [the Term Loan Commitment or the Term
Loan, as applicable] and other amounts owing to the Transferor Lender under the
Financing Agreement and the Other Documents in respect thereof.

 

4.             Transferor
Lender has made arrangements with Purchasing Lender with respect to the
portion, if any, to be paid, and the date or dates for payment, by Transferor
Lender to such Purchasing Lender of any fees heretofore received by Transferor
Lender with respect to the Purchased Commitment Percentage, as applicable,
pursuant to the Financing Agreement prior to the Transfer Effective Date.

 

5.             (a)           All principal payments that would
otherwise be payable from and after the Transfer Effective Date to or for the
account of Transferor Lender with respect to the Transferor Lender’s Commitment
Percentage of the [Advances] [the Term Loan] pursuant to the Financing
Agreement shall, instead, be payable to or for the account of Purchasing Lender
with respect to its applicable Purchased Commitment Percentage of the
[Advances] [Term Loan] and to Transferor Lender with respect to its retained Commitment
Percentage of the [Advances] [Term Loan], each as reflected in this Commitment
Transfer Supplement and Schedule I hereto.

 

(b)             All interest, fees and other
amounts that would otherwise accrue for the account of Transferor Lender from
and after the Transfer Effective Date pursuant to the Financing Agreement and
the Other Documents with respect to the Transferor Lender’s Commitment
Percentage of the [Advances] [Term Loan] shall, instead, accrue for the account
of, and be payable to, Purchasing Lender with respect to its Purchased
Commitment Percentage of the [Advances] [Term Loan] and to Transferor Lender
with respect to its retained Commitment Percentage of the [Advances] [Term
Loan], each as reflected in this Commitment Transfer Supplement and Schedule
I hereto .

 

6.             Two
(2) Business Days after the Transfer Effective Date, Transferor Lender
will deliver to the Agent its [Revolving Credit Note and/or Swingline Note, as
the case may be] [Term Note] [the Revolving Credit Note and/or Swingline Note]
[Term Note] is referred to herein as the “Note”).  In accordance with the Financing Agreement,
two (2) Business Days after the Transfer Effective Date, Borrower will
deliver to the Agent a new Note for Purchasing Lender in the principal amount
reflecting, in accordance with the Financing Agreement, its Commitment
Percentage of the [Commitments] [Term Loan Commitment or Term Loan, as
applicable] (as adjusted pursuant to this Commitment Transfer Supplement).  The new Note shall 

 

 

be dated the Transfer Effective Date and shall state that they are delivered
in substitution for the Note executed on the Closing Date or a prior Transfer
Effective Date, as the case may be. 
Promptly after the Transfer Effective Date, Agent will send to the
Purchasing Lender its new Note and the Agent will surrender the superseded Note
in exchange therefor to Borrower, marked “Cancelled by Substitution”.

 

7.             On
the Transfer Effective Date, the Purchasing Lender shall pay to Agent a fee in
the amount of $3,500.

 

8.             Each
of the parties to this Commitment Transfer Supplement agrees that at any time
and from time to time upon the written request of any other party, it will
execute and deliver such further documents and do such further acts and things
as such other party may reasonably request in order to effect the purposes of
this Commitment Transfer Supplement.

 

9.             By
executing and delivering this Commitment Transfer Supplement, Transferor Lender
and Purchasing Lender confirm to and agree with each other and Agent as
follows:  (i) other than the
representation and warranty that (x) it is the legal and beneficial owner
of the interest being assigned hereby free and clear of any adverse claim and (y) it
is not aware of the existence of any Event of Default as of the date hereof,
Transferor Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Financing Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Financing Agreement, the Other Documents or any other instrument or document
furnished pursuant thereto; (ii) Transferor Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of any Loan Party or any affiliates of any Loan Party or the
performance or observance by any Loan Party or any affiliates of any Loan Party
of any of their Obligations under the Financing Agreement, or any Other
Document; (iii) Purchasing Lender confirms that it has received a copy of
the Financing Agreement, together with copies of such financial statements and
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Commitment Transfer
Supplement; (iv) Purchasing Lender will, independently and without
reliance upon Agent, Transferor Lender or any other Lenders and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the
Financing Agreement; (v) Purchasing Lender appoints and authorizes Agent
to take such action as agent on its behalf and to exercise such powers under
the Financing Agreement as are delegated to the Agent by the terms thereof and
Agent agrees to accept such appointment and exercise all such powers in
accordance with the terms of the Financing Agreement; (vi) Purchasing
Lender and Agent agree that they will perform all of their respective
obligations as set forth in the Financing Agreement to be performed by each as
a Lender and as Agent, respectively; and (vii) Purchasing Lender
represents and warrants to Transferor Lender, Lenders, Term Lender, Agent and
Borrower that, if Purchasing Lender is not a “United States
Person” as defined in Section 7701(a)(30) of the Code, it is either (x) entitled to the
benefits of an income tax treaty with the United States of America that
provides for an exemption from the United States withholding tax on interest
and other payments made by Borrower under the Financing Agreement and the Other
Documents or (y) otherwise entitled to a complete exemption from such
withholding tax.

 

 

10.           Schedule
I hereto sets forth the revised Commitment Percentages of Transferor Lender
and Purchasing Lender as well as administrative information with respect to
Purchasing Lender.

 

11.           This
Commitment Transfer Supplement shall be governed by, and construed in
accordance with, the laws of the State of New York.

 

12.           This
Commitment Transfer Supplement may be executed in one or more counterparts,
each of which taken together shall constitute one and the same instrument.

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Commitment
Transfer Supplement to be executed by their respective duly authorized officers
on the date set forth above.

 

 

	
   

  	
  [                                                ],
  as Transferor Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name: 

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL ASSOCIATION, as Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [                                              ],
  as Purchasing Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RAFAELLA APPAREL GROUP, INC., as Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

 

SCHEDULE I TO COMMITMENT TRANSFER SUPPLEMENT

 

LIST OF OFFICES, ADDRESSES FOR NOTICES AND COMMITMENT
AMOUNTS

AND COMMITMENT PERCENTAGES

 

	
  [Transferor Lender]

  	
  Existing Commitment

  	
   

  	
  $

  	
   

  
	
   

  	
  Existing Commitment
  Percentage

  	
   

  	
   

  	
  %

  
	
   

  	
  Existing Term Loan
  Commitment/Term Loan

  	
   

  	
  $

  	
   

  
	
   

  	
  Existing Term Loan
  Commitment Percentage

  	
   

  	
   

  	
  %

  
	
   

  	
  Revised Commitment

  	
   

  	
  $

  	
   

  
	
   

  	
  Revised Commitment
  Percentage

  	
   

  	
   

  	
  %

  
	
   

  	
  Revised Term Loan
  Commitment/Term Loan

  	
   

  	
  $

  	
   

  
	
   

  	
  Revised Term Loan
  Commitment Percentage

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  [Purchasing Lender]

  	
  Commitment

  	
   

  	
  $

  	
   

  
	
   

  	
  Commitment Percentage

  	
   

  	
   

  	
  %

  
	
   

  	
  Term Loan
  Commitment/Term Loan

  	
   

  	
  $

  	
   

  
	
   

  	
  Term Loan Commitment
  Percentage

  	
   

  	
   

  	
  %

  

 

Addresses for Notices

 

Purchasing Lender:

 

 

 

Attention:

Telephone:

Facsimile:

 

	
  Revolving
  Advance Balance of Transferor Lender as of the Transfer Effective Date

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Term
  Loan Balance of Transferor Lender as of the Transfer Effective Date

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Interest
  and Fees accrued to the Transfer Effective Date

  	
   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total Payout
  Amount

  	
   

  	
  $

  	
   

  

 

 

SCHEDULE II TO COMMITMENT TRANSFER SUPPLEMENT

 

Form of Transfer Effective Notice

 

The undersigned,
as Agent (“Agent”) under the Amended and Restated Financing Agreement dated February     ,
2010, (the “Financing Agreement”) by and among RAFAELLA APPAREL GROUP, INC. (“Borrower”),
Verrazano, Inc., and each other subsidiary of the Borrower which becomes a
guarantor of the obligations thereunder from time to time, the financial
institutions named in or which hereafter become a party to the Financing
Agreement (collectively, “Lenders”),  CERBERUS
CAPITAL MANAGEMENT, L.P., as the term loan lender (“Term Lender”) and HSBC BANK
USA, NATIONAL ASSOCIATION, as agent for Lenders and the Term Loan Lender,
acknowledges receipt of four (4) executed counterparts of a completed
Commitment Transfer Supplement in the form attached hereto.  Terms defined in such Commitment Transfer
Supplement are used herein as therein defined.

 

1.             Pursuant to such Commitment
Transfer Supplement, you are advised that the Transfer Effective Date will be
[insert date of Transfer Effective Notice].

 

2.             Pursuant to such Commitment
Transfer Supplement, Transferor Lender is required to deliver to Agent two (2) Business
Days after the Transfer Effective Date, its Note.

 

3.             Pursuant to the Financing
Agreement, Borrower is required to deliver to Agent on two (2) Business
Days after the Transfer Effective Date the following Note dated [insert
Transfer Effective Date] in substitution for the existing Note held by
[Transferor Lender]:

 

[describe
replacement note]

 

 

	
   

  	
  HSBC BANK USA, NATIONAL
  ASSOCIATION, as Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Title:

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