Document:

Exhibit 10.10

 

GMAC COMMERCIAL FINANCE LLC

FACTORING AGREEMENT

 

[Collection w/o Advances]

 

RAFAELLA APPAREL GROUP, INC.

1411 BROADWAY

NEW YORK NY 10018

 

Effective
as of June 20, 2005 GMAC COMMERCIAL FINANCE
LLC and Rafaella Apparel Group, Inc. agree that Factor shall act as
Client’s sole factor upon the following terms and conditions:

 

1.        DEFINITIONS

 

All
initially capitalized terms used in this agreement are defined in Rider I
attached hereto. All other terms used herein, unless otherwise defined herein,
shall have the meanings given such terms in the UCC.

 

2.        COVERED SALES; SECURITY INTEREST

 

(a)       Client hereby assigns and sells to Factor, as absolute owner, and Factor
hereby purchases from Client, all Accounts assigned to Client on the date
hereof by Rafaella Sportswear, Inc. and all Accounts created on or after the
Effective Date that are specifically assigned hereunder by Client to Factor
from time to time and that arise from Client’s sale of merchandise or rendition
of services. Factor’s purchase of and acquisition of title to each Account so
assigned will be effective as of the date of its creation and will be entered
on Factor’s books when Client furnishes Factor with a copy of the invoice
evidencing such Account or electronically transmits to Factor the details of
the invoice in accordance with Paragraph 8(a) hereof.

 

(b)       Client hereby grants to Factor a continuing security interest in all of
the Collateral as security for all Obligations.

 

3.        CUSTOMER CREDIT APPROVAL

 

Client
shall submit to Factor the principal terms of each of Client’s Customers’
orders for Factor’s written credit approval. Factor may, in Factor’s
discretion, approve in writing all or a portion of Client’s Customers’ orders,
either by establishing a credit line limited to a specific amount for a
specific Customer, or by approving all or a portion of a proposed purchase
order submitted by Client. No credit approval shall be effective (a) unless in
writing or transmitted by Factor electronically; (b) unless the goods are
shipped or the services rendered within the time specified in Factor’s written
credit approval or within forty-five (45) days after the approval is given, if
no time is specified and (c) unless the assignment of the invoice evidencing
the applicable Account is received by Factor, in accordance with Paragraph 8(a)
hereof, within ten (10) business days from the date of such invoice. After the
Customer has accepted delivery of the goods or performance of the services,
Factor shall then have the Credit Risk (but not the risk of non-payment for any
other reason), to the extent of the dollar amount specified in the credit
approval, on all Accounts evidenced by invoices which arise from orders
approved by Factor in writing except for those Accounts evidenced by invoices
less than Two Hundred Fifty Dollars ($250.00) and invoices evidencing charges
for samples supplied to Client’s Customers. Factor shall have neither the
Credit Risk nor the risk of non-payment for any other reason on Accounts
arising from orders not approved by Factor in writing. Factor may withdraw
Factor’s credit approval or withdraw or adjust a credit line at any time before
Client delivers the goods or renders the services.

 

4.        PURCHASE PRICE OF ACCOUNTS; RESERVES

 

The
purchase price of Accounts is the Net Face Amount thereof less Factor’s
commission. The purchase price will be credited to Client’s account on the
Settlement Date. Factor may deduct Reserves from the amount payable to Client
on any Settlement Date.

 

5.        COMMISSIONS

 

(a)       For Factor’s services, Factor shall charge to Client’s account monthly,
as of the 15th day of each month, a commission at the rate of (x) three-tenths
of one percent (0.30%) of the gross face amount of each invoice evidencing an
Account with respect to which the Customer is May Department Stores Co., Belk,
Inc. or Saks Fifth Avenue, or (y) four-tenths of one percent (0.40%) of the
gross amount of each invoice evidencing any other Account, in either case
created during such month on terms not exceeding sixty (60) days including
dating, plus an additional one-quarter of one percent (1⁄4%) for each additional
thirty (30) days or portion thereof of selling terms; provided, however, that
if Client changes the terms of any invoice whether or not Factor consents to
such change (it being understood that nothing in this provision diminishes
Factor’s rights or Client’s obligations under any other provision hereof
including but not limited to Paragraph 8), then the commission on the gross
face amount of that invoice shall be the commission hereinabove set forth plus
one-quarter of one percent (1⁄4%) for each thirty (30) days or portion thereof of
such change. Factor’s commission on any invoice evidencing an Account shall not
be less than Two Dollars ($2.00).

 

(b)       Anything in the preceding Paragraph 5(a) to the contrary
notwithstanding, Client acknowledges and agrees that Factor may from time to
time impose surcharges upon the commissions set forth in Paragraph 5(a) with
respect to invoices owing to Client by certain Customers from time to time
designated by Factor (as designated by Factor from time to time, the “Specified
Customers”). Attached hereto as Schedule 5(b) is a schedule of the
Specified Customers, as currently designated, and the surcharges currently in
effect in respect of each. Factor shall, from time to time in the exercise of
its sole discretion, revise such schedule of Specified Customers and related
surcharges (as revised from time to time, the “Surcharge Schedule”), which
revisions shall be effective upon the posting thereof on a website maintained
by, or on behalf of, Factor (or, if Factor

 

 

chooses to mail a revised Surcharge Schedule
rather than post it on its website, three (3) business days after the deposit
thereof in the US mail, addressed to Client’s chief executive offices at the address
therefor set forth on Schedule 7(d) hereto).

 

6.        CHARGES; BALANCES

 

Factor
may charge to Client’s account all Obligations. Unless otherwise specified, all
Obligations shall be payable on demand. All amounts, if any, that Factor, in
the exercise of its sole discretion, pays or makes available to Client or for
Client’s account in excess of the purchase price of Accounts shall be
chargeable to Client’s account when paid or made available to Client. Factor
may also charge to Client’s account interest on the average daily balance of
all Obligations, if any, which are outstanding during each month at the
Interest Rate. Interest shall be calculated on the basis of the actual number
of days elapsed over a year of three hundred and sixty (360) days. All credit
balances or other sums at any time standing to Client’s credit and all Reserves
on Factor’s books, and all of Client’s property in Factor’s possession at any
time or in the possession of any parent, affiliate or subsidiary of Factor or
on or in which Factor or any of them have a lien or security interest, may be
held and reserved by Factor as security for all Obligations. Factor will
account to Client monthly and each monthly accounting statement will be fully
binding on Client and will constitute an account stated, unless, within
forty-five (45) days after such statement is mailed to Client or within
forty-five (45) days after the mailing of any adjustment thereof Factor may
make, Client gives Factor specific written notice of exceptions.

 

7.        REPRESENTATIONS, WARRANTIES AND COVENANTS

 

Client
hereby represents, warrants and covenants that:

 

(a)       Client has good title to the Collateral, including without limitation,
the Accounts, free of any encumbrance except in Factor’s favor and as set forth
on Schedule 7(a) hereto; each Account is a bona fide, enforceable
obligation created by the absolute sale and delivery of goods or the rendition
of services in the ordinary course of business; each Account is due from a
Customer located in the United States, Puerto Rico or Canada and is payable in
United States dollars; the selling terms of each Account shall not exceed sixty
(60) days without the prior written consent of Factor; Client’s Customer is
unconditionally obligated to pay at maturity the full amount of each Account
without defense, counterclaim or offset (regardless of merit); all documents in
connection therewith are genuine; and the Customer will accept the goods or
services.

 

(b)       Client’s exact legal name is as set forth on the signature page of this
agreement. Client shall not change Client’s legal name unless Factor shall have
received not less than forty-five (45) days prior written notice of such
proposed change. Client has not, during the past five years, been known by or
used any Trade Names or been a party to any merger or consolidation, or
acquired all or substantially all of the assets of any entity, or acquired any
of its property or assets out of the ordinary course of business, except for
its acquisition of substantially all of the assets and liabilities of Rafaella
Sportswear, Inc., a Delaware corporation.

 

(c)       Client is an organization of the type and organized in the jurisdiction
set forth on Schedule 7(c). Schedule 7(c) accurately sets forth
Client’s organizational identification number or accurately states that Client
has none and accurately sets forth Client’s federal employer identification
number. Client shall not change Client’s organizational identification number
(or if Client does not have an organizational identification number, Client shall
not acquire one), or change Client’s type of organization, jurisdiction of
organization or other legal structure unless Factor shall have received not
less than thirty (30) days prior written notice of such proposed change.

 

(d)       Client’s chief executive office and mailing address and Client’s Records
concerning Accounts are located only at the address identified as such on Schedule
7(d) and Client’s only other places of business and the only other
locations of Collateral, if any, are the addresses set forth on Schedule
7(d). Schedule 7(d) correctly identifies any of such locations which
are not owned by Client and sets forth the owners and/or operators thereof.
Client shall not change Client’s chief executive office, mailing address or any
location of Collateral unless Factor shall have received not less than thirty
(30) days prior written notice of such proposed change.

 

(e)       Client shall furnish to Factor, annual financial statements within one
hundred twenty (120) days after the end of each fiscal year fairly presenting
the financial position and results of operations of Client as at and for such
year and prepared in accordance with generally accepted accounting principles,
certified by their respective president or chief financial officer, and reviewed
by an independent certified public accountant reasonably acceptable to Factor.
Client shall, at Client’s expense, furnish Factor with other financial and
operational information requested by Factor from time to time. Factor may at
all times have access to and inspect, audit and make abstracts from all of
Client’s Records at Client’s expense.

 

(f)        Client shall immediately notify Factor in writing of any merchandise
returns or Disputes and promptly notify Factor in writing of any discounts,
anticipation reductions or other unilateral deductions taken by Customers,
credits and allowances to Customers. Client will settle all Disputes at no cost
or expense to Factor; Factor’s practice is to allow Client sixty (60) days to
do so. Should Factor so elect, Factor may at any time in Factor’s discretion
(i) withdraw Client’s authority to issue credits to Client’s Customers without
Factor’s prior written consent; (ii) litigate Disputes or settle them directly
with the Customers on terms acceptable to Factor in the event that Obligations
are then outstanding or Factor has made payment to Client with respect to the
Accounts involved in such litigation or settlement; or (iii) direct Client to
set aside, identify as Factor’s property and procure insurance satisfactory to
Factor on any Retained Goods. All Retained Goods (and the proceeds thereof)
shall be (A) held by Client in trust for Factor as Factor’s property, (B)
subject to a security interest in Factor’s favor as security for the
Obligations, and (C) disposed of only in accordance with Factor’s express
written instructions.

 

(g)       Factor’s Credit Risk, if any, on an Account shall immediately terminate
without any action on Factor’s part in the event that (i) Client’s Customer
asserts a Dispute (regardless of merit) as a ground for non-payment of the
Account or returns or attempts to return the goods represented thereby; (ii)
any

 

2

 

representation, warranty or covenant by Client
as to the Account is breached; or (iii) there is any change in the terms or
dating on the Account without Factor’s prior written approval. Factor may
charge to Client’s account, at any time after the Settlement Date, the gross
face amount of any Account (or portion thereof) on which Factor does not then
have the Credit Risk, together with interest thereon from the Settlement Date
of such Account to the date of chargeback; such action on Factor’s part shall
not be deemed a reassignment of such Account and will not impair Factor’s
rights thereto or security interest therein, which will continue to be
effective until this agreement is terminated and all Obligations are fully
satisfied. Notwithstanding anything to the contrary herein, if any payment to
be made to Client hereunder in respect of any Account would be prohibited
under, or would be in violation of, any law, rule, code or regulation of the
United States or any State thereof, including, without limitation, regulations
of the Office of Foreign Assets Control of the United States Department of the Treasury,
Factor’s Credit Risk, if any, with respect to such Account shall immediately
terminate and Client hereby authorizes and directs Factor to remit the proceeds
of any such payment in accordance with the directions of any applicable
governmental authority and, thereafter, Factor shall have no further obligation
of any kind or nature to Client with respect to such Account or the proceeds
thereof.

 

(h)       CLIENT WILL NOT GRANT A SECURITY INTEREST OR TRANSFER ANY OTHER INTEREST
IN ANY OF THE COLLATERAL OR IN ANY OF CLIENT’S INVENTORY, EXCLUSIVE OF THE
SECURITY INTERESTS SET FORTH ON SCHEDULE 7(a) HERETO, TO ANYONE EXCEPT FACTOR
WITHOUT (I) FACTOR’S PRIOR WRITTEN CONSENT OR (II) THE DELIVERY TO FACTOR OF AN
INTERCREDITOR AGREEMENT, IN FORM AND SUBSTANCE ACCEPTABLE TO FACTOR IN ITS SOLE
DISCRETION, EXECUTED BY FACTOR AND THE PARTY RECEIVING SUCH SECURITY INTEREST
OR OTHER INTEREST.

 

(i)        Client is and shall remain in compliance in all material respects with
all applicable laws, regulations and rules.

 

(j)        Client shall take all actions requested by Factor from time to time to
cause the attachment, perfection and first priority of, and Factor’s ability to
enforce, Factor’s security interest in any and all of the Collateral. Client
irrevocably and unconditionally authorizes Factor (or Factor’s agent) to file
and ratifies the filing at any time and from time to time such financing
statements with respect to the Collateral naming Factor or Factor’s designee as
the secured party and Client as debtor, as Factor may require, and including
any other information with respect to Client or otherwise required by part 5 of
Article 9 of the Uniform Commercial Code of such jurisdictions as Factor may
determine, and setting forth a notice that any disposition of any of the
Collateral by Client without Factor’s prior written consent violates the rights
of Factor, together with any amendment and continuations with respect thereto,
which authorization shall apply to all financing statements filed on, prior to
or after the date hereof. Client agrees that the foregoing authorizations shall
be irrevocable while this agreement remains in effect and thereafter until
Factor has received final payment and satisfaction in full in immediately
available funds of all Obligations. In no event shall Client at any time file,
or permit or cause to be filed, any correction statement or termination
statement with respect to any financing statement (or amendment or continuation
with respect thereto) naming Factor or Factor’s designee as secured party and Client
as debtor.

 

(k)       Upon Factor’s request, Client shall, at Client’s expense, duly execute
and deliver, or shall cause to be duly executed and delivered, to Factor such
further instruments and do and cause to be done such further acts as may be
necessary or proper in the opinion of Factor to effectuate the provisions and
purposes of this agreement

 

(1)       Client acknowledges, confirms and agrees that Client has assumed all
liabilities, indebtedness and other obligations of every kind, nature and
description owing by Rafaella Sportswear, Inc. to Factor, as successor to
Security Pacific Business Credit, Inc., under or in connection with the
Factoring Agreement dated as of August 7, 1985 and all other agreements and
documents executed and/or delivered in connection therewith (said Factoring
Agreement, collectively with all such agreements and documents, the “Prior
Agreements”), which liabilities, indebtedness and other obligations shall
constitute Obligations hereunder, and Factor acknowledges, confirms and agrees
that Client has succeeded to all of the rights of Rafaella Sportswear, Inc.
under the Prior Agreements.

 

8.        INVOICING; PAYMENTS; RETURNS; NOTIFICATION

 

(a)       Each of Client’s invoices that evidences an Account and all copies
thereof shall bear a notice (in form and substance satisfactory to Factor) that
it is owned by and payable directly and only to Factor at locations designated
by Factor. With respect to each such invoice, Client shall either (i) furnish
Factor with a legible duplicate original of the invoice accompanied by a
confirmatory assignment thereof, or (ii) electronically transmit to Factor the
invoice details and an assignment schedule using a transmission format
acceptable to Factor. Client’s failure to furnish such specific assignments
shall not diminish Factor’s rights. Client shall procure and hold in trust for
Factor and furnish to Factor at Factor’s request satisfactory evidence of each
shipment and delivery or rendition of services. For invoices electronically
transmitted to Factor, Client shall also (i) retain and furnish Factor at
Factor’s request legible copies of sales schedules and registers, as well as
duplicate originals of the invoices, and (ii) reproduce for Factor at Factor’s
request any and all such electronic transmissions. Each invoice shall bear the
terms stated on the Customer’s order, as submitted to Factor, whether or not
the order has been approved by Factor, and no change from the original terms of
the order shall be made without Factor’s prior written consent Any such change
not so approved by Factor shall automatically terminate Factor’s Credit Risk,
if any, on the Account arising from Client’s performance of the order. Client
will hold in trust for Factor and deliver to Factor any payments received from
Client’s Customers in the form received, and hereby irrevocably authorizes
Factor to endorse Client’s name on all checks and other forms of payment Each
payment made by a Customer shall first be applied to Accounts, if any, on which
Factor has the Credit Risk, and the balance, if any, of such payment shall be
applied to other Accounts due from such Customer. Client understands that
Factor shall not be liable for any selling expenses, orders, purchases,
contracts or taxes of any kind resulting from any of Client’s transactions, and
Client agrees to indemnify Factor and hold Factor harmless with respect
thereto,

 

3

 

which indemnity shall survive termination of
this agreement.

 

(b)       Factor shall have the right to communicate with and instruct the
Customers on Client’s Accounts to make payments in respect thereof directly to
Factor.

 

9.        TERMINATION

 

(a)       This agreement shall remain in full force and effect until terminated as
follows:

 

(i)        Factor may terminate this agreement at any time upon sixty (60) days
prior written notice to Client. If not so terminated, this agreement shall
remain in full force and effect unless Client terminates this agreement upon
not less than sixty (60) days prior written notice to Factor; or

 

(ii)       Upon the occurrence of an Event of Default, Factor may terminate this
agreement at any time without notice.

 

(b)       On the effective date of termination all Obligations shall become
immediately due and payable in full without further notice or demand. Factor’s
rights with respect to Obligations owing to Factor, or chargeable to Client’s
account, arising out of transactions having their inception prior to the
effective date of termination, will not be affected by termination. Without
limiting the foregoing, all of Factor’s security interests and other rights in
and to all Collateral shall continue to be operative until such Obligations
have been fully and finally satisfied or Client has given Factor an indemnity
satisfactory to Factor.

 

10.      PLACE OF PAYMENT; NEW YORK LAW; FORUM SELECTION; WAIVER OF
JURY TRIAL

 

(a)       All Obligations shall be paid at Factor’s office in New York, New York.

 

(b)       This agreement shall be governed by and construed according to the laws
of the State of New York (without giving effect to its choice of law
principles).

 

(c)       Client agrees that all actions and proceedings arising out of or
relating directly or indirectly to this agreement or any ancillary agreement or
any Obligations shall be litigated in any local, state or federal court located
in the County of New York, State of New York, that such courts are convenient
forums, and that Client submits to the personal jurisdiction of such courts.
Client hereby consents to the service of process therein by registered or
certified mail, return receipt requested, directed to Client at Client’s
address set forth above, and Client agrees that service so made shall be deemed
complete five (5) days after the date of mailing.

 

(d)       TO THE EXTENT LEGALLY PERMISSIBLE, BOTH CLIENT AND FACTOR WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY LITIGATION RELATING TO TRANSACTIONS UNDER THIS
AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.

 

11.      REMEDIES; WAIVERS; LIMITATION OF LIABILITY

 

(a)       Factor’s rights and remedies under this agreement will be cumulative and
not exclusive of any other right or remedy Factor may have hereunder or under
the UCC or otherwise. Without limiting the foregoing, if Factor exercises
Factor’s rights as a secured party Factor may, at any time or times, without
demand, advertisement or notice, all of which Client hereby waives, sell the
Collateral, or any part of it, at public or private sale, for cash, upon
credit, or otherwise, at Factor’s sole option and discretion, and Factor may
bid or become purchaser at any such sale, free of any right of redemption which
Client hereby waives. After application of all Collateral to Client’s
Obligations (in such order and manner as Factor in Factor’s sole discretion
shall determine), Client shall remain liable to Factor for any deficiency.

 

(b)       Factor shall have the right, in Factor’s sole discretion, to determine
which rights, liens, security interests or remedies Factor may at any time
pursue, relinquish, subordinate, or modify or to take any other action and
incur any costs or expenses with respect thereto and such determination will
not in any way modify or affect any of Factor’s rights hereunder. Failure by
Factor to exercise any right, remedy or option under this agreement or delay by
Factor in exercising the same will not operate as a waiver; no waiver by Factor
will be effective unless Factor confirms it in writing and then only to the
extent specifically stated.

 

(c)       Factor shall have no liability hereunder (i) for any losses or damages
(including, without limitation, incidental, special, exemplary, punitive or
consequential damages) resulting from Factor’s refusal to assume, or delay in
assuming, the Credit Risk, or any malfunction, failure or interruption of
communication facilities, or labor difficulties, or other causes beyond
Factor’s control; or (ii) for indirect, special or consequential damages
arising from accounting errors with respect to Client’s account with Factor.
Factor’s liability for any default by Factor hereunder shall be limited to a
refund to Client of any commission paid by Client during the period starting on
the occurrence of the default and ending when it is cured or waived, or when
this agreement is terminated, whichever is earlier. Except as prohibited by
law, Client waives any right which it may have to claim or recover in any litigation
with Factor any incidental, special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual damages. Client:
(A) certifies that neither Factor nor any representative, agent or attorney
acting for or on behalf of Factor has represented, expressly or otherwise, that
Factor would not, in the event of litigation, seek to enforce any of the
waivers provided for in this agreement or any of the Other Documents and (B)
acknowledges that in entering into this agreement and the Other Documents,
Factor is relying upon, among other things, the waivers and certifications set
forth in this Paragraph 11(c) and elsewhere herein and in the Other Documents.

 

12.      GENERAL

 

(a)       Factor may charge to Client’s account the amount of reasonable legal
fees (including, without limitation, fees, expenses and costs payable or
allocable to attorneys retained or employed by Factor) and other costs, fees
and expenses incurred by Factor in negotiating or preparing this agreement and
any

 

4

 

legal documentation required by Factor or
requested by Client in connection with this agreement or any amendments or
supplements thereof, or in enforcing Factor’s rights hereunder or in connection
with the litigation of any controversy arising out of this agreement, or in
protecting, preserving or perfecting Factor’s interest in, any Collateral,
including without limitation all costs incurred or payable with respect to any
Collateral, and the costs of all public record filings, appraisals and searches
relating to any Collateral. Factor may also charge to Client’s account all
charges for wire transfers and Factor’s then standard price for furnishing to
Client or Client’s designees copies of any statements, records, files or other
data requested by Client or them other than statements and reports of the kind
furnished to Client and Factor’s other clients on a regular, periodic basis in
the ordinary course of Factor’s business.

 

(b)       This agreement cannot be changed or terminated orally and is for the
benefit of and binding upon the parties and their respective successors and
assigns except that Client may not assign or transfer any of Client’s rights or
obligations under this Agreement without Factor’s prior written consent, and no
such assignment or transfer of any such obligation shall relieve Client thereof
unless Factor has consented to such release in a writing specifically referring
to the obligation from which Client is to be released. This agreement, and any
concurrent or subsequent written supplements thereto or amendments thereof
signed by both of Factor and Client, represent the entire understanding of the
parties and supersede all inconsistent agreements and communications, written
or oral, between Client’s and Factor’s officers, employees, agents and other
representatives.

 

(c)       This agreement shall not be effective unless signed by Client and Factor
below

 

IN WITNESS WHEREOF, each of Factor and Client has executed this agreement as of the
Effective Date.

 

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GMAC
  COMMERCIAL FINANCE LLC

  

 

 

AGREED TO on this 20th day of June, 2005.

 

	
  ATTEST:

  	
   

  	
  RAFAELLA
  APPAREL GROUP, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Chad Spooner

  	
   

  
	
  /s/ (illegible)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   CFO

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address:

  	
   

  
							

 

 

	
  ACCEPTED at New York, New
  York, as of the Effective Date.

  	
   

  
	
   

  	
   

  
	
  GMAC
  COMMERCIAL FINANCE LLC

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Kevin M. Sauny

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  EVP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address:

  	
  1290 Avenue of the Americas

  New York, New York 10104

  	
   

  

 

5Exhibit 10.11

 

RAFAELLA APPAREL GROUP, INC.

EQUITY INCENTIVE PLAN

 

1.             Purpose.  The purpose of the Rafaella Apparel Group, Inc.
Equity Incentive Plan is to motivate and retain certain individuals who are
responsible for the attainment of the primary long-term performance goals of
Rafaella Apparel Group, Inc.

 

2.             Definitions.  When used herein, the following terms shall
have the following meanings.

 

“Administrator”
means the Board, or a committee of the Board, duly appointed to administer the
Plan.

 

“Affiliate”
means, as to any Person, any other Person that directly or indirectly controls,
or is under common control with, or is controlled by, such Person. As used in
this definition, “control” (including its correlative meanings, “controlled by”
and “under common control with”) means possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).

 

“Award”
means, individually or collectively, a grant under this Plan of Nonqualified
Stock Options, Incentive Stock Options or Restricted Shares.

 

“Award
Agreement” means an agreement entered into by the Company and each
Participant setting forth the terms and provisions applicable to an Award.

 

“Board”
means the Board of Directors of the Company.

 

“Capital
Stock” means the Common Stock and the Preferred Stock of the Company.

 

“Cause”
means, with respect to a Participant, as determined by the Administrator in its
sole discretion, (a) the Participant’s continued failure to substantially
perform the Participant’s duties, (b) the Participant’s repeated acts of
insubordination or failure to execute Company’s or subsidiary’s plans and/or
strategies, (c) the Participant’s acts of dishonesty resulting or
intending to result in personal gain or enrichment at the expense of the
Company or any subsidiary, (d) the Participant’s commission of a felony, (e) reasonable
evidence presented in writing to the Participant that the Participant engaged
in a criminal act, misconduct or dishonesty, (f) violation of any written
policy of the Company or any subsidiary including, but not limited to, the
Company’s or a subsidiary’s employment manuals, rules and regulations
after one (1) written notice from the Company or a subsidiary regarding
such violation, or (g) the Participant engaging in any act that is
intended, or may reasonably be expected to harm the reputation, business,
prospects or operations of the Company, any subsidiary, or their officers,
directors, stockholders or employees; provided that, in the
event a Participant is subject to an employment agreement or severance
agreement, with the Company or a subsidiary that contains a definition of “Cause,”
Cause under the Plan shall have the meaning in such agreement.

 

“Cerberus”
means Cerberus Capital Management, L.P. or any of its Affiliates.

 

 

“Code”
means the Internal Revenue Code of 1986, as amended, or any successor statute
thereto.

 

“Common
Stock” means the common stock of the Company, par value $0.01 per share.

 

“Company”
means Rafaella Apparel Group, Inc., a Delaware corporation and its
successors.

 

“Disability”
means, with respect to a Participant, a determination by the Administrator that
such Participant is unable to perform his or her job as a result of a physical
or mental impairment sufficient to prevent the Participant from performing the
essential functions of his position, with or without a reasonable
accommodation; provided that, in the event a Participant is
subject to an employment agreement or other agreement, including, but not
limited to a severance agreement, with the Company or a subsidiary that
contains a definition of “Disability,” Disability under the Plan shall have the
meaning in such agreement.

 

“Effective
Date” means the date set forth in Section 25 hereof.

 

“Fair
Market Value” means, on any day, with respect to common stock which is (a) listed
on a United States securities exchange, the last sales price of such stock on
such day on the largest United States securities exchange on which such stock
shall have traded on such day, or if such day is not a day on which a United
States securities exchange is open for trading, on the immediately preceding
day on which such securities exchange was open, (b) not listed on a United
States securities exchange but is included in The NASDAQ Stock Market System
(including The NASDAQ National Market), the last sales price on such system of
such stock on such day, or if such day is not a trading day, on the immediately
preceding trading day, or (c) neither listed on a United States securities
exchange nor included in The NASDAQ Stock Market System, the fair market value
of such stock as determined from time to time by the Administrator in good
faith in its sole discretion.

 

“Grant Date”
means the date on which an Award under the Plan is granted to a Participant.

 

“Incentive
Stock Option” means an Option that is designated by
the Administrator as an incentive stock option and qualifies as such within the
meaning of Section 422 of the Code and is granted by the Administrator to
a Participant.

 

“Initial
Public Offering” means a public offering of the common stock of the Company
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission other than on Forms S-4 or S-8 (or
successors or equivalent forms thereto), upon the consummation of which the
shares so registered are listed on a United States securities exchange or
included in The NASDAQ Stock Market System.

 

“Key
Employee” means an employee who owns more than 10% of the total combined
voting power of all classes of stock of the Company, determined at the time an
Option is proposed to be granted.

 

2

 

“Liquidity
Event” means (1) any Person who is (i) not an Affiliate of the
Company or (ii) not Cerberus or an Affiliate of Cerberus becomes the
beneficial owner, directly or indirectly, of fifty percent (50%) or more of the
combined voting power of the then outstanding voting securities of the Company;
(2) the sale, transfer or other disposition of all or substantially all of
the business and assets of the Company, whether by sale of assets, merger or
otherwise to a person other than an Affiliate of Cerberus; (3) if
specified by the Board in an Award Agreement at the time of grant, the
consummation of an Initial Public Offering; or (4) the dissolution or
liquidation of the Company.

 

“Nonqualified
Stock Option” means an Option, which is not an Incentive Stock Option,
granted by the Administrator to a Participant.

 

“Option”
means a right granted under the Plan to a Participant to purchase a stated
number of Shares as an Incentive Stock Option or Nonqualified Stock Option.

 

“Option
Period” means the period within which an Option may be exercised pursuant
to the Plan.

 

“Participant”
means any employee, director or consultant of the Company or any of its
subsidiaries who is selected to participate in the Plan in accordance with Section 4
hereof.

 

“Period of
Restriction” means the period during which the transfer of Restricted
Shares is limited in some way (based on the passage of time, the achievement of
a performance target, if applicable, or upon the occurrence of other events as
determined by the Administrator, at its discretion), and the common stock is
subject to a substantial risk of forfeiture, as provided under the Plan and the
applicable Award Agreement.

 

“Person”
means any individual, partnership, firm, trust, corporation, limited liability
company or other similar entity.  When
two or more Persons act as a partnership, limited partnership, syndicate or
other group for the purpose of acquiring, holding or disposing of Shares of the
Company, such partnership, limited partnership, syndicate or group shall be
deemed a “Person.”

 

“Plan”
means the Rafaella Apparel Group, Inc. Equity Incentive Plan.

 

“Plan Year”
means the fiscal year of the Company.

 

“Preferred
Stock” means the preferred stock of the Company.

 

“Proportionate
Percentage” means with respect to any group of stockholders of the Company,
the ratio of the number of shares of Common Stock then owned by any stockholder
of such group to the aggregate number of shares of Common Stock then owned by
all stockholders of such group, determined on an as converted basis for all
Capital Stock then owned by any such stockholder.  When the term Proportionate Percentage is
used without reference to any specific group of stockholders, all of the
Company’s stockholders shall be considered part of the relevant group.

 

3

 

“Restricted
Shares” means an Award of restricted Shares granted to a Participant
pursuant to Section 7 herein.

 

“Securities
Act” means the Securities Act of 1933, as amended.

 

“Series A
Preferred Stock” means the Series A Preferred Stock of the Company,
par value $0.01 per share.

 

“Shares”
means shares of Common Stock of the Company, par value $0.01 per share.

 

“Stockholders
Agreement” means the applicable stockholders agreement, if any, of the
Company, as may be amended from time to time.

 

“Transfer”
means any transfer, sale, assignment, exchange, charge, pledge, gift,
hypothecation, conveyance, encumbrance, security interest or other disposition
(including any contract therefore), whether direct or indirect, voluntary or
involuntary, by operation of law or otherwise and with respect to the Shares,
the entering into any voting trust or other arrangement (other than as
contemplated herein) with respect to voting rights of such Shares or the
transfer of any other beneficial interest in the Shares.

 

“Unvested Shares” means any Restricted
Shares that are not Vested Shares.

 

“Vested
Shares” means Restricted Shares with respect to which the applicable Period
of Restriction has lapsed.

 

3.             Administration.  The Plan shall be administered by the Administrator.  Subject to the provisions of the Plan, the
Administrator shall have the authority to:

 

(a)                                  select the
Participants;

 

(b)                                 determine the number
of Shares covered by any Award granted to a Participant; provided, however,
that no Award shall be granted after the expiration of the period of ten (10) years
from the Effective Date;

 

(c)                                  determine whether
each Award shall be a grant of an Incentive Stock Option, a Nonqualified Stock
Option or Restricted Shares; and

 

(d)                                 establish from time to
time regulations for the administration of the Plan, interpret the Plan,
delegate in writing administrative matters to committees of the Board or to
other persons, and make such other determinations and take such other action,
as it deems necessary or advisable for the administration of the Plan.

 

All decisions,
actions and interpretations of the Administrator shall be final, conclusive and
binding upon all parties.  With respect
to Awards granted or to be granted to a Participant who is a nonemployee
director, the Plan shall be administered by the full Board and any references
to the Administrator shall be deemed to be references to the Board.

 

4

 

4.             Participation.  Participants in the Plan shall be limited to
those employees, directors and consultants of the Company or any subsidiary
thereof who have been notified in writing by the Administrator that they have
been selected to participate in the Plan.

 

5.             Shares Subject to
the Plan.  Awards may be granted by
the Administrator to Participants from time to time.  The Shares issued with respect to Awards
granted under the Plan may be authorized and unissued Shares, Shares held in
the treasury of the Company, or, if applicable, Shares purchased on the open
market by the Company (at such time or times and in such manner as it may
determine).  The Company shall be under
no obligation to acquire common stock for distribution to optionholders before
payment in Shares is due.  Where
appropriate, and with the consent of Cerberus, the Shares may be purchased by
the Participant under the Plan from Cerberus. 
If any Award granted under the Plan shall be canceled or shall expire
without the Shares covered by such Award being purchased by the applicable
Award holder thereunder, new Awards may thereafter be granted covering such
Shares.

 

The maximum
aggregate number of Shares available to be granted under the Plan is equal to
one million one hundred and eleven thousand one hundred and eleven (1,111,111)
Shares and such Shares shall be reserved for Awards granted under the Plan
(subject to adjustment as provided in Section 10).

 

The maximum
number of Shares that may be granted in the form of Options or Restricted
Shares in any one Plan Year to any one Participant is 100% of the Shares set
forth in Section 5.

 

6.             Terms and
Conditions of Options.  Each Option
granted under the Plan shall be evidenced by a written agreement, in a form
approved by the Administrator, which shall be subject to the following express
terms and conditions and to such other terms and conditions as the
Administrator may deem appropriate:

 

(a)                                  Option Period.  Each Option agreement shall specify that the
Option thereunder is granted for a period of ten (10) years, or such
shorter period as the Administrator may determine, from the date of grant and
shall provide that the Option shall expire on such ten (10) year
anniversary, or shorter period, as the case may be (unless earlier exercised or
terminated pursuant to its terms); provided, however, that any
Incentive Stock Option granted to a Key Employee shall specify that the
Incentive Stock Option is granted for a period of five (5) years from the
date of grant and shall expire on such five (5) year anniversary.

 

(b)                                 Option Price.  The Option price per share shall be the Fair
Market Value at the time the Option is granted or, with respect to a
Nonqualified Stock Option, such other price as the Administrator shall
determine; provided, however, that the Option price per share for
any Incentive Stock Option granted to a Key Employee shall equal 110% of the
Fair Market Value at the time the Incentive Stock Option is granted.

 

5

 

(c)                                  Vesting.  The Administrator, in its sole discretion,
shall determine the vesting provisions applicable to the Options granted to a
Participant under the Plan, and such vesting provisions, including, but not
limited to, time-based and/or performance-based vesting, shall be set forth in
the Participant’s Award Agreement.  The
vesting provisions in individual Award Agreements may vary.  The Administrator reserves the right, in its
sole discretion, to waive or reduce the vesting requirements applicable to any
Options at any time.

 

(d)                                 Limitation on
Amount of Incentive Stock Options Granted. 
Options shall be treated as Incentive Stock Options only to the extent
that the aggregate Fair Market Value of stock with respect to which Incentive
Stock Options are exercisable for the first time by any optionholder during any
calendar year (whether under the terms of the Plan or any other stock option
plan of the Company or of its parent or any subsidiary corporation) is $100,000
or less.  To the extent that such
aggregate Fair Market Value exceeds $100,000, the Options shall be treated as
Nonqualified Stock Options.  Fair Market
Value shall be determined as of the time the Option with respect to such stock
is granted.

 

(e)                                  Limitations on
Granting of Options.  The
Administrator shall have the authority and discretion to grant to an eligible
employee either Incentive Stock Options or Nonqualified Stock Options or both,
but shall clearly designate the nature of each Option at the time of grant in
the stock option agreement.  Participants
who are consultants or non-employee directors on the date an Option is granted
may only receive Nonqualified Stock Options.

 

(f)                                    Payment of
Option Price Upon Exercise.  The
option price of the Shares as to which an Option shall be exercised shall be
paid to the Company at the time of exercise in cash or such other method
approved by the Administrator.

 

(g)                                 Termination of
Employment or Relationship.  Unless
otherwise determined by the Administrator, in its sole discretion or as
otherwise set forth in an Award Agreement:

 

(i)                                     In the event of a
Participant’s termination of employment or relationship for Cause, all
unexercised Options granted to a Participant will terminate as of the date of
such termination of employment or relationship.

 

(ii)                                  In the event of a
Participant’s termination of employment or relationship by the Company or a
subsidiary other than for Cause or the Participant resigns from employment or
relationship for any reason (other than on account of death or Disability), (i) any
unvested portion of the Participant’s Option shall terminate and (ii)

 

6

 

any portion of the Participant’s Option that was vested and exercisable
on the date of his or her termination of employment or relationship shall
remain exercisable for a period of 3 months after the date of termination, and
any portion of such Option not exercised within such 3 month period shall be
forfeited; provided, however, that in no event may such Option be exercised
after the expiration of the Option Period.

 

(iii)                               In the event a
Participant’s employment or relationship shall terminate on account of death or
Disability, (i) any unvested portion of the Participant’s Option shall
terminate and (ii) the Participant (or his or her personal representative)
may exercise all vested and exercisable Options within the earlier of (x) one
year from the date of such death or Disability or (y) the expiration of the
Option Period.  Any portion of such
Option not exercised within such period shall be forfeited.

 

(h)                                 Transferability of
Options.  No Option granted under the
Plan and no right arising under such Option shall be transferable other than by
will or by the laws of descent and distribution.  During the lifetime of the Participant an
Option shall be exercisable only by such Participant.  Any Option exercisable at the date of the
Participant’s death and transferred by will or by the laws of descent and
distribution shall be exercisable in accordance with the terms of such Option
by the executor or administrator, as the case may be, of the Participant’s
estate (each a “Designated Beneficiary”) for a period provided in paragraph (g)(3) above
or such longer period as the Administrator may determine, and shall then
terminate.

 

(i)                                     Investment
Representation.  Each Option
agreement may contain an undertaking that, upon demand by the Administrator for
such a representation, the Participant or his Designated Beneficiary, as the
case may be, shall deliver to the Administrator at the time of any exercise of
an Option a written representation that the Shares to be acquired upon such
exercise are to be acquired for such Participant’s or Designated Beneficiary’s
own account and not with a view to, or for resale in connection with, any
distribution.  Upon such demand, delivery
of such representation prior to the delivery of any Shares issued upon exercise
of an Option shall be a condition precedent to the right of the Participant or
his Designated Beneficiary to purchase any Shares.

 

(j)                                     Optionholders
to Have No Rights as Stockholders. 
No optionholder shall have any rights as a stockholder with respect to
any Shares subject to such optionholder’s Option prior to the date on which
such optionholder is recorded as the holder of such Shares on the records of
the Company.

 

(k)                                  Other Option
Provisions.  The form of Award
Agreement applicable to Options authorized by the Plan may contain such other
provisions, 

 

7

 

consistent with this Plan, as the Administrator may, from time to time,
determine.

 

(l)                                     Notification of
Sales of Common Stock.  Subject to
the provisions of Section 9 hereof, any optionholder who disposes of
Shares acquired upon the exercise of an Incentive Stock Option either (a) within
two (2) years from the date of the grant of the Incentive Stock Option
under which the common stock was acquired or (b) within one (1) year
after the transfer of such Shares to the optionholder, shall notify the Company
of such disposition and of the amount realized upon such disposition.

 

(m)                               Stockholders
Agreement and Related Agreements. 
Prior to the exercise of any Options granted hereunder, the Participant
(or legal representative) shall be required to become a party to a Stockholders
Agreement or any related agreements, as and if determined by the Company.  Accordingly, if required, the execution of
such Stockholders Agreement shall be a condition precedent to the right to
purchase any Shares pursuant to an Option.

 

7.             Restricted Shares.

 

(a)                                  Grant of Restricted Shares. 
Subject to the terms and provisions of the Plan, the Administrator, at
any time and from time to time, may grant Restricted Shares to Participants in
such amounts as the Administrator shall determine.

 

(b)                                 Restricted Stock Agreement. 
Each Award applicable to Restricted Shares shall be evidenced by an
Award Agreement that shall specify the restrictions, including restrictions
creating a substantial risk of forfeiture, the Period(s) of Restriction, the
number of Restricted Shares granted, and such other provisions as the
Administrator shall determine.  The
Period of Restriction shall lapse at such time(s) and in such manner and
subject to such conditions as the Administrator shall in each instance
determine, which need not be the same for each Award or for each Participant.

 

(c)                                  Transferability. 
The Restricted Shares granted hereunder may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated until the end of the
applicable Period of Restriction established by the Administrator and specified
in the Plan and the Award Agreement, or upon earlier satisfaction of any other
conditions, as specified by the Administrator in its sole discretion and set
forth in the Award Agreement.  All rights
with respect to the Restricted Shares granted to a Participant under the Plan
shall be available during his or her lifetime only to such Participant, or in
the event of the Participant’s legal incapacity, to the Participant’s legal
guardian or representative.  Following
the Period of Restriction, the Vested Shares shall be subject to additional
restrictions as set forth in Section 9.

 

8

 

(d)                                 Other Restrictions. 
The Administrator shall impose such other conditions and/or restrictions
on any Restricted Shares granted pursuant to the Plan as it may deem advisable
and as set forth in an Award Agreement including, without limitation, a
requirement that Participants pay a stipulated purchase price for each
Restricted Share, time-based restrictions on vesting following the attainment
of a performance target, if applicable, and/or restrictions under applicable
Federal or state securities laws.

 

The Company or its designee shall retain the certificates representing
Restricted Shares in the Company’s possession until such time as all conditions
and/or restrictions applicable to such Restricted Shares have been satisfied.

 

(e)                                  Voting Rights. 
During the Period of Restriction, Participants holding Restricted Shares
granted hereunder may exercise full voting rights with respect to those
Restricted Shares.

 

(f)                                    Dividends and Other Distributions.  During
the Period of Restriction, Participants holding Restricted Shares granted
hereunder may be credited with regular cash dividends, if any, paid with
respect to the underlying Shares while they are so held.  The Administrator may apply any restrictions
to the dividends that the Administrator deems appropriate.

 

(g)                                 Termination of Employment with the Company or
a Subsidiary.  Each Award Agreement shall set forth the
extent to which the Participant shall have the right to receive Unvested Shares
following termination of the Participant’s employment with the Company or a
subsidiary.  Such provisions shall be
determined in the sole discretion of the Administrator, shall be included in
the Award Agreement entered into with each Participant, need not be uniform
among all Restricted Shares issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment with the
Company or a subsidiary.

 

(h)                                 Stockholders
Agreement and Related Agreements. 
Upon the grant of Restricted Shares hereunder, the Participant shall be
required to become a party to a Stockholders Agreement or any related
agreements, as and if determined by the Company.

 

8.             Effect of Liquidity Event.  Notwithstanding any provision of the Plan to
the contrary, unless otherwise determined by the Administrator, in its sole
discretion or as otherwise set forth in an Award Agreement, if there should be
a Liquidity Event, the Company shall give each Participant written notice of
such Liquidity Event as promptly as practicable prior to the effective date thereof
and (i) any unvested Awards as of the date of the Liquidity Event shall
become immediately exercisable or vested as of the effective date of such
Liquidity Event and any Period of Restriction shall lapse and (ii) the
Administrator may determine, in its sole discretion, the treatment of any
Awards which are exercisable or vested at the time of the Liquidity Event or
become exercisable or vested pursuant to this Section 8.

 

9

 

9.             Transfer of Shares
by Participants.  The Vested Shares
and Shares acquired upon the exercise of an Option may not be sold, disposed of
or otherwise transferred by a Participant prior to a Liquidity Event without
the consent of Cerberus.  In addition,
except as set forth in the applicable Award Agreement, a Participant shall not
be permitted to sell Vested Shares or Shares acquired upon the exercise of an
Option for a period of two (2) years commencing on the date of
consummation of an Initial Public Offering without the consent of Cerberus.  In the event that a Participant transfers all
or any of his or her Vested Shares or Shares acquired upon the exercise of an
Option to a person other than the Company or Cerberus (whether or not such
person is a Permitted Transferee), such transferee shall be obligated to comply
with the provisions of the Plan, the Award Agreement and the Stockholders
Agreement, if any.

 

10.           Call Right.

 

(a)                                  Prior to a Liquidity
Event, at any time within ninety days following a Participant’s (i) death,
(ii) termination of employment with the Company as a result of Disability,
(iii) termination of employment by the Company without Cause, (iv) termination
of employment by the Company for Cause or (v) termination of employment
with the Company for any other reason, the Company shall have the right, but
not the obligation, to purchase from the Participant and to cause the
Participant to sell to the Company, the Shares as follows:

 

(i)                                     if such
termination occurs pursuant to clauses (iv) or (v) above, the Vested
Shares and Shares acquired upon the exercise of an Option for an amount equal
to the lesser of (A) the price, if any, paid by the Participant for the
Shares, or if no price was paid, one dollar ($1), and (B) fifty percent
(50%) of the Fair Market Value of the Shares as of the date the Company
exercises its rights under this Section, payable in cash in a lump sum upon the
closing of the repurchase (Unvested Shares shall be immediately forfeited); and

 

(ii)                                  if such termination
occurs pursuant to clauses (i), (ii) or (iii) above,

 

(A)  all Unvested Shares for the
purchase price paid for such Shares by the Participant, or if no price was
paid, one dollar ($1), payable in cash in a lump sum upon the closing of the
repurchase, and

 

(B)  all Vested Shares and Shares
acquired upon the exercise of an Option for the greater of the purchase price
paid for such Shares by the Participant and the Fair Market Value of such
Shares as of the date the Company exercises its rights under this Section,
payable in cash in a lump sum upon the closing of the repurchase.

 

(b)                                 If at any time after
an Initial Public Offering, a Participant’s employment or relationship is
terminated for Cause, the Company shall have the right, but not the obligation,
for a period of ninety (90) days following such termination, to purchase from
the Participant, and to cause the Participant to sell to the Company, all
Vested Shares and Shares acquired upon the 

 

10

 

exercise of an Option held by the Participant at the date of
termination for the lesser of (A) the price, if any, paid by the
Participant for the Shares, or if no price was paid, one dollar (1$), and (B) fifty
percent (50%) of the Fair Market Value of the Shares as of the date the Company
exercises its rights under this Section, payable in cash in a lump sum upon the
closing of the repurchase.

 

(c)                                  Any Shares purchased
by the Company in connection with the exercise of the Company’s call right may
be paid in cash or by check.  If the
Company does not exercise its right to repurchase the Shares pursuant to this Section 9
hereof, Cerberus shall have the right, for a period of sixty (60) calendar days
after the expiration of the applicable 90-day period set forth above, to
repurchase such Shares upon the terms and conditions set forth in this Section 10
above.

 

(d)                                 The Company or
Cerberus, as applicable (the “Repurchaser”) may exercise the right to
purchase the Shares by written notice to the Participant (the “Participant
Notice”) within the time period specified above, such Participant Notice to
disclose the Fair Market Value of the Shares. 
The Repurchaser and the Participant shall consummate such purchase on a
date to be jointly determined by the Repurchaser and the Participant (not later
than 30 calendar days after the delivery of the Participant Notice) by delivery
of a written acknowledgment by the Participant of the repurchase of the Shares
in form and substance satisfactory to the Company against delivery of the
purchase price therefor by the Repurchaser.

 

11.           Drag-Along Right.

 

(a)                                  In the event that one
or more stockholders of the Company (the “Transferors”) proposes to
Transfer at least a majority of the outstanding Shares (determined on an
as-converted basis) to an unrelated third party (a “Proposed Transferee”)
in a single transaction or series of related transactions, such Transferors may
require each Participant to participate in such Transfer and sell or transfer
all of his or her Vested Shares and Shares acquired upon the exercise of an
Option for an amount equal to such Participant’s Proportionate Percentage of
the total consideration proposed to be received by all stockholders
(appropriately adjusted to account for the redemption rights of the holder of Series A
Preferred Stock only in the event that the proposed sale price per share of Series A
Preferred Stock is not more than the amount that the redemption price would be
for such share of Series A Preferred Stock if redeemed on the date of
sale) and in the same manner, at the same time and on the same terms and
conditions as such Transferors, except as set forth above in this subsection (a) (the
“Drag-Along Right”).

 

11

 

(b)                                 No later than fifteen
(15) days prior to the consummation of the Transfer, the Transferors shall
deliver a written notice to a Participant specifying the (i) names and
address of the proposed parties to such Transfer, (ii) proposed closing
date for such sale, (iii) proposed amount and form of consideration to be
paid for the Shares, and (iv) other terms and conditions of such
Transfer.  The Drag-Along Right shall
apply to all Vested Shares and Shares acquired upon the exercise of an Option
immediately prior to the consummation of the Transfer, and any Shares that
would become vested as a result of the Transfer, and any Shares to the extent
not then vested (or to the extent such Shares would not become vested as a
result of such Transfer) shall be treated in accordance with the terms of the
Plan.  The closing of the Transfer shall
be held at such time and place as the Transferors or the Transferee shall
specify.  Prior to or at such closing,
the Participant shall deliver stock certificates representing the Vested Shares
and Shares acquired upon the exercise of an Option, together with a duly
endorsed instrument of transfer for the Transfer, and the Participant shall
represent and warrant that (i) he or she is the record and beneficial
owner of such Shares and (ii) good and clear title to such Shares is being
transferred free and clear of any liens, charges, claims or encumbrances (other
than restrictions imposed pursuant to applicable Federal and state securities
laws, the certificate of incorporation of the Company, the Plan or this
Agreement).  The Participant agrees to
take all actions necessary and desirable in connection with the consummation of
the Transfer, including, without limitation, the waiver of all appraisal rights
available to him or her under applicable law, and shall make such additional
representations and warranties as shall be customary in transactions of a
similar nature.

 

12.           Right of First
Refusal.

 

(a)                                  If at any time after
a Liquidity Event that is not an Initial Public Offering, a Participant wishes
to Transfer all or any portion of the Vested Shares or Shares acquired upon the
exercise of an Option owned by him or her pursuant to the terms of a bona fide
offer received from a third party, and such Transfer is otherwise permitted by
the terms of the Plan, the Participant shall require that such offer is for all
cash, is subject to no condition relating to financing or due diligence, and is
in writing.  Prior to consummating any
such Transfer, the Participant shall submit to the Company such offer in
writing to sell such Vested Shares and Shares acquired upon the exercise of an
Option (the “Offered Shares”) on terms and conditions, including price,
on which the Participant proposes to sell such Offered Shares to such third
party (the “Purchase Offer”).  The
Purchase Offer shall disclose (i) the identity of the proposed purchaser
or transferee, (ii) the Offered Shares proposed to be sold or transferred,
(iii) the total number of Shares owned by the Participant, (iv) the
agreed terms, including price of the sale or transfer, and any other material
facts relating to the sale or transfer. 
The Purchase Offer shall further state that the 

 

12

 

Company may acquire for cash, in accordance with the provisions of this
Section 12, the Offered Shares for the same price and upon the same terms
and conditions set forth therein.  Within thirty (30) calendar days after
receipt of the Purchase Offer, the Company may, in its discretion, give notice
to the Participant of its intent to purchase all or a portion of the Offered
Shares, which notice shall, when taken
in conjunction with the Purchase Offer, be deemed to constitute a valid,
legally binding and enforceable agreement between the Participant and the Company
for the sale and purchase of the Shares
covered thereby.

 

(b)                                 Transfers of Shares under
the terms of this Section 12 shall be made at the offices of the Company
on a mutually satisfactory business day within ninety (90) days after the
expiration of the 30-day period described in Section 12(a).  Delivery of certificates or other instruments
evidencing such Shares together with a duly endorsed instrument of transfer for
the Transfer shall be made on such date against payment of the purchase price
therefor.

 

(c)                                  In the event that the
Company does not elect to purchase all or any portion of the Offered Shares
offered by the Participant pursuant to Section 12, Cerberus shall have the
right, for a period of thirty (30) calendar days after the expiration of the 30-day
period described in Section 12(a), to purchase any remaining portion of
the Offered Shares upon the terms and conditions set forth above.  If any Offered Shares remain unsold following
the expiration of the 30-day period described in this Section 11(c), the
Participant may sell such unsold Offered Shares to the third-party purchaser at
any time within the ninety (90) days after the applicable 30-day period has
expired.  Any such sale shall be for all cash and for
not less than the price, and upon other terms and conditions, if any, not more
favorable to the third-party purchaser than those specified in the Purchase
Offer.  Any Shares not sold within such
90-day period shall continue to be subject to the requirements of Section 12
hereof.

 

(d)                                 The election by the
Company or Cerberus not to exercise their rights under this Section 12 in any
one instance shall not affect the rights of the Company or Cerberus as to any
subsequent proposed Transfer.  Any
Transfer by the Participant of any of his or her Shares without first giving
the Company or Cerberus the rights described in this Section 12 shall be
void and of no force or effect.

 

13.           Adjustments in Event
of Change in Common Stock.  In the
event of any change in the common stock by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination or
exchange of Shares, or of any similar change affecting the common stock, the
number and kind of Shares which thereafter may be optioned and sold under the
Plan and the number and kind of Shares subject to Award in outstanding Award
Agreements and the purchase price per share thereof, if any, shall be
appropriately adjusted consistent with such change in such manner as the Board
may deem equitable to prevent 

 

13

 

substantial dilution or
enlargement of the rights granted to, or available for, Participants in the
Plan.  Without limiting the generality of
the foregoing, if the common stock is recapitalized into multiple classes of
common stock, the kind of Shares subject to Award shall be those common Shares
intended for broad general ownership rather than any class of special
super-voting or other control stock.

 

14.           Plan and Awards Not
to Confer Rights with Respect to Continuance of Employment or Relationship.  Neither the Plan nor any action taken
thereunder shall be construed as giving any Participant any right to continue
such Participant’s relationship with the Company or a subsidiary thereof, nor
shall it give any employee the right to be retained in the employ of the
Company or a subsidiary, or interfere in any way with the right of the Company
or a subsidiary to terminate any Participant’s employment or relationship, as
the case may be, at any time with or without Cause.

 

15.           No Claim or Right
Under the Plan.  No employee,
director or consultant of the Company or any of its subsidiaries shall at any
time have the right to be selected as a Participant in the Plan nor, having
been selected as a Participant and granted an Award, to be granted any
additional Award.

 

16.           Listing and
Qualification of Shares.  The Plan,
the grant and exercise of Awards thereunder, and the obligation of the Company
to sell and deliver Shares under such Awards, shall be subject to all
applicable Federal and state laws, rules and regulations and to such
approvals by any government or regulatory agency as may be required.  The Company, in its discretion, may postpone
the issuance or delivery of Shares upon any exercise of an Award until
completion of any stock exchange listing, or other qualification of such Shares
under any state or Federal law, rule or regulation as the Company may
consider appropriate, and may require any Award holder to make such
representations and furnish such information as it may consider appropriate in
connection with the issuance or delivery of the Shares in compliance with
applicable laws, rules and regulations. 
Certificates representing Shares acquired by the exercise of an Award
may bear such legend as the Company may consider appropriate under the
circumstances.

 

17.           Disposition of
Shares of Common Stock.  Any Shares
acquired with respect to an Award granted under the Plan or any economic
interest therein may only be sold, conveyed, transferred, assigned, mortgaged,
pledged, hypothecated in accordance with this Plan and the Stockholders
Agreement, if applicable.

 

18.           Taxes.  The Company may make such provisions and take
such steps as it may deem necessary or appropriate for the withholding of all
federal, state, local and other taxes required by law to be withheld with
respect to Awards under the Plan including, but not limited to (a) reducing
the number of Shares otherwise deliverable, based upon their Fair Market Value
on the date of exercise, to permit deduction of the amount of any such
withholding taxes from the amount otherwise payable under the Plan, (b) deducting
the amount of any such withholding taxes from any other amount then or
thereafter payable to a Participant, or (c) requiring a Participant,
beneficiary or legal representative to pay to the Company the amount required
to be withheld or to execute such documents as the Company deems necessary or
desirable to enable it to satisfy its withholding obligations as a condition of
releasing the Share.

 

14

 

19.           No Liability of
Administrator.  No member of the
Administrator shall be personally liable by reason of any contract or other
instrument executed by such member or on his behalf in his capacity as a member
of the Administrator nor for any mistake of judgment made in good faith, and
the Company shall indemnify and hold harmless each employee, officer or
director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or expense (including counsel fees) or liability (including
any sum paid in settlement of a claim with the approval of the Board arising
out of any act or omission to act in connection with the Plan unless such act
arises out of the member’s own fraud or bad faith.

 

20.           Amendment or
Termination.  The Administrator may,
with prospective or retroactive effect, amend, suspend or terminate the Plan or
any portion thereof at any time and for any reason; provided, however, that no
amendment or other action that requires stockholder approval in order for the
Plan to continue to comply with applicable law, rule or regulation shall
be effective unless such amendment or other action shall be approved by the
requisite vote of stockholders of the Company entitled to vote thereon and no
repricing of Awards under the Plan shall occur without stockholder approval.

 

21.                           Compliance
with Section 162(m) of the Code. 
At all times when Section 162(m) of the Code is applicable, all
Awards granted under the Plan shall comply with the requirements of Section 162(m)
of the Code; provided, however, that in the event the Administrator determines
that such compliance is not desired with respect to any Award of Restricted
Shares, compliance with Section 162(m) of the Code will not be
required.  In addition, in the event that
changes are made to Section 162(m) of the Code to permit greater
flexibility with respect to any Award or Awards available under the Plan, the
Administrator may, subject to Section 17, make any adjustments it deems
appropriate.

 

22.           Captions.  The captions preceding the sections of the
Plan have been inserted solely as a matter of convenience and shall not in any
manner define or limit the scope or intent of any provision of the Plan.

 

23.           Governing Law.  The Plan and all rights thereunder shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State.

 

24.           Severability.  In the event that any provision of the Plan
shall be held illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not been
included.

 

25.           Effective Date.  The Plan shall become effective as of June 20,
2005.

 

15

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