Document:

Exhibit 10.11

 

CIT Commercial Services

301 South Tryon Street

Charlotte, NC 28202

 

June 30, 2004

 

KP Sports, Inc.

1020 Hull Street, 3rd Floor

Baltimore, Maryland 21230

 

AMENDED AND RESTATED

ACCOUNTS RECEIVABLE FINANCING AGREEMENT

 

Ladies and Gentlemen:

 

PRELIMINARY STATEMENT:

 

You
and we are parties to that certain Accounts Receivable Financing Agreement,
dated as of June 21, 2001, as amended and supplemented (as amended,
modified, restated or supplemented from time to time, the “Existing Financing
Agreement”), pursuant to which we have extended to you a revolving credit
facility, all upon the terms and subject to the conditions contained
therein.  Effective on the date hereof,
this accounts receivable financing agreement between us, as supplemented by the
Inventory Security Agreement and Letter of Credit Agreement (as each term is
defined below) (as the same may be amended, modified, restated or supplemented
from time to time, the “Agreement”) shall amend and restate in its entirety the
Existing Financing Agreement and shall represent the entire agreement between
you and us with respect to the terms and conditions upon which we shall extend
to you a revolving credit facility from and after the date hereof.  This Agreement shall in no way be construed
to, nor shall it affect, modify, diminish or break the continuity of our
security interest in the Collateral (as defined in the Existing Financing
Agreement), as more fully described in the Existing Financing Agreement which
security interest is hereby ratified and confirmed by this Agreement as
provided above.

 

In
connection with the foregoing and in consideration of our extending loans and
other financial accommodations to you on one or more occasions, in our
reasonable sole discretion, utilizing our customary credit and collateral
considerations, in each instance, the following shall constitute the Agreement.

 

I. 
DEFINITIONS

 

1.1           All
terms used herein and defined in the Uniform Commercial Code (as adopted and in
force in the State of North Carolina, as from time to time in effect) shall
have the meanings given therein unless otherwise defined herein.

 

1.2           “Accounts” shall mean and include all of
your accounts created by or arising from your sales of goods or rendition of
services (including, without limitation, all accounts arising from sales made
or services rendered under any of your tradenames or styles, or through any of
your divisions).

 

 

1.3           “Adjusted Tangible Assets” shall mean all
assets except:  (i) any surplus
resulting from any write-up of assets subsequent to the effective date of this
Agreement; (ii) deferred assets, other than:  (a) prepaid insurance, (b) prepaid
taxes and (c) the current portion of your deferred tax assets; (iii) patents,
copyrights, trademarks, trade names, non-compete agreements, franchises and
other similar intangibles; (iv) goodwill, including any amounts, however
designated on your balance sheet, representing the excess of the purchase price
paid for assets or stock over the value assigned thereto on your books; (v) unamortized
debt discount and expense; (vi) assets located and notes and receivables
due from obligors outside of the United States of America and Canada, other
than all Accounts arising by virtue of your sales and licensing arrangement
with Dome Inc. in Japan; and (vii) Accounts, notes and other receivables
due from your affiliates or employees.

 

1.4           “Anniversary Date” shall mean April 30,
2007, and the same date in each year thereafter.

 

1.5           “Applicable Interest Rate” shall have the
meaning ascribed to such term in Subparagraph 3.4(a).

 

1.6           “Applicable Margin” shall be subject to
reduction or increase, as applicable and as set forth in the table below, on a
calendar quarterly basis according to your performance as measured by the
Leverage Ratio as of the last day of the calendar quarter ending immediately
prior to the date of determination:

 

	
   

  	
   

  	
  Leverage Ratio

  	
   

  	
  Chase Rate

  Advances

  	
   

  	
  LIBOR Rate

  Advances

  	
   

  
	
  I

  	
   

  	
  If greater than
  2.75 to 1.0

  	
   

  	
  0.50

  	
  %

  	
  3.00

  	
  %

  
	
  II

  	
   

  	
  If equal to or
  less than 2.75 to 1.00 but greater than 2.00 to 1.00

  	
   

  	
  0.0

  	
  %

  	
  2.50

  	
  %

  
	
  III

  	
   

  	
  If equal to or
  less than 2.00 to 1.0 but greater than 1.50 to 1.00

  	
   

  	
  -0.25

  	
  %

  	
  2.25

  	
  %

  
	
  IV

  	
   

  	
  If equal to or
  less than 1.50 to 1.0 but greater than 1.00 to 1.0

  	
   

  	
  -0.50

  	
  %

  	
  2.00

  	
  %

  
	
  V

  	
   

  	
  If equal to or
  less than 1.00 to 1.0

  	
   

  	
  -0.75

  	
  %

  	
  1.75

  	
  %

  

 

You shall deliver to us a
certificate, signed by your principal financial officer, setting forth in
reasonable detail the basis of your computation of the Applicable Margin with
respect to each calendar quarter ending hereafter.  The Applicable Margin shall be reset
prospectively on the first day of the first calendar month that occurs
following delivery of such certificate if such certificate is not received
within forty-five (45) days after the last day of the calendar quarter in

 

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question, or, with
respect to the last calendar quarter of each certificate year ending hereafter,
if such certificate is not received within ninety (90) days after the last day
of such calendar quarter, the Applicable Margin shall be determined as if the
Leverage Ratio is greater than 2.75 to 1.0 until such time as such certificate
is received; provided, however, that nothing herein shall be
deemed to prevent us from charging interest at the Default Rate at any time
that a Default exists.  If a Default (as
defined in paragraph 6.1) shall have occurred and be continuing at the time a
reduction in the Applicable Margin is to be implemented, such reduction shall
be deferred until the first day of your first calendar month following the date
on which such Default is waived or cured.

 

1.7           “Availability Reserve” shall mean on any
date of determination thereof, an amount equal to the sum of:  (i) the LC Reserve and (ii) any
reserves which we, in our reasonable sole discretion, utilizing our customary
credit and collateral considerations, deem necessary or desirable to maintain.

 

1.8           “Benefit Plan” shall mean a defined benefit
plan as defined in Section 3(35) of ERISA (other than a “multiemployer
plan,” as such term is defined in ERISA) in respect of which you or any ERISA
Affiliate are/is, or within the immediately preceding six (6) years was,
an “employer” as defined in Section 3(5) of ERISA.

 

1.9           “Borrowing Base” shall mean as at any date
of determination thereof, an amount equal to the sum:

 

(i)            the sum
of:  (x) up to ninety percent (90%) of
the Net Amount of Eligible Accounts consisting of Eligible Approved Accounts
outstanding at such date, PLUS (y) up to eighty-five percent (85%) of
the Net Amount of Eligible Accounts consisting of Eligible Non-Approved
Accounts outstanding at such date;

 

PLUS

 

(ii)           the least
of:  (x) $25,000,000, (y) up to the
amount available for advances as determined in accordance with clause (i) immediately
above or (z) the sum of up to:  (1) sixty
percent (60%) of the value of your Eligible Inventory consisting of finished
goods at such date PLUS (2) the lesser of:  (a) fifty percent (50%) of the value of
your Eligible Inventory consisting of raw materials at such date, in each case
calculated on the basis of lower of cost or market with cost calculated on a
first-in, first-out basis or (b) $2,000,000 PLUS (3) sixty
percent (60%) of the available amount of all documentary Letters of Credit
relating to your purchase of Inventory consisting of finished goods that are to
be imported and delivered directly into the United States outstanding on such
date, if, upon our prior request to you, you have delivered to us such
documents and/or have satisfied such others requirements or conditions as we
may reasonably request with respect to such Letters of Credit and such
inventory;

 

MINUS

 

(iii)          the
Availability Reserve.

 

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For the purpose of
valuing any of the Collateral that is denominated in Canadian Dollars, such
Collateral shall be converted into the Equivalent Amount thereof in U.S.
Dollars, as determined as of the last Business Day (as defined in paragraph 5.1
below) of the week with respect to which the applicable Borrowing Base is to be
computed, unless we have notified you that, in light of recent or expected
currency fluctuations, the conversion shall be made on a more current basis.

 

1.10         “Capitalized Lease Obligation” shall mean
any Indebtedness represented by obligations under a lease that is required to
be capitalized for financial reporting purposes in accordance with GMP.

 

1.11         “CARPA” shall mean that certain Credit
Approved Receivables Purchasing Agreement, dated December 21, 2001, as
amended, between you and us, as the same may hereafter be amended, modified,
supplemented or restated from time to time.

 

1.12         “Chase Rate” shall mean the per annum rate
of interest publicly announced by JPMorgan Chase Bank (or its successor) in New
York, New York, from time to time as its prime rate.  (The prime rate is not intended to be the
lowest rate of interest charged by JPMorgan Chase Bank to its borrowers.)

 

1.13         “Collateral” shall mean and include:  (a) Accounts and all instruments,
documents, contract rights, chattel paper, general intangibles, and all forms
of obligations owing to you, all in any way relating solely to the
Accounts; (b) all of your present and future monies, securities and other
property now or hereafter held or received by or in transit to us from or for
your account, whether for safekeeping, pledge, custody, transmission,
collection or otherwise; (c) all of your present and future deposits,
balances, sums and credits in our possession or control, and all of your
present and future claims against us; (d) all of your present and future
liens, security interests, rights, remedies, title and interest in, to and in
respect of all present and future Accounts, including, without limitation:  (i) rights and remedies under or
relating to guaranties, contracts of suretyship, letters of credit, credit
insurance, or other types of credit enhancements, (ii) rescission,
replevin, repossession, reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, (iii) goods described in invoices,
documents, contracts or instruments with respect to, or otherwise representing
or evidencing Accounts, including returned, repossessed and reclaimed goods,
and (iv) deposits by and property of Customers or other persons securing
the Obligations of Customers; (e) all of your books of account of every
kind or nature, purchase and sale agreements, invoices, ledger cards, computer
programs, bills of lading and other shipping evidence, statements,
correspondence, memoranda, credit files and other data (written, electronic or
otherwise), all in any way relating solely to the Accounts or any
Customer, together with the file cabinets or containers in which the foregoing
are stored (“Records”); (f) all proceeds and products of the foregoing, in
any form, including, without limitation, insurance proceeds and any claims
against third parties for loss or damage to or destruction of any or all of the
foregoing; (g) all Inventory; (h) all Intellectual Property; and (i) all
Letter of Credit Collateral.

 

1.14         “Customer” shall mean and include the
account debtor with respect to any of the Accounts and/or the prospective
purchaser or user of Inventory, whether goods or services or both with respect
to any contract or contract right, and/or any party who enters into or proposes

 

4

 

to
enter into any contract or other arrangement with you, pursuant to which you
are to deliver any personal property or perform any services.

 

1.15         “Default Rate” shall mean the Applicable
Interest Rate plus two percent (2.0%).

 

1.16         “Distribution” shall mean and include:  (i) the payment of any dividends or
other distributions on your capital stock (except distributions in such stock)
and (ii) the redemption or acquisition of any of your securities (or any
warrant or option for the purchase of any such securities) unless made
contemporaneously from the net proceeds of the sale of securities.

 

1.17         “Eligible Accounts” shall mean such Accounts
arising in the ordinary course of your business and which we, in our reasonable
sole discretion, utilizing our customary credit and collateral considerations,
deem to be Eligible Accounts based on such considerations as we may from time
to time deem appropriate, including that it is evidenced by an invoice or other
documentation satisfactory to us.  An
Account shall not be deemed eligible in any event unless such Account is
subject to our first priority perfected security interest except as permitted
pursuant to Section 4.4 of this Agreement. 
In addition, no Account shall be an Eligible Account if:

 

(i)            it arises
out of a sale made by you to your affiliate or to a person controlled by you or
your affiliate; or

 

(ii)           it is
unpaid for more than sixty (60) days after the original due date shown on the
invoice or it is due or unpaid more than one hundred-twenty (120) days after
the original invoice date; or

 

(iii)          more
than fifty percent (50%) of the Accounts owed by such Customer are not deemed
to be Eligible Accounts hereunder; or

 

(iv)          the total
Accounts owing by the Customer exceed forty percent (40%) of the Net Amount of
Eligible Accounts, to the extent of such excess; or

 

(v)           any
representation, warranty or covenant contained in this Agreement with respect
to such Account has, in our reasonable sole discretion, been breached; or

 

(vi)          the
Customer is also your creditor or supplier (unless prior to our acceptance, a
no-offset letter has been received by and is, in our reasonable sole
discretion, acceptable to us); or

 

(vii)         the
Customer shall (a) 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, (b) admit in writing its inability, or be generally unable, to
pay its debts as they become due, (c) cease or materially decrease
operation of its present business, (d) make a general assignment for the
benefit of creditors, (e) commence a voluntary case under any State or
Federal bankruptcy or insolvency law (as now or hereafter in effect), (f) be
adjudicated a bankrupt or insolvent, (g) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (h) acquiesce

 

5

 

to, or fail to have dismissed, any petition which is
filed against it in an involuntary case under any such bankruptcy or insolvency
law, or (i) take any action for the purpose of effecting any of the
foregoing; or

 

(viii)        it
arises out of a sale made by you to a Customer outside the United States or
Canada, unless the payment thereof is assured by a letter of credit, guaranty
or acceptance on terms acceptable to us in our reasonable sole discretion; or

 

(ix)           it arises
out of a sale made by you to a Customer 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; or

 

(x)            we, in
our reasonable sole discretion, utilizing our customary credit and collateral
considerations, determine that collection of such Account is insecure or that payment
of such Account may not be made by reason of the Customer’s financial inability
to pay; or

 

(xi)           the
Customer is the United States of America, unless you assign to us, in a manner
acceptable to us, your right to payment of such Account pursuant to the
Assignment of Claims Act of 1940, as amended, or any other applicable statute,
rule, regulation or the like; or

 

(xii)          the
total Accounts owing by any and all Customers that are any state, any other
local governmental entity, or any department, agency or instrumentality of any
of them with respect to which your right to payment of any such Account has not
been assigned to us, in a manner acceptable to us, pursuant to any applicable
statute, rule, regulation or the like exceed five percent (5%) of the Net
Amount of Eligible Accounts, to the extent of such excess; or

 

(xiii)         the
goods giving rise to such Account have not been shipped and delivered to and
accepted by the Customer or the services giving rise to such Account have not
been completely performed by you and accepted by the Customer or the Account
otherwise does not represent a final sale or performance; or

 

(xiv)        the
Customer has disputed liability, or the Customer has made any claim with
respect to any other Account due from such Customer to you, or the Account
otherwise is or may become subject to any set-off or recoupment by the
Customer, or the Account is contingent in any respect or for any reason; or

 

(xv)         you have
allowed or made any agreement with any Customer for any deduction therefrom, except
for discounts or allowances made in the ordinary course of business.

 

1.18         “Eligible Approved Accounts” shall mean such
Eligible Accounts that are deemed to be “Approved Receivables,” as such term is
defined in the CARPA.

 

1.19         “Eligible Inventory” shall mean your
Inventory (other than packaging materials and supplies) which we, in our
reasonable sole discretion, utilizing our customary credit and

 

6

 

collateral
considerations, deem to be Eligible Inventory. 
No inventory shall be deemed to be Eligible Inventory unless such
Inventory is subject to our first priority perfected security interest and is
not subject to any other lien or security interest except as permitted pursuant
to Section 4.4 of this Agreement. 
Without limiting the generality of the foregoing, no Inventory shall be
deemed to be Eligible Inventory unless:

 

(i)            it is, in
our opinion, readily marketable in its current form;

 

(ii)           it is in
good, new and saleable condition;

 

(iii)          it
is not slow-moving, obsolete or unmerchantable;

 

(iv)          it meets
all standards imposed by any governmental agency or authority;

 

(v)           it
conforms in all respects to the warranties and representations set forth in the
Inventory Security Agreement;

 

(vi)          it is
situated at a location in compliance with the Inventory Security Agreement or
is in transit;

 

(vii)         it
is stored on premises owned by you or stored with, or located on premises owned
by, a landlord, warehouseman or other person from whom you have procured for
our benefit a written agreement of such person, in form and substance
acceptable to us, to afford us access to and the right to repossess or take
possession of such Inventory at any time free of any lien, security interest or
encumbrance of such person and to use any such proceeds for a reasonable period
of time, without any obligation to such person (other than regular rent on a
per diem basis, to store or dispose of such Inventory);

 

(viii)        is
not the subject of any document that has not been assigned to, and in the
possession of, us;

 

(ix)           it is
owned outright by you and not held by you on consignment or other sale or
return basis;

 

(x)            it is not
subject to any license or other agreement that would condition or restrict your
or our right to sell or otherwise dispose of such Inventory, unless an
agreement, in form and substance satisfactory to us, for our use of such
license has been executed and delivered to us; and

 

(xi)           it is not
work-in-process Inventory.

 

1.20         “Eligible Non-Approved Accounts” shall mean
such Eligible Accounts that are deemed to be “non-Approved Receivables,” as
such term is defined in the CARPA.

 

1.21         “Equivalent Amount” shall mean, on any date
of determination, with respect to obligations or valuations denominated in one
currency (the “first currency”), the amount of another currency (the “second
currency”) which would result from the conversion of the relevant

 

7

 

amount
of the first currency into the second currency at the 12:00 noon rate quoted on
the Reuters Monitor Screen (Page BOFC or such other Page as may
replace such Page for the purpose of displaying such exchange rates) on
such date or, if such date is not a Business Day, on the Business Day
immediately preceding such date of determination, or at such other rate as may
have been agreed to in writing between you and us.

 

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

 

1.23         “ERISA Affiliate” shall mean any (i) corporation
which is or was at any time a member of the same controlled group of
corporations (within the meaning of Section 414(b) of the
Internal Revenue Code) as you; (ii) partnership or other trade or business
(whether or not incorporated) at any time under common control (within the
meaning of Section 414(c) of the Internal Revenue Code) with
you; and (iii) member of the same affiliated service group (within the
meaning of Section 414(m) of the Internal Revenue Code) as you, any
corporation described in clause (i) above, or any partnership or trade or
business described in clause (ii) above.

 

1.24         “Funded Debt” shall mean, collectively,
without duplication, (a) the aggregate principal amount of Indebtedness
for Money Borrowed, including all Capitalized Lease Obligations and the
aggregate principal amount of Indebtedness for Money Borrowed outstanding under
this Agreement and (b) all Indebtedness outstanding under any revolving
credit, line of credit or renewals thereof, notwithstanding that any such
Indebtedness is created within one year of the expiration of such agreement.

 

For purposes of
determining Funded Debt, all reimbursement obligations with respect to all open
and undrawn letters of credit or guaranties of letters of credit outstanding as
of the date of determination shall not be deemed to be Indebtedness or
Indebtedness for Money Borrowed and therefore not included in the
determination of Funded Debt.

 

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

 

1.26         “Indebtedness” shall mean as applied to you,
without duplication:

 

(i)            all items
which in accordance with GAAP would be included in determining total
liabilities as shown on the liability side of your balance sheet as of the date
as of which Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations;

 

(ii)           all
obligations of other persons which you have guaranteed;

 

(iii)          all
reimbursement obligations in connection with letters of credit or letter of
credit guaranties issued for your account; and

 

(iv)          the
Obligations.

 

8

 

1.27         “Intellectual Property” shall mean all of
the following:  (a) all letters
patent of the U.S. or any other country, all registrations and recordings
thereof, and all applications for letters patent of the U.S. or any other
country, owned, held (whether pursuant to a license or otherwise) or used by
you in whole or in part, and including all patent licenses held by you (unless
otherwise prohibited by any license or related licensing agreement under
circumstances where the granting of the security interest would have the effect
under applicable law of the termination or permitting termination of the
license for breach and where the licensor, other than any affiliate of yours,
has elected such termination remedy), together with all reissues, divisions,
continuations, renewals, extensions and continuations-in-part thereof and the
inventions disclosed therein, and all rights corresponding thereto throughout
the world, including the right to make, use, lease, sell and otherwise transfer
the inventions disclosed therein, and all proceeds thereof, including without
limitation all license royalties and proceeds of infringement suits
(collectively, the “Patents”); (b) all state (including common
law), federal and foreign trademarks, service marks and trade names, corporate
names, company names, business names, fictitious business names, trade styles,
trade dress, logos, other source or business identifiers, domain names, designs
and general intangibles of like natures, now existing or hereafter adopted or
acquired, together with and including all licenses therefor held by you (unless
otherwise prohibited by any license or related licensing agreement under
circumstances where the granting of the security interest would have the effect
under applicable law of the termination or permitting termination of the
license for breach and where the licensor has elected such termination remedy),
and all registrations and recordings thereof, and all applications filed or to
be filed in connection therewith, including registrations and applications in
the United States Patent and Trademark Office, any State of the United States
or any other country or any political subdivision thereof, and all extensions
or renewals thereof, and the right (but not the obligation) to register claims
under any state or federal trademark law or regulation or any trademark law or
regulation of any foreign country and to apply for, renew and extend any of the
same, to sue or bring opposition or cancellation proceedings in your name or in
our name for past, present or future infringement or unconsented use thereof,
and all rights arising therefrom throughout the world (collectively, the “Trademarks”);
(c) all copyrights, rights, titles and interests in and to published and
unpublished works of authorship that you now or hereafter own or use in your
business, and all copyrights in any original or derivative works of authorship
and all works protectable by copyright that are, or in the future may be,
owned, created, authored (as a work for hire), acquired or used (whether
pursuant to a license or otherwise) by you, in whole or in part (collectively,
the “Copyrights”), as the same may be amended or supplemented pursuant
hereto from time to time; (d) all copyright registrations and applications
for copyright registration that have been or may hereafter be issued thereon or
applied for in the United States or throughout the world (the “Registrations”);
(e) all common law and other rights in and to the Copyrights throughout
the world, including all copyright licenses (unless otherwise prohibited by any
license or related licensing agreement under circumstances where the granting
of the security interest would have the effect under applicable law of the
termination or permitting termination of the license for breach and where the
licensor other than any affiliate of yours has elected such termination remedy)
(collectively, the “Copyright Rights”); (f) all inventions,
designs, trade secrets, proprietary rights, records, computer programs, source
codes, object codes, data bases and all other intangible personal property at
any time associated or used in connection with or arising out of the
Copyrights, Registrations or Copyright Rights (referred to herein as “Proprietary
Rights”); (g) all renewals and extensions of any of the Copyrights,
Registrations or

 

9

 

Copyright
Rights, throughout the world, including all proceeds thereof, the right (but
not the obligation) to renew and extend such Copyrights, Registrations and
Copyright Rights and to register works protectable by copyright and the right
(but not the obligation), to sue or bring opposition or cancellation
proceedings and recover damages for past, present and future infringements or
violations of the Copyrights, Registrations and Copyright Rights; and all of
your right, title and interest to make and exploit all derivative works based
on or adopted from all works covered by any of the Copyrights, Registrations,
and Copyright Rights, Proprietary Rights and any other Intellectual Property
relating thereto; (h) all claims, causes of action and rights to sue for
past, present and future infringement or unconsented use of any of the
Intellectual Property and all rights arising therefrom and pertaining thereto; (i) all
of the goodwill of your business symbolized by the Trademarks or associated therewith;
(j) all General Intangibles and all intangible intellectual and other similar
property of yours of any kind or nature, whether now owned or hereafter
acquired or developed, associated with or arising out of or used in connection
with any of the Intellectual Property and not otherwise described above; and
(k) all proceeds of any and all of the foregoing Intellectual Property,
including, without limitation, license royalties, rights to payment, accounts
receivable, proceeds of infringement suits and all payments under insurance or
any indemnity, warranty on guaranty payable by reason or loss or damage to on
otherwise with respect to the foregoing Intellectual Property.

 

1.28         “Interest Period” shall mean the period from
the date of this Agreement to the last day of the month following the date
hereof, and each successive one-month period thereafter.

 

1.29         “Internal Revenue Code” means the Internal
Revenue Code of 1986, as amended from time to time and the rules and
regulations promulgated thereunder from time to time.

 

1.30         “Inventory” shall mean all (a) present
and hereafter acquired merchandise, inventory and goods, and all additions,
substitutions and replacements thereof, wherever located, together with all
goods and materials used or usable in manufacturing, processing, packaging or
shipping same, in all stages of production – from raw materials through
work-in-process to finished goods – and all proceeds of whatever sort,
including, without limitation, (b) all inventory which is presently in
existence and which is owned by you or in which you have any ownership
interest, and all inventory which you may purchase or in which you may acquire
any ownership interest at any time and from time to time in the future, whether
such inventory is in transit or in your or our constructive, actual or
exclusive possession, or is held by others for your account, (c) all
inventory wherever located, including, without limitation, all inventory which
may be located on your premises or upon the premises of any carriers,
forwarding agents, truckers, warehousemen, vendors, selling agents, finishers,
converters, processors, on other third persons who may have possession of the
inventory, and (d) all inventory, and any portion thereof which may be
returned, rejected, reclaimed or repossessed by either you or us from your
Customers (as such term is defined herein), as well as to all supplies, goods,
incidentals, packaging materials, and any other items which contribute to the
finished goods or products manufactured or processed by you or to the sale,
promotion or shipment thereof.

 

1.31         “Inventory Security Agreement” shall mean
that certain Inventory Security Agreement, dated as of September 28, 2001,
as amended, between you and us, as the same may hereafter be amended, modified,
supplemented or restated from time to time.

 

10

 

1.32         “LC Guaranty” shall mean any guaranty
pursuant to which we or any of our affiliates shall guaranty the payment or
performance by you of your reimbursement obligation under any letter of credit,
as more fully described in the Letter of Credit Agreement.

 

1.33         “LC Reserve” shall mean on any date of
determination thereof 100% of all Letters of Credit and LC Guaranties
outstanding on such date, together with all fees and other amounts due or to
become due with respect to such Letters of Credit and LC Guaranties.

 

1.34         “Letter of Credit” shall mean any letter of
credit issued on your behalf as applicant with respect to which we were asked
to join you in the application for such letter of credit or any letter of
credit issued by us or any of our affiliates for your account, as more fully
described in the Letter of Credit Agreement.

 

1.35         “Letter of Credit Agreement” shall mean that
certain Letter of Credit Agreement, dated as of October 9, 2002, as
amended, between you and us, as the same may hereafter be amended, modified,
supplemented or restated from time to time.

 

1.36         “Letter of Credit Collateral” shall mean all
of the following, whether now owned on hereafter acquired by you, wherever
located, whether in transit or not:  (a) warehouse
receipts, bills of lading, shipping documents, documents of title, chattel
paper and instruments, all whether negotiable or not; (b) merchandise,
inventory and goods which relate to any of the foregoing or which are purchased
from suppliers located outside of the United States or its territories or which
relate to letters of credit opened through or with our assistance (whether for
purchases from domestic or foreign suppliers), and all additions thereto,
substitutions therefor and replacements thereof, in all stages of manufacture,
process or production – from raw materials through work-in-process to finished
goods, together with all goods and materials used or usable in manufacturing,
processing, packaging or shipping same, all wherever located and whether in
transit or not; and (c) cash and non-cash proceeds of any and all of the
foregoing, of whatever sort and however arising.

 

1.37         “Leverage Ratio” shall mean for any period, the
ratio of (i) Funded Debt as of the last day of such period to (ii) the
Tangible Net Worth as of the last day for such period.

 

1.38         “LIBOR” shall mean, at any time of
determination, and subject to availability, for each applicable Interest
Period, a variable rate of interest equal to the applicable one-month LIBOR
published in the New York City edition of The Wall Street Journal under “Money
Rates” on the last business day of a month.

 

1.39         “LIBOR Rate” shall mean the interest rate
for each Interest Period with respect thereto on the unpaid principal amount
thereof equal to the LIBOR determined for each Interest Period in accordance
with the terms hereof.

 

1.40         “Money Borrowed” shall mean (i) Indebtedness
arising from the lending of money by any person to you; (ii) Indebtedness,
whether or not in any such case arising from the lending by any person of money
to you, (a) which is represented by notes payable or drafts accepted that
evidence extensions of credit, (b) which constitutes obligations evidenced
by bonds, debentures, notes on similar instruments, or (c) upon which
interest charges are customarily paid (other than accounts payable) or that was
issued or assumed as full or partial payment for your property; (iii)

 

11

 

Indebtedness
that constitutes a Capitalized Lease Obligation; (iv) reimbursement
obligations with respect to letters of credit or guaranties of letters of
credit and (v) your Indebtedness under any guaranty of obligations that
would constitute Indebtedness for Money Borrowed under clauses (i) through
(iii) hereof, if owed directly by you.

 

1.41         “Net Amount of Eligible Accounts” shall mean
and include the gross amount of Eligible Accounts less (a) returns,
discounts, claims, credits and allowances of any nature at any time issued,
owing, granted, outstanding, available or claimed with respect thereto, (b) amounts
thereof which are not paid by the subject Customer due to an existing or
alleged dispute, offset, recoupment or counter-claim, and (c) any reserves
which we, in our reasonable sole discretion, utilizing our customary credit and
collateral considerations, deem necessary or desirable to maintain with respect
thereto including, without limitation, reserves for any sales, excise or
similar taxes included in the amount thereof.

 

1.42         “Net Income” shall mean for any period, your
net income, as determined in accordance with GAAP.

 

1.43         “Obligations” shall mean and include:  (a) any and all of your indebtedness,
liabilities and obligations to us of every kind, nature and description, direct
on indirect, secured or unsecured, joint or several, absolute or contingent,
due or to become due, now existing or hereafter arising, regardless of how they
arise or were acquired or by what agreement or instrument they may be evidenced
or whether evidenced by any agreement or instrument, including, but not limited
to, all amounts owing by you to us by reason of purchases made by you from
other entities factored or financed by us, and (b) any and all amounts of
charges, commissions, interest, costs, expenses and attorneys’ fees chargeable
in connection with all of the foregoing, all of which indebtedness,
liabilities, obligations and amounts, whether or not matured and whether or not
disputed, may be charged to your account hereunder, without prior notice to you
as set forth in this Agreement.

 

1.44         “Overadvance Facility” shall have the
meaning set forth in subparagraph 3.1(b).

 

1.45         “Permitted Series A Stock Redemption”
shall mean, if no Default exists or would result therefrom, the redemption by
you of your outstanding shares of Series A Stock pursuant to the terms
thereof, including any accrued and unpaid dividends thereon to the extent
applicable, whether at your option, at the option of the holders of the Series A
Stock or as required by the terms of the Series A Stock.

 

1.46         “Series A Stock” shall mean your Series A
Preferred Stock, $.001 par value per share.

 

1.47         “Subordinated Debt” shall mean any of your
Indebtedness that is subordinated to the Obligations in a manner and upon terms
satisfactory to us.

 

1.48         “Tangible Net Worth” shall mean at any date
a sum equal to:

 

(i)            the net
book value (after deducting related depreciation, obsolescence, amortization,
valuation, and other proper reserves) at which your Adjusted Tangible Assets
would be shown on your balance sheet at such date in accordance with GAAP, minus

 

12

 

(ii)           the amount
at which your liabilities (other than capital stock and surplus) would be shown
on your balance sheet in accordance with GAAP, and including as liabilities all
reserves for contingencies and other potential liabilities.

 

For purposes of
determining Tangible Net Worth, all reimbursement obligations with respect to
all open and undrawn letters of credit or guaranties of letters of credit
outstanding as of the date of determination shall not be deemed to be
contingent or potential liabilities and therefore not included in the
determination of Tangible Net Worth.

 

1.49         “TNW Amount” shall mean the TNW Base Amount plus
an amount equal to fifty percent (50%) of Net Income for the applicable
calendar quarter, but no reduction in the foregoing amount shall be made if Net
Income in any calendar quarter is a negative number.

 

1.50         “TNW Base Amount” shall mean the TNW Amount
as of the last day of the calendar quarter immediately preceding the date of
determination.  The initial TNW Base
Amount shall mean $24,000,000.

 

II. 
GRANT OF SECURITY INTEREST

 

2.1           To
secure the prompt payment, performance and observance in full of all
Obligations, you hereby pledge, transfer, set over and assign to us, and grant
to us a continuing general security interest in, a lien upon and a right of
set-off against, all of the Collateral, whether now owned or existing or hereafter
created, acquired or arising and wheresoever located.  Records shall, until delivered to or removed
by us, be kept by you in trust for us and without cost to us in appropriate
containers in safe places on your premises. 
Each confirmatory schedule or other form of report at any time
executed by you shall be deemed to include the foregoing pledge, transfer,
assignment and grant whether or not same appears therein.

 

2.2           You
will, upon the creation of each Account, or at such intervals as we may from
time to time require, provide us with:  (a) confirmatory
schedules; (b) copies of all documents (whether maintained in written or
electronic form) evidencing the sale and delivery of goods or the performance
of services which created any Accounts, including, but not limited to,
contracts, orders, invoices, bills of lading, warehouse receipts, delivery
tickets and shipping receipts; and (c) such further schedules and/or
information as we may reasonably request. 
The items to be provided under this paragraph are to be in form
satisfactory to us and executed and delivered to us from time to time so that
we can confirm and maintain records of the Collateral, including, without
limitation, the Accounts and the Inventory. 
Your failure to give any of such items to us or to otherwise comply with
the provisions hereof shall not affect, terminate, modify, diminish or
otherwise limit our lien upon or security interest in the Collateral, or your
representations, warranties or covenants under this Agreement.

 

III. 
ADVANCES AND INTEREST

 

3.1           (a)           Subject
to the terms and conditions of this Agreement, we shall make up to $50,000,000
(the “Maximum Credit Facility”) available upon your request therefor.  In connection with the foregoing, we will
make revolving credit advances to you, in our reasonable sole discretion, in an
aggregate principal amount at any time outstanding equal to the lessen of:  (i) the Maximum Credit Facility or (ii) the
Borrowing Base at such time.

 

13

 

(b)           (1)           Notwithstanding
subparagraph 3.1(a) above and paragraph 4.15 below, upon your request and
only after you have delivered to us cash flow projections in form and substance
satisfactory to us in our reasonable sole discretion, we may in our sole and
unfettered discretion make available to you from time to time advances in
excess of the Borrowing Base not to exceed: 
(i) $5,000,000 at any one time outstanding and (ii) the
Maximum Credit Facility (the “Overadvance Facility”).  The Overadvance Facility is subject to all of
the terms and conditions applicable to all revolving credit advances made
hereunder.

 

(2)           The
Overadvance Facility shall be repayable on demand and in any event no later
than ninety (90) days from the date that such Overadvance Facility has been
extended to you, shall constitute Obligations hereunder and be secured by the
Collateral, and shall bear interest at the rate set forth in paragraph 3.4.

 

3.2           Without
in any way circumscribing our rights under this Agreement, and by way of
illustration only and not by way of limitation, we may, in the exercise of our
reasonable sole discretion, at any time and from time to time, hold any reserve
we deem necessary as security for the payment and performance of your
Obligations, and/or change any advance rates or entirely cease making advances,
in each case utilizing our customary credit considerations.  In no event shall the aggregate amount of all
revolving credit advances made pursuant to paragraph 3.1 above, from time to
time outstanding, exceed the lesser of sum of the Borrowing Base and the
Overadvance Facility, if such Overadvance Facility is outstanding, or the
Maximum Credit Facility.

 

3.3           All
loans and advances by us to you under this Agreement shall constitute
Obligations secured by our security interest in all of the Collateral granted
hereunder, and by all other security interests, liens, and encumbrances
heretofore, now or at any time or times hereafter granted by you to us.  All loans or advances shall be charged to
your account on our books, and shall be payable on demand at our offices or at
such other place as we may from time to time designate.

 

3.4           (a)           Interest
shall be payable by you (and changed to your account as of the end of each
month) on the average of the net balances owing by you to us in your account at
the close of each day during such month. 
The rate of interest applicable in any given Interest Period and charged
to your account (the “Applicable Interest Rate”) shall be either:  (i) the Chase Rate plus the
Applicable Margin or (ii) if you elect as provided subparagraph 3.4(b) below,
the LIBOR Rate plus the Applicable Margin.  Any change in the rate of interest hereunder
due to a change in the Chase Rate or LIBOR Rate shall take effect as of the
first of the month following such change in the Chase Rate or LIBOR Rate.  Interest shall be calculated based on a 360-day
year.  Interest shall be charged on all
advances, all charges hereunder, and any debit balance in your account.  We shall be entitled to charge your account
at the rate provided for herein until all Obligations have been paid and
satisfied in full.  After the occurrence
of Default and for so long as such Default continues, all of the Obligations
shall, at our option, bear interest at a rate per annum equal to the Default
Rate.  In no event shall the rate charged
hereunder exceed the highest rate permissible under applicable law; however, in
the event that we receive or have received interest hereunder in excess of the
highest rate permissible under applicable law, your sole remedy shall be to
seek repayment of such excess, and you hereby waive any and all other rights
and remedies which may be available to you under law or in equity.

 

14

 

(b)           Subject to
the terms and conditions hereof, you may request that the Applicable Interest
Rate be the LIBOR Rate in accordance with the terms and conditions described
below:

 

(i)            Provided
that no Default has occurred and is continuing, you may, on at least three (3) business
days’ prior written notice to us prior to the end of an Interest Period, elect
to change the Applicable Interest Rate from the Chase Rate plus the
Applicable Margin to the LIBOR Rate plus the Applicable Margin or from
the LIBOR Rate plus the Applicable Margin to the Chase Rate plus the
Applicable Margin, whichever is applicable under the circumstances.  Except as provided below, the Applicable
Interest Rate with respect to each subsequent Interest Period shall be the
Applicable Interest Rate as of the last day of the immediately preceding
Interest Period, unless you have notified us of your intent to change the
Applicable Interest Rate in accordance with the immediately preceding
sentence.  Upon the occurrence and
continuance of a Default, the Applicable Interest Rate shall be or become the
Default Rate if we in our sole discretion elect to charge the Default Rate.

 

(ii)           Notwithstanding
anything to the contrary contained herein, we shall not be required to purchase
United States Dollar deposits in the London interbank market or from any other
applicable LIBOR Rate market or source or otherwise “match funds” to fund any
loans, but any and all provisions hereof relating to LIBOR Rates shall be
deemed to apply as if we had purchased such deposits to fund any LIBOR Rates.

 

3.5           In
addition to the fees and changes under this Agreement, you will pay us, as of
the date hereof, a facility fee in the amount of $50,000.00, which shall be
inclusive of all fees for the use of our in-house counsel in connection with
the initial preparation, negotiation, execution and delivery of this Agreement
and all other agreements and documents executed in connection therewith.

 

3.6           We
shall be entitled to receive and you shall pay us a Collateral management fee
of $1,000.00 per month, which we shall charge to your account as of the end of
each fiscal month.

 

3.7           We
shall render to you each month a statement of your account which shall be
deemed to be correct and accepted by and binding upon you, and shall constitute
an account stated between us except to the extent that we receive a written
statement of your specific exceptions, within thirty (30) days after such
statement has been rendered to you.

 

3.8           You
shall make each payment under this Agreement on the day when due in immediately
available funds in U.S. Dollars.  If we
receive any payment from you or on behalf of you in a currency other than in
U.S. Dollars, we shall convert the payment (including the monetary proceeds of
realization upon any Collateral) into the Equivalent Amount of U.S. Dollars as
determined on the Business Day immediately preceding the date of receipt of
such actual payment.  The Obligations
shall be satisfied only to the extent of the amount actually received by us
upon such conversion.

 

15

 

IV. 
REPRESENTATIONS, WARRANTIES AND COVENANTS

 

You hereby make the
following representations, warranties and covenants which shall survive the
execution and delivery of this Agreement, shall be deemed to be incorporated by
reference in each confirmatory assignment schedule or other form of
assignment submitted by you to us, and shall be deemed repeated and confirmed
with respect to each item of Collateral as it is created or otherwise acquired:

 

4.1           You
are a duly organized and validly existing corporation (or other business
entity), qualified to do business in all states where required; there are no
actions, suits or other legal proceedings of any kind or nature pending against
you which could reasonably be expected to materially and adversely affect your
business, assets, operations, or condition, financial or otherwise, or the
Collateral, or your ability to perform this Agreement; the execution, delivery
and performance hereof are within your corporate (or other business entity)
powers, have been duly authorized, and are not in contravention of any law or
the terms of your certificate of incorporation or bylaws (or other documents
establishing your legal status), or of any material indenture, agreement or
undertaking to which you are a party or by which you or your properties are
bound; and the most recent financial statements provided to us by you
accurately state your financial condition and there has been no material
adverse change in your financial condition since the date of such financial
statements.

 

4.2           With
respect to each item of Collateral at the time our security interest attaches
thereto, to the best of your knowledge:  (a) you
shall be the sole owner, free and clear of all liens, claims, security
interests and encumbrances except in our favor and except as allowed pursuant
to Section 4.4 of this Agreement, and fully authorized to sell, transfer,
pledge and grant a security interest in, such item of Collateral; (b) each
Account shall be genuine, valid and legally enforceable, and represent an
undisputed bona fide indebtedness incurred by the Customer therein named, for a
fixed sum as set forth in the invoice relating thereto with respect to an
absolute sale and delivery of goods upon your stated terms or services
theretofore rendered by you as of the date each Account is created; (c) no
Account is or shall be subject to any offset, recoupment, deduction, defense,
dispute, claim, counterclaim, discount or allowance except as may be stated in
the copy of the invoice delivered by you to us; (d) no agreement under
which any deduction, discount, credit or allowance of any kind may be granted
or allowed shall have been or shall thereafter be made by you with any Customer
except in keeping with your ordinary course of business which business practices
have been made known to us, and as indicated in writing to us at or before the
time such agreement is made; (e) all statements made and all unpaid
balances appearing in the invoices, documents and agreements relating to each
Account shall be true and correct in all respects and what they purport to be; (f) none
of the Accounts arise from sales to consumers of goods to be used for personal,
family or household purposes; (g) all signatures and endorsements that
appear thereon shall be genuine and all signatories and endorsers shall have
full capacity to contract; and (h) none of the transactions underlying or
giving rise to any item of Collateral shall violate any applicable state or
federal laws or regulations, and all documents relating to such item of
Collateral shall be legally sufficient under such laws or regulations and shall
be legally enforceable in accordance with their terms.

 

4.3           All
recording, filing and other requirements of giving public notice under any
applicable law or ordinance have been duly complied with by you.  To the best of your ability, you will

 

16

 

from
time to time, at your expense, perform all acts and execute all documents
requested by us, including, without limitation, the obtaining, executing,
delivering or filing of financing statements, landlord’s or mortgagee’s
waivers, third-party processor letters, notices of assignment in accordance
with applicable law with respect to your Accounts described in clause (xii) of
the definition of Eligible Accounts and other notices, and amendments and
renewals thereof, in order to create, perfect, maintain and enforce a valid
first lien upon, pledge of, or security interest in all of the Collateral in
our favor.  To the extent permitted by
applicable law, we are authorized to file financing statements without your
signature appearing thereon in order to perfect or maintain our security
interest in all of the Collateral.  All
reasonable charges, expenses and fees we may incur in obtaining or filing any
of the foregoing, or in searching any public records in connection therewith,
shall be charged to your account and added to the Obligations.

 

4.4           You
shall not pledge, sell, assign, transfer, create or suffer to exist any
security interest in or other lien or encumbrance on any part of the
Collateral, except with our prior written consent, which shall not be
unreasonably withheld.  You hereby agree
to defend the same against any and all persons whatsoever.

 

4.5           Each
Customer, guarantor or endorser is to the best of your knowledge solvent and
will continue to be fully able to pay all Accounts on which it is obligated in
full when due.

 

4.6           You
shall maintain your books, records and accounts in accordance with generally
accepted accounting principles consistently applied.  You shall, at any time and from time to time,
furnish to us such balance sheets, earnings statements, financial statements
and other reasonable information regarding your business affairs and financial
condition, including, without limitation, schedules, agings and reports, as we
may reasonably request, and in any event you shall furnish us:  (a) as soon as possible, but not later
than ninety (90) days after the close of each of your fiscal years, your
financial statements as of the end of such year, audited by a firm of
independent certified public accountants of recognized standing, selected by
you and reasonably acceptable to us, together with an unqualified audit opinion
from such certified public accountants; (b) as soon as possible, but not
later than thirty (30) days after the end of each month hereafter, your
unaudited interim financial statements as of the end of such period and of the
portion of your fiscal year then elapsed, certified by your principal financial
officer, prepared in accordance with GAAP consistently applied, and fairly
presenting the financial position and results of your operations for such
period; (c) not later than thirty (30) days prior to the end of each of
your fiscal years, your forecasted balance sheets, profit and loss statement,
and cash flow statements, all for the forthcoming year, month by month, and all
prepared on a consistent basis with your historical financial statements,
together with appropriate supporting details and a statement of underlying
assumption; (d) on or before the third (3rd) Business Day of each week
occurring after the effective date of this Agreement and with such other
frequency as we may reasonably request, a (i) completed borrowing base
certificate, in such form as we determine, prepared as of the close of business
of the previous week, and (ii) detailed aged trial balance of all Accounts
which are existing as of the close of business of the previous week, specifying
the names, addresses, face value, dates of invoices and due dates for each
Customer obligated on the Accounts listed; (e) on or before the fifteenth
(15th) day of each month occurring after the effective date of this Agreement
and with such other frequency as we may request, an Inventory confirmation and
such other detailed reporting with respect to the Inventory as we may

 

17

 

reasonably
request, prepared as of the close of business of the previous month; and (f) any
other report reasonably required by us. 
All such financial statements do or shall fairly present your financial
condition as of the dates thereof or the results of your operations for the
periods for which the same are furnished. 
All such other information is or shall be, at the time the same is so
furnished, accurate and correct in all material respects and complete insofar
as completeness may be necessary to give us a true and accurate depiction of
the subject matter thereof.  Concurrently
with the delivery of the financial statements described in clauses (a) and
(b) of this paragraph 4.6, or more frequently if requested by us, you
shall cause to be prepared and furnished to us: 
(i) a certificate from one of your principal financial officers
certifying to us that, to the best of his or her knowledge, no Default has
occurred, or if such Default has occurred, specifying the nature thereof; and (ii) a
financial covenant compliance certificate, in form end substance reasonably
satisfactory to us, executed by one of your principal financial officers.

 

4.7           You
hereby irrevocably authorize and direct all accountants and auditors employed
by you at any time prior to or during the term of this Agreement to exhibit and
deliver to us copies of any of your financial statements, trial balances or
other accounting records of any sort in their possession and to disclose to us
any information they may have concerning your financial condition and business
operations.

 

4.8           You
shall keep all your insurable properties and properties in which you have an
interest insured against the hazard 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 yours.  You shall pay when due
all premiums on any insurance policies for your properties or assets, including
the Collateral (and including any life insurance policies assigned to us as
Collateral), whether required to be maintained by you under this Agreement, any
supplement hereto, or otherwise, and shall keep in force, without modification
or amendment, the assignment and endorsement to such policies so that any and
all rights we may have as assignee and secured party thereunder shall not be
adversely affected.  You shall also pay
when due and discharge all taxes, assessments, contributions and other charges
upon or against you or your properties or assets, including the
Collateral.  If any such premium, tax,
assessment, contribution or other charge remains unpaid after the date fixed
for the payment of same, or if any lien shall be claimed, we may without notice
to you pay such premium, tax, assessment, contribution, charge or claim, and
the amount thereof shall be payable on demand, and until paid by you, shall be
changed to your account and added to and deemed part of the Obligations.

 

4.9           You
shall be liable for any tax on penalty imposed upon any transaction under this
Agreement or giving rise to the Account or which we may be required to withhold
or pay for any reason; you agree to indemnify and hold us harmless with respect
thereto, and to repay to us on demand the amount thereof, and until paid by
you, such amount shall be charged to your account and added to and deemed part
of the Obligations.  If any Account
includes a charge for any tax payable to any governmental taxing authority, we
are hereby authorized in our reasonable sole discretion to pay the amount
thereof to the proper taxing authority for your account and to charge your
account therefor.

 

18

 

4.10         You
shall comply in all material respects with all laws, rules, regulations and
orders of any legislative, administrative or judicial body or official,
applicable to your properties and assets, including the Collateral, or to the
operation of your business.

 

4.11         Unless
we have first consented thereto in writing, such consent not to be unreasonably
withheld, you shall not create, incur, assume, or suffer to exist, any
Indebtedness for Money Borrowed, except (i) Obligations owing to us; (ii) Subordinated
Debt; and (iii) such other Indebtedness for Money Borrowed that is
outstanding as of the effective date of this Agreement, and any renewals and
extensions, thereof but not any increases in the principal amounts thereof
outstanding on the dates of such renewals and extensions.  Unless we have first consented thereto in
writing, you shall not assume, guarantee, endorse or otherwise become liable
upon the obligations of any person, firm, entity or corporation, except by the
endorsement of negotiable instruments for deposit or collection on similar
transactions in the ordinary course of business.

 

4.12         Unless
we have first consented thereto in writing, you shall not undergo any merger or
consolidation into or with another entity, undertake a “Change of Control
Transaction” (as defined herein), or enter into or engage in any operation or
activity materially different from that presently conducted by you.  For purposes hereof, a “Change of Control
Transaction” is any merger, consolidation on other transaction, excluding a
public offering of your capital stock, as result of which your stockholders
immediately prior to such transaction cease to beneficially own at least a
majority of your outstanding voting securities or the outstanding voting
securities of any successor or surviving entity in the case of a merger or
consolidation, immediately after such transaction.

 

4.13         You
shall not make any Distribution except:  (i) a
Permitted Series A Stock Redemption; (ii) dividends on the Series A
Stock, provided that no Default shall have occurred and be continuing at the
time of payment of such dividends or would result therefrom; (iii) repurchases
or redemptions of any of your capital stock, stock options, stock purchase
warrants, or convertible securities by you from the holder thereof upon such
stockholder’s death solely out of the proceeds of life insurance policies
received by you designated for such purpose; or (iv) a Distribution with
our prior written consent.

 

4.14         Your
Records and chief executive office shall be kept at your address as it appears
on the first page of this Agreement. 
You shall give us thirty (30) days’ prior written notice of any change
in your name, tradenames or styles, or location(s).

 

4.15         You
shall from time to time make such payments to us so that the aggregate balance
in your loan account shall not at any time exceed the lesser of:  (a) the Maximum Credit Facility; or (b) the
sum of the Borrowing Base and the Overadvance Facility, if such Overadvance
Facility is outstanding.

 

4.16         You
shall not make any payment of Subordinated Debt or take any other action or
omit to take any other action in respect of Subordinated Debt, except in
accordance with the agreement relative to such Subordinated Debt.

 

4.17         Under
Armour Canada, Inc. is incorporated under the laws of the Province of
Ontario, Canada, and you own 100% of the capital stock of such corporation.

 

19

 

4.18         Neither
the making of the extension of any credit contemplated hereunder nor the use of
the proceeds thereof will violate either Executive Order 13224 or Sections 326
and 371 through 377 of the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub.
L. No. 107-56 (also known as the USA Patriot Act) or any enabling
legislation or rules, regulations or executive orders relating thereto. You
shall deliver to us any certification or other evidence requested by us from
time to time confirming your compliance with this paragraph 4.18.

 

4.19         Each
of your Benefit Plans has been and is being maintained and funded in accordance
with its terms and in compliance in all material respects with all provisions
of ERISA and the Internal Revenue Code applicable thereto.  You and each ERISA Affiliate have fulfilled
all obligations related to the minimum funding standards of ERISA and the
Internal Revenue Code for each Benefit Plan and no “accumulated funding
deficiency,” as such term is defined in Section 302 of ERISA and Section 412
of the Internal Revenue Code, has occurred or is reasonably likely to occur,
nor do the conditions for imposition of a lien Under Section 302(f) of
ERISA exist or are reasonably likely to exist, with respect to any Benefit
Plan, and neither you nor any ERISA Affiliate has incurred any liability (other
than routine liability for premiums) under Title IV of ERISA with respect to
any Benefit Plan.  No event or events
have occurred with respect to any Benefit Plan in connection with which you,
any ERISA Affiliate, or, to your knowledge, any fiduciary of a Benefit Plan,
directly or indirectly, would be subject to any material liability (other than
routine liability for premiums, contributions (if required) and, with respect
to a Benefit Plan, routine liabilities for benefits), individually or in the
aggregate, under ERISA or the Internal Revenue Code.

 

4.20         For
so long as this Agreement is in effect and thereafter until payment in full of
the Obligations, you covenant that, unless we have first consented thereto in
writing, you shall maintain a Tangible Net Worth of not less than the amount
shown below as of the date corresponding thereto:

 

	
  Date

  	
   

  	
  Tangible Net Worth

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  As of June 30, 2004

  	
   

  	
  $

  	
  15,000,000

  	
   

  
	
  As of September 30, 2004

  	
   

  	
  $

  	
  18,000,000

  	
   

  
	
  As of December 31, 2004

  	
   

  	
  $

  	
  24,000,000

  	
   

  
	
  As of the last day of each calendar quarter ending
  thereafter

  	
   

  	
  TNW Amount

  	
   

  

 

V. 
CUSTODY, INSPECTION, COLLECTION AND HANDLING

OF COLLATERAL AND RECORDS

 

5.1           Until
your authority to do so is curtailed or terminated (which we may do at any time
following the occurrence of, and during the continuation of, a Default, when we
in our reasonable sole discretion may deem it to be in our best interest to do
so), you will, at your own cost and expense but on our behalf and for our
account, collect and otherwise enforce as our property and in trust for us, all
remittances and all amounts unpaid on Accounts, and shall not

 

20

 

commingle
such collections with your own funds or use the same for any purpose. You have
opened with a lockbox with us (the “Lockbox”) pursuant to that certain Lockbox
Agreement, dated June 21, 2001, as amended, between you and us, and
lockbox which is titled to reflect our ownership, in order to receive all
payments from your Customers.  Payments
received into the Lockbox will be immediately deposited into our account at the
bank.  This lockbox arrangement shall be
maintained at your sole cost and expense. 
As to all such collections, including all prepayments by Customers, you
shall receive in trust, and deliver to us in original form, duly endorsed by
you for deposit with us, and on the date of receipt thereof, all checks,
drafts, notes, money orders, acceptances, cash and other evidences of
indebtedness.  All amounts received by us
in payment of Accounts shall be credited to your account after allowing three (3) Business
Days for collection and clearance thereof, conditional upon final payment to
us.  Upon curtailment or termination of
your authority, or at any other time and without any cause or notice thereof to
you, we shall have the right to send notice(s) of our security interest to any
Customers or any other persons obligated on, holding or otherwise concerned
with any of the Collateral, and thereafter we shall have the sole right to
collect the Accounts and/or take possession of the Collateral and the
Records.  Any and all of our collection
expenses, including, but not limited to, the reasonable fees and expenses of
our attorneys (both internal and external), the fees of our collection
agencies, stationery and postage, telephone and facsimile, secretarial and
clerical expenses, and the salaries of any collection persons utilized, shall
be charged to your account and added to the Obligations.  For purposes hereof, “Business Day” shall
mean a day on which banks are open for the general transaction of business in
Charlotte, North Carolina.

 

5.2           You
shall keep and maintain, at your cost and expense, books and records pertaining
to the Collateral in such detail, form and scope as we shall from time to time
require. You will mark your Records with appropriate notations satisfactory to
us, disclosing that such Collateral has been pledged, assigned, and transferred
to us and that you have granted to us a security interest therein.

 

5.3           At
all reasonable times, we shall have: 
full access to, and the right to check, inspect, examine and make
abstracts and copies from, your Records and all other books, records, audits,
correspondence and papers relating to the Collateral; the right to confirm and
verify all Accounts; and the right to do whatever we may deem necessary to
preserve or protect our interests in the Obligations and the Collateral, and in
furtherance thereof, we may, without cost or expense to us, use such of your
personnel, supplies and space as may be reasonably necessary. At reasonable
times and upon reasonable notice, we or our agents may enter upon any of your
premises at any time and from time to time during business hours for the
purpose of inspecting the Collateral and any and all Records pertaining
thereto; provided, however, upon the occurrence and during the
continuation of a Default, we may enter upon any of your premises at any time
without notice.  At any time upon the
occurrence and during the continuation of a Default, we may take possession of
and remove or require you to deliver any or all such Records. In order to cover
any costs and expenses we may incur in connection with performing any of the
aforementioned checks, verifications, inspections or examinations
(collectively, “Examinations”), we shall be entitled to charge your account the
sum of:  (i) a fee of $850 per
person for each day or part thereof in which such Examinations are conducted plus
(ii) any additional out-of-pocket costs and expenses we incur as a result
of conducting such Examinations (collectively, the “Examination Fee”). Such
Examination Fee shall be due and payable on the first day of each month and
shall be charged by us to your account as of such first

 

21

 

day of
each month.  Such Examination Fee shall
be deemed to be earned in full on the date when due and shall not be subject to
rebate or proration for any reason.

 

5.4           You
shall, immediately upon obtaining knowledge thereof, notify us of any
reclamation, return or repossession of goods; any claim or dispute asserted by
any Customer or other obligor; any loss or destruction of, or substantial
damage to, any of the Collateral; and any other matter affecting the value, enforceability
or collectibility of any of the Collateral. 
Except in the normal course of business and consistent with your
historical practices, you shall not, without our consent, settle, compromise or
adjust any Account (or extend the time for payment thereof) or grant any
additional discounts, allowances or credits thereon.

 

5.5           You
hereby constitute us and any of our agents or designees, as your
attorneys-in-fact, at your own cost and expense, to exercise at any time all or
any of the following powers, which being coupled with an interest, shall be
irrevocable until all Obligations have been paid in full:  to receive, take, endorse, assign, deliver,
accept and deposit, in our name or yours, any and all checks, notes,
remittances, wire transfers or other electronic forms of payment, drafts and
other documents and instruments and documents relating to the Collateral; to
receive, open and dispose of all mail addressed to you and to notify postal
authorities to change the address for delivery of mail to such address as we
may designate; to give Customers notice of our interest in the Accounts and to
request from Customers at any time, in your name or ours or that of our
designee, information concerning the Accounts; to notify Customers to make
payment directly to us; to execute in your name and on your behalf any
financing statements (including, without limitation, any continuations thereof
or amendments thereto); and to take or bring, in your name or ours, all steps,
actions or proceedings deemed by us necessary or desirable to effect collection
of the Collateral or to preserve, protect or enforce our interest therein. We
agree to return to you any mail that we deem unnecessary to effectuate the
purposes of this Agreement. We and any of our agents or designees shall not be
liable for any unintentional acts of omission or commission, nor for any
unintentional errors of judgment or mistakes of fact or law.

 

5.6           Nothing
herein contained shall be construed to constitute you as our agent for any
purpose whatsoever. We shall not be responsible nor liable for any shortage,
discrepancy, damage, loss or destruction of any Collateral wherever the same
may be located and regardless of the cause thereof. We shall not, under any
circumstances or in any event whatsoever, have any liability for an error or
omission or delay of any kind occurring in the settlement, collection or
payment of any of the Accounts or any instrument received in payment thereof or
for any damage resulting therefrom. We may, without notice to or consent from
you, sue upon or otherwise collect, extend the time of payment of, or
compromise or settle for cash, credit or otherwise upon any terms, any of the
Accounts or any securities, instruments or insurance applicable thereto and
release the obligor thereon, free of any claims or defenses based upon
suretyship law or the like. We are authorized and empowered to accept the
return of goods represented by any of the Accounts, without notice to or
consent by you, all without discharge or in any way affecting your liability
hereunder. We do not, by anything herein or in any assignment or otherwise,
assume any of your obligations under any contract or agreement, and we shall
not be responsible in any way for the performance by you of any of the terms
and conditions thereof.

 

22

 

5.7           Upon
the occurrence of a Default, we shall have the right at any time and from time
to time to employ and have present on any of your premises one or more
custodians selected by us, each of whom shall have the right to exercise any
and all of our rights hereunder. You hereby agree to cooperate with any such
custodian and to do whatever we may reasonably request by way of preserving and
protecting the Collateral.  All expenses
incurred by us by reason of the employment of the custodian shall be payable on
demand, and until paid by you, shall be charged to your account and added to
and deemed part of the Obligations.

 

5.8           We
shall be entitled to charge your account with, and add to and deem part of the
Obligations, all costs and expenses incurred by us in connection with the
preparation, execution, administration and enforcement of this Agreement (and
all related instruments and documents), and all costs and expenses incurred by
us in connection with the protection, maintenance, disposition, preservation
and enforcement of the Obligations, the Collateral or the pledges, liens and
security interests granted to us hereunder. 
The foregoing costs and expenses shall include, without limitation, all
reasonable fees and expenses of our attorneys (both internal and external), all
search fees, the cost of all public record filings, and wire transfer changes.

 

VI. 
EVENTS OF DEFAULT; ACCELERATION

 

6.1           All
Obligations shall, at our option and notwithstanding any time or credit allowed
by any instrument evidencing or representing same, be immediately due and
payable without notice or demand upon the occurrence and continuance of any one
on more of the following events of default (“Default”):  (a) default in the payment or
performance, when due or payable, of any of the Obligations including, without
limitation, your failure to pay to us any Obligation due on demand when such
demand is made; (b) default by any guarantor, endorser or other person
liable on the Obligations under any guarantee, endorsement, suretyship
agreement or other agreement of such person with, or in favor of us; (c) your
making any misrepresentation, orally or in writing, to us whether for the
purpose of obtaining credit or an extension of credit, or otherwise; (d) your
breach of any representation, warranty or covenant contained in this Agreement
or in any other agreement between us, including, without limitation, the CARPA,
the Inventory Security Agreement or the Letter of Credit Agreement; (e) any
representation, warranty, or statement of fact made to us at any time by you or
on your behalf is false or misleading in any material respect; (f) the
discontinuance or suspension of the operation of your present business; (g) your
becoming insolvent, or your becoming unable to meet your debts as they mature; (h) your
calling any meeting of creditors, or having a creditors’ committee appointed; (i) the
commencement by or against you of any action, case or proceeding for relief
under any provision of the Federal bankruptcy laws or any other applicable
Federal or State bankruptcy, insolvency or other similar law; (j) the
rendition, issuance or filing of any injunction, attachment, judgment involving
an amount in excess of $250,000 or lien against you or any of your property, or
the appointment of a receiver, custodian or trustee of any kind for you or any
of your property; or (k) (i) default shall occur in the performance of any
material agreement if the effect of such default is to permit the other party
to terminate such material agreement; or (ii) default shall occur in the
payment of your Indebtedness (other than the Obligations) in the aggregate
outstanding amount of which Indebtedness is in excess of $500,000 beyond the
period of grace, if any, provided in the instrument or agreement under which
such Indebtedness was created; or (iii) default shall occur in respect of
any note, loan agreement on credit agreement relating to any of such
Indebtedness in the aggregate outstanding amount of which Indebtedness is in
excess of

 

23

 

$500,000,
and such default shall continue after the cure period, if any, specified
therein; or (iv) any such Indebtedness shall become due before its stated
maturity by acceleration of the maturity thereof or shall become due by its
terms and shall not promptly be paid or extended.

 

VII. 
RIGHTS AND REMEDIES AFTER DEFAULT

 

7.1           Upon
the occurrence of any Default, and at any time thereafter if such or any other
Default shall then be continuing, we shall have the night (in addition to any
other rights we may have under this Agreement or otherwise) without further
notice to you:  (a) to appropriate,
set-off and apply to the payment of any or all of the Obligations, any or all
Collateral, in such manner as we shall in our reasonable sole discretion
determine; (b) to enforce payment of the Obligations or any Collateral; (c) to
settle, compromise or release, in whole or in part, any amounts owing on the
Collateral; (d) to prosecute any action, suit or proceeding with respect
to the Collateral; (e) to extend the time of payment of any and all
Collateral, to make allowances and adjustments with respect thereto and to
issue credits in your or our name; and (f) to sell, assign and deliver the
Collateral (or any part thereof), at public or private sale, for cash, upon
credit or otherwise, at our sole option and discretion, and we may bid or
become purchaser at any such sale, if public, free from any right of redemption
which is hereby expressly waived.  You
agree that the giving of ten (10) days notice by us to your address shown
on the first page hereof (or such other address of which we have received
notice as provided herein), designating the place and time of any public sale
or of the time after which any private sale or other intended disposition of
the Collateral is to be made, shall be deemed to be reasonable notice thereof
and you waive any other notice with respect thereto.  The net cash proceeds resulting from the
exercise of any of the foregoing rights or remedies shall be applied by us to
the payment of the Obligations in such order as we may elect, and you shall
remain liable to us for any deficiency.

 

7.2           We
shall have the right in our reasonable sole discretion to determine which
rights or remedies, and in which order any of the same, are to be exercised,
and we may at any time pursue, relinquish, subordinate, modify or take any
other action with respect thereto, without in any way modifying or affecting
any of them.  We may, at all times,
proceed directly against you to enforce payment of the Obligations and shall
not be required to take any action of any kind to preserve, collect or protect
our or your rights in the Collateral.

 

7.3           The
enumeration of the foregoing rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to, and not by way of
limitation of, any other rights or remedies we may have under applicable law
including the Uniform Commercial Code.  The
exercise of any right or remedy shall not preclude the exercise of any other
right or remedy, all of which shall be cumulative and not alternative.

 

VIII. 
WAIVERS

 

8.1           You
hereby waive notice of dishonor, demand, presentment, protest and notice of
protest with respect to any and all instruments included in or evidencing any
of the Obligations or the Collateral, notice of acceptance hereof, notice of
loans or advances made, credit extended, Obligations incurred, Collateral
received, delivered, or released, or any other action taken in reliance hereon,
and any and all other demands and notices of any description, except such as
are expressly provided for herein.

 

24

 

8.2           No
act, delay or omission on our part in exercising any right or remedy shall
operate as a waiver of such or any other right or remedy.  No single or partial waiver by us of any
provision of this Agreement, or breach or default hereunder, or of any right or
remedy shall operate as a waiver of such or any other provision, breach, default,
right or remedy on a future occasion.

 

IX. 
TERMINATION; APPLICABLE LAW AND WAIVER OF JURY 

TRIAL; MISCELLANEOUS

 

9.1           This
Agreement shall continue in full force and effect until the Anniversary Date,
and from year to year thereafter, unless sooner terminated as herein
provided.  You may terminate this
Agreement at any time by giving us at least sixty (60) days’ prior written
notice.  We may terminate this Agreement
immediately at any time without prior notice upon the occurrence or during the
continuance of a Default.  Unless sooner
demanded pursuant to the terms hereof, all of your Obligations shall become due
and payable as of any termination, and pending a final accounting, we may
withhold any balances in your account (unless supplied with an indemnity
satisfactory to us) to cover all of your Obligations.

 

9.2           Notwithstanding
any termination of this Agreement, all of our rights, liens and security
interests hereunder shall continue in full force and effect until all
Obligations have been paid and satisfied in full.

 

9.3           This
Agreement, together with any written and duly executed supplement(s), contains
the entire understanding between us with respect to the subject matter
hereof.  Neither this Agreement nor any
portion or provision hereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing between us, or in any manner other than by an agreement in writing,
expressly referring hereto and signed by the party to be charged.  The section titles contained in this
Agreement are intended for convenience only and do not constitute and shall not
be interpreted as part of this Agreement. 
You, if two or more in number, shall be jointly and severally bound hereunder.

 

9.4           Except
as otherwise provided herein, all notices, requests and demands hereunder shall
be:  (a) addressed to the party to
be served at the address shown on the first page hereof, or to such other
address as either party may designate by written notice to the other in accordance
with this provision; and (b) deemed to have been given or made:  if by hand, immediately upon delivery; if by
telex or facsimile, immediately upon sending; if by overnight delivery service,
one day after dispatch; and if by ordinary mail or registered/certified
mail-return receipt requested (with proper postage prepaid), three (3) days
after mailing.

 

9.5           This
Agreement shall be binding upon and inure to the benefit of each of the parties
hereto and their respective successors and assigns, except that you may not
assign or transfer any of your rights or obligations under this Agreement
without our prior written consent.

 

9.6           The
parties hereto 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 or supplements
thereto.

 

25

 

9.7           In
each case where applicable under this Agreement, the exercise of our “reasonable
discretion” is to be viewed from the perspective of a secured asset-based
lender.

 

9.8           This
Agreement shall be deemed to have been made in Charlotte, North Carolina and
shall be interpreted, and the rights and liabilities of the parties hereto
shall be determined, in accordance with the laws of the State of North
Carolina.  As part of the consideration
for new value this day given, you hereby consent to the jurisdiction of any
state or federal court located within the State of North Carolina.

 

9.9           If
any provision of this Agreement, including, without limitation, any provision
relating to charges constituting interest payable by you under 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.

 

9.10         TO THE
EXTENT PERMITTED BY APPLICABLE LAW, WE HEREBY MUTUALLY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR
ANY OTHER AGREEMENTS OR TRANSACTIONS BETWEEN US.

 

26

 

If the foregoing is in
accordance with your understanding, please so indicate by signing and returning
to us the original and one copy of this Agreement.  After being accepted below by one of our
officers in North Carolina, we shall forward a copy to you with signatures
completed for your files.

 

	
   

  	
  Very truly
  yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE CIT GROUP/COMMERCIAL

  SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dan Upchurch

  	
   

  
	
   

  	
  Name:

  	
   Dan
  Upchurch

  	
   

  
	
   

  	
  Title:

  	
     V.P.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Read and Agreed
  to:

  	
   

  
	
   

  	
   

  
	
  KP
  SPORTS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Wayne A.
  Marino

  	
   

  	
   

  
	
  Name:

  	
   Wayne A.
  Marino

  	
   

  	
   

  
	
  Title:

  	
    Chief
  Financial Officer

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Accepted at
  Charlotte, North Carolina

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE CIT GROUP/COMMERCIAL

  SERVICES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ T.D.
  Oelschlaeger

  	
   

  
	
   

  	
  Name:

  	
   T.D.
  Oelschlaeger

  	
   

  
	
   

  	
  Title:

  	
    Senior
  Vice President

  	
   

  
													

 

27Exhibit 10.12

 

CIT

 

12/21, 2001

 

KP Sports, Inc.

1600 Bush Street

Baltimore, Maryland 21230

 

Credit Approved Receivables Purchasing Agreement

(the “Agreement”)

 

Ladies and Gentlemen:

 

This letter will confirm
your and our agreement concerning our performance of certain services and our
purchases of certain of your accounts receivable as described herein in
connection with your inventory or service sales upon the following terms and
conditions:

 

A.            From
time to time you will submit to us the names of those of your U.S. and Canadian
customer for which you shall have requested that we make credit investigations,
approve credit or establish credit lines in accordance with our usual business
practices.  “Receivable” as used herein
shall mean and include each separately invoiced account created by, or arising
from, your sale of inventory to or performance of services for (under any of
your trade names or styles or through any of your divisions including, but not
limited to, “Under Armour” and “Under Armour Performance Apparel”) your
customers, together with all related instruments, documents, insurance proceeds
and general intangibles (including all payment intangibles and all other rights
to payment); all proceeds thereof, including all property acquired with such proceeds;
all of your rights to any merchandise which are represented thereby; and all
your right, title, security, guaranties, supporting obligations and letter of
credit rights with respect to each Receivable, including all rights to
reclamation and stoppage in transit. 
Except as hereinafter specifically provided, each Receivable due from
those of your U.S. and/or Canadian customers which have been approved by us for
credit in writing, is herein referred to as an “Approved Receivable”.

 

B.            You
hereby sell, assign and transfer to us as absolute owner all of your Approved
Receivables subject to the perfected security interest granted by you to:  (i) us, (ii) Prudent Capital I, LP,
(iii) The Adams National Bank, and (iv) The City of Baltimore
Development Corporation in such Approved Receivables.  You shall continue to collect payment for
each such Approved Receivable from the applicable customer with payment
therefor being remitted directly to such lockbox account (the “Lockbox”) as
prescribed in that certain Lockbox Agreement, dated June 20, 2001, between
you and us.  Our obligation to pay you
for any Approved Receivable shall only be as provided in Paragraphs 5 and 6
below, and only when all requirements of this Agreement have been satisfied.

 

C.            Our
services hereunder will be provided on a non-notification basis; that is, we
will not communicate with your customers without your prior approval except:
(a) in connection with Approved Receivables under collection as delinquent
accounts as described in Paragraph 4 below, and/or (b) to obtain current
information on any customer’s financial condition and creditworthiness.  At all times you will perform your normal
accounts receivable bookkeeping, 

 

 

collection and reporting
procedures in connection with your Receivables (both Approved Receivables arid “non-approved
Receivables” which are defined in Paragraph E below).  In order to maintain our credit approval in
connection with any Approved Receivable (unless we withdraw or limit our credit
approval as otherwise provided in this Agreement), you also agree to perform
the following collection and reporting procedures at a minimum (to the extent
permitted by law):

 

(i)            Each
customer on a past due Receivable shall receive from you, at least once each
month, your written statement detailing the delinquency.  Each such statement shall age such past due
Receivable(s).

 

(ii)           You
shall document all collection related telephonic communications given to, and
responses received from, your delinquent customers.  You also shall initiate telephonic
communication to each such customer before the Receivable due from such
customer becomes thirty (30) days past due, and at least two (2) such
calls shall be required in each subsequently thirty (30) day period (i.e.,
31-60 days past due and 61-90 days past due) until the Receivable is ninety
(90) days past due.  All collection calls
must involve your authorized representative speaking with a representative of
the delinquent customer who has authority to approve payments on behalf of the
customer, recording the name of such individual, his/her position with the
customer, the date and time of such call, the reason for the delinquency in
payment (e.g., cash flow, dispute, paperwork, etc.), the commitment to
pay date, and a follow-up date.

 

(iii)          In
the event that your attempts to telephonically communicate with any delinquent
customer are to no avail (e.g., the telephone of such delinquent
customer has been disconnected), your records must so indicate, and you shall
then communicate to such delinquent customer in writing.

 

D.            For
our services hereunder you agree to pay us fees as follows: three tenths of one
percent (0.30%) of the gross face amount of each Approved Receivable having
payment terms of sixty (60) days or less. 
The fees for our services under this Agreement shall be due and payable
to us no later than the fifteenth (15th) calendar day of each fiscal
month for the fees earned by us and due us for the preceding calendar
month.  In the event such fees are not
paid to us as required by the preceding sentence, all credit approvals given by
us and any credit risk assumed by us as to any Approved Receivables for which
such applicable fees have not been paid to us shall automatically, and without
any further notice or action by us whatsoever, be and become withdrawn, null,
void and of no effect.  In no event shall
the aggregate fees due and payable by you to us under this Agreement be less
than Thirty-Six Thousand and No/100 U.S. Dollars ($36,000.00) for each Contract
Year (hereinafter defined) or part thereof (the “Minimum Fee”).  In the event that this Agreement is
terminated by you prior to the end of any Contract Year, the unpaid portion of
the Minimum Fee for such Contract Year shall be due and payable to us in full
on the effective date of such termination. 
As used herein, the term “Contract Year” shall mean the twelve (12)
month period commencing on the last day of the month in which this Agreement is
accepted by us as hereinafter provided, and on each anniversary thereof
thereafter.

 

E.             You
may request that we collect for you, at your expense, any Receivable for which
we have not assumed the credit risk (a “non-approved Receivable”) in accordance
with our usual 

 

2

 

practices.  In such event, any moneys collected by us on
any such non-approved Receivables will be promptly remitted to the Lockbox ten (10) days
after our receipt of good funds, less any additional service charge due and
payable to us as provided in Annex A
attached hereto and made part hereof.

 

F.             You
hereby represent and warrant that: your legal name is exactly as set forth on
the signature page of this Agreement, you are a duly organized and validly
existing corporation under the laws of the State of Maryland and are duly
qualified to transact business in, and are in good standing in, all states
where required; there are no provisions in your articles of organization or
incorporation or bylaws (or any amendments thereto) or in any of your contracts
or indentures restricting your compliance with, or your undertaking the acts
contemplated by, this Agreement, or requiring the consent or authorization of
your stockholders or of any other person, firm, entity or corporation other
than your board of directors (except such consents as have already been
obtained); each Receivable represents an actual and bona  fide
sale and delivery of inventory or performance of services in the ordinary
course of your business, and the inventory being sold and the Receivable
created therefrom are your exclusive property; as to each Approved Receivable,
the customer is obligated to pay, in United States Dollars, the full amount
stated in the invoice according to its terms without dispute, offset,
deduction, defense or counterclaim; no inventory sold is subject to any
consignment arrangement; all taxes and fees with regard to any Approved
Receivable or the inventory sold or services performed are solely your
responsibility; and none of the Approved Receivables represents sales or
services to any subsidiary, parent or affiliated company.  If you breach any of these representations
and warranties, we shall be released from any credit risk whatsoever on any
Approved Receivable which may be involved.

 

The following are
additional terms and conditions of this Agreement:

 

1.             We
shall have the right to adjust customer credit lines from time to time and to
withdraw our credit approval on any Approved Receivable at any time prior to
your shipment of the inventory thereunder to the specified customer.

 

2.             Any
order for which you seek our credit approval (except for those under credit
lines which may have been established for your customers) must be submitted to
our Credit Department either via computer on-line terminal access or, if you
are unable to submit your orders via computer, then by telephone or via
telecopier (but, in any event, in writing). 
You have advised us that your selling terms are not in excess of sixty
(60) days.  As to any Approved
Receivable, you agree that you will not, without our prior written
consent: (i) change these terms on any customer varying from our existing
credit approval, or extend the maturity date of any invoice; (ii) change
the amount (except for credits you may issue in the normal course of your
business and otherwise in accordance with this Agreement) or shipping dates; or
(iii) grant any other indulgence. 
In the event you were to do any of these acts without such concurrence
by us, any credit approval and assumption of credit risk by us of the
respective Approved Receivable(s) shall be and become automatically and
immediately, and without any further notice or action by us whatsoever,
withdrawn, null, void and of no effect. 
Our credit approval with respect to any shipment by you of inventory to,
or any performance 

 

3

 

of services for, a
customer may also be withdrawn by us any time before, but not after, shipment
is made or services are performed and shall be effective only if shipment is
made or services are performed within thirty (30) days from the date specified
(for shipping in the case of shipment of inventory) in the credit approval, or
within thirty (30) days from the date of our credit approval if no delivery or
services performance date is specified therein. 
We shall have no liability whatsoever to you or any person, firm or
entity for our not approving, or our withdrawal of approval of, credit to any
customer in the manner provided in this Agreement.  You agree to notify us promptly of any
matters affecting the value, enforceability or collectibility of any Approved
Receivable. You also agree to issue credit memoranda promptly (with duplicates
to us) upon accepting returns or granting allowances in connection with any
Approved Receivable.  You further agree
to notify us promptly of any change in your: name, state of incorporation or
registration, location of your chief executive office, place(s) of business,
and legal or business structure, and irrevocably authorize us to file financing
statements and all amendments and continuations with respect thereto, all in
order to create, perfect or maintain our interest in the Approved Receivables
and you ratify and confirm any and all financing statements, amendments and
continuations with respect thereto heretofore and hereafter filed by us
pursuant to the foregoing authorization.

 

3.             You
will maintain, in form acceptable to us (in our commercially reasonable
judgment), a detailed ageing of all Receivables (whether or not credit
approved), payments thereon and of customers’ returns, and you will deliver to
us within thirty (30) calendar days after the end of each of your fiscal
months:  (a) on a monthly basis for
each of your fiscal months upon your issuance thereof or at any time at our
request, in form acceptable to us (in our commercially reasonable judgment),
your aged trial balances of all of your outstanding Receivables (Approved
Receivables, non-approved Receivables and all other Receivables), (b) on a
monthly basis for each of your fiscal months upon your issuance thereof, in
form acceptable to us (in our commercially reasonable judgment), your sales
journal of all your outstanding Receivables (Approved Receivables, non-approved
Receivables and all other Receivables), and (c) on a monthly basis, proper
reconciliations between your aged trial balances and your Receivables.  In the event you fail to provide this
information to us by its due date, our credit approvals and assumption of
credit losses shall automatically and immediately cease and be deemed to have
been thereupon withdrawn, void, null and of no effect as to all Approved
Receivables.  Within fifteen (15)
calendar days after the end of each of your fiscal months, you will also
furnish to us: (a) a schedule for the preceding month of each of your
Receivables which you have recorded and clearly identified as Approved
Receivables (including those under any credit lines we may have established for
your customers) and their respective sales terms, invoice numbers, dates and
amounts; and (b) your check made payable to the order of The CIT
Group/Commercial Services, Inc.  in
the aggregate amount of the fees due and payable to us at the rates provided
above for the Approved Receivables of such preceding month.  We may (with prior notice to you) at any time
during normal business hours verify and inspect all of your books, accounts, 

 

4

 

records, files,
orders, correspondence and papers which we may deem to be reasonably relevant
to the Receivables, Approved Receivables, non-approved Receivables, the
respective customers, and/or this Agreement, and your credit and collection
procedures and business operations, and we may make photocopies of or extracts
from any of the foregoing.

 

4.             We
shall have the right to communicate with and, if necessary in our discretion,
commence collection proceedings with respect to, any of your customers from
which any Approved Receivable is unpaid if: (a) any portion of such
customer’s Approved. Receivable whatsoever is past due, or (b) such
customer has undergone an adverse change in its financial condition or business
prospects, or (c) the customer has called a meeting of its creditors or
ceased to do business, or (d) the customer suffered a petition in
bankruptcy or insolvency filed by or against the customer under any foreign,
provincial or federal or state law.

 

5              If
any undisputed Approved Receivable remains unpaid for more than ninety (90)
days after its due date, and you shall have delivered to us within ten (10) days
thereof a written Request for Payment of Approved Receivable substantially in
the form of Annex B attached
hereto and made a part hereof, with all of the information and documentation
therein specified, requesting that the purchase price of such overdue and
unpaid Approved Receivable be paid to you, we shall promptly or within fifteen
(15) days of our receipt of such Request for Payment of Approved Receivable
(subject to our verification of any such undisputed Approved Receivable having
been credit approved by us and being overdue and unpaid) pay to you the invoice
amount thereof which shall be the net amount (i.e., the gross face
amount of such overdue, unpaid and undisputed Approved Receivable less
any amount in payment of such Approved Receivable you may have received from or
on behalf of the applicable customer, less any trade and cash discounts
and less any credits or allowances) of such undisputed Approved
Receivable You agree that when you deliver to us a Request for Payment of
Approved Receivable of a particular customer, you shall be deemed to have
thereby authorized us to collect all of the other unpaid Receivables of that
customer outstanding at that time. Approved Receivables that are one hundred
(100) days or more past due when submitted or Annex
B shall no longer be Approved Receivables hereunder and we are
thereupon released from any liability therefor whatsoever.

 

6.             Our
obligation to remit funds to you for the amount of any Approved Receivable
shall only apply to an Approved Receivable (a) which is free of any
claims, offsets or liens whatsoever (except that, to the extent an offset
was claimed by the customer under an Approved Receivable and such offset
was taken with your written consent delivered to us, we remain obligated under
this Agreement to remit funds to you in payment of such Approved Receivable
reduced by the amount of such offset), and
(b) where the inventory and/or service has been received and accepted by
the customer without return and without dispute or claim as to price, terms,
quality, workmanship, breach of warranty, delivery, quantity or other offset, and (c) where nonpayment by the
customer is due solely  

 

5

 

to the customer’s
financial inability to pay, and (d) which
you shall have sold, assigned and transferred to us as absolute owner all of
your right, title and interest thereto and therein.  It is expressly understood that “the customer’s
financial inability to pay”, any Approved Receivable does not include
any failure (or refusal) to pay arising from or directly related to (i) changes,
of whatever nature, in government or governmental policy, or (ii) the
enactment of laws or regulations or the taking of any action, of whatever
nature including, without limitation, the taking or nationalizing of private
property by any governmental entity whereby payment may not be made or may be
made only upon penalty or (iii) natural disaster or act of God, uprising,
civil war, civil commotion, war, revolution, invasion and other acts of
violence.  If an Approved Receivable for
which we have paid you is later determined to have been unpaid by the customer
for reasons other than solely the customer’s financial inability to pay,
you agree to repurchase such Approved Receivable from us for the same amount we
paid to you therefor (less any remittances we may have received in connection
with such Approved Receivable).  You
further agree that in the event any merchandise in connection with an Approved
Receivable is offered to be returned to you by the customer thereunder solely
as a result of such customer’s financial inability to pay for such merchandise,
and for which Approved Receivable we shall have already remitted funds to you
for the amount thereof, or shall be obligated to remit to you, under this
Agreement, then you shall promptly notify us in writing of such offer with all
particulars and, upon our written approval to you of your acceptance of such
offer of return, you may accept the return of such merchandise, provided such
merchandise is returned to you free and clear of all liens and security
interests.  Any merchandise which you may
receive in connection with such approval of return of merchandise under an
Approved Receivable, solely as a result of the customer’s financial
inability to pay, shall: (a) be and at all times be deemed to be our
property; (b) at our option, be promptly delivered by you to us at such
place as we shall reasonably specify; or (c) at our option, be retained by
you for resaleby you, employing your best  efforts, and us at the
best available price.  In the event of
resale of such returned merchandise to another customer as contemplated by the
preceding sentence, (i) if we shall have already remitted funds to you in
accordance with this Agreement for the amount of such Approved Receivable, then
all proceeds of such resale shall be paid to us or be promptly turned over to
us, or (ii) if we shall have not have so remitted to you the amount of
such Approved Receivable but shall be obligated to remit funds to you for the
amount of such Approved Receivable under this Agreement, then all proceeds of
such resale shall be paid to you or be promptly turned over to you, and the
difference (if any) between the invoice amount of such Approved Receivable and
the proceeds of such resale shall be owing by us to you and promptly remitted
by us to you upon the consummation of, and your receipt of the proceeds of,
such resale. After our payment to you of any Approved Receivable, any and all
checks, cash, notes or other instruments or property received by you with
respect to such Approved Receivable shall be held by you in trust for us,
separate from your own property and funds, and promptly turned over to us.

 

6

 

7              In
the event that an Approved Receivable were to become the subject of a dispute
or claim as to price, terms, quality, workmanship, breach of warranty,
delivery, quantity or other offset, such dispute would release us from any
credit risk whatsoever on such Approved Receivable.

 

8.             In
the event you have shipped a customer inventory in excess of any particular
single order credit approval or our approved credit line for such customer, all
remittances received from or on behalf of such customer shall first be applied
to payment of Approved Receivables due from such customer until paid in full,
and thereafter any excess shall be applied to payment of non-approved
Receivables.  In the event a petition in
bankruptcy is filed by or against a customer, any distribution, insolvency
dividend, recovery or other payment thereafter received from such proceedings
shall be applied pari  passu to payment of Approved Receivables
and non-approved Receivables due from such customer in the ratio that each
bears to the aggregate amount of such distribution, dividend or other recovery
payment.  In the event we are required to
institute suit to collect any delinquent Receivable, you agree to cooperate
fully with us and our counsel in prosecuting same.

 

9.             Either
you or we may terminate this Agreement at any time by giving the other written
notice of termination stating a termination date not less than sixty (60) days
from the date such notice is delivered. 
(However, in the event you terminate this Agreement, a Minimum Fee as
set forth in Paragraph D above may be applicable.) This Agreement continues
uninterrupted unless terminated as herein provided.  Notwithstanding the preceding sentences of
this Paragraph, we may terminate this Agreement immediately upon the occurrence
of any of the following events: cessation of your business or the calling of a
meeting of your creditors; your failure to meet your debts generally as they
mature; the commencement by or against you of any bankruptcy, insolvency,
arrangement, reorganization, receivership or similar proceeding under any
foreign, federal or state law; breach by you of any representation, warranty or
covenant contained herein; or your failure to pay when due any indebtedness or
obligation owing by you to us whether under this Agreement, that certain
Accounts Receivable Financing Agreement, dated as of June 20, 2001,
between you and us (as amended, modified or restated from time to time, the “Financing
Agreement”) or any other agreements and instruments entered into between you
and us in connection therewith (such agreements and instruments, as amended,
modified or restated from time to time, together with the Financing Agreement,
collectively, the “Financing Documents”). 
We may also terminate this Agreement immediately and without any Minimum
Fee required from you in the event that we shall reasonably determine that any
material provision of this Agreement is not enforceable under applicable law or
would require any filing with, or consent or approval by, any governmental
authority.  Further, if a Default occurs under
(and as such term is defined in) the Financing Agreement, then, at our
election, this Agreement shall thereupon terminate.  Any termination of this Agreement, however,
shall not affect obligations of you or us incurred hereunder prior to such
termination including, without limitation, our obligation pay for Approved 

 

7

 

Receivables
arising prior to such termination date (provided that our assumption of credit
risks and losses hereunder shall cease upon your failure to pay our fees
hereunder when due or to deliver to us the information required by this
Agreement, all as hereinabove provided).

 

10.           You
shall pay to us those attorneys’ fees and disbursements incurred by us
resulting from our use of outside counsel or our in-house legal department in
connection with the documentation of this Agreement and any modification,
waiver, release or amendment relating to this Agreement.

 

11.           TO THE EXTENT PERMITTED BYAPPLICABLE LAW, YOU AND WE
HEREBY IRREVOCABLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT THE VALIDITY,
INTERPRETATION AND ENFORCEMENT OF THIS AGREEMENT SHALL BE DETERMINED AND
GOVERNED BY THE LAWS OF THE STATE OF NORTH CAROLINA.

 

12.           This
Agreement can be changed only in writing signed by you and us.  This Agreement shall bind and benefit each of
your and our respective successors and assigns; provided, however, that neither
you nor we may assign any rights or obligations hereunder without the prior
written consent of the other.  Our
failure or delay to exercise any right or remedy hereunder shall not constitute
a waiver thereof, nor bar us from exercising any of our rights or remedies
hereunder at any time, nor shall any course of dealing between you and us
change or modify this Agreement.  This
Agreement will become effective as of the date set forth on the first page hereof
but only after this Agreement shall have been accepted by one of our officers
in North Carolina.

 

8

 

13.           This
accepted Agreement and Annexes attached hereto and made part hereof, together
with Annex A signed by you and us,
together with the Financing Documents, contain the entire agreement between you
and us.  There are no verbal agreements
between you and us concerning this Agreement or the subject matter hereof.

 

	
   

  	
  Very truly yours,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE CIT
  GROUP/COMMERCIAL SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert W. Franklin

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert W. Franklin

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  VP

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Read and Agreed
  to:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KP SPORTS, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J. Scott Plank

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  J. Scott Plank

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  VP Finance

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Accepted at
  Charlotte, North Carolina

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE CIT
  GROUP/COMMERCIAL SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Terry D. Oeischlaeger

  	
   

  	
   

  
	
   

  	
   

  	
  Name: Terry D.
  Oeischlaeger

  	
   

  
	
   

  	
   

  	
  Title: Senior Vice
  President

  	
   

  

 

9

 

ANNEX A

TO THE CREDIT APPROVED RECEIVABLES PURCHASING AGREEMENT

ADDITIONAL TERMS AND CONDITIONS

 

As permitted in Paragraph
5 of the Agreement, KP Sports, Inc. 
(the “Client”) hereby agrees that, in the event The CIT Group/Commercial
Services, Inc.  (“CIT”) collects any
non-approved Receivable on behalf of the Client.  CIT shall be entitled to receive, and the
Client shall pay or cause to be paid to CIT, the following Collection
Processing Charge and Collection Service Fee in connection with each such
non-approved Receivable:

 

Collection Processing Charge

 

There shall be a
processing charge of $100 for each non-approved Receivable collection account
turned over to CIT by Client for collection processing by CIT.

 

Collection Service Fee

 

CIT shall also be
entitled to receive a collection service fee of 1% of all moneys collected by
CIT or the Client, net of attorneys’ fees and all other related costs and
expenses incurred by or on behalf of CIT in connection with collection of any
non-approved Receivable.

 

No Fee Period

 

Non-approved-Receivables’
collections received by Client or CIT within ten (10) days of the date any
such non-approved Receivables were turned over to CIT for collection will not
be subject to the Collection Service Fee.

 

	
   

  	
  KP SPORTS, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE CIT
  GROUP/COMMERCIAL SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  	
   

  

 

10

 

ANNEX B

TO CREDIT APPROVED RECEIVABLES PURCHASING AGREEMENT

REQUEST FOR PAYMENT OF APPROVED RECEIVABLE(S)

Confirmatory Assignment Number

 

	
  To:

  	
  The CIT
  Group/Commercial Services, Inc.

  	
  Date:

  	
   

  

 

Your payment to us for
the outstanding past due Approved Receivable account of                          
(Customer)                                        
                     
(Address of Customer) in the net amount of $                         
is hereby requested pursuant to the terms of the Credit Approved Receivables
Purchasing Agreement (the “Agreement”). 
We hereby confirm our sale to you of such Approved Receivable(s) of said
Customer pursuant to the terms of the Agreement.

 

Your obligation to pay us
the net amount of such Approved Receivable(s) as the purchase price thereof
arises under your credit approval dated                         
in the amount of $                         .

 

As evidence of each past
due Approved Receivable, enclosed are:

 

A.            Two
copies of the outstanding invoice and any credit memos;

B.            A
notarized statement of the Customer’s account;

C.            One
copy of all correspondence to and from the Customer;

D.            One
copy of our complete collection file on the Customer;

E.             All
guaranties, collateral documents, and security agreements relative thereto;

F.             Proof
of delivery to and/or acceptance by Customer; and

G.            Copy
of Customer’s purchase order and/or our signed confirmation thereof.

 

We certify that: (i) the
above information and enclosures are true and correct; (ii) our Customer
(account debtor) named in the invoice(s) is indebted to us in the net amount(s)
shown thereon and is not entitled to credits or counterclaims except as
reflected in the amount demanded by us above; (iii) each Approved
Receivable of the Customer for which we hereby request payment from you under
the Agreement is free of any claim, offset or lien whatsoever (except that to
the extent an offset was claimed by the Customer, such offset was taken with
your written consent delivered to us and enclosed herewith, and such Approved
Receivable is reduced by such offset amount); (iv) nonpayment by the
Customer of the Approved Receivable for which we hereby request payment from
you under the Agreement is due solely to the Customer’s financial
inability to pay; (v) we have sold, assigned and transferred to you as
absolute owner all of our right title and interest in each Approved Receivable
of the Customer for which we hereby request payment from you under the
Agreement, and shall have delivered to you those UCC releases and financing
statements as you shall have requested to effect each such sale and transfer;
and (vi) all of our representations and warranties in the Agreement are
true and correct.

 

	
  KP SPORTS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
   

  

 

11

 

CIT

 

                    ,
2001

 

KP Sports, Inc.

1600 Bush Street

Baltimore, Maryland 21230

 

Credit Line Customers;

Amendment to Credit Approved Receivables Purchasing Agreement

 

Ladies and Gentlemen:

 

We refer you to that
certain Credit Approved Receivables Purchasing Agreement between us dated of
even date herewith, as supplemented and amended (the “Agreement”).  Capitalized terms utilized in this letter
agreement but not defined herein shall have the meanings given them in the
Agreement.

 

This shall confirm your
and our understanding and agreement that the Agreement is hereby supplemented,
effective as of the date of your execution of this letter agreement, to provide
for certain automatic credit approvals under lines of credit (each a “Credit
Line”) established by us for certain of your customers (herein referred to
individually as a “Credit Line Customer” and collectively as the “Credit Line
Customers”), with respect to your sales of inventory to and/or performance of
services for such Credit Line Customers arising or created on or after the
effective date hereof.  The Credit Line
for each Credit Line Customer shall be available to you by either (i) on-line
terminal access to our computer or (ii) a hard copy report.  Upon your execution of this letter agreement,
we shall provide you with a report entitled Customer Credit Availability
which shall set forth a list of all Credit Line Customers and the respective
Credit Line for each such Credit Line Customer as of the date of the
report.  The Customer Credit
Availability report may be modified from time to time.  However, any modifications of the Credit Line
for each Credit Line Customer will be promptly reflected on your computer
screen if you have online terminal access to our computer and, as so modified,
shall constitute the Credit Lines in effect at that time.  Updated Customer Credit Availability
reports, as well as any notices of changes thereto, will be provided to you
periodically.

 

Accordingly, upon your
submitting any order(s) to us for your sale(s) to any Credit Line Customer, we
shall bear the credit risk (solely as described in the Agreement) on your
sale(s) to such Credit Line Customer subject to the following express terms and
conditions:

 

1.             We
shall bear the credit risk on your sales to each Credit Line Customer up to the
amount of the Credit Line in existence for that Credit Line Customer at the
time of the shipment of such inventory. 
In the event that the amount of any sale to a Credit Line Customer is in
excess of the available portion of the Credit Line in existence for such Credit
Line Customer at the time of shipment, then such portion of the Approved
Receivable arising from such sale and representing such excess shall be at your
credit risk.  However, as good funds are
received in payment of Approved Receivables of the Credit Line Customer, any
portion of the Credit Line in existence for the respective Credit Line Customer
at such time 

 

12

 

which is thereby
made available, shall be applied to Receivables owing from such Credit Line
Customer which are at your credit risk, in the order that such Receivables
arose.  Such Receivables shall then be
automatically credit approved and we shall bear the credit risk thereon as
Approved Receivables to the extent of the portion of the Credit Line which is
so made available, unless an Insolvency Event (hereinafter defined) has
occurred or the Credit Line for such Credit Line Customer has been withdrawn or
reduced.

 

2.             By
notice given verbally via telephone or notice via computer (in either case with
written notice to follow) or by written notice to you, we may at any time in
our sole discretion withdraw or modify the Credit Line in existence for any
Credit Line Customer effective as of the date you first receive any such
notice.  In the event we modify the
Credit Line, the new Credit Line shall automatically supersede the existing
Credit Line.  In the event we withdraw
the Credit Line, automatic credit approval of your subsequent sales to the
customer shall have terminated and all outstanding Receivables due from the
customer that are at your credit risk on the effective date of such termination
shall remain at your credit risk regardless of any payment of Approved
Receivables received on or after such date. 
All Receivables arising from sales of inventory shipped after
termination of, or in excess of, the Credit Line in existence for such former
Credit Line Customer, shall be at your sole and exclusive risk.  Further, the future Credit Line for any Credit
Line Customer shall automatically terminate if at any time the aggregate amount
of Receivables owing to you by such Credit Line Customer which are more than
thirty (30) days past due (excluding disputed items) is greater than
twenty-five percent (25%) of the aggregate amount of all Receivables owing to
you by such Credit Line Customer (again, excluding disputed items); provided,
however, upon your request to us, we may reinstate, in our sole
discretion, the future Credit Line for such Credit Line Customer.  However, any withdrawal or reduction of a
Credit Line shall not be effective with respect to Approved Receivables which
are outstanding and for which the inventory has already been shipped at the
time of such withdrawal or reduction.

 

3.             Any
Credit Line shall automatically terminate immediately upon the occurrence of
any Insolvency Event; provided, however, any such termination of a Credit Line
shall not be effective with respect to Approved Receivables of the respective
Credit Line customer outstanding at the time of such termination and which
arose from shipments made by you prior to such termination, up to the amount of
the Credit Line in effect prior to such termination.

 

4.             All
remittances received from Credit Line Customers shall be applied in the manner
set forth in the Agreement.

 

5.             Until
we may notify you otherwise, the amount of the Credit Line for each Credit Line
Customer shall be the amount appearing on the latest Customer Credit
Availability report for such Credit Line Customer or, if you have on-line
terminal access to our computer, the amount appearing on your screen for such
Credit Line Customer.  Notwithstanding
the preceding sentence, it is your responsibility to 

 

13

 

confirm with us prior
to shipping goods, either via computer or otherwise, the amount of each
existing Credit Line.  If there is any
discrepancy between the information that appears on the most recent Customer
Credit Availability report and the information that appears on your
computer screen, the information that appears on your computer screen shall be
deemed to control.

 

6.             This
letter agreement applies only to sales made by you on your usual terms, but in
no event shall your terms of sale to Credit Line Customers exceed sixty (60)
days.

 

7.             An
“Insolvency Event” shall be deemed to have occurred when any proceeding or
petition is filed or instituted by or against the Credit Line Customer under
any foreign, state or federal bankruptcy or insolvency law, or when a receiver
or trustee is appointed for the Credit Line Customer, or when the Credit Line
Customer makes an assignment for the benefit of creditors or calls a meeting of
its creditors or institutes any proceeding to compromise or adjust its debts,
or ceases to do business; provided, however, in the event that we establish a
Credit Line for a Credit Line Customer that is a debtor-in-possession, an “Insolvency
Event” shall be deemed to have occurred when a liquidation of all or
substantially all of its assets is commenced or a case under Chapter 7 of the
U.S. Bankruptcy Code (or similar foreign law, as the case may be) is commenced
by or against it.

 

All orders from those
your customers which are not Credit Line Customers shall continue to be
submitted by you to us for our credit approval as provided in the
Agreement.  Except as herein specifically
set forth, the Agreement shall remain otherwise unmodified and in full force
and effect in accordance with it terms.

 

If you are in agreement
with the foregoing amendment to the Agreement, please evidence your agreement
by executing the enclosed copy of this letter agreement in the spaces provided
below and return such fully executed copy to the undersigned as soon as
possible.

 

	
   

  	
  Very truly yours,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE CIT
  GROUP/COMMERCIAL SERVICES, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  	
   

  	
   

  

 

	
  Read and Agreed
  to:

  	
   

  
	
   

  	
   

  
	
  KP SPORTS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
   

  

 

14

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