Document:

Exhibit 4.5

 

[Execution Version]

 

 

As of March 5, 2004

 

Trans World Entertainment Corporation

38 Corporate Circle

Albany, New York 12203

 

Record Town, Inc.

38 Corporate Circle

Albany, New York 12203

 

Re:                               Amendment No. 8 to
Loan and Security Agreement

 

Ladies and Gentlemen:

 

Reference is made to the Loan and Security Agreement, dated
July 9, 1997, by and among Congress Financial Corporation (“Lender”),
Trans World Entertainment Corporation (“TWE”), Record Town, Inc. (“RTI”),
Record Town Minnesota, LLC (“RT Minnesota”), and Record Town Michigan, Inc.
(“RT Michigan”; and together with TWE, RTI and RT Minnesota, each,
individually, an “Existing Borrower” and, collectively, “Existing Borrowers”),
as amended by Amendment No. 1 to Loan and Security Agreement, dated as of
February 17, 1998, Amendment No. 2 to Loan and Security Agreement, dated
May 29, 1998, Amendment No. 3 to Loan and Security Agreement, dated as of
December 31, 1998, Amendment No. 4 to Loan and Security Agreement, dated
as of May 31, 1999, Amendment No. 5 to Loan and Security Agreement, dated as of
June 30, 2000, Amendment No. 6 to Loan and Security Agreement, dated as of
May 30, 2003, Amendment No. 7 to Loan and Security Agreement, dated as of
December 19, 2003, and as further amended by this Amendment No. 8 to Loan
and Security Agreement (this “Amendment”), dated as of the date hereof (as the
same now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, collectively, the “Loan Agreement”), together with
all other agreements, documents, supplements and instruments now or at any time
hereafter executed or delivered by Borrowers and Media Logic USA, LLC (“Media
Logic”), Movies Plus, Inc. (“Movies Plus”), Records N’ Such, Inc. (“R&S”),
Saturday Matinee, Inc. (“SMI”), Trans World Management Company, Inc. (“TW
Management”), Trans World New York, LLC (“TW New York LLC”), Camelot Music
Holdings, Inc. (“CMHI”) and Spec’s Music, Inc. (“Specs”; together with Media
Logic, Movies Plus, R&S, SMI, TW Management TW New York LLC, and CMHI,
each, individually, an “Existing Guarantor” and, collectively, “Existing
Guarantors”), or any other person, with, to or in favor of Lender in connection
therewith (all of the foregoing, together with the Loan Agreement and the
agreements and instruments delivered hereunder, as the same now exist or may
hereafter be amended,

 

 

modified, supplemented, extended, renewed, restated or replaced,
collectively, the “Financing Agreements”).

 

Existing Borrowers and Existing Guarantors have requested that Lender
consent to, and enter into certain amendments to the Loan Agreement and
agreements with respect to, certain transactions as described herein in
connection with the business restructuring of certain assets and operations of
Existing Borrowers and Existing Guarantors (the “TWE 2004 Business Restructure”
as hereinafter further defined).  In
connection with the TWE 2004 Business Restructure, Existing Borrowers and
Existing Guarantors have also requested that (a) each of Record Town USA, LLC
(“RT USA”; as hereinafter further defined) and TW New York LLC, presently an
Existing Guarantor, become a Borrower, in addition to the Existing Borrowers,
and (b) Trans World Florida, LLC (“TW Florida” as hereinafter further defined)
become a Guarantor, in addition to the Existing Guarantors pursuant to the
terms and conditions of the Loan Agreement, as amended hereby.  Each Existing Borrower, together with RT USA
and TW New York LLC, shall hereinafter be referred to, individually, as a
“Borrower” and, collectively, as “Borrowers”. 
Each Existing Guarantor, together with TW Florida, shall hereinafter be
referred to, individually, as a “Guarantor” and, collectively, as “Guarantors”.

 

The
parties hereto wish to enter into this Amendment to evidence and effectuate
such consents and amendments and certain other agreements relating thereto, in
each case subject to the terms and conditions and to the extent set forth
herein.

 

In
consideration of the premises and covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

 

1.                                       Definitions.

 

1.1                                 Additional
Definitions.  As used
herein or in any of the other Financing Agreements, the following terms shall
have the meanings given to them below, and the Loan Agreement shall be deemed
and is hereby amended to include, in addition and not in limitation, the
following definitions:

 

(a)                      “Future
Capital Contributions Agreement” shall mean the Agreement to Make Future
Contributions of Capital, dated as of February 1, 2004, among RTI, TW New
York LLC and RT USA, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

(b)                     “Gift
Certificates” shall mean gift cards and gift certificates and other gift
items generally purchased by consumers as gifts that are redeemed by consumers
on a purchase of one or more music and video specialty products, electronics,
video games and related products.

 

(c)                      “Joint Plan
of Reorganization” shall mean the Joint Plan of Reorganization, adopted by
Borrowers and Existing Guarantors as of January 1, 2004, and by TW Florida
as of February 7, 2004 with respect to TWE 2004 Business Restructuring, as
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.

 

2

 

(d)                     “Purchasing and Marketing
Function Assets” shall have the meaning given in Section 2.1(b)
hereof.

 

(e)                      “RT
Michigan/RTI Merger” shall mean the merger of Record Town Michigan, Inc.
with and into Record Town, Inc, with Record Town, Inc. as the surviving
corporation of the merger.

 

(f)                        “RT
Minnesota/RT USA Merger” shall mean the merger of Record Town Minnesota,
LLC with and into Record Town USA, LLC, with Record Town USA, LLC as the
surviving limited liability company of the merger.

 

(g)                     “RT USA” shall mean
Record Town USA, LLC, a Delaware limited liability company, and its successors
and assigns.

 

(h)                     “RTI Capital Contribution
Agreement” shall mean the Contribution of Capital Agreement, dated as of
January 4, 2004, among RTI, RT Michigan, TW New York LLC and RT USA, as
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.

 

(i)                         “TW Florida”
shall mean Trans World  Florida, LLC, a
Florida limited liability company and its successors and assigns.

 

(j)                         “TW Florida
Gift Certificate Agreements” shall mean, collectively, each of the Gift
Certificate Issuance and Redemption Agreements set forth on
Schedule 1.1(j) hereto entered into between TW Florida and each of the
Borrowers and Guarantors identified on Schedule 1.1(j) hereto, as each of
the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.

 

(k)                      “TW Florida
Conversion” shall mean the merger of Trans World Florida, Inc., a Florida
corporation, into Trans World Florida, LLC, a Florida limited liability
company, in accordance with the terms of the TW Florida Merger Agreements.

 

(l)                         “TW
Florida  Merger Agreements” shall
mean, collectively, (i) the Articles of Merger of Trans World Florida, Inc.
into Trans World Florida, LLC, filed with the Florida Secretary of State, (ii)
the Plan of Merger of Trans World Florida, Inc. into Trans World Florida, LLC,
dated February 9, 2004, and (iii) all related agreements, documents and
instruments executed or delivered in connection therewith, as the same now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.

 

(m)                   “TW Management/RTI Merger”
shall mean the merger of Trans World Management Company, Inc. with and into
Record Town, Inc, with  Record Town,
Inc. as the surviving corporation of the merger.

 

(n)                     “TWE 2004 Business
Restructure” shall mean the business restructure and transactions effected
under the TWE 2004 Business Restructure Agreements.

 

3

 

(o)                     “TWE 2004 Business
Restructure Agreements” shall mean, collectively, (i) the Joint Plan of
Reorganization, (ii) the agreements, documents, and instruments listed on
Schedule 1.1(o) hereto, including, without limitation, the agreements,
documents and instruments executed and delivered in connection with the RT
Michigan/RTI Merger, the RT Minnesota/RT USA Merger and the TW Management/RTI
Merger, (iii) the TWE 2004 Cash Management Agreement, (iv) the TW Florida
Merger Agreements, (v) the Future Capital Contribution Agreement, (vi) the RTI
Capital Contribution Agreement, (vii) the TWE Capital Contribution Agreement,
(viii) the TW Florida Gift Certificate Agreements, and (ix) all related
agreements, documents and instruments executed, delivered or filed in
connection with, or otherwise evidencing, each of the transactions consented to
in Section 2 hereof, described on Schedule 1.1(o) hereto, as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.

 

(p)                     “TWE 2004 Cash Management
Agreement” shall mean the Cash Management Agreement, dated as of
February 1, 2004, among TWE, RTI, TW New York LLC, RT USA, Specs and Trans
World Florida, Inc., as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.

 

(q)                     “TWE Capital Contribution
Agreement” shall mean the Contribution of Capital Agreement, dated as of
February 1, 2004, among TWE, RTI and TW New York LLC, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.

 

(r)                        “Unitary
Store Assets” shall have the meaning given in Section 2.1(d) hereof.

 

(s)                      “Unitary
Stores” shall mean the retail stores leased as of the date hereof by RTI
listed on Schedule 1.1(s) hereto.

 

(t)                        “Warehouse
and Distribution Centers” shall mean the warehouse and distribution centers
owned or leased by RTI located in Albany, New York, North Canton, Ohio and
Carson, California.

 

(u)                     “Wherehouse Music Stores”
shall mean the retail store nos. 1422, 1472, 1483 and 1484 located in the State
of Oregon and retain store no. 1497 located in the State of Utah operated under
the name “Wherehouse Music”.

 

(v)                     “Wherehouse Music Store
Assets” shall have the meaning given in Section 2.1(c) hereof.

 

1.2                                 Amendments to
Definitions.  As used
herein or in any of the other Financing Agreements, the following terms shall
have the meanings given to them below, and the Loan Agreement shall be deemed
and is hereby amended to include, in addition and not in limitation, the
following definitions:

 

(a)                      Borrowers.  All references to the term “Borrowers” in
the Loan Agreement or any of the other Financing Agreements shall be deemed and
each such reference is hereby

 

4

 

amended
to mean each of the Existing Borrowers, RT USA and TW New York LLC,
individually and collectively, jointly and severally.

 

(b)                     Guarantors.  All references to the term “Guarantors” in
the Loan Agreement or any of the other Financing Agreements shall be deemed and
each such reference is hereby amended to mean, individually and collectively,
each Person that at any time guarantees payment or performance of all or any
portion of the Obligations, including, without limitation, Media Logic, USA,
LLC, a New York limited liability company, Movies Plus, Inc., a New York
corporation, Records N’ Such, Inc., a New York corporation, Saturday Matinee,
Inc., a New York corporation, Camelot Music Holdings, Inc., a Delaware
corporation, Spec’s Music, Inc., a Florida corporation, and Trans World  Florida, LLC, a Florida limited liability
company, and their respective successors and assigns.

 

(c)                      Collateral.  All references to the term “Collateral” in
the Loan Agreement or the other Financing Agreements shall be deemed and each
such reference is hereby amended to include when referring to Collateral of
Borrowers, the Collateral granted by RT USA and the acknowledgment and
confirmatory grant by TW New York LLC as set forth in Section 6 hereof.

 

1.3                                 Interpretation.  All capitalized terms used herein and not
otherwise defined herein shall have the meanings given to such terms in the
Loan Agreement.

 

2.                                       Consents to TWE
2004 Business Restructure.

 

2.1                                 Formation of RT
USA, Mergers, Conversions, etc.  Notwithstanding anything to the contrary contained in Sections
9.1, 9.7(a), 9.7(b), 9.7(c), 9.10, or 9.12 of the Loan Agreement, Lender
consents to the following transactions, effective as of the earlier of the date
hereof or the effective date that such transaction occurred in accordance with
the TWE 2004 Business Restructure to the extent such consent is or may be
required under the Loan Agreement:

 

(a)                      the formation
of RT USA by TW New York LLC in accordance with the applicable TWE 2004
Business Restructure Agreements as in effect on the date hereof;

 

(b)                     the contribution by TWE to
TW New York LLC of all of TWE’s right, title and interest in and to all of the
Inventory and Equipment located at the Warehouse and Distribution Centers and
the rights, contract rights, interests, claims, demands, causes of action,
utility and similar deposits, property and other assets acquired or used in
connection with the purchasing and marketing functions of TWE (the “Purchasing
and Marketing Function Assets”), subject to the security interests and liens of
Lender therein, all in accordance with the TWE Capital Contribution Agreement
and the other applicable TWE 2004 Business Restructure Agreements as each is in
effect on the date hereof;

 

(c)                      the
contribution by RTI to RT USA of all of RTI’s right, title and interest in and
to:  (i) the leases and leasehold
interests with respect to the Wherehouse Music Stores, (ii) the Inventory and
Equipment located at the Wherehouse Music Stores and (iii) the rights, contract
rights, interests, claims, demands, causes of action, utility and similar
deposits, property and other

 

5

 

assets
acquired or used in connection with the operation of the Wherehouse Music
Stores (collectively, the “Wherehouse Music Store Assets”), subject to the
security interests and liens of Lender in the Wherehouse Music Store Assets,
all in accordance with the RTI Capital Contribution Agreement and the other
applicable TWE 2004 Business Restructure Agreements as each is in effect on the
date hereof;

 

(d)                     the contribution from time
to time by RTI to RT USA as the leases with respect to the Unitary Stores
expire of all of RTI’s right, title and interest in and to:  (i) the Inventory and Equipment located at
the Unitary Stores and (ii)  the rights,
contract rights, interests, claims, demands, causes of action, utility and
similar deposits, property and other assets acquired or used in connection with
the operation of the Unitary Stores (collectively the “Unitary Store Assets”)
in accordance with the Future Capital Contribution Agreement and the other
applicable TWE 2004 Business Restructure Agreements as each is in effect on the
date hereof; provided, that, as to any such capital contribution,
(A) as of the date of and after giving effect to such contribution of the
Unitary Store Assets, no Event of Default shall exist or have occurred and no event
or condition shall have occurred or exist which with notice or passage of time
or both would constitute an Event of Default, 
(B) such Unitary Store Assets contributed by RTI to RT USA shall at
all times remain subject to the security interests and liens of Lender in such
Unitary Stores Assets, and (C) Borrowers shall notify Lender in writing
promptly after the contribution of such Unitary Store Assets, setting forth the
list of Unitary Stores that have along with the Unitary Store Assets been contributed
to  RT USA;

 

(e)                      the assignment
by TW New York LLC to RT Michigan of all of TW New York LLC’s right, title and
interests in and to an intercompany receivable due to TW New York LLC from TWE
in the amount of $150,000,000, subject to the security interests and liens of
Lender therein, all in accordance with the TWE 2004 Business Restructure
Agreements as in effect on the date hereof;

 

(f)                        the termination
of the TWE 1998 Business Restructure Agreements listed on Schedule 2.1(f)
hereto in accordance with the TWE 2004 Business Restructure Agreements as in
effect on the date hereof; provided, that, any transfers of
assets or payments required under such TWE 2004 Business Restructure Agreements
shall be subject to the security interests and liens of Lender;

 

(g)                     the merger of Trans World
Management Company, Inc. with and into Record Town, Inc. pursuant to the TW
Management /RTI Merger, with Record Town, Inc. as the surviving corporation, in
accordance with the applicable TWE 2004 Business Restructure Agreements as in
effect on the date hereof;

 

(h)                     the merger of Record Town
Michigan, Inc. with and into Record Town, Inc. pursuant to the RT Michigan /RTI
Merger, with Record Town, Inc. as the surviving corporation, in accordance with
the applicable TWE 2004 Business Restructure Agreements as in effect on the
date hereof; and

 

(i)                         the merger of
Record Town Minnesota, LLC with and into Record Town USA LLC pursuant to the RT
Minnesota/RT USA Merger, with Record Town USA, LLC as the

 

6

 

surviving
limited liability company, in accordance with the applicable TWE 2004 Business
Restructure Agreements as in effect on the date hereof.

 

2.2                                 Dissolution of
CMHI.

 

(a)                      Notwithstanding
anything to the contrary contained in Section 5.1 of the General Security
Agreement, dated as of May 31, 2003, by CMHI in favor of Lender, or 9.7(a) of
the Loan Agreement, Lender hereby consents to the dissolution of CMHI.

 

(b)                     Each of Borrowers and
Guarantors hereby acknowledges, confirms and agrees that, upon the
effectiveness of the dissolution of CMHI:

 

(i)                                     The dissolution
of CMHI consented to under Section 2(a) hereof shall not in any way limit,
impair or adversely affect the Obligations now or hereafter owed to Lender by
any continuing Borrower or Guarantor, including, without limitation, any such
Obligations they have as shareholders of such dissolved Guarantors pursuant to
applicable law;

 

(ii)                                  Lender shall
continue to have valid and perfected security interests, liens and rights in
and to all assets and properties of CMHI and such assets and properties of CMHI
shall continue to be deemed included in the Collateral of those entities, and
such security interests, liens and rights and their perfection and priorities
shall continue in all respects in full force and effect; and

 

(iii)                               Lender shall
have received, in form and substance satisfactory to Lender, true and complete
copies of all of the dissolution agreements, documents and instruments with
respect to the dissolution of CMHI, including, without limitation, the
certificate of dissolution with respect to CMHI has been issued by the Delaware
Secretary of State.

 

2.3                                 New Tradename
of TW New York LLC. 
Notwithstanding anything to the contrary contained in Section 5.1
of the General Security Agreement, dated as of December 31, 1998, by TW
New York LLC in favor of Lender or Section 9.1 of the Loan Agreement,
Lender hereby consents to the qualification by TW New York LLC to do business
under the name “Trans World Entertainment” in accordance with the applicable
TWE 2004  Business Restructure
Agreements as in effect on the date hereof so long as:

 

(a)                      the corporate
legal name of TW New York LLC remains “Trans World New York LLC” and the
jurisdiction of formation remains the State of New York; and

 

(b)                     as soon as available, but in any event, no later than
thirty (30) days after the date hereof, Lender shall have received, in
form and substance reasonably satisfactory to Lender, a copy of the Certificate
of Assumed Name filed by TW New York LLC to do business as Trans World
Entertainment with the Secretary of State of New York.

 

2.4                                 Consents
regarding Conversion of TW Florida to LLC by Merger.  Notwithstanding anything to the contrary
contained in Sections 9.1 or 9.7 of the Loan Agreement, subject to the terms and
conditions contained herein:

 

7

 

(a)                      Lender hereby
consents to the formation of Trans World Florida, Inc., a Florida corporation,
on December 16, 1999.

 

(b)                     Lender hereby consents to
the formation of Trans World Florida, LLC, a Florida limited liability company,
on February 6, 2004.

 

(c)                      Lender hereby
consents to the TW Florida Conversion pursuant to which Trans World Florida,
Inc., a Florida corporation, shall have converted into Trans World Florida, LLC,
a Florida limited liability company, by reason of the merger of Trans World
Florida, Inc. with and into Trans World Florida, LLC with Trans World Florida,
LLC as the surviving entity, in accordance with the TW Florida Merger
Agreements as in effect on the date hereof.

 

2.5                                 Proposed Merger
of Specs into RTI.  Specs may
merge with and into RTI; provided, that, each of the following
conditions is satisfied as determined by Lender: 

 

(a)                      Lender shall
have received not less than twenty (20) Business Days’ prior written notice of
the intention of Specs and RTI to so merge, which notice shall set forth in
reasonable detail the terms and conditions of such merger, and the material
agreements and documents relating to such merger; 

 

(b)                     RTI shall be the surviving corporation
of such merger;

 

(c)                      Lender shall
have received such other information with respect to such merger as Lender may
reasonably request within a reasonable time of such request, 

 

(d)                     as of the effective date of
the merger and after giving effect thereto, no Event of Default or act, event
or condition which with notice or passage of time or both would constitute an
Event of Default shall exist or have occurred;

 

(e)                      Lender shall
have received, true, correct and complete copies of all agreements, documents
and instruments relating to such merger, including, but not limited to, the
certificate or certificates of merger to be filed with each appropriate
Secretary of State (with a copy as filed promptly after such filing);

 

(f)                        RTI as the
surviving corporation shall expressly confirm, ratify and assume the
Obligations and the Financing Agreements to which it is a party in writing, in
form and substance satisfactory to Lender and execute and deliver such other
agreements, documents and instruments as Lender may reasonably request in
connection therewith;

 

(g)                     RTI as the surviving
corporation shall not become obligated with respect to any Indebtedness, nor
any of its property subject to any lien, unless RTI or Specs could incur such
Indebtedness or create such lien hereunder; and

 

(h)                     each Guarantor shall ratify
and confirm that its guarantee(s) of the Obligations shall apply to the
Obligations as assumed by RTI as the surviving entity. 

 

8

 

3.                                       Assumption of
Obligations; Acknowledgments with respect to TWE 2004 Business Restructure.  Effective as of the earlier of the date
hereof or the effective date of the TWE 2004 Business Restructure as to the
respective parties thereto:

 

3.1                                 Assumption of
Obligations.  

 

(a)                      Each of RT USA
and TW New York LLC hereby expressly (i) assumes and agrees to be directly
liable to Lender, jointly and severally with the other Borrowers, for all
Obligations under, contained in, or arising out of the Loan Agreement and the
other Financing Agreements applicable to all Borrowers and as applied to each
of RT USA and TW New York LLC as a Borrower, (ii) agrees to perform, comply
with and be bound by all terms, conditions and covenants of the Loan Agreement
and the other Financing Agreements applicable to all Borrowers and as applied
to each of RT USA and TW New York LLC as a Borrower, with the same force and
effect as if each of RT USA and TW New York LLC had originally executed and
been an original Borrower party signatory to the Loan Agreement and the other
Financing Agreements, and (iii) agrees that Lender shall have all rights,
remedies and interests, including security interests in and to the Collateral
granted pursuant to Section 6 hereof, the Loan Agreement and the other
Financing Agreements, with respect to each of RT USA and TW New York LLC and
their respective properties and assets with the same force and effect as Lender
has with respect to the other Borrowers and their respective assets and
properties as if each of RT USA and TW New York LLC had originally executed and
had been an original Borrower party signatory to the Loan Agreement and the
other Financing Agreements.

 

(b)                     Each Borrower, including,
without limitation, RT USA and TW New York LLC, and each Guarantor, including,
without limitation, TW Florida, hereby agrees that (i) all references to
Borrower or Borrowers or other terms intended to refer to a Borrower or
Borrowers, such as Debtor or Debtors, contained in any of the Financing
Agreements are hereby amended to include each of RT USA and TW New York LLC and
each other person or entity at any time hereafter made a “Borrower” under the
Loan Agreement, as an additional Borrower or Debtor, or other appropriate term
of similar import, as the case may be and (ii) all references to Guarantor or
Guarantors or other terms intended to refer to a  Guarantor or Guarantors, such as Obligor or Obligors and Debtor
or Debtors, contained in any of the Financing Agreements are hereby amended to
include each of  TW Florida and each
other person or entity at any time hereafter made a “Guarantor” with respect to
the Obligations of Borrowers, as an additional Obligor, Guarantor or Debtor, or
other appropriate term of similar import, as the case may be.

 

3.2                                 Acknowledgement
with respect to Security Interests.  Each Borrower and Guarantor hereby acknowledges, confirms and
agrees that, by operation of law and as provided in the TWE 2004 Business
Restructure Agreements, as the case may be, and this Amendment:

 

(a)                      Lender shall
continue to have valid and perfected security interests, liens and rights in
and to all of the Inventory, and all other assets and properties at any time
owned and acquired by each Borrower or Guarantor that is the purchaser,
assignee or transferee of any such assets and properties pursuant to the TWE
2004 Business Restructure Agreements or otherwise, and all such assets and
properties shall be deemed included in the Collateral or the Collateral of

 

9

 

Guarantors,
as the case may be, and such security interests, liens and rights and their
perfection and priorities have continued and shall continue in all respects in
full force and effect;

 

(b)                     Without limiting the
generality of the foregoing, (i) none of the transactions contemplated by the
TWE 2004 Business Restructure Agreements shall in any way limit, impair or
adversely affect the Obligations now or hereafter owed to Lender by any
Borrower or Guarantor or any security interests or liens in any assets or
properties securing the same, and (ii) the security interests, liens and rights
of Lender in and to the assets and properties of any Borrower or Guarantor that
is the recipient, assignee or transferee of any such assets and properties
contributed, assigned or transferred pursuant to the TWE 2004 Business
Restructure Agreements have continued and, upon and after the consummation of
such contribution, assignment or transfer, as the case may be, shall continue
to secure all Obligations to Lender of Borrowers or Guarantors or the predecessor
owner of such assets and properties, as the case may be, in addition to all
other existing and future Obligations of such Borrower or Guarantor, as the
case may be, to Lender.

 

3.3                                 Acknowledgement
with respect to Mergers.  As
of the effective date of the TWE 2004 Business Restructure as to the respective
parties thereto, each Borrower and each Guarantor hereby acknowledges, confirms
and agrees that, by operation of law and as provided in the TWE 2004 Business
Restructure Agreements, as the case may be, and this Amendment:

 

(a)                      RTI, as the
surviving corporation pursuant to each of the RT Michigan/RTI Merger and the TW
Management/RTI Merger, shall continue to be directly and primarily liable in
all respects for the Obligations of each of RT Michigan and TW Management
arising prior to the effective time of the applicable RT Michigan/RTI Merger
and the TW Management/RTI Merger.

 

(b)                     Lender has and shall
continue to have valid and perfected security interests, liens and rights in
and to all of the assets and properties owned and acquired by RTI, as the
surviving corporation pursuant to each of the RT Michigan/RTI Merger and the TW
Management/RTI Merger under the applicable TWE 2004 Business Restructure
Agreements or otherwise, and all such assets and properties shall be deemed
included in the Collateral and such security interests, liens and rights and
their perfection and priorities have continued and shall continue in all
respects in full force and effect, and shall continue to secure all Obligations
to Lender of RTI.

 

(c)                      RT USA, as the
surviving limited liability company pursuant to the RT Minnesota/RT USA Merger,
shall continue to be directly and primarily liable in all respects for the
Obligations of RT Minnesota arising prior to the effective time of the RT
Minnesota/RT USA Merger.

 

(d)                     Lender has and shall
continue to have valid and perfected security interests, liens and rights in
and to all of the assets and properties owned and acquired by RT USA, as the
surviving limited liability company pursuant to the RT Minnesota/RT USA Merger
under the applicable TWE 2004 Business Restructure Agreements or otherwise, and
all such assets and properties shall be deemed included in the Collateral and
such security interests, liens and rights and their perfection and priorities
have continued and shall continue in all respects in full force and effect, and
shall continue to secure all Obligations to Lender of RT USA.

 

10

 

4.                                       Allocation of
Revolving Loans and Letter of Credit Accommodations.  Each of Borrowers and Guarantors confirms,
acknowledges and agrees that:

 

4.1                                 As of and after
the effective date of the TWE 2004 Business Restructure as to RT Michigan, the
portion of the Revolving Loans and Letter of Credit Accommodations to or for
the account of RT Michigan determined by Lender to be allocable to the
Inventory and other Collateral of RT Michigan before the consummation of the
TWE 2004 Business Restructure shall be deemed to be Revolving Loans and Letter
of Credit Accommodations of RTI.

 

4.2                                 As of and after
the effective date of the TWE 2004 Business Restructure as to RT Minnesota, the
portion of the Revolving Loans and Letter of Credit Accommodations to or for
the account of RT Minnesota determined by Lender to be allocable to the
Inventory and other Collateral of RT Minnesota before the consummation of the
TWE 2004 Business Restructure shall be deemed to be Revolving Loans and Letter
of Credit Accommodations of  RT USA.

 

5.                                       Continued
Interrelated Business. After giving effect to the TWE 2004
Business Restructure and the transactions contemplated by the TWE 2004 Business
Restructure Agreements, (a) Borrowers and Guarantors shall continue to make up
an interrelated organization of various entities constituting a single economic
and business enterprise in which each of Borrowers and Guarantors shares an
identity of interests such that any benefit received by any one of the
Borrowers and Guarantors benefits the other Borrowers and Guarantors, (b) each
of Borrowers and Guarantors purchases or sells and supplies goods and renders
or receives services to or from, or for the benefit of, the other such Persons
and provides or receives other financial accommodations to or for the benefit
of the other such Persons and administrative, marketing, payroll and management
services to or from or for the benefit of, the other Borrowers and Guarantors,
and (c) Borrowers and Guarantors have (i) substantially consolidated
accounting, administrative, financial, computer, credit, legal and other services,
and (ii) substantially common officers and directors and are identified to
creditors as a common entity.

 

6.                                       Collateral. Without
limiting the provisions of Section 2 or 3 hereof, the Loan Agreement and
the other Financing Agreements, to secure payment and performance of all
Obligations, RT USA hereby grants to Lender a continuing security interest in,
a lien upon, and a right of set off against, and hereby assigns to Lender as
security, the following property and interests in property of RT USA, and TW
New York LLC hereby grants, and confirms its prior grant, to Lender a
continuing security interest in, a lien upon, and a right of set off against,
and hereby assigns, and confirms its prior assignment, to Lender as security,
the following property and interests in property of TW New York LLC, in either
case, whether now owned or hereafter acquired or existing, and wherever located
(collectively, the “Collateral”):

 

6.1                                 all Accounts;

 

6.2                                 all general
intangibles, including, without limitation, all Intellectual Property;

 

6.3                                 all goods,
including, without limitation, Inventory and Equipment;

 

6.4                                 all Real Property and fixtures;

 

11

 

6.5                                 all chattel
paper, including, without limitation, all tangible and electronic chattel
paper;

 

6.6                                 all
instruments, including, without limitation, all promissory notes;

 

6.7                                 all documents;

 

6.8                                 all deposit
accounts;

 

6.9                                 all letters of
credit, banker’s acceptances and similar instruments and including all
letter-of-credit rights;

 

6.10                           all supporting
obligations and all present and future liens, security interests, rights,
remedies, title and interest in, to and in respect of Receivables and other
Collateral, including (a) rights and remedies under or relating to guaranties, contracts
of suretyship, letters of credit and credit and other insurance related to the
Collateral, (b) rights of stoppage in transit, replevin, repossession,
reclamation and
other rights and remedies of an unpaid vendor, lienor or
secured party, (c) goods described in invoices, documents, contracts or
instruments with respect to, or otherwise representing or evidencing,
Receivables or other Collateral, including returned, repossessed and reclaimed
goods, and (d) deposits by and property of account debtors or other persons
securing the obligations of account debtors;

 

6.11                           all (a)
investment property (including securities, whether certificated or
uncertificated, securities accounts, security entitlements, commodity contracts
or commodity accounts) and (b) monies, credit balances, deposits and other property of any
Borrower or Guarantor now or hereafter held or received by or in transit to
Lender or its Affiliates or at any other depository or other institution from
or for the account of any Borrower or Guarantor, whether for safekeeping,
pledge, custody, transmission, collection or otherwise;

 

6.12                           all commercial  tort claims, including,
without limitation, those identified of Schedule 6.11 hereto and, as to RT
USA, in the Information Certificate of RT USA ;

 

6.13                           to the extent
not otherwise described above, all Receivables;

 

6.14                           all Records;
and

 

6.15                           all products
and proceeds of the foregoing, in any form, including insurance proceeds and
all claims against third parties for loss or damage to or destruction of or
other involuntary conversion of any kind or nature of any or all of the other
Collateral.

 

7.                                       Indebtedness.

 

7.1                                 Sections 9.9(g)
and 9.9(h) of the Loan Agreement are hereby deleted and replaced with the
following:

 

“(g)
indebtedness of TWE to RTI, TW New York LLC, RT USA, Specs and TW Florida if
and when incurred in accordance with the TWE 2004 Cash Management

 

12

 

Agreement
(as in effect as of February 1, 2004); provided, that, (i)
all such indebtedness of TWE to RTI, TW New York LLC, RT USA, Specs and TW
Florida shall be subject to, and subordinated in right of payment to, the right
of Lender to receive the prior indefeasible payment in full of all of the
Obligations in accordance with the terms and conditions of a written
subordination agreement among Lender RTI, TW New York LLC, RT USA, Specs and TW
Florida, (ii) no Event of Default, or event which with notice or passage of
time or both would constitute an Event of Default shall exist or have occurred
and be continuing, and (iii) if TWE is required under the terms such written
subordination agreement to evidence any such indebtedness of TWE to RTI, TW New
York LLC, Specs or TW Florida by a promissory note, then RTI, TW New York LLC,
Specs or TW Florida shall, upon the issuance of such note, deliver such note
into the possession of Lender, duly indorsed to the order of Lender;

 

(h)
indebtedness of RTI, TW New York LLC, RT USA, Specs and TW Florida to TWE if
and when incurred in accordance with the TWE 2004 Cash Management Agreement (as
in effect on the execution and delivery date thereof); provided, that,
(i) all such indebtedness of RTI, TW New York LLC, RT USA, Specs and TW Florida
to TWE shall be subject to, and subordinated in right of payment to, the right
of Lender to receive the prior indefeasible payment in full of all of the
Obligations in accordance with the terms and conditions of a written
subordination agreement between TWE and Lender, (ii) no Event of Default, or
event which with notice or passage of time or both would constitute an Event of
Default shall exist or have occurred and be continuing, and (iii) if any RTI,
TW New York LLC, Specs or TW Florida of 
is required under the terms such written subordination agreement to
evidence any such indebtedness of RTI, TW New York LLC, Specs or TW Florida to
TWE by a promissory note, then TWE shall, upon the issuance of such note,
deliver such note into the possession of Lender, duly indorsed to the order of
Lender; and

 

(i)  indebtedness consisting of the contingent
obligation of RTI, RT USA and Specs to their customers in connection with the
issuance of Gift Certificates in the ordinary course pursuant to the terms and
conditions of the TW Florida Gift Certificate Agreements (as in effect on the execution
and delivery date thereof).”

 

8.                                       Transactions
with Affiliates.

 

8.1                                 Section 9.12
of the Loan Agreement is hereby amended by adding in Section 9.12(a),
immediately preceding the word “except” appearing in the fifth line thereof,
the phrase “except for such transactions engaged in pursuant to and in
accordance with the TWE 2004 Business Restructure Agreements (as in effect on
the execution and delivery date thereof) that are not prohibited by any other
term or provision of the Financing Agreements, and “

 

8.2                                 Section 9.12
of the Loan Agreement is hereby amended by adding immediately after the word
“business” appearing at the end of Section 9.12(b), the following:

 

“and payments of reasonable fees, charges and
expenses by Borrowers to other Borrowers and Guarantors pursuant to the TWE
2004 Business Restructure

 

13

 

Agreements (as in effect on the execution and
delivery date thereof) previously disclosed to Lender in writing; provided,
that, (i) Borrowers and Guarantors may amend or modify the “Estimated
Purchase Price” as defined in and set forth on Exhibit A to the Inventory
Supply Agreements in accordance with the terms and conditions set forth in the
Inventory Supply Agreements so long as such modification to the “Estimated
Purchase Price” is based upon the good faith determination of such Borrowers
and Guarantors that such modification is necessary to reflect an arm’s length
transactions between such Borrowers and Guarantors and (ii) the portion of the Purchase
Price and the Estimated Purchase Price of Inventory other than the actual cost
of Inventory purchased from third party vendors to TW New York LLC shall not be
included in the definition of Cost.”

 

8.3                                 Section 5.12
of each of the General Security Agreements executed and delivered by Guarantors
is hereby amended by adding immediately after the word “business” appearing at
the end of Section 5.12(b), the following:

 

“and payments of reasonable fees, charges and
expenses by Guarantors to other Borrowers and Guarantors pursuant to the TWE
2004 Business Restructure Agreements (as in effect on the execution and
delivery date thereof) previously disclosed to Lender in writing; provided,
that, (i) Borrowers and Guarantors may amend or modify the “Estimated
Purchase Price” as defined in and set forth on Exhibit A to the Inventory
Supply Agreements in accordance with the terms and conditions set forth in the
Inventory Supply Agreements so long as such modification to the “Estimated
Purchase Price” is based upon the good faith determination of such Borrowers
and Guarantors that such modification is necessary to reflect an arm’s length
transactions between such Borrowers and Guarantors and (ii) the portion of the
Purchase Price and the Estimated Purchase Price of Inventory other than the
actual cost of Inventory purchased from third party vendors to TW New York LLC
shall not be included in the definition of Cost.”

 

9.                                       Gift
Certificates.

 

9.1                                 Availability
Reserves.  

 

(a)                      Effective on
the date hereof, in addition to any existing or future Availability Reserves
that may be in effect on the date hereof or established from time to time,
Lender may, subject to the terms of Section 9.1(b) hereof, establish and
maintain an Availability Reserve against the amount of Revolving Loans and
Letter of Credit Accommodations otherwise determined by Lender to be available
to Revolving Loan Borrowers under the Loan Agreement and the other Financing
Agreements in the amount equal to the outstanding amount of gift certificates
issued by any Borrower or Guarantor (the “Gift Certificate Availability
Reserve”).

 

(b)                     Lender agrees not to
exercise its right to establish the Gift Certificate Availability Reserve in
such amounts as it may determine unless either (i) an Event of Default or

 

14

 

an
event or condition shall have occurred or exist which with notice or passage of
time or both would constitute an Event of Default shall exist or have occurred
or (ii)  Excess Availability is less
than $50,000,000.

 

(c)                      The Gift
Certificate Availability Reserve established in accordance with this
Section 9.1 is in addition to, and not in limitation of, all other
existing availability reserves and the rights of Lender from time to time to
establish other and further reserves against the availability of Revolving
Loans and Letter of Credit Accommodations under the Loan Agreement and the
other Financing Agreements.

 

9.2                                 Reporting.  In addition to and not in limitation of any
covenant by Borrowers or Guarantors to provide reports, documents or other
information regarding the Collateral, financial  condition or otherwise in the Loan Agreement or the other
Financing Agreements, Borrowers shall furnish to Lender on a monthly basis or,
if Excess Availability falls below $10,000,000 or an Event of Default exists or
has occurred and is continuing, or an event has occurred or state of facts
exists that would, with notice or passage of time, or both, constitute an Event
of Default, more frequently as Lender may request, a schedule of the
amount of Gift Certificates outstanding on an aggregate basis for RTI, RT USA
and Specs to their customers.

 

10.                                 Appointment of
TWE and RTI as Agent.  In
addition to, and not in limitation of, any provisions of Section 12.2 of
the Loan Agreement:

 

10.1                           Each of RT USA
and TW New York LLC (together with RTI) hereby irrevocably appoints TWE as
agent for such Borrower under the Loan Agreement and the other Financing
Agreements, to act in such capacity as agent for such Borrower hereunder and
TWE hereby accepts such appointment. 
Each of RT USA and TW New York LLC (together with RTI) further
irrevocably authorizes TWE as agent for such purposes to take such action on
such Borrower’s behalf and to exercise such rights and powers under the Loan
Agreement and the other Financing Agreements as are delegated to TWE in such
capacity by the terms hereof and thereof, together with such rights and powers
as are reasonably incidental thereto.

 

10.2                           TWE as agent
for each of RT USA and TW New York LLC (together with RTI) is hereby expressly
and irrevocably authorized by each Borrower, without hereby limiting any
implied or express authority, (a) to give and receive on behalf of such
Borrower all notices and other materials delivered or provided to be delivered
by Lender to such Borrower or by such Borrower to Lender pursuant to the
Financing Agreements, (b) to request Loans and Letter of Credit Accommodations
on behalf of such Borrower, (c) to receive disbursements of Loans and other
financing accommodations on behalf of such Borrower, and (d) to pay, on behalf
of such Borrower, all Obligations of such Borrower at any time due Lender
pursuant to the terms of the Financing Agreements.

 

10.3                           Each of RT USA
and TW New York LLC hereby irrevocably appoints RTI to act as agent for each of
them to receive and deposit on behalf of each of them, proceeds of all
Collateral and any other items, and to cause the same to be remitted to the
Blocked Accounts in accordance with the provisions of Section 6.3 of the
Loan Agreement, and RTI hereby accepts such appointment.

 

15

 

11.                                 Information
Certificates and Schedules.

 

11.1                           Exhibit A to
the Loan Agreement and Section 1.29 of the Loan Agreement is hereby
amended to include the Information Certificates of RT USA attached hereto as
Exhibit A.

 

11.2                           Schedule II
of the Information Certificate of RTI is hereby amended and restated to include
only those locations as set forth on Exhibit B hereto.

 

12.                                 Representations,
Warranties and Covenants. 
Borrowers and Guarantors represent, warrant and covenant with and to
Lender as follows, which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof, the truth and
accuracy of, or compliance with each, together with the representations,
warranties and covenants in the other Financing Agreements, being a condition
of the effectiveness of this Amendment and a continuing condition of the making
or providing of any Revolving Loans or Letter of Credit Accommodations by
Lender to Borrowers:

 

12.1                           This Amendment
and each other agreement or instrument to be executed and delivered by each of
RT USA and TW New York LLC, or the other Borrowers and TW Florida and the other
Guarantors hereunder have been duly authorized, executed and delivered by all
necessary action on the part of each of RT USA and TW New York LLC, or the
other Borrowers and TW Florida and the Guarantors  which is a party hereto and thereto and, if necessary, their
respective stockholders (with respect to any corporation) or members (with
respect to any limited liability company), and is in full force and effect as
of the date hereof, as the case may be, and the agreements and obligations of
each of RT USA and TW New York LLC, and the other Borrowers and TW Florida and
the other Guarantors, as the case may be, contained herein and therein
constitute legal, valid and binding obligations of each of RT USA and TW New
York LLC, and the other Borrowers and TW Florida and the other Guarantors, as
the case may be, enforceable against them in accordance with their terms.

 

12.2                           Neither the
execution and delivery of the TWE 2004 Business Restructure Agreements, nor the
consummation of the transactions contemplated by the TWE 2004 Business
Restructure Agreements, nor compliance with the provisions of the TWE 2004
Business Restructure Agreements, shall result in the creation or imposition of
any lien, claim, charge or encumbrance upon any of the Collateral, except in
favor of Lender pursuant to the Loan Agreement and the Financing Agreements as
amended hereby.

 

12.3                           Neither the
execution and delivery of the TWE 2004 Business Restructure Agreements, nor the
consummation of the transactions therein contemplated, nor compliance with the
provisions thereof, (a) has violated or shall violate any applicable Federal or
State securities laws or any other law or regulation in any material respect,
including, without limitation, any Bulk Sales Act or Article 6 of the
Uniform Commercial Code, or any order or decree of any court or governmental
instrumentality in any respect or (b) does, or shall conflict with or result in
the breach of, or constitute a default in any respect under any material
mortgage, deed of trust, security agreement, agreement or instrument to which
any of RT USA or TW New York LLC, or any other Borrower or TW Florida or any
other Guarantor is a party or may be bound, or (c) shall violate any provision
of the Certificates of Incorporation or By-Laws of

 

16

 

Borrower
or TW Florida or any other Guarantor that is a corporation, or (d) shall
violate any provision of the Certificates of Formation or Operating Agreements
of TW New York LLC or RT USA, TW Florida or any other Borrower or Guarantor
that is a limited liability company.

 

12.4                           None of the
membership interests in either of TW New York LLC, RT USA or TW Florida has
been evidenced by a membership certificate or other certificate, document,
instrument or security.  All of the
membership interests in each of TW New York LLC, RT USA and TW Florida (a) are
noted in the respective books and records of each such company, (b) have been
duly authorized, validly issued and (c) are fully paid and non-assessable, free
and clear of all claims, liens, pledges and encumbrances of any kind, except in
favor of Lender.

 

12.5                           No court of
competent jurisdiction has issued any injunction, restraining order or other
order which has prohibited or prohibits consummation of the TWE 2004 Business
Restructure or any part thereof, and no governmental action or proceeding has
been threatened or commenced seeking any injunction, restraining order or other
order which seeks to void or otherwise modify the transactions described in the
TWE 2004 Business Restructure Agreements.

 

12.6                           Each of TW New
York LLC, RT USA and TW Florida is a limited liability company, duly formed and
validly existing in good standing under the laws of the State of its
formation.  Each of RT USA, TW New York
LLC and TW Florida (a) is duly licensed or qualified to do business as a
foreign limited liability company or foreign corporation, as the case may be,
and is in good standing in each of the jurisdictions set forth in Exhibit C
annexed hereto, except as set forth on Exhibit C hereto, which are the only
jurisdictions wherein the character of the properties owned or licensed or the
nature of the business of any of RT USA, TW New York LLC and TW Florida makes
such licensing or qualification to do business necessary, except for those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on such entity’s financial conditions, results of operation or
business or the rights of Lender in or to any of the Collateral; and (b) has
all requisite power and authority to own, lease and operate its properties and
to carry on its business as it is now being conducted and will be conducted in
the future.

 

12.7                           The assets and
properties of RT USA, TW New York LLC and TW Florida are owned by them, free
and clear of all security interests, liens and encumbrances of any kind, nature
or description, as of the date hereof, except those security interests existing
in favor of Lender and those granted pursuant hereto in favor of Lender, and
except for liens (if any) permitted under Section 8.4 of the Loan Agreement
or the other Financing Agreements.

 

12.8                           No action of,
or filing with, or consent of any governmental or public body or authority,
including, without limitation, any filing with the U.S. Patent and Trademark
Office, other than the filing of UCC financing statements with the appropriate
governmental authority, and no approval or consent of any other party, is
required to authorize, or is otherwise required in connection with, the
execution, delivery and performance of this Amendment.

 

12.9                           No Event of Default
shall exist or have occurred and no event or condition shall have occurred or
exist which with notice or passage of time or both would constitute an Event of
Default.

 

17

 

12.10                     All of the representations
and warranties set forth in the Loan Agreement as amended hereby, and the other
Financing Agreements, are true and correct in all material respects after
giving effect to the provisions of this Amendment, except to the extent any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
date.

 

12.11                     If the amount equal to
(a) the Value of Eligible Inventory less the amount of Availability
Reserves multiplied by (b) the then applicable advance rate with respect
to the Value of Eligible Inventory is at any time equal to or less than
$100,000,000, then within thirty (30) days after the date of the occurrence
thereof, Borrowers and Guarantors shall deliver, or cause to be delivered to,
Lender , in form and substance satisfactory to Lender, an Evidence of Property
Insurance certificate together, with a Lender’s Loss Payable Endorsement,
issued in favor of Lender with respect to property insurance of Borrowers and Guarantors.

 

12.12                     If Excess Availability at
any time is less than $30,000,000, Borrowers and Guarantors shall deliver
within thirty (30) days after such date to Lender, in form and substance
satisfactory to Lender:  (a)  an amended and restated blocked account
agreement among Lender, LaSalle Bank National Association, and those Borrowers
and Guarantors that maintain deposit accounts with LaSalle Bank National
Association and (b) a deposit account control agreement for each of the deposit
account banks at which Borrowers or Guarantors maintain deposit accounts that
are determined by Lender in its good faith judgment to be material to the
business and operations of the Borrowers and Guarantors or to the exercise of
Lender’s rights and remedies under the Loan Agreement and the other Financing
Agreements.  During such thirty (30) day
period and in any event until such time as the terms and conditions set forth
in this Section 12.12 have been satisfied as determined by Lender, the
amount of Loans available to Borrowers based upon the lending formulas as
determined by Lender in accordance with the terms and conditions of the Loan
Agreement shall at all times be not less than $10,000,000.

 

13.                                 Conditions
Precedent.  The
effectiveness of this Amendment and the agreement of Lender to the consents,
modifications and amendments set forth in this Amendment are subject to the
fulfillment of the following conditions precedent:

 

13.1                           Lender shall
have received, in form and substance satisfactory to Lender, evidence that (a) the
TWE 2004 Business Restructure Agreements have been duly executed and delivered
by and to the appropriate parties thereto and (b) the transactions that are
contemplated by the TWE 2004 Business Restructure Agreements to be consummated
prior to or as of the date hereof have been consummated prior to, or
contemporaneously with, the execution of this Amendment;

 

13.2                           Lender shall
have received, in form and substance satisfactory to Lender, each of the
following agreements to which it is a party, duly authorized, executed and
delivered:

 

(a)                      Guarantee by RT
USA with respect to the Obligations of Borrowers (other than RT USA) to Lender;

 

18

 

(b)                     Guarantee by TW New York LLC
with respect to the Obligations of Borrowers (other than TW New York LLC) to
Lender;

 

(c)                      Guarantee by
Borrowers with respect to the Obligations of RT USA and TW New York LLC to
Lender;

 

(d)                     Guarantee by Existing
Guarantors with respect to the Obligations of RT USA and TW New York LLC;

 

(e)                      Guarantee by TW
Florida with respect to the Obligations of Borrowers;

 

(f)                        General
Security Agreement by TW Florida in favor of Lender;

 

(g)                     Intercompany Parent
Subordination Agreement between Lender and TWE, as acknowledged by RTI, TW New
York LLC, RT USA, Specs and TW Florida; and

 

(h)                     Intercompany Subsidiary
Subordination Agreement among Lender, RTI, TW New York LLC, RT USA, Specs and
TW Florida, as acknowledged by TWE;

 

13.3                           UCC financing
statements and amendments to existing UCC financing statements with respect to
RT USA, TW New York LLC, and all other Borrowers and TW Florida and all other
Guarantors and other documents and instruments which Lender in its sole
discretion has determined are necessary to perfect or continue perfected the
security interests of Lender in all Collateral now or hereafter owned by RT USA
and TW New York LLC and the other Borrowers and TW Florida and the other
Guarantors shall have been either or both delivered and filed;

 

13.4                           Each of RT USA,
TW New York LLC and TW Florida shall have delivered to Lender (a) a copy of its
Certificate of Formation or Articles of Organization, and all amendments
thereto, certified by the Secretary of State of its jurisdiction of formation
as of the most recent practicable date certifying that each of the foregoing
documents remains in full force and effect and has not been modified or
amended, except as described therein, (b) a copy of its Operating Agreement,
certified by its Secretary and (c) a Certificate from its Secretary, dated the
date hereof, certifying that each of the foregoing documents remains in full
force and effect and has not been modified or amended, except as described
therein;

 

13.5                           Each of RT USA,
TW New York LLC and TW Florida shall have delivered to Lender evidence, as of
the most recent practicable date, that it is duly qualified and in good
standing in each jurisdiction set forth in Exhibit C annexed hereto, except
with respect to those jurisdictions in which such qualification has not yet
been completed, in which case RT USA, New York LLC or TW Florida, as the case
may be, shall deliver evidence of such qualification to Lender within the time
period set forth on Exhibit C hereto;

 

13.6                           Lender shall
have received, in form and substance satisfactory to Lender, Secretary’s or
Assistant Secretary’s Certificates of Directors’ Resolutions with Shareholders’
Consent evidencing the adoption and subsistence of corporate resolutions
approving the

 

19

 

execution,
delivery and performance by Borrower, and Guarantors of this Amendment and the
agreements, documents and instruments to be delivered pursuant to this
Amendment;

 

13.7                           Lender shall
have received, in form and substance satisfactory to Lender, for each of RT
USA, TW New York LLC and TW Florida (a) a certificate of the sole member of
each such company identifying all managers (if any), officers or other persons
authorized to act on behalf of such company and if applicable, the specific
management responsibilities of each such manager, officer or other authorized
person, including a description of any restriction on any such manager’s,
officer’s or other person’s authority to act for such company or, if no
restrictions are so imposed, a statement to that effect, (b) resolutions of
each of the sole members of such company, evidencing the adoption and
subsistence of company resolutions approving the execution, delivery and
performance by each of RT USA, TW New York LLC and TW Florida, respectively, of
this Amendment and the agreements, documents and instruments to be delivered
pursuant to this Amendment, in each case signed by all members of each such
company, and (c) Certificates of Membership of each such company identifying
all members of such company and the relative voting and/or management rights of
the members, if applicable, of such company;

 

13.8                           Lender shall
have received an opinion of counsel to RT USA and the other Borrowers and TW
Florida and the other Guarantors with respect to the transactions contemplated
by this Amendment and the TWE 2004 Business Restructure Agreements, and such
other matters as Lender shall reasonably request, addressed to Lender, in form
and substance and satisfactory to Lender;

 

13.9                           each of
Borrowers and Guarantors shall deliver, or cause to be delivered, to Lender a
true and correct copy of any consent, waiver or approval to or of this
Amendment, which any Borrower or Guarantor is required to obtain from any other
Person, and such consent, approval or waiver shall be in a form reasonably
acceptable to Lender;

 

13.10                     Lender shall have received,
in form and substance satisfactory to Lender, all other consents, waivers,
acknowledgments and other agreements from third persons which Lender may deem
necessary or desirable in order to permit, protect and perfect its security
interests and liens upon the Collateral or to affect the provisions or purposes
of this Amendment and the other Financing Agreements;

 

13.11                     all requisite corporate
action and proceedings in connection with this Amendment and the documents and
instruments to be delivered hereunder shall be in form and substance
satisfactory to Lender, and Lender shall have received all information and
copies of all documents, including, without limitation, records of requisite
corporate action and proceedings which Lender may have reasonably requested in
connection therewith, such documents where requested by Lender or its counsel
to be certified by appropriate corporate officers or governmental authorities;
and

 

13.12                     no Event of Default shall
exist or have occurred and no event or condition shall have occurred or exist
which with notice or passage of time or both would constitute an Event of
Default.

 

20

 

14.                                 Waiver of Event
of Default.

 

14.1                           Lender hereby
waives, subject to the terms and conditions contained in this Amendment, the
Event of Default arising under Section 9.7(b) and 9.10 of the Loan
Agreement as a result of the formation by RTI of Trans World Florida, Inc., a
Florida corporation.

 

14.2                           Lender has not
waived and is not by this Amendment waiving, and has no intention of waiving,
any other Event of Default, which may have occurred before the date hereof, or
may be continuing on the date hereof or any Event of Default that may occur
after the date hereof, whether the same or similar to the Event of Default
described in Section 14.1 hereof or otherwise, other than the Event of
Default specifically described in Section 14.1 hereof. Lender reserves the
right, in its discretion, to exercise its rights and remedies arising under the
Financing Agreements, applicable law or otherwise as a result of any other
Events of Default that may have occurred before the date hereof, or are
continuing on the date hereof, or any Event of Default that may occur after the
date hereof, whether the same or similar to the Event of Default described in
Section 14.1 hereof or otherwise.

 

15.                                 Additional
Events of Default.  The
parties hereto acknowledge, confirm and agree that the failure of Borrowers or
Guarantors to comply with the covenants, conditions and agreements contained
herein shall constitute an Event of Default.

 

16.                                 Effect of this
Amendment.  This
Amendment and the instruments and agreements delivered pursuant hereto
constitute the entire agreement of the parties with respect to the subject
matter hereof and thereof, and supersede all prior oral or written
communications, memoranda, proposals, negotiations, discussions, term sheets
and commitments with respect to the subject matter hereof and thereof.  Except as expressly amended pursuant hereto,
and except for the consents expressly set forth in the Consent No. 1 under Loan
Agreement, Consent No. 2 under  Loan
Agreement, Consent No. 3 under Loan Agreement, Consent No. 4 under Loan Agreement,
Consent No. 5 under Loan Agreement, Consent No. 6 under Loan Agreement, and
Consent No. 7 under Loan Agreement, no other changes or modifications to the
Financing Agreements or consents under any provisions thereof are intended or
implied, and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof.  To the extent of
conflict between the terms of this Amendment and the other Financing
Agreements, the terms of this Amendment shall control.

 

17.                                 Further
Assurances.  Borrowers
shall execute and deliver such additional documents and take such additional
action as may be reasonably requested by Lender to effectuate the provisions
and purposes of this Amendment.

 

18.                                 Governing Law.  The rights and obligations hereunder of each
of the parties hereto shall be governed by and interpreted and determined in
accordance with the internal laws of the State of New York (without giving
effect to principles of conflict of laws).

 

19.                                 Binding Effect.  This Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.

 

21

 

20.                                 Counterparts.  This Amendment may be executed in any number
of counterparts, but all of such counterparts shall together constitute but one
and the same agreement.  In making proof
of this Amendment, it shall not be necessary to produce or account for more
than one counterpart thereof signed by each of the parties hereto.

 

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT
BLANK]

 

22

 

Please sign in the space provided below and return a counterpart of
this Amendment, whereupon this Amendment, as so agreed to and accepted, shall
become a binding agreement among Borrowers and Lender.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  CONGRESS FINANCIAL CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
  AGREED TO AND ACCEPTED:

  	
   

  
	
   

  	
   

  
	
  TRANS WORLD ENTERTAINMENT CORPORATION

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  RECORD TOWN, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  RECORD TOWN USA, LLC

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
								

 

[SIGNATURES CONTINUE ON NEXT PAGE]

 

 

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

	
  RECORD TOWN, INC., as successor by merger
  of

  Record Town Michigan, Inc. with and into Record Town, Inc.

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  RECORD TOWN, USA, LLC., successor by merger
  of

  Record Town Minnesota, LLC with and into Record Town, USA, LLC

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  CONSENTED AND AGREED TO:

  
	
   

  
	
  MEDIA LOGIC USA, LLC

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
  MOVIES PLUS, INC.

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
				

 

[SIGNATURES CONTINUE ON NEXT PAGE]

 

 

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

	
  SATURDAY MATINEE, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  RECORDS N’ SUCH, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  
	
  TRANS WORLD NEW YORK, LLC

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  RECORD TOWN, INC., as successor by merger
  of

  Trans World Management Company, Inc. with and

  into Record Town, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TRANS WORLD ENTERTAINMENT CORPORATION, a

  successor-in-interest to, in its capacity as the sole shareholder of

  the dissolution of Camelot Music Holdings, Inc.

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
							

 

[SIGNATURES CONTINUE ON NEXT PAGE]

 

 

[SIGNATURES CONTINUED FROM PREVIOUS PAGE]

 

	
  SPEC’S MUSIC, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  TRANS WORLD FLORIDA, LLC

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
						

 

 

EXHIBIT A

TO

AMENDMENT NO. 8 TO

LOAN AND SECURITY AGREEMENT

 

Information Certificate of Record Town USA
LLC

 

 

(See Attached)

 

 

EXHIBIT B

TO

AMENDMENT NO. 8 TO

LOAN AND SECURITY AGREEMENT

 

Schedule II to Information Certificate
of Record Town, Inc.

 

 

(See Attached)

 

 

SCHEDULE 1.1(j)

TO

AMENDMENT NO. 8 TO

LOAN AND SECURITY AGREEMENT

 

List of TW Florida Gift Certificate
Agreements

 

 

SCHEDULE 1.1(o)

TO

AMENDMENT NO. 8 TO

LOAN AND SECURITY AGREEMENT

 

List of TWE 2004 Business Restructure
AgreementsEXHIBIT 10.25

                              SETTLEMENT AGREEMENT

      THIS  SETTLEMENT  AGREEMENT  (this  "Agreement")  is made and entered into
effective  as of  this  16th  day  of  March,  2004,  by  and  between  Guardian
Technologies  International,  Inc.,  a Delaware  corporation  ("Guardian"),  and
Cappello Capital Corp., a California corporation ("Cappello").

                                   WITNESSETH:

      WHEREAS,  Guardian and Cappello  entered  into a letter  agreement,  dated
November 7, 2003 (the "Letter Agreement"),  pursuant to which Cappello agreed to
provide certain corporate finance advisory services to Guardian in consideration
of,  among other  things,  the payment and issuance of certain  compensation  by
Guardian to Cappello; and

      WHEREAS,  Guardian and Cappello  have  determined  to terminate the Letter
Agreement  and to settle all claims that one party  hereto may have  against the
other party under the Letter Agreement or otherwise and upon the terms set forth
hereinbelow.

      NOW, THEREFORE,  in consideration of the mutual covenants,  agreements and
recitals set forth above and below,  and other good and valuable  consideration,
the receipt and adequacy of which are hereby  acknowledged,  the parties  hereby
agree and covenant as follows:

1.    Guardian and  Cappello  hereby  agree to  terminate  the Letter  Agreement
      effective as of the date hereof,  and such Letter  Agreement shall have no
      further force or effect.

2.    In  consideration  of the  termination  of the  Letter  Agreement  and the
      releases and other  agreements  and covenants  set forth herein,  Guardian
      hereby agrees to pay and/or issue to Cappello the following:

      (a)   on or before  thirty (30) days after the date of the  execution  and
            delivery of this Letter  Agreement by the  parties,  $50,000 by wire
            transfer of immediately available United States' funds; and

      (b)   upon execution  hereof, a common stock purchase warrant  ("Warrant")
            to  purchase  250,000  shares of common  stock,  $.001 par value per
            share ("Common Stock"), of Guardian  exercisable for a period of two
            (2) years from the date of issue at a price of $1.00 per share. Such
            warrants shall contain a cashless exercise  provision,  a piggy back
            registration right and other customary provisions.

3.    Cappello  agrees  that,  upon  execution  hereof,  except  as set forth in
      Section 2 above,  Cappello shall have no further right or claim to receive
      any compensation pursuant to any term or provision of the Letter Agreement
      or otherwise.

<PAGE>

4.    In  consideration  of the mutual covenants and agreements set forth herein
      by  Cappello,  Guardian  and  all  of  its  successors,   assigns,  heirs,
      executors, administrators, legal representatives and all other persons who
      might claim through them, hereby compromise, release and forever discharge
      Cappello,  its  directors,   officers,   agents,  attorneys,   affiliates,
      subsidiaries  and related  companies,  successors  of Cappello and control
      persons  (within the meaning of the  Securities Act of 1933 and Securities
      Exchange  Act of 1934) and all persons who might be liable  through  them,
      from any and all rights,  demands and claims, of whatsoever kind or nature
      relating to any matters of any kind,  whether  presently  known or unkown,
      suspected or unsuspected,  arising from any omission, act or fact that has
      occurred up until and including the date of this Agreement including,  but
      not limited to, under the Letter  Agreement,  any other agreement  between
      Guardian and  Cappello,  or in connection  with any financial  advisory or
      other services rendered to Guardian by Cappello,  effective as of and from
      the beginning of time. Except as set forth herein, Guardian and all of its
      successors,    assigns,    heirs,   executors,    administrators,    legal
      representatives and all persons or entities acting on their behalf, or who
      might claim  through  them,  hereby agree and covenant not to sue or bring
      any action at law or in equity referring to, relating to, or in connection
      with the Letter  Agreement,  any other agreement  between the parties,  in
      connection  with any  financial  advisory  or other  services  rendered to
      Guardian  by  Cappello  or  otherwise,  including,  but not limited to, an
      action in any court or other forum or an  arbitration  proceeding  against
      Cappello or any third party beneficiary hereunder; provided, however, that
      Guardian or its successors or assigns may initiate any action  required to
      enforce this  Agreement  and may initiate a claim by way of  counterclaim,
      cross claim,  third party process,  impleader,  claim for contribution and
      indemnity  or other claim  arising from a claim by an  unaffiliated  third
      party against  Guardian.  It is understood and agreed that the release and
      covenant  not to sue  herein  are a full and  final  general  release  and
      covenant not to sue from Guardian  which covers any and all future damages
      not now  known to  Guardian  which  may later  develop  or be  discovered,
      arising from,  referring to, relating to, or in connection with the Letter
      Agreement,  any other agreement between the parties, or in connection with
      any financial  advisory or other services rendered to Guardian by Cappello
      or otherwise,  except that this does not cover any damages or claims which
      may arise  solely as a result of a breach by a party of any  provision  of
      this Agreement. Guardian acknowledges and agrees that this Agreement shall
      be  a  final   and   effective   settlement   as   provided   hereinabove,
      notwithstanding  any  facts or  mistakes  that  may come to its  attention
      hereafter, whether or not known to Cappello or any of the persons released
      by Guardian hereunder.

5.    In  consideration  of the  agreements  set forth in  Sections 1, 2, and 3,
      above, and other good and valuable consideration,  Cappello and all of its
      successors,    assigns,    heirs,   executors,    administrators,    legal
      representatives and all other persons who might claim through them, hereby
      compromise,   release  and  forever  discharge  Guardian,  its  directors,
      officers,   agents,  attorneys,   affiliates,   subsidiaries  and  related
      companies,  successors of Guardian and control persons (within the meaning
      of the Securities Act of 1933 and Securities Exchange Act of 1934) and all
      persons who might be liable through them, from any and all rights, demands
      and claims,  of whatsoever  kind or nature  relating to any matters of any
      kind, whether presently known or unkown, suspected or unsuspected, arising
      from any  omission,  act or fact that has occurred up until and  including
      the date of this Agreement including, but not limited to, under the Letter
      Agreement,  any other  agreement  between  Guardian  and  Cappello,  or in
      connection with any financial advisory or other services rendered to

                                        2
<PAGE>

      Guardian by Cappello or otherwise,  effective as of and from the beginning
      of time.  Except as set forth herein,  Cappello and all of its successors,
      assigns, heirs, executors,  administrators,  legal representatives and all
      persons or entities  acting on their  behalf,  or who might claim  through
      them,  hereby  agree and covenant not to sue or bring any action at law or
      in equity  referring  to,  relating to, or in  connection  with the Letter
      Agreement, any other agreement between the parties, in connection with any
      financial  advisory or other services  rendered to Guardian by Cappello or
      otherwise,  including, but not limited to, an action in any court or other
      forum or an  arbitration  proceeding  against  Guardian or any third party
      beneficiary hereunder;  provided, however, that Cappello or its successors
      or assigns may initiate any action  required to enforce this Agreement and
      may  initiate a claim by way of  counterclaim,  cross  claim,  third party
      process,  impleader,  claim for  contribution and indemnity or other claim
      arising from a claim by an unaffiliated  third party against Cappello.  It
      is  understood  and agreed that the release and covenant not to sue herein
      are a full and final general release and covenant not to sue from Cappello
      which  covers any and all future  damages not now known to Cappello  which
      may later develop or be discovered,  arising from,  referring to, relating
      to, or in  connection  with the  Letter  Agreement,  any  other  agreement
      between the parties, or in connection with any financial advisory or other
      services  rendered to Guardian by Cappello or otherwise,  except that this
      does not cover any damages or claims which may arise solely as a result of
      a  breach  by a  party  of  any  provision  of  this  Agreement.  Cappello
      acknowledges and agrees that this Agreement shall be a final and effective
      settlement as provided hereinabove,  notwithstanding any facts or mistakes
      that may come to its attention hereafter, whether or not known to Guardian
      or any of the persons released by Cappello hereunder.

6.    The  parties  represent  that they are not aware of any claim by either of
      them other than the claims that are released by this  Agreement.  Guardian
      and Cappello  acknowledge that they have been advised by legal counsel and
      are familiar with the  provisions  of California  Civil Code Section 1542,
      which provides that "A general release does not extend to claims which the
      creditor  does not know or  suspect  to exist in his  favor at the time of
      executing the release, which if known by him must have materially affected
      his settlement with the debtor."

7.    In order to establish  the  suitability  of  Cappello's  investment  in or
      acquisition of the Warrants and the  underlying  shares,  Cappello  hereby
      represents and warrants to Guardian as follows:

      (a)   Investment  Intent.  Cappello  is  aware  of and  familiar  with the
            business  affairs  and  financial  condition  of  Guardian  and  has
            acquired   sufficient   information   about   Guardian  to  reach  a
            knowledgeable  and informed decision to acquire the Warrants and the
            shares  of  Common  Stock  of  Guardian  underlying  such  Warrants.
            Cappello  is  acquiring  the  Warrants,  and  upon  exercise  of the
            Warrants the underlying shares of Common Stock of Guardian,  for its
            own  account and not with a view to or for sale in  connection  with
            any  distribution  of the  Warrants or  underlying  shares of Common
            Stock; provided that Guardian hereby consents to the assignment by

                                        3
<PAGE>

            Cappello  of all or any  portion  of the  Warrant  and/or  shares of
            Common Stock underlying the Warrant to one or more principals and/or
            employees  of  Cappello;  provided  further that in the event of any
            such  assignment  each such principal or employee is an "accredited"
            investor  within the  meaning  of Rule  501(a) of  Regulation  D and
            executes  an  investment  representation  letter  in such form as is
            reasonably satisfactory to Guardian and its counsel.

      (b)   Relationship. Cappello has either a preexisting personal or business
            relationship with Guardian or its partners,  officers,  directors or
            controlling persons.

      (c)   Experience.  Cappello  has such  business  or  financial  experience
            enabling  it to protect its own  interests  in  connection  with the
            acquisition of the Warrants and underlying shares of Common Stock.

      (d)   Accredited Investor. Cappello is an "accredited investor" within the
            meaning  set  forth  in  Rule  501(a)  of  Regulation  D  under  the
            Securities Act of 1933, as amended (the  "Securities  Act"), and can
            afford a total loss of its investment.

      (e)   Risks. Cappello understands that an investment in Guardian is highly
            speculative  and subject to  substantial  risks,  that any  possible
            profits  therefrom  are  uncertain or may never  arise,  and that it
            bears  the  economic  risks of the  investment  in  Guardian  for an
            indefinite  period of time.  Cappello is able to bear these economic
            risks and to hold the Warrants and the shares of  Guardian's  Common
            Stock underlying the Warrants for an indefinite period.

      (f)   Information.  Cappello has received  all  information  and data with
            respect to Guardian  which it has requested and has deemed  relevant
            in  connection  with its  evaluation of the merits and risks of this
            investment  in Guardian and does not desire any further  information
            or data with  respect to Guardian  prior to the  acquisition  of the
            Warrants.  Cappello has had the opportunity to ask such questions of
            the  President,  Robert  A.  Dishaw,  and Chief  Executive  Officer,
            Michael  W.  Trudnak,  of  Guardian  as it has deemed  necessary  or
            appropriate  and has had the  opportunity  to  review  copies of all
            filings   Guardian  has  made  with  the   Securities  and  Exchange
            Commission  ("SEC").  The foregoing  documents are available through
            the  SEC's  Edgar  database   accessible   through  its  website  at
            http://www.sec.gov.

      (g)   Securities Laws.  Cappello  understands that the Warrants and shares
            of the Guardian's Common Stock underlying the Warrants have not been
            registered   under  the   Securities  Act  in  reliance  on  certain
            exemptions from  registration  under the Securities Act set forth in
            Section  4(2)  thereof  and Rule  506 of  Regulation  D  promulgated
            thereunder, and that the Warrants and underlying shares have not

                                        4
<PAGE>

            been  registered  under the "Blue Sky" laws of any state,  including
            the Blue Sky laws of the  Commonwealth  of  Virginia or the State of
            California. Cappello understands that the shares will be "restricted
            securities"  within the meaning of Rule  144(a)(3) of the Securities
            Act. Cappello is domiciled in the State of California.

      (h)   Transfers.  Cappello  understands  that the Warrants and  underlying
            shares of Common Stock may have to be held indefinitely  unless they
            are  subsequently  registered under the Securities Act and qualified
            or  registered  under other  applicable  securities  laws,  rules or
            regulations,  or unless an  exemption  from  such  qualification  or
            registration requirements is available.

      (i)   Further Limitations. Without in any way limiting its representations
            set forth above,  Cappello further agrees that,  except as permitted
            pursuant  to  Section  7(a)  above,  it shall  in no event  make any
            disposition  of all or any  portion  of the  Warrants  or  shares of
            Guardian's  Common Stock  underlying the Warrants  unless and until:
            (A)  there is then in  effect a  registration  statement  under  the
            Securities   Act  covering  such  proposed   disposition   and  such
            disposition is made in accordance with such registration  statement;
            or (B) (1)  Cappello  shall have  notified  Guardian of the proposed
            disposition,  (2) Cappello  shall have  furnished  Guardian  with an
            opinion  of counsel to the  effect  that such  disposition  will not
            require registration of such Warrants or underlying shares of Common
            Stock  under the  Securities  Act,  and (3) such  opinion of counsel
            shall have been reasonably  concurred in by counsel for Guardian and
            Guardian shall have advised Cappello of such  concurrence;  provided
            that in the case of subsection (B) above,  Guardian shall act within
            ten  (10)  business  days  of the  receipt  of  notice  pursuant  to
            subsection  (B)(1) and the opinion  required  pursuant to subsection
            (B)(2)  above and cause its  counsel  to act within  such  period in
            connection  with  the  review  of  the  aforementioned   opinion  of
            Cappello's counsel.

      (j)   Certificates.  The  certificate(s)  evidencing  the Warrants and the
            shares of Common  Stock issued upon  exercise of the Warrants  shall
            bear a legend  evidencing the restricted  nature of the Warrants and
            underlying shares in accordance with the above.  Guardian may impose
            stop transfer  restrictions  with its transfer  agent to prevent the
            transfer or other disposition of the Warrants and underlying shares.

8.    Except as set forth herein,  this Agreement  contains the entire agreement
      of the parties with respect to the matters set forth herein, and shall not
      be  modified,  except in  writing,  and shall be binding  and inure to the
      benefit of the executors, administrators,  heirs, successors and permitted
      assigns of the  parties  hereto.  This  Agreement  may not be  assigned by
      either party hereto  without the prior written  consent of the other party
      hereto.  This Agreement  shall be interpreted in accordance with its plain
      meaning and not for or against any party hereto.

9.    This  Agreement  may be  executed  in any number of  counterparts  (and by
      facsimile)  each of which shall be an original of this  Agreement  for all
      purposes,  and all of which  together  shall  constitute  one and the same
      instrument.  Signed  facsimile  copies of this  Agreement  shall be legal,
      valid and binding.

                                        5
<PAGE>

10.   Cappello agrees to maintain the  confidentiality  of all  confidential and
      proprietary  information of Guardian and will not  intentionally  divulge,
      furnish  or  make  available  to any  party  any of  the  confidential  or
      proprietary  information  of  Guardian  until  after  such  time  as  such
      information  has become  publicly known  otherwise than by act of Cappello
      unless  obligated to do so under  applicable law or an order of a court of
      competent jurisdiction.

11.   Each party  represents and warrants that such party has carefully read and
      has been afforded  reasonable  opportunity  to have the contents and legal
      effect of this  Agreement  explained by legal  counsel of its choice;  and
      that each party has the sole and exclusive  power and authority to execute
      this Agreement and does so of its own free act.

12.   In the  event of any legal  dispute  between  the  Guardian  and  Cappello
      relating  to  this  Agreement,  all  reasonable  attorneys'  fees  of  the
      prevailing party shall be paid by the other party.

13.   Each party warrants and represents  that no promise or inducement has been
      offered or made with  respect to the  matters set forth  herein  except as
      stated in this  Agreement,  and that each party has  determined to execute
      this Agreement  without reliance upon such statement or  representation by
      the other party or his or its agents.

14.   Subject to the terms and conditions  herein provided,  each of the parties
      hereto  shall use its best  efforts  to take,  or cause to be taken,  such
      action,  to execute and deliver,  or cause to be executed  and  delivered,
      such additional documents and instruments, and to do, or cause to be done,
      all things  necessary,  proper and advisable  under the provisions of this
      Agreement and under  applicable  law to consummate  and make effective the
      transactions contemplated by this Agreement.

15.   In case any one or more  provisions  or part of a provision  contained  in
      this  Agreement  shall for any  reason be held to be  invalid,  illegal or
      unenforceable  in  any  respect  in  any  jurisdiction,  such  invalidity,
      illegality  or  unenforceability  shall be deemed  not to affect any other
      provision or part of a provision  of this  Agreement,  but this  Agreement
      shall be reformed and construed in such  jurisdiction as if such provision
      or part of a provision held to be invalid or illegal or unenforceable  had
      never been contained herein and such provision or part reformed so that it
      would be valid,  legal and enforceable in such jurisdiction to the maximum
      extent possible.

16.   The parties agree that this Agreement  shall be governed by the law of the
      Commonwealth of Virginia.

                                        6
<PAGE>

            [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK.]

                                        7
<PAGE>

      IN WITNESS  WHEREOF,  the parties  hereto have caused this Agreement to be
executed and delivered effective as of the date and year first above written.

                                        GUARDIAN TECHNOLOGIES
                                        INTERNATIONAL, INC.

                                        By:      /s/ Michael W. Trudnak
                                                 -----------------------
                                        Name:    Michael W. Trudnak
                                        Title:   Chief Executive Officer

                                        CAPPELLO CAPITAL CORP.

                                        By:      /s/ Bruce L. Pompan
                                                 -----------------------
                                        Name:    Bruce L. Pompan
                                        Its:     Managing Director

                                        8

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00065-of-00352.parquet"}]]