Document:

Exhibit
        10.2

       

       

    

    
      

      

    

    
 

    $212,500,000

    

    CREDIT
      AGREEMENT

    

    among

    

    ICONIX
      BRAND GROUP, INC.

    

    as
      Borrower,

    

    The
      Several Lenders

    from
      Time to Time Parties Hereto,

    

    LEHMAN
      BROTHERS INC.,

    as
      Arranger

    

    LEHMAN
      COMMERCIAL PAPER INC.,

    as
      Syndication Agent

    

    and

    

    LEHMAN
      COMMERCIAL PAPER INC.,

    as
      Administrative Agent

    

    Dated
      as of March 30, 2007

    

    

    

    
      

      

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    TABLE
      OF
      CONTENTS

    

    Page

    

    
      	
              SECTION
                1.

            	
              DEFINITIONS

            	
              1

            
	
              1.1

            	
              Defined
                Terms

            	
              1

            
	
              1.2

            	
              Other
                Definitional Provisions

            	
              20

            
	 	 	 
	
              SECTION
                2.

            	
              AMOUNT
                AND TERMS OF COMMITMENTS

            	
              21

            
	
              2.1

            	
              Commitments

            	
              21

            
	
              2.2

            	
              Procedure
                for Borrowing

            	
              22

            
	
              2.3

            	
              Repayment
                of Loans

            	
              22

            
	
              2.4

            	
              Repayment
                of Loans; Evidence of Debt

            	
              23

            
	
              2.5

            	
              Fees,
                etc

            	
              24

            
	
              2.6

            	
              Optional
                Prepayments

            	
              24

            
	
              2.7

            	
              Mandatory
                Prepayments

            	
              24

            
	
              2.8

            	
              Conversion
                and Continuation Options

            	
              24

            
	
              2.9

            	
              Minimum
                Amounts and Maximum Number of Eurodollar Tranches

            	
              25

            
	
              2.10

            	
              Interest
                Rates and Payment Dates

            	
              25

            
	
              2.11

            	
              Computation
                of Interest and Fees

            	
              25

            
	
              2.12

            	
              Inability
                to Determine Interest Rate

            	
              26

            
	
              2.13

            	
              Pro
                Rata Treatment and Payments

            	
              26

            
	
              2.14

            	
              Requirements
                of Law

            	
              27

            
	
              2.15

            	
              Taxes

            	
              28

            
	
              2.16

            	
              Indemnity

            	
              30

            
	
              2.17

            	
              Illegality

            	
              30

            
	
              2.18

            	
              Change
                of Lending Office

            	
              30

            
	
              2.19

            	
              Replacement
                of Lenders under Certain Circumstances

            	
              30

            
	 	 	 
	
              SECTION
                3.

            	
              REPRESENTATIONS
                AND WARRANTIES

            	
              31

            
	
              3.1

            	
              Financial
                Condition

            	
              31

            
	
              3.2

            	
              No
                Change

            	
              31

            
	
              3.3

            	
              Corporate
                Existence; Compliance with Law

            	
              32

            
	
              3.4

            	
              Corporate
                Power; Authorization; Enforceable Obligations

            	
              32

            
	
              3.5

            	
              No
                Legal Bar

            	
              32

            
	
              3.6

            	
              No
                Material Litigation

            	
              32

            
	
              3.7

            	
              No
                Default

            	
              32

            
	
              3.8

            	
              Ownership
                of Property; Liens

            	
              33

            
	
              3.9

            	
              Intellectual
                Property

            	
              33

            
	
              3.10

            	
              Taxes

            	
              33

            
	
              3.11

            	
              Federal
                Regulations

            	
              33

            
	
              3.12

            	
              Labor
                Matters

            	
              33

            
	
              3.13

            	
              ERISA

            	
              34

            
	
              3.14

            	
              Investment
                Company Act; Other Regulations

            	
              34

            
	
              3.15

            	
              Subsidiaries

            	
              34

            
	
              3.16

            	
              Use
                of Proceeds

            	
              34

            
	
              3.17

            	
              Environmental
                Matters

            	
              34

            
	
              3.18

            	
              Accuracy
                of Information, etc.

            	
              35

            
	
              3.19

            	
              Security
                Documents

            	
              35

            
	
              3.20

            	
              Solvency

            	
              36

            
	
              3.21

            	
              Certain
                Documents

            	
              36

            

    

     

    
      
         

      

      
        i

        
          

        

      

      
         

      

    

    
      	 	 	 
	
              SECTION
                4.

            	
              CONDITIONS
                PRECEDENT

            	
              36

            
	
              4.1

            	
              Loan
                Documents

            	
              36

            
	
              4.2

            	
              Acquisitions

            	
              36

            
	
              4.3

            	
              Pro
                Forma Balance Sheet; Financial Statements

            	
              36

            
	
              4.4

            	
              Minimum
                Guaranteed Revenue

            	
              37

            
	
              4.5

            	
              Approvals

            	
              37

            
	
              4.6

            	
              Related
                Agreements

            	
              37

            
	
              4.7

            	
              Fees

            	
              37

            
	
              4.8

            	
              Business
                Plan

            	
              37

            
	
              4.9

            	
              Solvency
                Certificate

            	
              37

            
	
              4.10

            	
              Lien
                Searches

            	
              37

            
	
              4.11

            	
              Closing
                Certificate

            	
              37

            
	
              4.12

            	
              Legal
                Opinions

            	
              38

            
	
              4.13

            	
              Pledged
                Stock; Stock Powers

            	
              38

            
	
              4.14

            	
              Filings,
                Registrations and Recordings

            	
              38

            
	
              4.15

            	
              Insurance

            	
              38

            
	
              4.16

            	
              PATRIOT
                Act

            	
              38

            
	
              4.17

            	
              Representations
                and Warranties

            	
              38

            
	
              4.18

            	
              No
                Default

            	
              38

            
	 	 	 
	
              SECTION
                5.

            	
              AFFIRMATIVE
                COVENANTS

            	
              39

            
	
              5.1

            	
              Financial
                Statements

            	
              39

            
	
              5.2

            	
              Certificates;
                Other Information

            	
              39

            
	
              5.3

            	
              Payment
                of Obligations

            	
              40

            
	
              5.4

            	
              Conduct
                of Business and Maintenance of Existence; Compliance

            	
              40

            
	
              5.5

            	
              Maintenance
                of Property; Insurance

            	
              40

            
	
              5.6

            	
              Inspection
                of Property; Books and Records; Discussions

            	
              40

            
	
              5.7

            	
              Notices

            	
              41

            
	
              5.8

            	
              Environmental
                Laws

            	
              41

            
	
              5.9

            	
              Interest
                Rate Protection

            	
              42

            
	
              5.10

            	
              Additional
                Collateral, etc.

            	
              42

            
	
              5.11

            	
              Further
                Assurances

            	
              43

            
	 	 	 
	
              SECTION
                6.

            	
              NEGATIVE
                COVENANTS

            	
              43

            
	
              6.1

            	
              Total
                Leverage Ratio

            	
              43

            
	
              6.2

            	
              Limitation
                on Indebtedness

            	
              44

            
	
              6.3

            	
              Limitation
                on Liens

            	
              45

            
	
              6.4

            	
              Limitation
                on Fundamental Changes

            	
              46

            
	
              6.5

            	
              Limitation
                on Disposition of Property

            	
              46

            
	
              6.6

            	
              Limitation
                on Restricted Payments

            	
              47

            
	
              6.7

            	
              Limitation
                on Capital Expenditures

            	
              48

            
	
              6.8

            	
              Limitation
                on Investments

            	
              48

            
	
              6.9

            	
              Limitation
                on Optional Payments and Modifications of Debt Instruments,
                etc.

            	
              49

            
	
              6.10

            	
              Limitation
                on Transactions with Affiliates

            	
              49

            
	
              6.11

            	
              Limitation
                on Sales and Leasebacks

            	
              49

            
	
              6.12

            	
              Limitation
                on Changes in Fiscal Periods

            	
              49

            
	
              6.13

            	
              Limitation
                on Negative Pledge Clauses

            	
              50

            
	
              6.14

            	
              Limitation
                on Restrictions on Subsidiary Distributions

            	
              50

            
	
              6.15

            	
              Limitation
                on Lines of Business

            	
              50

            
	
              6.16

            	
              Limitation
                on Amendments to Acquisition Documentation

            	
              50

            
	
              6.17

            	
              Limitation
                on Hedge Agreements

            	
              50

            

    

     

    
      
         

      

      
        ii

        
          

        

      

      
         

      

    

    
      	 	 	 
	
              SECTION
                7.

            	
              EVENTS
                OF DEFAULT

            	
              51

            
	 	 	 
	
              SECTION
                8.

            	
              THE
                ADMINISTRATIVE AGENT

            	
              53

            
	
              8.1

            	
              Appointment

            	
              53

            
	
              8.2

            	
              Delegation
                of Duties

            	
              53

            
	
              8.3

            	
              Exculpatory
                Provisions

            	
              54

            
	
              8.4

            	
              Reliance
                by Administrative Agent

            	
              54

            
	
              8.5

            	
              Notice
                of Default

            	
              54

            
	
              8.6

            	
              Non-Reliance
                on Administrative Agent and Other Lenders

            	
              54

            
	
              8.7

            	
              Indemnification

            	
              55

            
	
              8.8

            	
              Agent
                in Its Individual Capacity

            	
              55

            
	
              8.9

            	
              Successor
                Administrative Agent

            	
              55

            
	
              8.10

            	
              Authorization
                to Release Liens and Guarantees

            	
              56

            
	
              8.11

            	
              The
                Arranger

            	
              56

            
	 	 	 
	
              SECTION
                9.

            	
              MISCELLANEOUS

            	
              56

            
	
              9.1

            	
              Amendments
                and Waivers

            	
              56

            
	
              9.2

            	
              Notices

            	
              58

            
	
              9.3

            	
              No
                Waiver; Cumulative Remedies

            	
              58

            
	
              9.4

            	
              Survival
                of Representations and Warranties

            	
              58

            
	
              9.5

            	
              Payment
                of Expenses

            	
              58

            
	
              9.6

            	
              Successors
                and Assigns; Participations and Assignments

            	
              59

            
	
              9.7

            	
              Adjustments;
                Set-off

            	
              62

            
	
              9.8

            	
              Counterparts

            	
              62

            
	
              9.9

            	
              Severability

            	
              63

            
	
              9.10

            	
              Integration

            	
              63

            
	
              9.11

            	
              GOVERNING
                LAW

            	
              63

            
	
              9.12

            	
              Submission
                To Jurisdiction; Waivers

            	
              63

            
	
              9.13

            	
              Acknowledgments

            	
              63

            
	
              9.14

            	
              Confidentiality

            	
              64

            
	
              9.15

            	
              Release
                of Collateral and Guarantee Obligations

            	
              64

            
	
              9.16

            	
              Accounting
                Changes

            	
              65

            
	
              9.17

            	
              Delivery
                of Lender Addenda

            	
              65

            
	
              9.18

            	
              WAIVERS
                OF JURY TRIAL

            	
              65

            

    

    

    
      
         

      

      
        iii

        
          

        

      

      
         

      

    

    

    SCHEDULES:

    

    
      	
              3.4

            	
              Consents,
                Authorizations, Filings and Notices

            
	
              3.15

            	
              Subsidiaries

            
	
              3.19(a)

            	
              UCC
                Filing Jurisdictions

            
	
              6.2(d)

            	
              Existing
                Indebtedness

            
	
              6.3(f)

            	
              Existing
                Liens

            

    

    

    

    EXHIBITS:

    

    
      	
              A

            	
              Form
                of Guarantee and Collateral Agreement

            
	
              B

            	
              Form
                of Compliance Certificate

            
	
              C

            	
              Form
                of Closing Certificate

            
	
              D

            	
              Form
                of Assignment and Assumption

            
	
              E-1

            	
              Form
                of Legal Opinion of Blank Rome LLP

            
	
              E-2

            	
              Form
                of Legal Opinion of Andrew Tarshis

            
	
              F

            	
              Form
                of Note

            
	
              G

            	
              Form
                of Exemption Certificate

            
	
              H

            	
              Form
                of Lender Addendum

            
	
              I

            	
              Form
                of Borrowing Notice

            
	
              J

            	
              Form
                of Increased Facility Activation Notice

            
	
              K

            	
              Form
                of New Lender Supplement

            
	
              L

            	
              Form
                of Subsidiaries’ Financial
                Information

            

    

    

    
      
         

      

      
        iv

        
          

        

      

      
         

      

    

    

      CREDIT
        AGREEMENT, dated as of March 30, 2007, among, ICONIX BRAND GROUP, INC., a
        Delaware corporation (the “Borrower”),
        the
        several banks and other financial institutions or entities from time to time
        parties to this Agreement (the “Lenders”),
        LEHMAN BROTHERS INC., as advisor, sole lead arranger and sole bookrunner
        (in
        such capacity, the “Arranger”),
        LEHMAN COMMERCIAL PAPER INC., as syndication agent (in such capacity, the
        “Syndication
        Agent”)
        and
        LEHMAN COMMERCIAL PAPER INC., as administrative agent (in such capacity,
        the
“Administrative
        Agent”).

       

      WITNESSETH:

       

      WHEREAS,
        the Borrower entered into that certain Asset Purchase Agreement, dated as
        of
        March 6, 2007 (the “Rocawear
        Acquisition Agreement”),
        by
        and among the parties
        thereto as sellers (collectively,
        the “Rocawear
        Sellers”;
        and
        together with the Danskin Sellers (as defined below), the “Sellers”)
        and
        the Borrower pursuant to which the Borrower is acquiring (the “Rocawear
        Acquisition”)
        certain assets of the Rocawear Sellers (the “Acquired
        Rocawear Assets”);

       

      WHEREAS,
        the Borrower has requested that the Lenders make available a senior secured
        term
        loan facility in the aggregate amount of $212,500,000 (the “Facility”),
        the
        proceeds of which will be used to finance the Rocawear Acquisition and to
        pay
        related fees and expenses; and

       

      WHEREAS,
        the Lenders are willing to make the Facility available upon and subject to
        the
        terms and conditions hereinafter set forth;

       

      NOW,
        THEREFORE, in consideration of the premises and the agreements hereinafter
        set
        forth, the parties hereto hereby agree as follows:

       

      SECTION 1. DEFINITIONS

       

      1.1 Defined
        Terms.
        As used
        in this Agreement, the terms listed in this Section 1.1 shall have the
        respective meanings set forth in this Section 1.1.

       

      “Acquisitions”:
        collectively, the Danskin Acquisition and the Rocawear Acquisition.

       

      “Acquisition
        Agreements”:
        collectively, the Danskin Acquisition Agreement and the Rocawear Acquisition
        Agreement.

       

      “Acquisition
        Documentation”:
        collectively, the Acquisition Agreements and all schedules, exhibits, annexes
        and amendments thereto and all side letters and agreements affecting the
        terms
        thereof or entered into in connection therewith, in each case, as amended,
        supplemented or otherwise modified from time to time.

       

      “Administrative
        Agent”:
        as
        defined in the preamble hereto.

       

      “Affiliate”:
        as to
        any Person, any other Person that, directly or indirectly, is in control
        of, is
        controlled by, or is under common control with, such Person. For purposes
        of
        this definition, “control” of a Person means the power, directly or indirectly,
        either to (a) vote 10% or more of the securities having ordinary voting
        power for the election of directors (or persons performing similar functions)
        of
        such Person or (b) direct or cause the direction of the management and
        policies of such Person, whether by contract or otherwise.

       

      
        
           

        

        
          1

          
            

          

        

        
           

        

         

      

      “Aggregate
        Exposure”:
        with
        respect to any Lender at any time, an amount equal to (a) until the Closing
        Date, the aggregate amount of such Lender’s Commitments at such time and
        (b) thereafter, the aggregate then unpaid principal amount of such Lender’s
        Loans.

       

      “Aggregate
        Exposure Percentage”:
        with
        respect to any Lender at any time, the ratio (expressed as a percentage)
        of such
        Lender’s Aggregate Exposure at such time to the sum of the Aggregate Exposures
        of all Lenders at such time.

       

      “Agreement”:
        this
        Credit Agreement, as amended, supplemented or otherwise modified from time
        to
        time.

       

      “Applicable
        Margin”:
        1.00%
        in the case of a Base Rate Term Loan and (b) 2.00% in the case of a Eurodollar
        Term Loan. The foregoing margins shall be subject to adjustment on the
        Syndication Date based on the agreement of the Administrative Agent and the
        Borrower as set forth in that certain Commitment Letter dated March 5, 2007,
        by
        and between the Administrative Agent, the Borrower and Lehman Brothers
        Commercial Bank and the Fee Letter. The Applicable Margin with respect to
        Incremental Loans shall be specified in the Increased Facility Activation
        Notice
        with respect to such Incremental Loans.

       

      “Arranger”:
        as
        defined in the preamble hereto.

       

      “Asset
        Sale”:
        any
        Disposition of Collateral (or Property required to become Collateral) or
        series
        of related Dispositions of Collateral (or Property required to become
        Collateral) (excluding any such Disposition permitted by clause (a), (b),
        (c), (d), (e), (f), (g), (h), (i), (l), (m) or (n) of Section 6.5) which
        yields gross proceeds to the Borrower or any of its Subsidiaries (valued
        at the
        initial principal amount thereof in the case of non-cash proceeds consisting
        of
        notes or other debt securities and valued at fair market value in the case
        of
        other non-cash proceeds) in excess of $2,000,000.

       

      “Assignee”:
        as
        defined in Section 9.6(c).

       

      “Assignor”:
        as
        defined in Section 9.6(c).

       

      “BAI
        Litigation”:
        that
        certain lawsuit initiated on or about June 12, 2006, by Bongo Apparel, Inc.
        in
        the Supreme Court of the State of New York, County of New York, against the
        Borrower.

       

      “Base
        Rate”:
        for
        any day, a rate per annum (rounded upwards, if necessary, to the next 1/16
        of
        1%) equal to the greater of (a) the Prime Rate in effect on such day and
        (b) the Federal Funds Effective Rate in effect on such day plus1⁄2
of
        1%.
        For purposes hereof: “Prime
        Rate”
shall
        mean the prime lending rate as set forth on the British Banking Association
        Telerate Page 5 (or such other comparable publicly available service for
        displaying prime lending rates as may, in the reasonable opinion of the
        Administrative Agent after notice to the Borrower, replace such page for
        the
        purpose of displaying such rate in the event such rate does not appear on
        the
        British Banking Association Telerate Page 5), as in effect from time to
        time. The Prime Rate is a reference rate and does not necessarily represent
        the
        lowest or best rate actually available. Any change in the Base Rate due to
        a
        change in the Prime Rate or the Federal Funds Effective Rate shall be effective
        as of the opening of business on the effective day of such change in the
        Prime
        Rate or the Federal Funds Effective Rate, respectively.

       

      
        
           

        

        
          2

          
            

          

        

        
           

        

         

      

      “Base
        Rate Incremental Loans”:
        Incremental Loans for which the applicable rate of interest is based upon
        the
        Base Rate.

       

      “Base
        Rate Loans”:
        the
        collective reference to the Base Rate Term Loans and the Base Rate Incremental
        Loans. 

       

      “Base
        Rate Term Loans”:
        Term
        Loans for which the applicable rate of interest is based upon the Base
        Rate.

       

      “Benefited
        Lender”:
        as
        defined in Section 9.7.

       

      “Board”:
        the
        Board of Governors of the Federal Reserve System of the United States (or
        any
        successor).

       

      “Borrower”:
        as
        defined in the preamble hereto.

       

      “Borrowing
        Date”:
        any
        Business Day specified by the Borrower as a date on which the Borrower requests
        the relevant Lenders to make Loans hereunder.

       

      “Borrowing
        Notice”:
        with
        respect to any request for borrowing of Loans hereunder, a notice from the
        Borrower, substantially in the form of, and containing the information
        prescribed by, Exhibit I, delivered to the Administrative
        Agent.

       

      “Business
        Day”:
        (a) for all purposes other than as covered by clause (b) below, a day
        other than a Saturday, Sunday or other day on which commercial banks in New
        York
        City are authorized or required by law to close and (b) with respect to all
        notices and determinations in connection with, and payments of principal
        and
        interest on, Eurodollar Loans, any day which is a Business Day described
        in
        clause (a) and which is also a day for trading by and between banks in
        Dollar deposits in the interbank eurodollar market.

       

      “Capital
        Expenditures”:
        for
        any period, with respect to any Person, the aggregate of all expenditures
        by
        such Person for the acquisition or leasing (pursuant to a capital lease)
        of
        fixed or capital assets (other than Intellectual Property and Capital Stock)
        or
        additions to equipment (including replacements, capitalized repairs and
        improvements during such period) which are required to be capitalized under
        GAAP
        on a balance sheet of such Person.

       

      “Capital
        Lease Obligations”:
        with
        respect to any Person, the obligations of such Person to pay rent or other
        amounts under any lease of (or other arrangement conveying the right to use)
        real or personal property, or a combination thereof, which obligations are
        required to be classified and accounted for as capital leases on a balance
        sheet
        of such Person under GAAP; and, for the purposes of this Agreement, the amount
        of such obligations at any time shall be the capitalized amount thereof at
        such
        time determined in accordance with GAAP.

       

      “Capital
        Stock”:
        any
        and all shares, interests, participations or other equivalents (however
        designated) of capital stock of a corporation, any and all equivalent ownership
        interests in a Person (other than a corporation) and any and all warrants,
        rights or options to purchase any of the foregoing.

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

         

      

      “Cash
        Equivalents”:
        (a) marketable direct obligations issued by, or unconditionally guaranteed
        by, the United States government or issued by any agency thereof and backed
        by
        the full faith and credit of the United States, in each case maturing within
        one
        year from the date of acquisition; (b) certificates of deposit, time
        deposits, eurodollar time deposits or overnight bank deposits having maturities
        of six months or less from the date of acquisition issued by any Lender or
        by
        any commercial bank organized under the laws of the United States or any
        state
        thereof having combined capital and surplus of not less than $500,000,000;
        (c) commercial paper of an issuer rated at least A-2 by Standard &
Poor’s Rating Services (“S&P”)
        or P-2
        by Moody’s Investors Service, Inc. (“Moody’s”),
        or
        carrying an equivalent rating by a nationally recognized rating agency, if
        both
        of the two named rating agencies cease publishing ratings of commercial paper
        issuers generally, and maturing within six months from the date of acquisition;
        (d) repurchase obligations of any Lender or of any commercial bank
        satisfying the requirements of clause (b) of this definition, having a term
        of not more than 30 days with respect to securities issued or fully
        guaranteed or insured by the United States government; (e) securities with
        maturities of one year or less from the date of acquisition issued or fully
        guaranteed by any state, commonwealth or territory of the United States,
        by any
        political subdivision or taxing authority of any such state, commonwealth
        or
        territory or by any foreign government, the securities of which state,
        commonwealth, territory, political subdivision, taxing authority or foreign
        government (as the case may be) are rated at least A by S&P or A by Moody’s;
        (f) securities with maturities of six months or less from the date of
        acquisition backed by standby letters of credit issued by any Lender or any
        commercial bank satisfying the requirements of clause (b) of this
        definition; and (g) shares of money market mutual or similar funds which
        invest exclusively in assets satisfying the requirements of clauses (a)
        through (f) of this definition.

       

      “Change
        of Control”:
        the
        occurrence of any of the following events: (a) any “person” or “group” (as such
        terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act
        of 1934, as amended (the “Exchange
        Act”))
        shall
        become, or obtain rights (whether by means or warrants, options or otherwise)
        to
        become, the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5
        under the Exchange Act), directly or indirectly, of more than 30% of the
        outstanding common stock of the Borrower; (b) the board of directors of the
        Borrower shall cease to consist of a majority of Continuing Directors or
        (c) a Specified Change of Control if the holders of the related Permitted
        Subordinated Indebtedness holding more than $25,000,000 thereof elect to put
        such Permitted Subordinated Indebtedness to the Borrower.

       

      “Closing
        Date”:
        the
        date on which the conditions precedent set forth in Section 4 shall have
        been satisfied, which date shall be not later than April 30, 2007.

       

      “Code”:
        the
        Internal Revenue Code of 1986, as amended from time to time.

       

      “Collateral”:
        all
        Property of the Loan Parties, now owned or hereafter acquired, upon which
        a Lien
        is purported to be created by any Security Document.

       

      “Commitment”:
        as to
        any Lender, the obligation of such Lender, if any, to make a Term Loan to
        the
        Borrower hereunder in a principal amount not to exceed the amount set forth
        under the heading “Commitment” opposite such Lender’s name on Schedule 1 to
        the Lender Addendum executed and delivered by such Lender, or, as the case
        may
        be, in the certain Assignment and Assumption pursuant to which such Lender
        became a party hereto, as the same may be changed from time to time pursuant
        to
        the terms hereof. The original aggregate amount of the Commitments is
        $212,500,000.

       

      “Commonly
        Controlled Entity”:
        an
        entity, whether or not incorporated, that is under common control with the
        Borrower within the meaning of Section 4001 of ERISA or is part of a group
        that includes the Borrower and that is treated as a single employer under
        Section 414 of the Code.

       

      “Compliance
        Certificate”:
        a
        certificate duly executed by a Responsible Officer, substantially in the
        form of
        Exhibit B.

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

         

      

      “Consolidated
        EBITDA”:
        of the
        Subsidiaries for any period, shall equal Consolidated Net Income of the
        Subsidiaries for such period plus,
        without
        duplication and to the extent reflected in the calculation of such Consolidated
        Net Income for such period, the sum of (a) income taxes allocable to any
        Subsidiary on account of such Consolidated Net Income, (b) interest,
        amortization or write-off of debt issuance costs and commissions, discounts
        and
        other fees and charges associated with the Loan Documents, (c) depreciation
        and amortization expense either taken directly by or allocated to any
        Subsidiary, and (d) amortization of intangibles (including, but not limited
        to, goodwill) and organization costs either taken directly by or allocated
        to
        any Subsidiary. For
        purposes of calculating Consolidated EBITDA of the Subsidiaries for any period,
        (i) the Consolidated EBITDA of any Subsidiary acquired by the Borrower or
        its
        Subsidiaries during such period which has become a “Subsidiary” under this
        Agreement following such acquisition shall be included on a pro forma basis
        for
        such period (assuming the consummation of such acquisition and the incurrence
        or
        assumption of any Indebtedness in connection therewith occurred on the first
        day
        of such period) and (ii) the Consolidated EBITDA of any Subsidiary Disposed
        of
        by the Borrower or its Subsidiaries during such period which was a “Subsidiary”
under this Agreement prior to such Disposition shall be excluded for such
        period
        (assuming the consummation of such Disposition and the repayment of any
        Indebtedness in connection therewith occurred on the first day of such
        period).

       

      “Consolidated
        Net Income”:
        of the
        Subsidiaries for any period, shall equal the aggregate revenues of the
        Subsidiaries earned (as defined under GAAP) under license agreements for
        such
        period; provided,
        that in
        calculating Consolidated Net Income of the Subsidiaries for any period, there
        shall be excluded (a) such revenues of any Subsidiary accrued prior to the
        date
        it becomes a Subsidiary of, or is merged into or consolidated with, the Borrower
        or any of its Subsidiaries and (b) the undistributed revenues of any Subsidiary
        of the Borrower to the extent that the declaration or payment of dividends
        or
        similar distributions by such Subsidiary is not at the time permitted by
        the
        terms of any Contractual Obligation (other than under any Loan Document)
        or
        Requirement of Law applicable to such Subsidiary, minus,
        without
        duplication, the sum of (a) direct operating expenses incurred by any
        Subsidiary, (b) corporate expenses allocated by the Borrower to any Subsidiary
        in good faith and in accordance with past practices, (c) income taxes
        allocable to such revenues, (d) interest, amortization or write-off of debt
        issuance costs and commissions, discounts and other fees and charges associated
        with the Loan Documents, (e) depreciation and amortization expense either
        taken directly by or allocated to any Subsidiary in good faith and in accordance
        with past practices, and (f) amortization of intangibles (including, but
        not limited to, goodwill) and organization costs either taken directly by
        or
        allocated to any Subsidiary in good faith and in accordance with past
        practices.

       

      “Consolidated
        Total Debt”:
        at any
        date, the aggregate principal amount, without duplication, of all Indebtedness
        of the Borrower and its Subsidiaries at such date determined on a consolidated
        basis, net of Restricted Cash on the consolidated balance sheet of the Borrower
        and its Subsidiaries at such date. 

       

      “Continuing
        Directors”:
        the
        directors of the Borrower on the Closing Date, after giving effect to the
        Acquisitions and the other transactions contemplated hereby, and each other
        director of the Borrower, if, in each case, such other director’s nomination for
        election to the board of directors of Borrower is recommended by at least
        662⁄3%
        of the then Continuing Directors.

       

      “Contractual
        Obligation”:
        as to
        any Person, any provision of any security issued by such Person or of any
        agreement, instrument or other undertaking to which such Person is a party
        or by
        which it or any of its Property is bound.

       

      “Control
        Investment Affiliate”:
        as to
        any Person, any other Person that (a) directly or indirectly, is in control
        of, is controlled by, or is under common control with, such Person and
        (b) is organized by such Person primarily for the purpose of making equity
        or debt investments in one or more companies. For purposes of this definition,
        “control” of a Person means the power, directly or indirectly, to direct or
        cause the direction of the management and policies of such Person, whether
        by
        contract or otherwise.

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

         

      

      “Dan
        River Agreement”:
        that
        certain agreement by and between Danskin, Inc., a Delaware corporation, and
        Dan
        River, Inc., dated as of September 28, 1977, as amended, restated supplemented
        or otherwise modified by amendments dated December 30, 1983 and October 5,
        1995.

       

      “Danskin
        Acquisition”:
        the
        acquisition by the Borrower of certain assets of the Danskin Sellers pursuant
        to
        the Danskin Acquisition Agreement.

       

      “Danskin
        Acquisition Agreement”:
        that
        certain Assets Purchase Agreement, dated as of February 21, 2007, by and
        among
        the Borrower and the Danskin Sellers.

       

      “Danskin
        License Agreement”:
        that
        certain License Agreement, dated as of March 9, 2007, between DANSKIN, Inc.
        and
        Studio IP Holdings LLC., as amended, supplemented or otherwise modified from
        time to time.

       

      “Danskin
        Sellers”:
        collectively, DANSKIN, Inc. and Danskin Now, Inc. 

       

      “Default”:
        any of
        the events specified in Section 7, whether or not any requirement for the
        giving of notice, the lapse of time, or both, has been satisfied.

       

      “Derivatives
        Counterparty”:
        as
        defined in Section 6.6.

       

      “Directly
        Owned Foreign Subsidiary”:
        a
        Foreign Subsidiary that is directly owned by the Borrower.

       

      “Disposition”:
        with
        respect to any Property, any sale, lease, sale and leaseback, assignment,
        conveyance, transfer or other disposition thereof; and the terms “Dispose”
and
        “Disposed
        of”
shall
        have correlative meanings.

       

      “Dollars”
and
        “$”:
        dollars in lawful currency of the United States.

       

      “Domestic
        Subsidiary”:
        any
        Subsidiary of the Borrower organized under the laws of any jurisdiction within
        the United States.

       

      “Earn-Out
        Consideration”:
        as
        such term is defined in the Acquisition Documentation or any similar term
        defined in the purchase agreement entered into in connection with a Permitted
        Acquisition Transaction. 

       

      “ECF
        Percentage”:
        with
        respect to any fiscal year of the Borrower, 50%; provided,
        that,
        with respect to any fiscal year of the Borrower ending on or after December
        31,
        2007, the ECF Percentage shall be (a) 25% if the Total Leverage Ratio as
        of the
        last day of such fiscal year is not greater than 3.0 to 1.0 and (b) 0% if
        the
        Total Leverage Ratio as of the last day of such fiscal year is not greater
        than
        2.5 to 1.0.

       

      “Environmental
        Laws”:
        any
        and all laws, rules, orders, regulations, statutes, ordinances, guidelines,
        codes, decrees, or other legally enforceable requirements (including, without
        limitation, common law) of any international authority, foreign government,
        the
        United States, or any state, local, municipal or other governmental authority,
        regulating, relating to or imposing liability or standards of conduct concerning
        protection of the environment or of human health, or employee health and
        safety,
        as has been, is now, or may at any time hereafter be, in effect.

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

         

      

      “Environmental
        Permits”:
        any
        and all permits, licenses, approvals, registrations, notifications, exemptions
        and other authorizations required under any Environmental Law.

       

      “ERISA”:
        the
        Employee Retirement Income Security Act of 1974, as amended from time to
        time.

       

      “Eurocurrency
        Reserve Requirements”:
        for
        any day, the aggregate (without duplication) of the maximum rates (expressed
        as
        a decimal fraction) of reserve requirements in effect on such day (including,
        without limitation, basic, supplemental, marginal and emergency reserves)
        under
        any regulations of the Board or other Governmental Authority having jurisdiction
        with respect thereto dealing with reserve requirements prescribed for
        eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in
        Regulation D of the Board) maintained by a member bank of the Federal
        Reserve System of the United States.

       

      “Eurodollar
        Base Rate”:
        with
        respect to each day during each Interest Period, the rate per annum determined
        on the basis of the rate for deposits in Dollars for a period equal to such
        Interest Period commencing on the first day of such Interest Period appearing
        on
        Page 3750 of the Dow Jones Markets Screen (or such other comparable
        publicly available service for displaying eurodollar rates as may, in the
        reasonable opinion of the Administrative Agent after notice to the Borrower,
        replace such page for the purpose of displaying such rate in the event such
        rate
        does not appear on Page 3750 of the Dow Jones Markets Screen (or otherwise
        on such screen)), as of 11:00 A.M., London time, two Business Days prior to
        the beginning of such Interest Period. 

       

      “Eurodollar
        Incremental Loans”:
        Incremental Loans for which the applicable rate of interest is based upon
        the
        Eurodollar Rate.

       

      “Eurodollar
        Loans”:
        the
        collective reference to the Eurodollar Term Loans and the Eurodollar Incremental
        Loans. 

       

      “Eurodollar
        Rate”:
        with
        respect to each day during each Interest Period, a rate per annum determined
        for
        such day in accordance with the following formula (rounded upward to the
        nearest
        1/100th
        of
        1%):

       

                         Eurodollar
        Base
        Rate                   

      1.00
        -
        Eurocurrency Reserve Requirements

       

      “Eurodollar
        Term Loans”:
        Term
        Loans for which the applicable rate of interest is based upon the Eurodollar
        Rate.

       

      “Eurodollar
        Tranche”:
        the
        collective reference to Eurodollar Loans the then current Interest Periods
        with
        respect to all of which begin on the same date and end on the same later
        date
        (whether or not such Loans shall originally have been made on the same
        day).

       

      “Event
        of Default”:
        any of
        the events specified in Section 7, provided
        that any
        requirement for the giving of notice, the lapse of time, or both, has been
        satisfied.

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

         

      

      “Excess
        Cash Flow”:
        for
        any fiscal year of the Subsidiaries, the difference, if any, of (a) the
        sum, without duplication, of (i) Consolidated Net Income for such fiscal
        year, (ii) the amount of all non-cash charges (including taxes,
        depreciation and amortization) deducted in arriving at such Consolidated
        Net
        Income and (iii) the aggregate amount of the decrease, if any, in prepaid
        advertising costs with respect to any Subsidiary during such fiscal year,
        minus
        (b) the sum, without duplication, of (i) the aggregate amount of
        Consolidated Net Income of Foreign Subsidiaries that has not been repatriated
        or
        otherwise distributed to the Borrower or any of its Domestic Subsidiaries,
        (ii) the amount of all non-cash credits (including taxes) included in
        arriving at such Consolidated Net Income, (iii) the aggregate amount
        actually paid in cash during such fiscal year on account of Capital Expenditures
        (minus
        the sum
        of the principal amount of Indebtedness incurred in connection with such
        expenditures and the amount of any such expenditures financed with the proceeds
        of any Reinvestment Deferred Amount), (iv) the aggregate amount actually
        paid in
        cash during such fiscal year on account of Permitted Acquisitions or Permitted
        Foreign Subsidiary Acquisitions (minus
        the sum
        of the principal amount of Indebtedness incurred in connection with such
        acquisitions and the amount of any such acquisitions financed with the proceeds
        of any Reinvestment Deferred Amount), (v) the aggregate amount of any Earn-Out
        Consideration actually paid in cash during such fiscal year on account of
        the
        Acquisitions or any Permitted Acquisition or any Permitted Foreign Subsidiary
        Acquisition, (vi) the aggregate amount of all optional prepayments of the
        Loans
        and any other Funded Debt during such fiscal year, (vii) the aggregate
        amount of all regularly scheduled principal payments of Funded Debt (including,
        without limitation, the Loans) of the Borrower and its Subsidiaries made
        during
        such fiscal year (other than in respect of any revolving credit facility
        to the
        extent there is not an equivalent permanent reduction in commitments thereunder)
        and (viii) the aggregate amount of the increase, if any, in prepaid advertising
        costs with respect to any Subsidiary during such fiscal year. 

       

      “Excess
        Cash Flow Application Date”:
        as
        defined in Section 2.7(c).

       

      “Excluded
        Foreign Subsidiary”:
        any
        Foreign Subsidiary in respect of which either (a) the pledge of all of the
        Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by
        such Subsidiary of the Obligations, would, in the good faith judgment of
        the
        Borrower, result in adverse tax consequences to the Borrower.

       

      “Excluded
        Taxes”:
        net
        income taxes and franchise taxes (imposed in lieu of net income taxes) imposed
        on the Administrative Agent or any Lender as a result of a present or former
        connection between the Administrative Agent or such Lender and the jurisdiction
        of the Governmental Authority imposing such tax or any political subdivision
        or
        taxing authority thereof or therein (other than any such connection arising
        solely from the Administrative Agent’s or such Lender’s having executed,
        delivered or performed its obligations or received a payment under, or enforced,
        this Agreement or any other Loan Document).

       

      “Facility”:
        as
        defined in the recitals to this Agreement.

       

      “Federal
        Funds Effective Rate”:
        for
        any day, the weighted average of the rates on overnight federal funds
        transactions with members of the Federal Reserve System arranged by federal
        funds brokers, as published on the next succeeding Business Day by the Federal
        Reserve Bank of New York, or, if such rate is not so published for any day
        that
        is a Business Day, the average of the quotations for the day of such
        transactions received by the Administrative Agent from three federal funds
        brokers of recognized standing selected by it.

       

      “Fee
        Letter”:
        that
        certain Fee Letter, dated March 5, 2007, by and between the Administrative
        Agent, the Borrower and Lehman Brothers Commercial Bank. 

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

         

      

      “Foreign
        Subsidiary”:
        any
        Subsidiary of the Borrower that is not a Domestic Subsidiary.

       

      “Funded
        Debt”:
        with
        respect to any Person, all Indebtedness of such Person of the types described
        in
        clauses (a) through (e) of the definition of “Indebtedness” in this
        Section 1.1.

       

      “Funding
        Office”:
        the
        office specified from time to time by the Administrative Agent as its funding
        office by notice to the Borrower and the Lenders.

       

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

       

      “Governmental
        Authority”:
        any
        nation or government, any state or other political subdivision thereof, any
        agency, authority, instrumentality, regulatory body, court, central bank
        or
        other entity exercising executive, legislative, judicial, taxing, regulatory
        or
        administrative functions of or pertaining to government, any securities exchange
        and any self-regulatory organization (including the National Association
        of
        Insurance Commissioners).

       

      “Guarantee
        and Collateral Agreement”:
        the
        Guarantee and Collateral Agreement to be executed and delivered by the Borrower
        and each Subsidiary Guarantor, substantially in the form of Exhibit A, as
        the same may be amended, supplemented or otherwise modified from time to
        time.

       

      “Guarantee
        Obligation”:
        as to
        any Person (the “guaranteeing
        person”),
        any
        obligation, including a reimbursement, counterindemnity or similar obligation,
        of the guaranteeing person that guarantees or in effect guarantees, or which
        is
        given to induce the creation of a separate obligation by another Person
        (including any bank under any letter of credit) that guarantees or in effect
        guarantees any Indebtedness, leases, dividends or other obligations (the
        “primary
        obligations”)
        of any
        other third Person (the “primary
        obligor”)
        in any
        manner, whether directly or indirectly, including, without limitation, any
        obligation of the guaranteeing person, whether or not contingent, (i) to
        purchase any such primary obligation or any Property constituting direct
        or
        indirect security therefor, (ii) to advance or supply funds (1) for
        the purchase or payment of any such primary obligation or (2) to maintain
        working capital or equity capital of the primary obligor or otherwise to
        maintain the net worth or solvency of the primary obligor, (iii) to
        purchase Property, securities or services primarily for the purpose of assuring
        the owner of any such primary obligation of the ability of the primary obligor
        to make payment of such primary obligation or (iv) otherwise to assure or
        hold harmless the owner of any such primary obligation against loss in respect
        thereof; provided,
        however,
        that
        the term Guarantee Obligation shall not include endorsements of instruments
        for
        deposit or collection in the ordinary course of business. The amount of any
        Guarantee Obligation of any guaranteeing person shall be deemed to be the
        lower
        of (a) an amount equal to the stated or determinable amount of the primary
        obligation in respect of which such Guarantee Obligation is made and
        (b) the maximum amount for which such guaranteeing person may be liable
        pursuant to the terms of the instrument embodying such Guarantee Obligation,
        unless such primary obligation and the maximum amount for which such
        guaranteeing person may be liable are not stated or determinable, in which
        case
        the amount of such Guarantee Obligation shall be such guaranteeing person’s
        maximum reasonably anticipated liability in respect thereof as determined
        by the
        Borrower in good faith.

       

      “Hedge
        Agreements”:
        all
        interest rate or currency forwards, options, swaps, caps or collar agreements,
        foreign exchange agreements, commodity contracts or similar arrangements
        entered
        into by the Borrower or its Subsidiaries providing for protection against
        fluctuations in interest rates, currency exchange rates, commodity prices
        or the
        exchange of nominal interest obligations, either generally or under specific
        contingencies.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

         

      

      “Increased
        Facility Activation Date”:
        any
        Business Day on which any Lender shall execute and deliver to the Administrative
        Agent an Increased Facility Activation Notice pursuant to Section
        2.1(b).

       

      “Increased
        Facility Activation Notice”:
        a
        notice substantially in the form of Exhibit J.

       

      “Increased
        Facility Closing Date”:
        any
        Business Day designated as such in an Increased Facility Activation
        Notice.

       

      “Incremental
        Lenders”:
        (a) on
        any Increased Facility Activation Date relating to incremental Term Loans
        or
        Incremental Loans, the Lenders signatory to the relevant Increased Facility
        Activation Notice and (b) thereafter, each Lender that is a holder of an
        incremental Term Loan or Incremental Loan.

       

      “Incremental
        Loans”:
        as
        defined in Section 2.1(a)(ii).

       

      “Incremental
        Loan Maturity Date”:
        with
        respect to the Incremental Loans to be made pursuant to any Increased Facility
        Activation Notice, the maturity date specified in such Increased Facility
        Activation Notice, which date shall be on or after the Loan Maturity
        Date.

       

      “Indebtedness”:
        of any
        Person at any date, without duplication, (a) all indebtedness of such
        Person for borrowed money, (b) all obligations of such Person for the
        deferred purchase price of Property or services (other than trade payables
        incurred in the ordinary course of such Person’s business), (c) all
        obligations of such Person evidenced by notes, bonds, debentures or other
        similar instruments, (d) all indebtedness created or arising under any
        conditional sale or other title retention agreement with respect to Property
        acquired by such Person (even though the rights and remedies of the seller
        or
        lender under such agreement in the event of default are limited to repossession
        or sale of such Property), (e) all Capital Lease Obligations of such
        Person, (f) all obligations of such Person, contingent or otherwise, as an
        account party or applicant under acceptance, letter of credit, surety bond
        or
        similar facilities, (g) all obligations of such Person, contingent or
        otherwise, to purchase, redeem, retire or otherwise acquire for value any
        Capital Stock of such Person, (h) all obligations for any Earn-Out Consideration
        that is or is highly likely to be paid within the next twelve months (other
        than
        those obligations that are satisfied solely with Capital Stock of the Borrower
        and/or Unrestricted Cash and those obligations under the Acquisition
        Documentation), (i) all Guarantee Obligations of such Person in respect of
        obligations of the kind referred to in clauses (a) through (h) above,
        (j) all obligations of the kind referred to in clauses (a) through (i)
        above secured by (or for which the holder of such obligation has an existing
        right, contingent or otherwise, to be secured by) any Lien on Property
        (including, without limitation, accounts and contract rights) owned by such
        Person, whether or not such Person has assumed or become liable for the payment
        of such obligation and (k) for the purposes of Section 7(e) only, all
        obligations of such Person in respect of Hedge Agreements. The Indebtedness
        of
        any Person shall include, without duplication, the Indebtedness of any other
        entity (including any partnership in which such Person is a general partner)
        to
        the extent such Person is liable therefor as a result of such Person’s ownership
        interest in or other relationship with such entity, except to the extent
        the
        terms of such Indebtedness expressly provide that such Person is not liable
        therefor.

       

      “Indemnified
        Liabilities”:
        as
        defined in Section 9.5.

       

      “Indemnitee”:
        as
        defined in Section 9.5.

       

      “Insolvency”:
        with
        respect to any Multiemployer Plan, the condition that such Plan is insolvent
        within the meaning of Section 4245 of ERISA.

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

         

      

      “Insolvent”:
        pertaining to a condition of Insolvency.

       

      “Intellectual
        Property”:
        the
        collective reference to all rights, priorities and privileges relating to
        intellectual property, whether arising under United States, multinational
        or
        foreign laws or otherwise, including, without limitation, copyrights, copyright
        licenses, software, databases, patents, patent licenses, trademarks, trademark
        licenses, trademark applications, service marks, service mark licenses, service
        mark applications, trade names, brand names, domain names, mask works, mask
        work
        licenses, technology and related improvements, know-how and processes, trade
        secrets, all registrations and applications related to any of the above,
        and all
        rights to sue at law or in equity for any infringement or other impairment
        thereof, including the right to receive all proceeds and damages
        therefrom.

       

      “Interest
        Payment Date”:
        (a) as to any Base Rate Loan, the last day of each March, June, September
        and December to occur while such Loan is outstanding and the final maturity
        date
        of such Loan, (b) as to any Eurodollar Loan having an Interest Period of
        three months or shorter, the last day of such Interest Period, (c) as to
        any Eurodollar Loan having an Interest Period longer than three months, each
        day
        that is three months, or a whole multiple thereof, after the first day of
        such
        Interest Period and the last day of such Interest Period and (d) as to any
        Loan, the date of any repayment or prepayment made in respect
        thereof.

       

      “Interest
        Period”:
        as to
        any Eurodollar Loan, (a) initially, the period commencing on the borrowing
        or conversion date, as the case may be, with respect to such Eurodollar Loan
        and
        ending one, two, three or six or (if acceptable to all Lenders, as determined
        by
        such Lenders in their sole discretion) nine or twelve months thereafter,
        as
        selected by the Borrower in a Borrowing Notice or notice of conversion, as
        the
        case may be, given with respect thereto; and (b) thereafter, each period
        commencing on the last day of the next preceding Interest Period applicable
        to
        such Eurodollar Loan and ending one, two, three or six or (if acceptable
        to all
        Lenders, as determined by such Lenders in their sole discretion) nine or
        twelve
        months thereafter, as selected by the Borrower by irrevocable notice to the
        Administrative Agent not later than 11:00 A.M., New York City time, on the
        date
        that is three Business Days prior to the last day of the then current Interest
        Period with respect thereto; provided
        that,
        all of the foregoing provisions relating to Interest Periods are subject
        to the
        following:

       

      (1) if
        any
        Interest Period would otherwise end on a day that is not a Business Day,
        such
        Interest Period shall be extended to the next succeeding Business Day unless
        the
        result of such extension would be to carry such Interest Period into another
        calendar month in which event such Interest Period shall end on the immediately
        preceding Business Day;

       

      (2) in
        the
        case of Term Loans, any Interest Period that would otherwise extend beyond
        the
        Loan Maturity Date shall end on the Loan Maturity Date; 

       

      (3) in
        the
        case of Incremental Loans, any Interest Period that would otherwise extend
        beyond the Incremental Loan Maturity Date shall end on the Incremental Loan
        Maturity Date; and

       

      (4) any
        Interest Period that begins on the last Business Day of a calendar month
        (or on
        a day for which there is no numerically corresponding day in the calendar
        month
        at the end of such Interest Period) shall end on the last Business Day of
        the
        calendar month at the end of such Interest Period.

       

      “Investment”:
        as
        defined in Section 6.8.

       

      “Lehman
        Entity”:
        any of
        Lehman Commercial Paper Inc. or any of its Affiliates.

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

         

      

      “Lender
        Addendum”:
        with
        respect to any initial Lender, a Lender Addendum, substantially in the form
        of
        Exhibit H, to be executed and delivered by such Lender on or before the
        Closing Date as provided in Section 9.17.

       

      “Lenders”:
        as
        defined in the preamble hereto.

       

      “Lien”:
        any
        mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
        lien (statutory or other), charge or other security interest or any preference,
        priority or other security agreement or preferential arrangement of any kind
        or
        nature whatsoever (including, without limitation, any conditional sale or
        other
        title retention agreement and any capital lease having substantially the
        same
        economic effect as any of the foregoing).

       

      “Loan”:
        any
        Term Loan and any Incremental Loan.

       

      “Loan
        Documents”:
        this
        Agreement, the Security Documents, the Fee Letter and any Notes.

       

      “Loan
        Maturity Date”:
        March
        30, 2013.

       

      “Loan
        Parties”:
        the
        Borrower and each Subsidiary of the Borrower that is a party to a Loan
        Document.

       

      “Loan
        Percentage”:
        (a) as
        to any Lender (other than an Incremental Lender) at any time, the percentage
        which such Lender’s Commitment then constitutes of the aggregate Commitments
        (or, at any time after the Closing Date, the percentage which the aggregate
        principal amount of such Lender’s Term Loans then outstanding constitutes of the
        aggregate principal amount of the Term Loans then outstanding) and (b) as
        to any
        Incremental Lender at any time, the percentage which such Incremental Lender’s
        Commitment then constitutes of the aggregate Commitments.

       

      “Material
        Adverse Effect”:
        a
        material adverse effect on (a) the Acquisitions (to the extent not
        previously completed) or the Acquired Assets (taken as a whole), (b) the
        business, assets, property, operations, or condition (financial or otherwise)
        of
        the Borrower and its Subsidiaries taken as a whole or (c) the validity or
        enforceability of this Agreement or any of the other Loan Documents or the
        rights or remedies of the Administrative Agent or the Lenders hereunder or
        thereunder.

       

      “Materials
        of Environmental Concern”:
        any
        gasoline or petroleum (including crude oil or any fraction thereof) or petroleum
        products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos,
        pollutants, contaminants, radioactivity, and any other substances or forces
        of
        any kind, whether or not any such substance or force is defined as hazardous
        or
        toxic under any Environmental Law, that is regulated pursuant to or could
        give
        rise to liability under any Environmental Law.

       

      “Mortgages”:
        each
        of the mortgages and deeds of trust, if any, made by any Loan Party in favor
        of,
        or for the benefit of, the Administrative Agent for the benefit of the Secured
        Parties.

       

      “Multiemployer
        Plan”:
        a Plan
        that is a multiemployer plan as defined in Section 4001(a)(3) of
        ERISA.

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

         

      

      “Net
        Cash Proceeds”:
        (a) in connection with any Asset Sale or any Recovery Event, the proceeds
        thereof in the form of cash and Cash Equivalents (including any such proceeds
        received by way of deferred payment of principal pursuant to a note or
        installment receivable or purchase price adjustment receivable or otherwise,
        but
        only as and when received) of such Asset Sale or Recovery Event, net of
        attorneys’ fees, accountants’ fees, investment banking fees, amounts required to
        be applied to the repayment of Indebtedness secured by a Lien expressly
        permitted hereunder on any asset which is the subject of such Asset Sale
        or
        Recovery Event (other than any Lien pursuant to a Security Document) and
        other
        customary fees and expenses actually incurred in connection therewith and
        net of
        taxes paid or reasonably estimated to be payable as a result thereof (after
        taking into account any available tax credits or deductions and any tax sharing
        arrangements with respect to such Asset Sale or Recovery Event) and (b) in
        connection with any issuance or sale of debt securities or instruments or
        the
        incurrence of loans, the cash proceeds received from such issuance or
        incurrence, net of attorneys’ fees, investment banking fees, accountants’ fees,
        underwriting discounts and commissions and other customary fees and expenses
        actually incurred in connection therewith.

       

      “New
        Lender”:
        as
        defined in Section 2.1(c).

       

      “New
        Lender Supplement”:
        as
        defined in Section 2.1(c).

       

      “Non-Excluded
        Taxes”:
        as
        defined in Section 2.15(a).

       

      “Non-U.S.
        Lender”:
        as
        defined in Section 2.15(d).

       

      “Note”:
        as
        defined in Section 2.4(e).

       

      “Obligations”:
        the
        unpaid principal of and interest on (including, without limitation, interest
        accruing after the maturity of the Loans and interest accruing after the
        filing
        of any petition in bankruptcy, or the commencement of any insolvency,
        reorganization or like proceeding, relating to the Borrower, whether or not
        a
        claim for post-filing or post-petition interest is allowed in such proceeding)
        the Loans and all other obligations and liabilities of the Borrower to the
        Administrative Agent or to any Lender or any Qualified Counterparty, whether
        direct or indirect, absolute or contingent, due or to become due, or now
        existing or hereafter incurred, which may arise under, out of, or in connection
        with, this Agreement, any other Loan Document, any Specified Hedge Agreement
        or
        any other document made, delivered or given in connection herewith or therewith,
        whether on account of principal, interest, reimbursement obligations, fees,
        indemnities, costs, expenses (including, without limitation, all fees, charges
        and disbursements of counsel to the Administrative Agent or to any Lender
        that
        are required to be paid by the Borrower pursuant hereto) or otherwise;
provided,
        that
        (i) obligations of the Borrower or any Subsidiary under any Specified Hedge
        Agreement shall be secured and guaranteed pursuant to the Security Documents
        only to the extent that, and for so long as, the other Obligations are so
        secured and guaranteed and (ii) any release of Collateral or Guarantors
        effected in the manner permitted by this Agreement shall not require the
        consent
        of holders of obligations under Specified Hedge Agreements.

       

      “OP”:
        Ocean
        Pacific Apparel Corp., a Delaware corporation.

       

      “Organizational
        Documents”:
        as to
        any Person, the certificate of incorporation and bylaws or other organizational
        or governing documents of such Person.

       

      “Other
        Taxes”:
        any
        and all present or future stamp or documentary taxes or any other excise
        or
        property taxes, charges or similar levies arising from any payment made
        hereunder or from the execution, delivery or enforcement of, or otherwise
        with
        respect to, this Agreement or any other Loan Document.

       

      “Participant”:
        as
        defined in Section 9.6(b).

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

         

      

      “Payment
        Office”:
        the
        office specified from time to time by the Administrative Agent as its payment
        office by notice to the Borrower and the Lenders.

       

      “PBGC”:
        the
        Pension Benefit Guaranty Corporation established pursuant to Subtitle A of
        Title IV of ERISA (or any successor).

       

      “Permitted
        Acquisition”:
        (i) to
        the extent clause (ii) below is not satisfied, any acquisition (including,
        if
        applicable, in the case of any Intellectual Property, by way of license)
        approved by the Required Lenders or (ii) any acquisition of all or a majority
        controlling interest in the Capital Stock, or all or substantially all of
        the
        assets, of any Person, or of all or substantially all of the assets constituting
        a division, product line or business line of any Person, if such acquisition
        described in this clause (ii) complies with the following criteria:

       

      (a) no
        Default or Event of Default shall be in effect immediately prior or after
        giving
        effect to such acquisition;

       

      (b) such
        acquisition is consummated by a Wholly Owned Subsidiary Guarantor or the
        acquired Person or assets are sold, contributed, conveyed, assigned or otherwise
        transferred to a Wholly Owned Subsidiary Guarantor by the Borrower or the
        acquired Person shall become a direct Subsidiary of the Borrower and, in
        each
        case, the acquired Person shall become a Wholly Owned Subsidiary Guarantor
        and
        the acquired assets (including the Capital Stock of the acquired Person)
        shall
        be pledged as additional Collateral;

       

      (c) after
        giving effect to the consummation of such acquisition and to the incurrence
        of
        any Indebtedness associated therewith, the Borrower shall be in pro forma
        compliance with Section 6.1; and

       

      (d) prior
        to
        the consummation of such acquisition (i) the Administrative Agent shall have
        received the historical financial statements for the most recently completed
        fiscal year and any subsequently completed fiscal quarter and the then current
        financial projections in respect of the Person, division, product line or
        line
        of business acquired in such acquisition for the one-year period following
        the
        consummation of such acquisition, (ii) the Administrative Agent shall have
        received the then current drafts of the documentation to be executed in
        connection with such acquisition (with final copies of such documentation
        to be
        delivered to the Administrative Agent promptly upon becoming available),
        including all schedules and exhibits thereto and (iii) the Administrative
        Agent
        shall have received notice of the closing date for such acquisition;
provided
        that the
        foregoing financial statements, documentation and notice shall not be required
        to be given if doing so (x) would materially interfere with, or would cause
        materially adverse economic consequences with respect to, the consummation
        of
        such acquisition or (y) is prohibited by any Requirement of Law (other than
        the
        Organizational Documents of the Borrower or a Subsidiary).

       

      “Permitted
        Acquisition Transactions”:
        the
        collective reference to Permitted Acquisitions, Permitted Foreign Subsidiary
        Acquisitions, Permitted Securitization Transactions and Permitted Unrestricted
        Subsidiary Acquisitions.

       

      “Permitted
        Convertible Notes Offering”:
        any
        offering by the Borrower after the Closing Date of convertible senior
        subordinated or subordinated notes, provided
        that
        such notes are Permitted Subordinated Indebtedness.

       

      “Permitted
        Foreign Subsidiary Acquisition”:
        any
        acquisition of all or a majority controlling interest in the Capital Stock,
        or
        all or substantially all of the assets, of any Person, or of all or
        substantially all of the assets constituting a division, product line or
        business line of any Person, if such acquisition complies with the following
        criteria:

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

         

      

      (a) no
        Default or Event of Default shall be in effect immediately prior or after
        giving
        effect to such acquisition;

       

      (b) such
        acquisition is funded solely with Capital Stock of the Borrower, the Net
        Cash
        Proceeds of a Permitted Convertible Notes Offering and/or Unrestricted
        Cash;

       

      (c) the
        acquired Person will become (after giving effect to such acquisition) a Directly
        Owned Foreign Subsidiary or the acquired assets are sold, contributed, conveyed,
        assigned or otherwise transferred to a Directly Owned Foreign Subsidiary
        by the
        Borrower and, in each case, 65% of the total outstanding Capital Stock of
        such
        Directly Owned Foreign Subsidiary shall be pledged as additional
        Collateral;

       

      (d) such
        Directly Owned Foreign Subsidiary shall not create, incur, assume or suffer
        to
        exist (i) any Indebtedness and (ii) any Lien upon any of its Property, whether
        now owned or hereafter acquired;

       

      (e) after
        giving effect to the consummation of such acquisition and to the incurrence
        of
        any Indebtedness associated therewith, the Borrower shall be in pro forma
        compliance with Section 6.1; and

       

      (f) prior
        to
        the consummation of such acquisition (i) the Administrative Agent shall have
        received the historical financial statements for the most recently completed
        fiscal year and any subsequently completed fiscal quarter and the then current
        financial projections in respect of the Person, division, product line or
        line
        of business acquired in such acquisition for the one-year period following
        the
        consummation of such acquisition, (ii) the Administrative Agent shall have
        received the then current drafts of the documentation to be executed in
        connection with such acquisition (with final copies of such documentation
        to be
        delivered to the Administrative Agent promptly upon becoming available),
        including all schedules and exhibits thereto and (iii) the Administrative
        Agent
        shall have received notice of the closing date for such acquisition; provided
        that the foregoing financial statements, documentation and notice shall not
        be
        required to be given if doing so (x) would materially interfere with, or
        would
        cause materially adverse economic consequences with respect to, the consummation
        of such acquisition or (y) is prohibited by any Requirement of Law (other
        than
        the Organizational Documents of the Borrower or a Subsidiary).

       

      “Permitted
        Securitization Transaction”:
        any
        transaction or series of transactions that may be entered into by the Borrower
        pursuant to which the Borrower may sell, contribute, convey, assign or otherwise
        transfer to an Unrestricted Subsidiary any assets (other than cash or Cash
        Equivalents) (whether now existing or acquired in the future) of the Borrower
        that (a) have been acquired solely with Capital Stock of the Borrower and/or
        Unrestricted Cash and (b) are customarily sold, contributed, conveyed, assigned
        or otherwise transferred in connection with asset securitization transactions
        similar to the Permitted Securitization Transaction entered into; provided
        that
        such transaction or series of transactions meets the following conditions:
        (i)
        all sales, contributions, transfers or other conveyances of assets to the
        Unrestricted Subsidiary are made at fair market value (as determined in good
        faith by the Borrower), (ii) the financing terms, covenants, termination
        events
        and other provisions thereof shall be market terms (as determined in good
        faith
        by the Borrower) and may include Standard Repurchase Obligations and (iii)
        no
        portion of the obligations under the Permitted Securitization Transaction
        (contingent or otherwise) will (x) be incurred or guaranteed by the Borrower
        or
        any Subsidiary (except for Standard Repurchase Obligations), (y) be recourse
        to
        the Borrower or any Subsidiary, other than pursuant to Standard Repurchase
        Obligations or (z) subject any property or asset of the Borrower or any
        Subsidiary, directly or indirectly, contingently or otherwise, to the
        satisfaction thereof, other than pursuant to Standard Repurchase
        Obligations.

      

      
        
           

        

        
          15

          
            

          

        

        
           

        

         

      

      “Permitted
        Subordinated Indebtedness”:
        as
        defined in Section 6.2(g).

       

      “Permitted
        Unrestricted Subsidiary Acquisition”:
        any
        acquisition of all or a majority controlling interest in the Capital Stock,
        or
        all or substantially all of the assets, of any Person, or of all or
        substantially all of the assets constituting a division, product line or
        business line of any Person, if such acquisition complies with the following
        criteria:

       

      (a)
        such
        acquisition is funded solely with Capital Stock of the Borrower, Unrestricted
        Cash and/or Restricted Cash (provided
        that the
        aggregate amount of any Restricted Cash used to fund a Permitted Unrestricted
        Subsidiary Acquisition, together with any Guarantee Obligations of the Borrower
        incurred pursuant to Section 6.2(f) and any Investment made pursuant to Section
        6.8(k), shall not exceed $50,000,000 plus the Retained Excess Cash Flow Amount
        during the term of this Agreement); and

       

      (b)
        the
        acquired Person or assets are sold, contributed, conveyed, assigned or otherwise
        transferred to an Unrestricted Subsidiary by the Borrower or the acquired
        Person
        shall become a direct Subsidiary of the Borrower without recourse to the
        Borrower or any Subsidiary (other than Standard Repurchase
        Obligations).

       

      “Person”:
        an
        individual, partnership, corporation, limited liability company, business
        trust,
        joint stock company, trust, unincorporated association, joint venture,
        Governmental Authority or other entity of whatever nature.

       

      “Plan”:
        at a
        particular time, any employee benefit plan that is covered by ERISA and in
        respect of which the Borrower or a Commonly Controlled Entity is (or, if
        such
        plan were terminated at such time, would under Section 4069 of ERISA be
        deemed to be) an “employer” as defined in Section 3(5) of
        ERISA.

       

      “Pro
        Forma Balance Sheet”:
        as
        defined in Section 3.1(a).

       

      “Property”:
        any
        right or interest in or to property of any kind whatsoever, whether real,
        personal or mixed and whether tangible or intangible, including, without
        limitation, Capital Stock.

       

      “Qualified
        Counterparty”:
        with
        respect to any Specified Hedge Agreement, any counterparty thereto that,
        at the
        time such Specified Hedge Agreement was entered into, was a Lender or an
        Affiliate of a Lender.

       

      “Recovery
        Event”:
        any
        settlement of or payment equal to or greater than $2,000,000 in respect of
        any
        property or casualty insurance claim or any condemnation proceeding relating
        to
        any Property of the Borrower or any of its Subsidiaries if such Property
        is or
        is required to become Collateral.

       

      “Register”:
        as
        defined in Section 9.6(d).

       

      “Regulation
        U”:
        Regulation U of the Board as in effect from time to time.

       

      “Reinvestment
        Deferred Amount”:
        with
        respect to any Reinvestment Event, the aggregate Net Cash Proceeds received
        by
        the Borrower or any of its Subsidiaries in connection therewith that are
        not
        applied to prepay the Loans pursuant to Section 2.7(b) as a result of the
        delivery of a Reinvestment Notice.

       

      
        
           

        

        
          16

          
            

          

        

        
           

        

         

      

      “Reinvestment
        Event”:
        any
        Asset Sale, or Recovery Event in respect of which the Borrower has delivered
        a
        Reinvestment Notice.

       

      “Reinvestment
        Notice”:
        a
        written notice executed by a Responsible Officer stating that no Default
        or
        Event of Default has occurred and is continuing and that the Borrower or
        a
        Wholly Owned Subsidiary Guarantor intends and expects to use all or a specified
        portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire
        or repair assets useful in its business.

       

      “Reinvestment
        Prepayment Amount”:
        with
        respect to any Reinvestment Event, the Reinvestment Deferred Amount relating
        thereto less
        any
        amount expended prior to the relevant Reinvestment Prepayment Date to acquire
        or
        repair assets useful in the business of the Borrower or of any
        Subsidiary.

       

      “Reinvestment
        Prepayment Date”:
        with
        respect to any Reinvestment Event, the earlier of (a) the date occurring
        one year after such Reinvestment Event and (b) the date on which the
        Borrower or any Subsidiary shall have determined not to, or shall have otherwise
        ceased to, acquire or repair assets useful in the business of the Borrower
        or of
        any Subsidiary with all or any portion of the relevant Reinvestment Deferred
        Amount.

       

      “Related
        Fund”:
        with
        respect to any Lender, any fund that (x) invests in commercial loans and
        (y) is managed or advised by the same investment advisor as such Lender, by
        such Lender or an Affiliate of such Lender.

       

      “Reorganization”:
        with
        respect to any Multiemployer Plan, the condition that such plan is in
        reorganization within the meaning of Section 4241 of ERISA.

       

      “Replevin
        Bond”:
        that
        certain replevin bond, dated as of September 14, 2006, posted by the Borrower
        in
        connection with the Unzipped Litigation.

       

      “Reportable
        Event”:
        any of
        the events set forth in Section 4043(c) of ERISA, other than those events
        as to which the thirty day notice period is waived under subsections .27,
        .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.

       

      “Required
        Lenders”:
        at any
        time, the holders of more than 50% of (a) until the Closing Date, the
        Commitments and (b) thereafter, the aggregate unpaid principal amount of
        the Loans then outstanding.

       

      “Requirement
        of Law”:
        as to
        any Person, the Organizational Documents of such Person, and any law, treaty,
        rule or regulation or determination of an arbitrator or a court or other
        Governmental Authority, in each case applicable to or binding upon such Person
        or any of its Property or to which such Person or any of its Property is
        subject.

       

      “Responsible
        Officer”:
        the
        chief executive officer, president, chief financial officer or general counsel
        of the Borrower, but in any event, with respect to financial matters, the
        chief
        financial officer of the Borrower.

       

      
        
           

        

        
          17

          
            

          

        

        
           

        

         

      

      “Restricted
        Cash”:
        for
        any fiscal quarter of the Subsidiaries, the result of, without duplication,
        (a)
        Excess Cash Flow (calculated on a quarterly basis) for such fiscal quarter,
        minus
        (b) the
        amount of such Excess Cash Flow actually used during such fiscal quarter
        to
        prepay the Loans pursuant to Section 2.7(c), minus
        (c) to
        the extent not already included in the calculation of Excess Cash Flow, the
        amount of such Excess Cash Flow actually used during such fiscal quarter
        for any
        other purpose permitted by this Agreement, plus
        (d) the
        aggregate amount of Net Cash Proceeds of any Indebtedness incurred by the
        Borrower or its Subsidiaries during such fiscal quarter, minus
        (e) the
        aggregate amount of such Net Cash Proceeds actually paid during such fiscal
        quarter on account of Permitted Acquisitions or Permitted Foreign Subsidiary
        Acquisitions, minus
        (f) the
        aggregate amount of such Net Cash Proceeds actually used during such fiscal
        quarter for any other purpose permitted by this Agreement, plus
        (g) the
        aggregate amount of any Restricted Cash from a prior period. 

       

      “Restricted
        Payments”:
        as
        defined in Section 6.6.

       

      “Restricted
        Subsidiary”:
        each
        of Studio IP Holdings LLC, Studio Holdings and Management Corporation, OP
        Holdings LLC, OP Holdings and Management Corporation, each of their direct
        or
        indirect Subsidiaries formed or acquired after the Closing Date and any direct
        or indirect Subsidiary of the Borrower formed or acquired after the Closing
        Date
        (other than a direct or indirect Subsidiary of Studio IP Holdings LLC, Studio
        Holdings and Management Corporation, OP Holdings LLC or OP Holdings and
        Management Corporation) designated by the board of directors of the Borrower
        as
        a Restricted Subsidiary. The board of directors of the Borrower may at any
        time
        designate any Unrestricted Subsidiary to be a Restricted Subsidiary or any
        Restricted Subsidiary (other than any Restricted Subsidiary existing on the
        Closing Date and any Subsidiary of a Restricted Subsidiary) to be an
        Unrestricted Subsidiary; provided
        that
        such designation shall only be permitted if no Default or Event of Default
        would
        be in existence following such designation and the Borrower would be in
        compliance with Section 6.1 on the date of such designation after giving
        pro forma
        effect
        to such designation; provided,
        further,
        that
        the Borrower may subsequently redesignate any such Unrestricted Subsidiary
        as a
        Restricted Subsidiary so long as the Borrower does not subsequently re-designate
        such Restricted Subsidiary as an Unrestricted Subsidiary for a period of
        the
        succeeding four fiscal quarters.

       

      “Retained
        Excess Cash Flow Amount”:
        at any
        time of determination, an amount equal to the excess, if any, of (a) the
        aggregate amount of Excess Cash Flow for all fiscal years commencing with
        the
        fiscal year ending on December 31, 2007 that is not required to be used to
        prepay the Loans pursuant to Section 2.7(c) over (b) the sum of (x) the sum,
        in
        excess of $50,000,000, of (i) the aggregate amount of Guarantee Obligations
        of
        the Borrower incurred pursuant to Section 6.2(f), (ii) the aggregate amount
        (valued at cost) of Investments made after the Closing Date pursuant to Section
        6.8(k) and (iii) the aggregate amount of Restricted Cash used to fund a
        Permitted Unrestricted Subsidiary Acquisition and (y) the aggregate amount
        of
        Restricted Payments made after the Closing Date pursuant to Section 6.6(c)
        in
        excess of $5,000,000.

       

      “Rocawear
        Joint Venture Agreement”:
        that
        certain joint venture agreement, dated as of March 30, 2007, by and between
        the
        Borrower and Shawn Carter, as amended, supplemented or otherwise modified
        from
        time to time.

       

      “Rocawear
        License Agreement”:
        that
        certain License Agreement, dated as of March 30, 2007, between Roc Apparel,
        LLC
        and Studio IP Holdings LLC, as amended, supplemented or otherwise modified
        from
        time to time.

       

      “SEC”:
        the
        Securities and Exchange Commission (or successors thereto or an analogous
        Governmental Authority).

       

      “Secured
        Parties”:
        as
        defined in the Guarantee and Collateral Agreement.

       

      
        
           

        

        
          18

          
            

          

        

        
           

        

         

      

      “Security
        Documents”:
        the
        collective reference to the Guarantee and Collateral Agreement, the Mortgages
        (if any) and all other security documents hereafter delivered to the
        Administrative Agent granting a Lien on any Property of any Person to secure
        the
        obligations and liabilities of any Loan Party under any Loan
        Document.

       

      “Sellers”:
        as
        defined in the recitals to this Agreement.

       

      “Single
        Employer Plan”:
        any
        Plan that is covered by Title IV of ERISA, but which is not a Multiemployer
        Plan.

       

      “Solvent”:
        with
        respect to any Person, as of any date of determination, (a) the amount of
        the “present fair saleable value” of the assets of such Person will, as of such
        date, exceed the amount of all “liabilities of such Person, contingent or
        otherwise”, as of such date, as such quoted terms are determined in accordance
        with applicable federal and state laws governing determinations of the
        insolvency of debtors, (b) the present fair saleable value of the assets of
        such Person will, as of such date, be greater than the amount that will be
        required to pay the liability of such Person on its debts as such debts become
        absolute and matured, (c) such Person will not have, as of such date, an
        unreasonably small amount of capital with which to conduct its business,
        and
        (d) such Person will be able to pay its debts as they mature. For purposes
        of this definition, (i) “debt” means liability on a “claim”, and
        (ii) “claim” means any (x) right to payment, whether or not such a
        right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
        matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured
        or (y) right to an equitable remedy for breach of performance if such
        breach gives rise to a right to payment, whether or not such right to an
        equitable remedy is reduced to judgment, fixed, contingent, matured or
        unmatured, disputed, undisputed, secured or unsecured.

       

      “Specified
        Change of Control”:
        a
“Change of Control”, (or any other defined term having a similar purpose), as
        defined in the indenture or other instrument governing any Permitted
        Subordinated Indebtedness.

       

      “Specified
        Hedge Agreement”:
        any
        Hedge Agreement entered into by the Borrower or any Subsidiary Guarantor
        and any
        Qualified Counterparty.

       

      “Specified
        License Agreement”:
        collectively, the Rocawear License Agreement and the Wal-Mart License Agreement
        and any replacement contract thereunder whether or not with the same or
        different parties.

       

      “Standard
        Repurchase Obligation”:
        any
        obligation of the Borrower to repurchase the assets it sold or otherwise
        transferred under a Permitted Securitization Transaction or a Permitted
        Unrestricted Subsidiary Acquisition as a result of a breach of a representation,
        warranty or covenant regarding such assets that the Borrower has determined
        in
        good faith to be customary for such Permitted Securitization Transaction
        or such
        Permitted Unrestricted Subsidiary Acquisition.

       

      “Subsidiaries’
        Financial Information”:
        with
        respect to the Subsidiaries for any fiscal year, a report in substantially
        the
        form of, and containing the information set forth in, Exhibit L attached
        hereto,
        together with such other information as the Administrative Agent may reasonably
        request.

       

      “Subsidiary”:
        as to
        any Person, a corporation, partnership, limited liability company or other
        entity of which shares of stock or other ownership interests having ordinary
        voting power (other than stock or such other ownership interests having such
        power only by reason of the happening of a contingency) to elect a majority
        of
        the board of directors or other managers of such corporation, partnership
        or
        other entity are at the time owned, or the management of which is otherwise
        controlled, directly or indirectly through one or more intermediaries, or
        both,
        by such Person. Unless otherwise qualified, (a) all references to a “Subsidiary”
or to “Subsidiaries” in this Agreement shall refer to a Restricted Subsidiary or
        Restricted Subsidiaries of the Borrower and (b) no Unrestricted Subsidiary
        shall
        be a “Subsidiary” of the Borrower for any purpose under this
        Agreement.

       

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

       

      “Subsidiary
        Guarantor”:
        each
        Subsidiary of the Borrower that is a party to the Guarantee and Collateral
        Agreement.

       

      “Syndication
        Agent”:
        as
        defined in the preamble hereto.

       

      “Syndication
        Date”:
        the
        date on which the Administration Agent completes the syndication of the Facility
        and the entities selected in such syndication process become parties to this
        Agreement.

       

      “Term
        Loan”:
        as
        defined in Section 2.1(a)(i).

       

      “Total
        Leverage Ratio”:
        as of
        the last day of any period of four consecutive fiscal quarters, the ratio
        of
        (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA of
        the Borrower and its Subsidiaries for such period.

       

      “Transferee”:
        as
        defined in Section 9.14.

       

      “Type”:
        as to
        any Loan, its nature as a Base Rate Loan or a Eurodollar Loan.

       

      “United
        States”
and
        “U.S.”:
        the
        United States of America.

       

      “Unrestricted
        Cash”:
        the
        result of (a) all cash and Cash Equivalents of the Borrower and its Restricted
        Subsidiaries and Unrestricted Subsidiaries on a consolidated basis minus
        (b) all
        Restricted Cash.

       

      “Unrestricted
        Subsidiary”:
        any
        Subsidiary of the Borrower that is not a Restricted Subsidiary.

       

      “Unzipped
        Litigation”:
        Unzipped Apparel, LLC et al. vs. Sweet Sportswear, LLC et al., Case No.
        BC319612, filed with the Superior Court of the State of California for the
        County of Los Angeles.

       

      “Wal-Mart
        License Agreement”:
        that
        certain letter agreement, dated as of January 9, 2004, between Danskin Now,
        Inc.
        and Wal-Mart Stores, Inc., as amended, supplemented or otherwise modified
        from
        time to time.

       

      “Wholly
        Owned Subsidiary”:
        as to
        any Person, any other Person all of the Capital Stock of which (other than
        directors’ qualifying shares required by law) is owned directly or indirectly by
        such Person.

       

      “Wholly
        Owned Subsidiary Guarantor”:
        any
        Subsidiary Guarantor that is a Wholly Owned Subsidiary of the
        Borrower.

       

      1.2 Other
        Definitional Provisions.
        (a)
        Unless otherwise specified therein, all terms defined in this Agreement shall
        have the defined meanings when used in the other Loan Documents or any
        certificate or other document made or delivered pursuant hereto or
        thereto.

       

      
        
           

        

        
          20

          
            

          

        

        
           

        

         

      

      (b) As
        used
        herein and in the other Loan Documents, and any certificate or other document
        made or delivered pursuant hereto or thereto, accounting terms relating to
        the
        Borrower and its Subsidiaries not defined in Section 1.1 and accounting
        terms partly defined in Section 1.1, to the extent not defined, shall have
        the respective meanings given to them under GAAP.

       

      (c) The
        words
“hereof”, “herein” and “hereunder” and words of similar import when used in this
        Agreement shall refer to this Agreement as a whole and not to any particular
        provision of this Agreement, and Section, Schedule and Exhibit references
        are to
        this Agreement unless otherwise specified.

       

      (d) The
        meanings given to terms defined herein shall be equally applicable to both
        the
        singular and plural forms of such terms.

       

      (e) All
        calculations of the Total Leverage Ratio shall be calculated to the same
        number
        of decimal places as the relevant ratios are expressed in and shall be rounded
        upward if the number in the decimal place immediately following the last
        calculated decimal place is five or greater. For example, if the relevant
        ratio
        is to be calculated to the hundredth decimal place and the calculation of
        the
        ratio is 5.126, the ratio will be rounded up to 5.13.

       

      SECTION 2. AMOUNT
        AND TERMS OF COMMITMENTS

       

      2.1 Commitments.
        (a)
        Subject to the terms and conditions hereof, (i) the Lenders severally agree
        to
        make loans (each, a “Term
        Loan”)
        to the
        Borrower on the Closing Date in an amount for each Lender not to exceed the
        amount of the Commitment of such Lender and (ii) the Incremental Lenders
        severally agree to make one or more term loans (each an “Incremental
        Loan”)
        to the
        Borrower to the extent provided in Section 2.1(b). The Loans may from time
        to
        time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower
        and
        notified to the Administrative Agent in accordance with Sections 2.2
        and 2.8.

       

      (b) The
        Borrower and any one or more Lenders (including New Lenders) may from time
        to
        time agree that such Lenders shall make, obtain or increase the amount of
        their
        Term Loans or Incremental Loans, as applicable, by executing and delivering
        to
        the Administrative Agent an Increased Facility Activation Notice specifying
        (i)
        the amount of such increase, (ii) the applicable Increased Facility Closing
        Date
        and (iii) in the case of Incremental Loans, (x) the applicable Incremental
        Loan
        Maturity Date, (y) the amortization schedule for such Incremental Loans,
        which
        shall comply with Section 2.3, and (z) the Applicable Margin for such
        Incremental Loans; provided
        that,
        (A) after giving pro forma
        effect
        to the making of any such Loans, the Borrower shall be in compliance with
        the
        covenant contained in Section 6.1, (B) no Default or Event of Default has
        occurred and is continuing or would result after giving effect to the making
        of
        such Loans or the application of the proceeds therefrom, (C) the aggregate
        amount of borrowings of incremental Term Loans or Incremental Loans pursuant
        to
        this Section 2.1(b) shall not exceed an amount equal to $100,000,000, (D)
        each
        borrowing of incremental Term Loans or Incremental Loans pursuant to this
        Section 2.1(b) shall be in a minimum amount of at least $25,000,000 and (E)
        no
        more than four Increased Facility Closing Dates may be selected by the Borrower
        after the Closing Date. No Lender shall have any obligation to participate
        in
        any increase described in this paragraph unless it agrees to do so in its
        sole
        discretion. The Incremental Loans shall rank pari passu
        in right
        of payment and of security with the Term Loans and, except with regard to
        pricing and as set forth above, shall be treated substantially the same as
        or
        less favorably than the Term Loans (including with respect to mandatory and
        voluntary prepayments and voting rights). Commitments in respect of Incremental
        Loans shall be Commitments under this Agreement. 

       

      
        
           

        

        
          21

          
            

          

        

        
           

        

         

      

      (c) Any
        additional bank, financial institution or other entity which, with the consent
        of the Borrower and the Administrative Agent (which consent shall not be
        unreasonably withheld), elects to become a “Lender” under this Agreement in
        connection with any transaction described in Section 2.1(b) shall execute
        a New
        Lender Supplement (each, a “New
        Lender Supplement”),
        substantially in the form of Exhibit K, whereupon such bank, financial
        institution or other entity (a “New
        Lender”)
        shall
        become a Lender for all purposes and to the same extent as if originally
        a party
        hereto and shall be bound by and entitled to the benefits of this
        Agreement.

       

      2.2 Procedure
        for Borrowing.
        (a) The
        Borrower shall deliver to the Administrative Agent a Borrowing Notice (which
        Borrowing Notice must be received by the Administrative Agent prior to
        10:00 A.M., New York City time, one Business Day prior to the anticipated
        Closing Date) requesting that the Lenders make the Term Loans on the Closing
        Date. Upon receipt of such Borrowing Notice the Administrative Agent shall
        promptly notify each Lender thereof. Not later than 12:00 Noon, New York
        City time, on the Closing Date each Lender shall make available to the
        Administrative Agent at the Funding Office an amount in immediately available
        funds equal to the Term Loan to be made by such Lender. Not later than
        1:00 P.M., New York City time, on the Closing Date the Administrative Agent
        shall make available to the Borrower the aggregate of the amounts made available
        to the Administrative Agent by the Lenders, in like funds as received by
        the
        Administrative Agent.

       

      (b) The
        Borrower shall deliver to the Administrative Agent a Borrowing Notice (which
        Borrowing Notice must be received by the Administrative Agent prior to
        10:00 A.M., New York City time, one Business Day prior to the anticipated
        Increased Facility Closing Date) requesting that the Incremental Lenders
        make
        the incremental Term Loans or Incremental Loans, as applicable, on such
        Increased Facility Closing Date. Upon receipt of such Borrowing Notice the
        Administrative Agent shall promptly notify each Incremental Lender thereof.
        Not
        later than 12:00 Noon, New York City time, on the Borrowing Date each
        Incremental Lender shall make available to the Administrative Agent at the
        Funding Office an amount in immediately available funds equal to the incremental
        Term Loans or Incremental Loans, as applicable, to be made by such Incremental
        Lender. Not later than 1:00 P.M., New York City time, on the Borrowing Date
        the Administrative Agent shall make available to the Borrower the aggregate
        of
        the amounts made available to the Administrative Agent by the Incremental
        Lenders, in like funds as received by the Administrative Agent.

       

      2.3 Repayment
        of Loans.
        (a) The
        Term Loan of each Lender shall mature in 24 consecutive quarterly installments,
        commencing on June 30, 2007 each of which shall be in an amount equal to
        such
        Lender’s Loan Percentage multiplied the amount set forth below opposite such
        installment.

       

      
        	
                Installment

              	 	
                Quarterly
                  Payment

              	 
	
                June
                  30, 2007

              	 	
                $

              	
                531,250

              	 
	
                September
                  30, 2007

              	 	 	
                531,250

              	 
	
                December
                  31, 2007 

              	 	 	
                531,250

              	 
	
                March
                  31, 2008

              	 	 	
                531,250

              	 
	
                June
                  30, 2008

              	 	 	
                531,250

              	 
	
                September
                  30, 2008

              	 	 	
                531,250

              	 
	
                December
                  31, 2008 

              	 	 	
                531,250

              	 
	
                March
                  31, 2009

              	 	 	
                531,250

              	 
	
                June
                  30, 2009

              	 	 	
                531,250

              	 
	
                September
                  30, 2009

              	 	 	
                531,250

              	 
	
                December
                  31, 2009 

              	 	 	
                531,250

              	 
	
                March
                  31, 2010

              	 	 	
                531,250

              	 
	
                June
                  30, 2010

              	 	 	
                531,250

              	 
	
                September
                  30, 2010

              	 	 	
                531,250

              	 
	
                December
                  31, 2010 

              	 	 	
                531,250

              	 
	
                March
                  31, 2011

              	 	 	
                531,250

              	 
	
                June
                  30, 2011

              	 	 	
                531,250

              	 
	
                September
                  30, 2011

              	 	 	
                531,250

              	 
	
                December
                  31, 2011 

              	 	 	
                531,250

              	 
	
                March
                  31, 2012

              	 	 	
                531,250

              	 
	
                June
                  30, 2012

              	 	 	
                531,250

              	 
	
                September
                  30, 2012

              	 	 	
                531,250

              	 
	
                December
                  31, 2012 

              	 	 	
                531,250

              	 
	
                Term
                  Loan Maturity Date

              	 	
                $

              	
                200,281,250

              	 

      

      

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

       

      (b) The
        Incremental Loans of each Incremental Lender shall mature in consecutive
        installments (which shall be no more frequent than quarterly) as specified
        in
        the Increased Facility Activation Notice pursuant to which such Incremental
        Loans were made, provided
        that,
        (i) such Incremental Loans shall not amortize more rapidly, on a percentage
        basis, than the Term Loans and (ii) such Incremental Loans shall not finally
        mature prior to the Loan Maturity Date.

       

      2.4 Repayment
        of Loans; Evidence of Debt.
        (a) The
        Borrower hereby unconditionally promises to pay to the Administrative Agent
        for
        the account of the appropriate Lender (i) the outstanding principal amount
        of
        the Term Loan of such Lender on the Loan Maturity Date (or on such earlier
        date
        on which the Term Loans become due and payable pursuant to Section 7) and
        (ii) the outstanding principal amount of the Incremental Loan of such Lender
        on
        the relevant Incremental Loan Maturity Date (or on such earlier date on which
        the Incremental Loans become due and payable pursuant to Section 7). The
        Borrower hereby further agrees to pay interest on the unpaid principal amount
        of
        the Loans from time to time outstanding from the date hereof until payment
        in
        full thereof at the rates per annum, and on the dates, set forth in
        Section 2.10. 

       

      (b) Each
        Lender shall maintain in accordance with its usual practice an account or
        accounts evidencing indebtedness of the Borrower to such Lender resulting
        from
        the Loan of such Lender, including the amounts of principal and interest
        payable
        and paid to such Lender from time to time under this Agreement.

       

      (c) The
        Administrative Agent, on behalf of the Borrower, shall maintain the Register
        pursuant to Section 9.6(d), and a subaccount therein for each Lender, in
        which shall be recorded (i) the amount of each Loan made hereunder and any
        Note evidencing such Loan, the Type of such Loan and each Interest Period
        applicable thereto, (ii) the amount of any principal or interest due and
        payable or to become due and payable from the Borrower to each Lender hereunder
        and (iii) both the amount of any sum received by the Administrative Agent
        hereunder from the Borrower and each Lender’s share thereof.

       

      (d) The
        entries made in the Register and the accounts of each Lender maintained pursuant
        to Section 2.4(b) shall, to the extent permitted by applicable law, be
prima facie
        evidence
        of the existence and amounts of the obligations of the Borrower therein
        recorded; provided,
        however,
        that
        the failure of any Lender or the Administrative Agent to maintain the Register
        or any such account, or any error therein, shall not in any manner affect
        the
        obligation of the Borrower to repay (with applicable interest) the Loan made
        to
        the Borrower by such Lender in accordance with the terms of this
        Agreement.

       

      (e) The
        Borrower agrees that, upon the request to the Administrative Agent by any
        Lender, the Borrower will promptly execute and deliver to such Lender a
        promissory note of the Borrower evidencing the Loan of such Lender,
        substantially in the form of Exhibit F (a “Note”),
        with
        appropriate insertions as to date and principal amount; provided,
        that
        delivery of Notes shall not be a condition precedent to the occurrence of
        the
        Closing Date or the making of the Loans on the Closing Date.

       

      
        
           

        

        
          23

          
            

          

        

        
           

        

         

      

      2.5 Fees,
        etc.
        The
        Borrower agrees to pay to the Administrative Agent the fees in the amounts
        and
        on the dates from time to time agreed to in writing by the Borrower and the
        Administrative Agent.

       

      2.6 Optional
        Prepayments.
        The
        Borrower may at any time and from time to time prepay the Loans, in whole
        or in
        part, without premium or penalty, upon irrevocable notice delivered to the
        Administrative Agent no later than 11:00 A.M., New York City time, three
        Business Days prior thereto in the case of Eurodollar Loans and no later
        than
        11:00 A.M., New York City time, one Business Day prior thereto in the case
        of
        Base Rate Loans, which notice shall specify the date and amount of such
        prepayment and whether such prepayment is of Eurodollar Loans or Base Rate
        Loans; provided,
        that if
        a Eurodollar Loan is prepaid on any day other than the last day of the Interest
        Period applicable thereto, the Borrower shall also pay any amounts owing
        pursuant to Section 2.16. Upon receipt of any such notice the
        Administrative Agent shall promptly notify each relevant Lender thereof.
        If any
        such notice is given, the amount specified in such notice shall be due and
        payable on the date specified therein, together with accrued interest to
        such
        date on the amount prepaid. Partial prepayments of Loans shall be in an
        aggregate principal amount of $1,000,000 or a whole multiple
        thereof.

       

      2.7 Mandatory
        Prepayments.
        (a)
        Unless the Required Lenders shall otherwise agree, if any Indebtedness shall
        be
        incurred by the Borrower or any of its Subsidiaries (excluding any Indebtedness
        permitted to be incurred under Section 6.2), then on the date of such
        incurrence, the Loans shall be prepaid, by an amount equal to the amount
        of the
        Net Cash Proceeds of such issuance or incurrence. The provisions of this
        Section
        2.7(a) do not constitute a consent to the incurrence of any Indebtedness
        by the
        Borrower or any of its Subsidiaries.

       

      (b) Unless
        the Required Lenders shall otherwise agree, if on any date the Borrower or
        any
        of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or
        Recovery Event then, unless a Reinvestment Notice shall be delivered in respect
        thereof on or prior to the date of such Asset Sale or Recovery Event, on
        the
        date of receipt by the Borrower or such Subsidiary of such Net Cash Proceeds,
        the Loans shall be prepaid, by an amount equal to the amount of such Net
        Cash
        Proceeds; provided,
        that,
        notwithstanding the foregoing, on each Reinvestment Prepayment Date the Loans
        shall be prepaid, by an amount equal to the Reinvestment Prepayment Amount
        with
        respect to the relevant Reinvestment Event. The provisions of this Section
        do
        not constitute a consent to the consummation of any Disposition not permitted
        by
        Section 6.5.

       

      (c) Unless
        the Required Lenders shall otherwise agree, if, for any fiscal year of the
        Subsidiaries commencing with the fiscal year ending on December 31, 2007,
        there
        shall be Excess Cash Flow, then, on the relevant Excess Cash Flow Application
        Date, the Loans shall be prepaid by an amount equal to the ECF Percentage
        of
        such Excess Cash Flow. Each such prepayment shall be made on a date (an
“Excess
        Cash Flow Application Date”)
        no
        later than five days after the earlier of (i) the date on which the
        financial statements of the Borrower referred to in Section 5.1(a), for the
        fiscal year with respect to which such prepayment is made, are required to
        be
        delivered to the Lenders and (ii) the date such financial statements are
        actually delivered.

       

      2.8 Conversion
        and Continuation Options.
        (a) The
        Borrower may elect from time to time to convert Eurodollar Loans to Base
        Rate
        Loans by giving the Administrative Agent at least two Business Days’ prior
        irrevocable notice of such election, provided
        that any
        such conversion of Eurodollar Loans may be made only on the last day of an
        Interest Period with respect thereto. The Borrower may elect from time to
        time
        to convert Base Rate Loans to Eurodollar Loans by giving the Administrative
        Agent at least three Business Days’ prior irrevocable notice of such election
        (which notice shall specify the length of the initial Interest Period therefor),
        provided
        that no
        Base Rate Loan may be converted into a Eurodollar Loan (i) when any Event
        of Default has occurred and is continuing and the Administrative Agent has,
        or
        the Required Lenders have, determined in its or their sole discretion not
        to
        permit such conversions or (ii) after the date that is one month prior to
        the Loan Maturity Date. Upon receipt of any such notice the Administrative
        Agent
        shall promptly notify each Lender thereof.

       

      
        
           

        

        
          24

          
            

          

        

        
           

        

         

      

      (b) The
        Borrower may elect to continue any Eurodollar Loan as such upon the expiration
        of the then current Interest Period with respect thereto by giving irrevocable
        notice to the Administrative Agent, in accordance with the applicable provisions
        of the term “Interest Period” set forth in Section 1.1, of the length of
        the next Interest Period to be applicable to such Loan, provided
        that no
        Eurodollar Loan may be continued as such (i) when any Event of Default has
        occurred and is continuing and the Administrative Agent has, or the Required
        Lenders have, determined in its or their sole discretion not to permit such
        continuations or (ii) after the date that is one month prior to the Loan
        Maturity Date, and provided,
        further,
        that if
        the Borrower shall fail to give any required notice as described above in
        this
        paragraph or if such continuation is not permitted pursuant to the preceding
        proviso, such Loans shall be converted automatically to Base Rate Loans on
        the
        last day of such then expiring Interest Period. Upon receipt of any such
        notice
        the Administrative Agent shall promptly notify each Lender thereof.

       

      2.9 Minimum
        Amounts and Maximum Number of Eurodollar Tranches.
        Notwithstanding anything to the contrary in this Agreement, all borrowings,
        conversions, continuations and optional prepayments of Eurodollar Loans and
        all
        selections of Interest Periods shall be in such amounts and be made pursuant
        to
        such elections so that, (a) after giving effect thereto, the aggregate
        principal amount of the Eurodollar Loans comprising each Eurodollar Tranche
        shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess
        thereof
        and (b) no more than ten Eurodollar Tranches shall be outstanding at any
        one time.

       

      2.10 Interest
        Rates and Payment Dates.
        (a)
        Each Eurodollar Loan shall bear interest for each day during each Interest
        Period with respect thereto at a rate per annum equal to the Eurodollar Rate
        determined for such day plus the Applicable Margin in effect for such
        day.

       

      (b) Each
        Base
        Rate Loan shall bear interest for each day on which it is outstanding at
        a rate
        per annum equal to the Base Rate in effect for such day plus
        the
        Applicable Margin in effect for such day.

       

      (c) (i)
        If
        all or a portion of the principal amount of any Loan shall not be paid when
        due
        (whether at the stated maturity, by acceleration or otherwise), all outstanding
        Loans (whether or not overdue) (to the extent legally permitted) shall bear
        interest at a rate per annum that is equal to the rate that would otherwise
        be
        applicable thereto pursuant to the foregoing provisions of this Section
plus
        2% and
        (ii) if all or a portion of any interest payable on any Loan or any fee or
        other amount payable hereunder shall not be paid when due (whether at the
        stated
        maturity, by acceleration or otherwise), such overdue amount shall bear interest
        at a rate per annum equal to the rate then applicable to Base Rate Loans
        plus
        2% in
        each case, with respect to clauses (i) and (ii) above, from the date of
        such non-payment until such amount is paid in full (after as well as before
        judgment).

       

      (d) Interest
        shall be payable in arrears on each Interest Payment Date, provided
        that
        interest accruing pursuant to paragraph (c) of this Section shall be
        payable from time to time on demand.

       

      
        
           

        

        
          25

          
            

          

        

        
           

        

         

      

      2.11 Computation
        of Interest and Fees.
        (a)
        Interest, fees and commissions payable pursuant hereto shall be calculated
        on
        the basis of a 360-day year for the actual days elapsed, except that, with
        respect to Base Rate Loans on which interest is calculated on the basis of
        the
        Prime Rate, the interest thereon shall be calculated on the basis of a 365-
        (or
        366-, as the case may be) day year for the actual days elapsed. The
        Administrative Agent shall as soon as practicable notify the Borrower and
        the
        relevant Lenders of each determination of a Eurodollar Rate. Any change in
        the
        interest rate on a Loan resulting from a change in the Base Rate or the
        Eurocurrency Reserve Requirements shall become effective as of the opening
        of
        business on the day on which such change becomes effective. The Administrative
        Agent shall as soon as practicable notify the Borrower and the relevant Lenders
        of the effective date and the amount of each such change in interest
        rate.

       

      (b) Each
        determination of an interest rate by the Administrative Agent pursuant to
        any
        provision of this Agreement shall be conclusive and binding on the Borrower
        and
        the Lenders in the absence of manifest error. The Administrative Agent shall,
        at
        the request of the Borrower, deliver to the Borrower a statement showing
        the
        quotations used by the Administrative Agent in determining any interest rate
        pursuant to Section 2.10(a) or (b).

       

      2.12 Inability
        to Determine Interest Rate.
        If
        prior to the first day of any Interest Period:

       

      (a) the
        Administrative Agent shall have determined (which determination shall be
        conclusive and binding upon the Borrower) that, by reason of circumstances
        affecting the relevant market, adequate and reasonable means do not exist
        for
        ascertaining the Eurodollar Rate for such Interest Period, or

       

      (b) the
        Administrative Agent shall have received notice from the Required Lenders
        that
        the Eurodollar Rate determined or to be determined for such Interest Period
        will
        not adequately and fairly reflect the cost to such Lenders (as conclusively
        certified by such Lenders) of making or maintaining their affected Loans
        during
        such Interest Period,

       

      the
        Administrative Agent shall give telecopy or telephonic notice thereof to
        the
        Borrower and the Lenders as soon as practicable thereafter. If such notice
        is
        given (x) any Eurodollar Loans requested to be made on the first day of
        such Interest Period shall be made as Base Rate Loans, (y) any Loans that
        were to have been converted on the first day of such Interest Period to
        Eurodollar Loans shall be continued as Base Rate Loans and (z) any
        outstanding Eurodollar Loans shall be converted, on the last day of the then
        current Interest Period with respect thereto, to Base Rate Loans. Until such
        notice has been withdrawn by the Administrative Agent, no further Eurodollar
        Loans shall be made or continued as such, nor shall the Borrower have the
        right
        to convert Loans to Eurodollar Loans.

       

      2.13 Pro
        Rata Treatment and Payments.
        (a)
        Each borrowing by the Borrower from the Lenders hereunder shall be made pro
        rata
        according to the respective Loan Percentages of the Lenders. Each payment
        of
        interest in respect of the Loans and each payment in respect of fees payable
        hereunder shall be applied to the amounts of such obligations owing to the
        Lenders pro rata according to the respective amounts then due and owing to
        the
        Lenders.

       

      (b) Each
        payment on account of principal of the Loans shall be allocated among the
        Lenders pro rata
        based on
        the principal amount of the Loans held by the Lenders. Amounts prepaid on
        account of the Loans may not be reborrowed.

       

      (c) The
        application of any payment of Loans (including optional and mandatory
        prepayments) shall be made, first,
        to Base
        Rate Loans and, second,
        to
        Eurodollar Loans. Each payment of the Loans shall be accompanied by accrued
        interest to the date of such payment on the amount paid.

       

      
        
           

        

        
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      (d) All
        payments (including prepayments) to be made by the Borrower hereunder, whether
        on account of principal, interest, fees or otherwise, shall be made without
        setoff or counterclaim and shall be made prior to 12:00 Noon, New York City
        time, on the due date thereof to the Administrative Agent, for the account
        of
        the relevant Lenders, at the Payment Office, in Dollars and in immediately
        available funds. Any payment made by the Borrower after 12:00 Noon, New
        York City time, on any Business Day shall be deemed to have been on the next
        succeeding Business Day. If any payment hereunder (other than payments on
        Eurodollar Loans) becomes due and payable on a day other than a Business
        Day,
        such payment shall be extended to the next succeeding Business Day. If any
        payment on a Eurodollar Loan becomes due and payable on a day other than
        a
        Business Day, the maturity thereof shall be extended to the next succeeding
        Business Day unless the result of such extension would be to extend such
        payment
        into another calendar month, in which event such payment shall be made on
        the
        immediately preceding Business Day. In the case of any extension of any payment
        of principal pursuant to the preceding two sentences, interest thereon shall
        accrue at the then applicable rate during such extension.

       

      (e) Unless
        the Administrative Agent shall have been notified in writing by any Lender
        prior
        to a borrowing that such Lender will not make the amount that would constitute
        its share of such borrowing available to the Administrative Agent, the
        Administrative Agent may assume that such Lender is making such amount available
        to the Administrative Agent, and the Administrative Agent may, in reliance
        upon
        such assumption, make available to the Borrower a corresponding amount. If
        such
        amount is not made available to the Administrative Agent by the required
        time on
        the Borrowing Date therefor, such Lender shall pay to the Administrative
        Agent,
        on demand, such amount with interest thereon at a rate equal to the greater
        of
        (i) the Federal Funds Effective Rate and (ii) a rate determined by the
        Administrative Agent in accordance with banking industry rules on interbank
        compensation, for the period until such Lender makes such amount immediately
        available to the Administrative Agent. A certificate of the Administrative
        Agent
        submitted to any Lender with respect to any amounts owing under this paragraph
        shall be conclusive in the absence of manifest error. If such Lender’s share of
        such borrowing is not made available to the Administrative Agent by such
        Lender
        within three Business Days after such Borrowing Date, the Administrative
        Agent
        shall also be entitled to recover such amount with interest thereon at the
        rate
        per annum applicable to Base Rate Loans under the relevant Facility, on demand,
        from the Borrower.

       

      (f) Unless
        the Administrative Agent shall have been notified in writing by the Borrower
        prior to the date of any payment due to be made by the Borrower hereunder
        that
        the Borrower will not make such payment to the Administrative Agent, the
        Administrative Agent may assume that the Borrower is making such payment,
        and
        the Administrative Agent may, but shall not be required to, in reliance upon
        such assumption, make available to the Lenders their respective pro rata
        shares
        of a corresponding amount. If such payment is not made to the Administrative
        Agent by the Borrower within three Business Days after such due date, the
        Administrative Agent shall be entitled to recover, on demand, from each Lender
        to which any amount which was made available pursuant to the preceding sentence,
        such amount with interest thereon at the rate per annum equal to the daily
        average Federal Funds Effective Rate. Nothing contained in this Section shall
        be
        deemed to limit the rights of the Administrative Agent or any Lender against
        the
        Borrower.

       

      (g) Upon
        receipt by the Administrative Agent of payments on behalf of Lenders, the
        Administrative Agent shall promptly distribute such payments to the Lender
        or
        Lenders entitled thereto, in like funds as received by the Administrative
        Agent.

       

      2.14 Requirements
        of Law.
        (a) If
        the adoption of or any change in any Requirement of Law (other than
        Organizational Documents) or in the interpretation or application thereof
        or
        compliance by any Lender with any request or directive (whether or not having
        the force of law) from any central bank or other Governmental Authority made
        subsequent to the date hereof:

       

      
        
           

        

        
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      (i) shall
        subject any Lender to any tax of any kind whatsoever with respect to this
        Agreement or any Eurodollar Loan made by it, or change the basis of taxation
        of
        payments to such Lender in respect thereof (except for Non-Excluded Taxes
        covered by Section 2.15, Excluded Taxes and changes in the rate of tax on
        the overall net income of such Lender);

       

      (ii) shall
        impose, modify or hold applicable any reserve, special deposit, compulsory
        loan
        or similar requirement against assets held by, deposits or other liabilities
        in
        or for the account of, advances, loans or other extensions of credit by,
        or any
        other acquisition of funds by, any office of such Lender that is not otherwise
        included in the determination of the Eurodollar Rate hereunder; or

       

      (iii) shall
        impose on such Lender any other condition;

       

      and
        the
        result of any of the foregoing is to increase the cost to such Lender, by
        an
        amount which such Lender deems to be material, of making, converting into,
        continuing or maintaining Eurodollar Loans, or to reduce any amount receivable
        hereunder in respect thereof, then, in any such case, the Borrower shall
        promptly pay such Lender, upon its demand, any additional amounts necessary
        to
        compensate such Lender for such increased cost or reduced amount receivable.
        If
        any Lender becomes entitled to claim any additional amounts pursuant to this
        Section, it shall promptly notify the Borrower (with a copy to the
        Administrative Agent) of the event by reason of which it has become so
        entitled.

       

      (b) If
        any
        Lender shall have determined that the adoption of or any change in any
        Requirement of Law (other than Organizational Documents) regarding capital
        adequacy or in the interpretation or application thereof or compliance by
        such
        Lender or any corporation controlling such Lender with any request or directive
        regarding capital adequacy (whether or not having the force of law) from
        any
        Governmental Authority made subsequent to the date hereof shall have the
        effect
        of reducing the rate of return on such Lender’s or such corporation’s capital as
        a consequence of its obligations hereunder to a level below that which such
        Lender or such corporation could have achieved but for such adoption, change
        or
        compliance (taking into consideration such Lender’s or such corporation’s
        policies with respect to capital adequacy) by an amount deemed by such Lender
        to
        be material, then from time to time, after submission by such Lender to the
        Borrower (with a copy to the Administrative Agent) of a written request
        therefor, the Borrower shall pay to such Lender such additional amount or
        amounts as will compensate such Lender or such corporation for such reduction;
        provided
        that the
        Borrower shall not be required to compensate a Lender pursuant to this paragraph
        for any amounts incurred more than six months prior to the date that such
        Lender
        notifies the Borrower of such Lender’s intention to claim compensation therefor;
        and provided further
        that, if
        the circumstances giving rise to such claim have a retroactive effect, then
        such
        six-month period shall be extended to include the period of such retroactive
        effect.

       

      (c) A
        certificate as to any additional amounts payable pursuant to this Section
        submitted by any Lender to the Borrower (with a copy to the Administrative
        Agent) shall be conclusive in the absence of manifest error. The obligations
        of
        the Borrower pursuant to this Section shall survive the termination of this
        Agreement and the payment of the Loans and all other amounts payable
        hereunder.

       

      2.15 Taxes.
        (a) All
        payments made by the Borrower under this Agreement shall be made free and
        clear
        of, and without deduction or withholding for or on account of, any present
        or
        future income, stamp or other taxes, levies, imposts, duties, charges, fees,
        deductions or withholdings, now or hereafter imposed, levied, collected,
        withheld or assessed by any Governmental Authority, excluding Excluded Taxes.
        If
        any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions
        or withholdings (“Non-Excluded
        Taxes”)
        or any
        Other Taxes are required to be withheld from any amounts payable to the
        Administrative Agent or any Lender hereunder, the amounts so payable to such
        Agent or such Lender shall be increased to the extent necessary to yield
        to the
        Administrative Agent or such Lender (after payment of all Non-Excluded Taxes
        and
        Other Taxes) interest or any such other amounts payable hereunder at the
        rates
        or in the amounts specified in this Agreement; provided, however, that the
        Borrower shall not be required to increase any such amounts payable to any
        Lender with respect to any Non-Excluded Taxes (i) that are attributable to
        such Lender’s failure to comply with the requirements of paragraph (d) or
        (e) of this Section or (ii) that are United States withholding taxes
        imposed on amounts payable to such Lender at the time such Lender becomes
        a
        party to this Agreement, except to the extent that such Lender’s assignor (if
        any) was entitled, at the time of assignment, to receive additional amounts
        from
        the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph
        (a).

       

      
        
           

        

        
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      (b) In
        addition, the Borrower shall pay any Other Taxes to the relevant Governmental
        Authority in accordance with applicable law.

       

      (c) Whenever
        any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly
        as possible thereafter the Borrower shall send to the Administrative Agent
        for
        the account of the Administrative Agent or Lender, as the case may be, a
        certified copy of an original official receipt received by the Borrower showing
        payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other
        Taxes when due to the appropriate taxing authority or fails to remit to the
        Administrative Agent the required receipts or other required documentary
        evidence, the Borrower shall indemnify the Administrative Agent and the Lenders
        for any incremental taxes, interest or penalties that may become payable
        by any
        Agent or any Lender as a result of any such failure. The agreements in this
        Section shall survive the termination of this Agreement and the payment of
        the
        Loans and all other amounts payable hereunder.

       

      (d) Each
        Lender (or Transferee) that is not a “U.S.
        Person”
as
        defined in Section 7701(a)(30) of the Code (each such Lender, a “Non-U.S.
        Lender”)
        shall
        deliver to the Borrower and the Administrative Agent (or, in the case of
        a
        Participant, to the Lender from which the related participation shall have
        been
        purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN
        or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption
        from U.S. federal withholding tax under Section 871(h) or 881(c) of the
        Code with respect to payments of “portfolio interest” a statement substantially
        in the form of Exhibit G and a Form W-8BEN, or any subsequent versions
        thereof or successors thereto properly completed and duly executed by such
        Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S.
        federal withholding tax on all payments by the Borrower under this Agreement
        and
        the other Loan Documents. Such forms shall be delivered by each Non-U.S.
        Lender
        on or before the date it becomes a party to this Agreement (or, in the case
        of
        any Participant, on or before the date such Participant purchases the related
        participation). In addition, each Non-U.S. Lender shall deliver such forms
        promptly upon the obsolescence or invalidity of any form previously delivered
        by
        such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower
        at
        any time it determines that it is no longer in a position to provide any
        previously delivered certificate to the Borrower (or any other form of
        certification adopted by the U.S. taxing authorities for such purpose).
        Notwithstanding any other provision of this paragraph, a Non-U.S. Lender
        shall
        not be required to deliver any form pursuant to this paragraph that such
        Non-U.S. Lender is not legally able to deliver.

       

      (e) A
        Lender
        that is entitled to an exemption from or reduction of non-U.S. withholding
        tax
        under the law of the jurisdiction in which the Borrower is located, or any
        treaty to which such jurisdiction is a party, with respect to payments under
        this Agreement shall deliver to the Borrower (with a copy to the Administrative
        Agent), at the time or times prescribed by applicable law or reasonably
        requested by the Borrower, such properly completed and executed documentation
        prescribed by applicable law as will permit such payments to be made without
        withholding or at a reduced rate, provided
        that
        such Lender is legally entitled to complete, execute and deliver such
        documentation and in such Lender’s reasonable judgment such completion,
        execution or submission would not materially prejudice the legal position
        of
        such Lender.

       

      
        
           

        

        
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      2.16 Indemnity.
        The
        Borrower agrees to indemnify each Lender for, and to hold each Lender harmless
        from, any loss or expense that such Lender may sustain or incur as a consequence
        of (a) default by the Borrower in making a borrowing of, conversion into or
        continuation of Eurodollar Loans after the Borrower has given a notice
        requesting the same in accordance with the provisions of this Agreement,
        (b) default by the Borrower in making any prepayment after the Borrower has
        given a notice thereof in accordance with the provisions of this Agreement
        or
        (c) the making of a prepayment or conversion of Eurodollar Loans on a day
        that is not the last day of an Interest Period with respect thereto. Such
        indemnification may include an amount equal to the excess, if any, of
        (i) the amount of interest that would have accrued on the amount so
        prepaid, or not so borrowed, converted or continued, for the period from
        the
        date of such prepayment or of such failure to borrow, convert or continue
        to the
        last day of such Interest Period (or, in the case of a failure to borrow,
        convert or continue, the Interest Period that would have commenced on the
        date
        of such failure) in each case at the applicable rate of interest for such
        Loans
        provided for herein (excluding, however, the Applicable Margin included therein,
        if any) over (ii) the amount of interest (as reasonably determined by such
        Lender) that would have accrued to such Lender on such amount by placing
        such
        amount on deposit for a comparable period with leading banks in the interbank
        Eurodollar market. A certificate as to any amounts payable pursuant to this
        Section submitted to the Borrower by any Lender shall be conclusive in the
        absence of manifest error. This covenant shall survive the termination of
        this
        Agreement and the payment of the Loans and all other amounts payable
        hereunder.

       

      2.17 Illegality.
        Notwithstanding any other provision herein, if the adoption of or any change
        in
        any Requirement of Law (other than Organizational Documents) or in the
        interpretation or application thereof shall make it unlawful for any Lender
        to
        make or maintain Eurodollar Loans as contemplated by this Agreement,
        (a) the commitment of such Lender hereunder to make Eurodollar Loans,
        continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar
        Loans shall forthwith be canceled and (b) such Lender’s Loans then
        outstanding as Eurodollar Loans, if any, shall be converted automatically
        to
        Base Rate Loans on the respective last days of the then current Interest
        Periods
        with respect to such Loans or within such earlier period as required by law.
        If
        any such conversion of a Eurodollar Loan occurs on a day which is not the
        last
        day of the then current Interest Period with respect thereto, the Borrower
        shall
        pay to such Lender such amounts, if any, as may be required pursuant to
        Section 2.16.

       

      2.18 Change
        of Lending Office.
        Each
        Lender agrees that, upon the occurrence of any event giving rise to the
        operation of Section 2.14, 2.15(a) or 2.17 with respect to such Lender, it
        will,
        if requested by the Borrower, use reasonable efforts (subject to overall
        policy
        considerations of such Lender) to designate another lending office for any
        Loans
        affected by such event with the object of avoiding the consequences of such
        event; provided, that such designation is made on terms that, in the sole
        judgment of such Lender, cause such Lender and its lending office(s) to suffer
        no economic, legal or regulatory disadvantage, and provided, further, that
        nothing in this Section shall affect or postpone any of the obligations of
        any
        Borrower or the rights of any Lender pursuant to Section 2.14, 2.15(a)or
        2.17.

       

      2.19 Replacement
        of Lenders under Certain Circumstances.
        The
        Borrower shall be permitted to replace any Lender that (a) requests
        reimbursement for amounts owing pursuant to Section 2.14 or 2.15 or gives a
        notice of illegality pursuant to Section 2.17 or (b) defaults in its
        obligation to make Loans hereunder, with a replacement financial institution;
        provided that (i) such replacement does not conflict with any Requirement
        of Law, (ii) no Event of Default shall have occurred and be continuing at
        the time of such replacement, (iii) prior to any such replacement, such
        Lender shall have taken no action under Section 2.18 so as to eliminate the
        continued need for payment of amounts owing pursuant to Section 2.14 or
        2.15 or to eliminate the illegality referred to in such notice of illegality
        given pursuant to Section 2.17, (iv) the replacement financial
        institution shall purchase, at par, all Loans and other amounts owing to
        such
        replaced Lender on or prior to the date of replacement, (v) the Borrower
        shall be liable to such replaced Lender under Section 2.16 (as though
        Section 2.16 were applicable) if any Eurodollar Loan owing to such replaced
        Lender shall be purchased other than on the last day of the Interest Period
        relating thereto, (vi) the replacement financial institution, if not
        already a Lender, shall be reasonably satisfactory to the Administrative
        Agent,
        (vii) the replaced Lender shall be obligated to make such replacement in
        accordance with the provisions of Section 9.6 (provided that the replaced
        Lender shall not be obligated to pay the registration and processing fee
        referred to therein), (viii) the Borrower shall pay all additional amounts
        (if any) required pursuant to Section 2.14 or 2.15, as the case may be, in
        respect of any period prior to the date on which such replacement shall be
        consummated, and (ix) any such replacement shall not be deemed to be a
        waiver of any rights that the Borrower, the Administrative Agent or any other
        Lender shall have against the replaced Lender.

       

      
        
           

        

        
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      SECTION 3. REPRESENTATIONS
        AND WARRANTIES

       

      To
        induce
        the Administrative Agent and the Lenders to enter into this Agreement and
        to
        make the Loans the Borrower hereby represents and warrants to the Administrative
        Agent and each Lender that:

       

      3.1 Financial
        Condition.
        (a) The
        unaudited pro forma consolidated balance sheet of the Borrower and its
        consolidated Subsidiaries as at December 31, 2006 (including the notes thereto)
        (the “Pro
        Forma Balance Sheet”),
        copies of which have heretofore been furnished to each Lender, has been prepared
        giving effect (as if such events had occurred on such date) to (i) the
        consummation of the Acquisitions, (ii) the Term Loans to be made on the
        Closing Date and the use of proceeds thereof and (iii) the payment of
        estimated aggregate fees and expenses in connection with the foregoing. The
        Pro
        Forma Balance Sheet has been prepared based on the best information available
        to
        the Borrower as of the date of delivery thereof, and presents fairly on a
        pro
        forma basis the estimated financial position of the Borrower and its
        consolidated Subsidiaries as at December 31, 2006, assuming that the events
        specified in the preceding sentence had actually occurred at such
        date.

       

      (b) The
        audited consolidated balance sheets of the Borrower as at December 31, 2004,
        December 31, 2005 and December 31, 2006, and the related consolidated statements
        of income and of cash flows for the fiscal years ended on such dates, reported
        on by and accompanied by an unqualified report from BDO Seidman, LLP, copies
        of
        which have heretofore been furnished to each Lender, present fairly the
        consolidated financial condition of the Borrower as at such date, and the
        consolidated results of its operations and its consolidated cash flows for
        the
        respective fiscal years then ended. All such financial statements, including
        the
        related schedules and notes thereto, have been prepared in accordance with
        GAAP
        applied consistently throughout the periods involved (except as approved
        by the
        aforementioned firm of accountants and disclosed therein). The Borrower and
        its
        Subsidiaries do not have any material Guarantee Obligations, contingent
        liabilities and liabilities for taxes, or any long-term leases or unusual
        forward or long-term commitments, including, without limitation, any interest
        rate or foreign currency swap or exchange transaction or other obligation
        in
        respect of derivatives, that are not reflected in the most recent financial
        statements referred to in this paragraph. During the period from December
        31,
        2006 to and including the date hereof there has been no Disposition by the
        Borrower of any material part of its business or Property other than in
        connection with Acquisitions.

       

      3.2 No
        Change.
        Since
        December 31, 2006 there has been no development or event that has had or
        could
        reasonably be expected to have a Material Adverse Effect.

       

      
        
           

        

        
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      3.3 Corporate
        Existence; Compliance with Law.
        Each of
        the Borrower and its Subsidiaries (a) is duly organized, validly existing
        and in good standing under the laws of the jurisdiction of its organization,
        (b) has the corporate or limited liability company power and authority, as
        applicable, and the legal right, to own and operate its Property, to lease
        the
        Property it operates as lessee and to conduct the business in which it is
        currently engaged, (c) is duly qualified as a foreign corporation, limited
        liability company or other organization and in good standing under the laws
        of
        each jurisdiction where its ownership, lease or operation of Property or
        the
        conduct of its business requires such qualification and (d) is in
        compliance with all Requirements of Law except to the extent that the failure
        to
        comply therewith could not, in the aggregate, reasonably be expected to have
        a
        Material Adverse Effect.

       

      3.4 Corporate
        Power; Authorization; Enforceable Obligations.
        Each
        Loan Party has the corporate or limited liability company power and authority,
        as applicable, and the legal right, to make, deliver and perform the Loan
        Documents to which it is a party, and in the case of the Borrower, to consummate
        the Acquisitions and to borrow hereunder. Each Loan Party has taken all
        necessary corporate or limited liability company action, as applicable, to
        authorize the execution, delivery and performance of the Loan Documents to
        which
        it is a party, and in the case of the Borrower, to consummate the Acquisitions
        and to authorize the borrowings on the terms and conditions of this Agreement.
        No consent or authorization of, filing with, notice to or other act by or
        in
        respect of, any Governmental Authority or any other Person is required in
        connection with the consummation of the Acquisitions, the borrowings hereunder
        or the execution, delivery, performance, validity or enforceability of this
        Agreement or any of the other Loan Documents, except (i) consents,
        authorizations, filings and notices described in Schedule 3.4, which
        consents, authorizations, filings and notices have been obtained or made
        and are
        in full force and effect and (ii) the filings referred to in Section
        3.19(a). Each Loan Document has been duly executed and delivered on behalf
        of
        each Loan Party that is a party thereto. This Agreement constitutes, and
        each
        other Loan Document upon execution will constitute, a legal, valid and binding
        obligation of each Loan Party that is a party thereto, enforceable against
        each
        such Loan Party in accordance with its terms, except as enforceability may
        be
        limited by applicable bankruptcy, insolvency, reorganization, moratorium
        or
        similar laws affecting the enforcement of creditors’ rights generally and by
        general equitable principles (whether enforcement is sought by proceedings
        in
        equity or at law).

       

      3.5 No
        Legal Bar.
        The
        execution, delivery and performance of this Agreement and the other Loan
        Documents, the consummation of the Acquisitions, the borrowings hereunder
        and
        the use of the proceeds thereof will not violate any Requirement of Law or
        any
        Contractual Obligation of the Borrower or any of its Subsidiaries and will
        not
        result in, or require, the creation or imposition of any Lien on any of their
        respective properties or revenues pursuant to any Requirement of Law or any
        such
        Contractual Obligation (other than the Liens created by the Security Documents).
        No Requirement of Law or Contractual Obligation applicable to the Borrower
        or
        any of its Subsidiaries could reasonably be expected to have a Material Adverse
        Effect.

       

      3.6 No
        Material Litigation.
        No
        litigation, investigation or proceeding of or before any arbitrator or
        Governmental Authority is pending or, to the knowledge of the Borrower,
        threatened by or against the Borrower or any of its Subsidiaries or against
        any
        of their respective properties or revenues (a) with respect to any of the
        Loan Documents or any of the transactions contemplated hereby or thereby,
        or
        (b) that could reasonably be expected to have a Material Adverse Effect (as
        determined in good faith by the Borrower).

       

      3.7 No
        Default.
        Neither
        the Borrower nor any of its Subsidiaries is in default under or with respect
        to
        any of its Contractual Obligations in any respect that could reasonably be
        expected to have a Material Adverse Effect. No Default or Event of Default
        has
        occurred and is continuing.

       

      
        
           

        

        
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      3.8 Ownership
        of Property; Liens.
        The
        Borrower and each of its Subsidiaries has title in fee simple to, or a valid
        leasehold interest in, all its real property, and good title to, or a valid
        leasehold interest in, all its other Property, and none of such Property
        is
        subject to any Lien except as permitted by Section 6.3.

       

      3.9 Intellectual
        Property.
        Each of
        the Subsidiaries owns, or is licensed to use, all Intellectual Property
        necessary for the conduct of its business as currently conducted free and
        clear
        of all Liens, except as permitted by Section 6.3. Each of the Subsidiaries’
Trademarks (as defined in the Guarantee and Collateral Agreement) and all
        other
        material Intellectual Property of the Subsidiaries are valid and enforceable,
        not abandoned and unexpired. No claim has been threatened in writing or has
        been
        asserted and is pending, and no judgment regarding the same has been rendered
        by
        a court of competent jurisdiction, by any Person challenging or questioning
        the
        use of such Intellectual Property or the validity or effectiveness of such
        Intellectual Property, nor do the Subsidiaries know of any valid basis for
        any
        such claim. No Subsidiary is a party to a material Intellectual Property
        license
        or other material agreement concerning Intellectual Property, nor is or is
        alleged in writing to be, in breach or default thereunder. The Borrower and
        its
        Subsidiaries represent that the transactions contemplated by this Agreement
        shall not impair the Intellectual Property rights of any of the Subsidiaries.
        The Borrower and its Subsidiaries take reasonable steps to protect and maintain
        all material Trademarks and other material Intellectual Property of the
        Subsidiaries, including executing all appropriate confidentiality agreements
        and
        filing for appropriate patents and registrations. The use of Intellectual
        Property by the Subsidiaries does not impair or infringe on the rights of
        any
        Person in any material respect.

       

      3.10 Taxes.
        The
        Borrower and each of its Subsidiaries has filed or caused to be filed all
        Federal, state and other material tax returns that are required to be filed
        and
        has paid all taxes shown to be due and payable on said returns or on any
        assessments made against it or any of its Property and all other taxes, fees
        or
        other charges imposed on it or any of its Property by any Governmental Authority
        (other than any the amount or validity of which are currently being contested
        in
        good faith by appropriate proceedings and with respect to which reserves
        in
        conformity with GAAP have been provided on the books of the Borrower or its
        Subsidiaries, as the case may be); and no tax Lien has been filed, and, to
        the
        knowledge of the Borrower, no claim is being asserted, with respect to any
        such
        tax, fee or other charge.

       

      3.11 Federal
        Regulations.
        No part
        of the proceeds of any Loans, and no other extensions of credit hereunder,
        will
        be used for “purchasing” or “carrying” any “margin stock” within the respective
        meanings of each of the quoted terms under Regulation U as now and from
        time to time hereafter in effect or for any purpose that violates the provisions
        of Regulation U. If requested by any Lender or the Administrative Agent,
        the
        Borrower will furnish to the Administrative Agent and each Lender a statement
        to
        the foregoing effect in conformity with the requirements of FR Form G-3 or
        FR Form U-1 referred to in Regulation U.

       

      3.12 Labor
        Matters.
        There
        are no strikes or other labor disputes against the Borrower or any of its
        Subsidiaries pending or, to the knowledge of the Borrower, threatened that
        (individually or in the aggregate) could reasonably be expected to have a
        Material Adverse Effect. Hours worked by and payment made to employees of
        the
        Borrower and its Subsidiaries have not been in violation of the Fair Labor
        Standards Act or any other applicable Requirement of Law dealing with such
        matters that (individually or in the aggregate) could reasonably be expected
        to
        have a Material Adverse Effect. All payments due from the Borrower or any
        of its
        Subsidiaries on account of employee health and welfare insurance that
        (individually or in the aggregate) could reasonably be expected to have a
        Material Adverse Effect if not paid have been paid or accrued as a liability
        on
        the books of the Borrower or the relevant Subsidiary.

       

      
        
           

        

        
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      3.13 ERISA.
        Neither
        a Reportable Event nor an “accumulated funding deficiency” (within the meaning
        of Section 412 of the Code or Section 302 of ERISA) has occurred
        during the five-year period prior to the date on which this representation
        is
        made or deemed made with respect to any Plan, and each Plan has complied
        in all
        material respects with the applicable provisions of ERISA and the Code. No
        termination of a Single Employer Plan has occurred, and no Lien in favor
        of the
        PBGC or a Plan has arisen, during such five-year period. The present value
        of
        all accrued benefits under each Single Employer Plan (based on those assumptions
        used to fund such Plans) did not, as of the last annual valuation date prior
        to
        the date on which this representation is made or deemed made, exceed the
        value
        of the assets of such Plan allocable to such accrued benefits by a material
        amount. Neither the Borrower nor any Commonly Controlled Entity has had a
        complete or partial withdrawal from any Multiemployer Plan that has resulted
        or
        could reasonably be expected to result in a material liability under ERISA,
        and
        neither the Borrower nor any Commonly Controlled Entity would become subject
        to
        any material liability under ERISA if the Borrower or any such Commonly
        Controlled Entity were to withdraw completely from all Multiemployer Plans
        as of
        the valuation date most closely preceding the date on which this representation
        is made or deemed made. No such Multiemployer Plan is in Reorganization or
        Insolvent.

       

      3.14 Investment
        Company Act; Other Regulations.
        No Loan
        Party is an “investment company”, or a company “controlled” by an “investment
        company”, within the meaning of the Investment Company Act of 1940, as amended.
        No Loan Party is subject to regulation under any Requirement of Law (other
        than
        Regulation X of the Board) that limits its ability to incur
        Indebtedness.

       

      3.15 Subsidiaries.
        (a) The
        Subsidiaries listed on Schedule 3.15 constitute all the Subsidiaries of the
        Borrower at the date hereof. Schedule 3.15 sets forth as of the Closing
        Date the name and jurisdiction of incorporation of each Subsidiary and, as
        to
        each Subsidiary, the percentage of each class of Capital Stock owned by each
        Loan Party.

       

      (b) There
        are
        no outstanding subscriptions, options, warrants, calls, rights or other
        agreements or commitments of any nature relating to any Capital Stock of
        the
        Borrower or any Subsidiary (other than any Earn-Out Consideration obligations
        payable in Capital Stock of the Borrower).

       

      3.16 Use
        of
        Proceeds.
        The
        proceeds of the Term Loans shall be used to finance the Rocawear Acquisition
        and
        to pay related fees and expenses. The proceeds of Incremental Loans shall
        be
        used to finance Permitted Acquisitions, Permitted Foreign Subsidiary
        Acquisitions, to pay related fees and expenses and for general corporate
        purposes.

       

      3.17 Environmental
        Matters.
        Other
        than exceptions to any of the following that could not, individually or in
        the
        aggregate, reasonably be expected to have a Material Adverse
        Effect:

       

      (a) The
        Borrower and its Subsidiaries: (i) are, and within the period of all
        applicable statutes of limitation have been, in compliance with all applicable
        Environmental Laws; (ii) hold all Environmental Permits (each of which is
        in full force and effect) required for any of their current or intended
        operations or for any property owned, leased, or otherwise operated by any
        of
        them; (iii) are, and within the period of all applicable statutes of
        limitation have been, in compliance with all of their Environmental Permits;
        and
        (iv) reasonably believe that: each of their Environmental Permits will be
        timely renewed and complied with, without material expense; any additional
        Environmental Permits that may be required of any of them will be timely
        obtained and complied with, without material expense; and compliance with
        any
        Environmental Law that is or is expected to become applicable to any of them
        will be timely attained and maintained, without material expense.

       

      
        
           

        

        
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      (b) Materials
        of Environmental Concern are not present at, on, under, in, or about any
        real
        property now or formerly owned, leased or operated by the Borrower or any
        of its
        Subsidiaries, or at any other location (including, without limitation, any
        location to which Materials of Environmental Concern have been sent for re-use
        or recycling or for treatment, storage, or disposal) which could reasonably
        be
        expected to (i) give rise to liability of the Borrower or any of its
        Subsidiaries under any applicable Environmental Law or otherwise result in
        costs
        to the Borrower or any of its Subsidiaries, or (ii) interfere with the
        Borrower’s or any of its Subsidiaries’ continued operations, or
        (iii) impair the fair saleable value of any real property owned or leased
        by the Borrower or any of its Subsidiaries.

       

      (c) There
        is
        no judicial, administrative, or arbitral proceeding (including any notice
        of
        violation or alleged violation) under or relating to any Environmental Law
        to
        which the Borrower or any of its Subsidiaries is, or to the knowledge of
        the
        Borrower or any of its Subsidiaries will be, named as a party that is pending
        or, to the knowledge of the Borrower or any of its Subsidiaries,
        threatened.

       

      (d) Neither
        the Borrower nor any of its Subsidiaries has received any written request
        for
        information, or been notified that it is a potentially responsible party
        under
        or relating to the federal Comprehensive Environmental Response, Compensation,
        and Liability Act or any similar Environmental Law, or with respect to any
        Materials of Environmental Concern.

       

      (e) Neither
        the Borrower nor any of its Subsidiaries has entered into or agreed to any
        consent decree, order, or settlement or other agreement, or is subject to
        any
        judgment, decree, or order or other agreement, in any judicial, administrative,
        arbitral, or other forum for dispute resolution, relating to compliance with
        or
        liability under any Environmental Law.

       

      (f) Neither
        the Borrower nor any of its Subsidiaries has assumed or retained, by contract
        or
        operation of law, any liabilities of any kind, fixed or contingent, known
        or
        unknown, under any Environmental Law or with respect to any Material of
        Environmental Concern.

       

      3.18 Accuracy
        of Information, etc. To
        the best knowledge of the Loan Parties, no statement or information contained
        in
        this Agreement, any other Loan Document or any other document, certificate
        or
        statement furnished to the Administrative Agent or the Lenders or any of
        them,
        by or on behalf of any Loan Party in writing for use in connection with the
        transactions contemplated by this Agreement or the other Loan Documents,
        contained as of the date such statement, information, document or certificate
        was so furnished, any untrue statement of a material fact or omitted to state
        a
        material fact necessary to make the statements contained herein or therein,
        taken as a whole, not misleading. The projections and pro forma financial
        information contained in the materials referenced above are based upon good
        faith estimates and assumptions believed by management of the Borrower to
        be
        reasonable at the time made, it being recognized by the Lenders that such
        financial information as it relates to future events is not to be viewed
        as fact
        and that actual results during the period or periods covered by such financial
        information may differ from the projected results set forth therein by a
        material amount. As of the date hereof, the representations and warranties
        contained in the Acquisition Documentation are true and correct in all material
        respects. There is no fact known to any Loan Party that could reasonably
        be
        expected to have a Material Adverse Effect that has not been expressly disclosed
        herein, in the other Loan Documents, or in any other documents, certificates
        and
        statements furnished to the Administrative Agent and the Lenders for use
        in
        connection with the transactions contemplated hereby and by the other Loan
        Documents.

       

      
        
           

        

        
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      3.19 Security
        Documents.
        (a) The
        Guarantee and Collateral Agreement is effective to create in favor of the
        Administrative Agent, for the benefit of the Secured Parties, a legal, valid
        and
        enforceable security interest in the Collateral described therein and proceeds
        thereof. In the case of the Pledged Stock described in the Guarantee and
        Collateral Agreement, when any stock certificates representing such Pledged
        Stock are delivered to the Administrative Agent, and in the case of the other
        Collateral described in the Guarantee and Collateral Agreement, when financing
        statements in appropriate form are filed in the offices specified on
        Schedule 3.19(a) (which financing statements have been duly completed and
        delivered to the Administrative Agent) and such other filings as are specified
        on Schedule 3 to the Guarantee and Collateral Agreement have been
        completed, the Administrative Agent’s Lien on, and security interest in, all
        right, title and interest of the Loan Parties in such Collateral and the
        proceeds thereof, as security for the Obligations (as defined in the Guarantee
        and Collateral Agreement), will be perfected to the extent a security interest
        in such Collateral can be perfected by the filing of a financing statement
        in
        such offices, in each case prior and superior in right to any other Person
        (except, in the case of Collateral other than Pledged Stock, Liens permitted
        by
        Section 6.3).

       

      (b) As
        of the
        Closing Date, neither the Borrower nor any of its Subsidiaries owns any real
        property.

       

      3.20 Solvency.
        Each
        Loan Party is, and after giving effect to the Acquisitions and the incurrence
        of
        all Indebtedness and obligations being incurred in connection herewith and
        therewith will be and will continue to be, Solvent.

       

      3.21 Certain
        Documents.
        The
        Borrower has delivered to the Administrative Agent a complete and correct
        copy
        of the Acquisition Documentation and the Specified License Agreements, including
        any amendments, supplements or modifications with respect to any of the
        foregoing.

       

      SECTION 4. CONDITIONS
        PRECEDENT

       

      The
        agreement of each Lender to make the Term Loans requested to be made by it
        hereunder on the Closing Date is subject to the satisfaction, prior to or
        concurrently with the making of such Term Loans on the Closing Date, of all
        of
        the following conditions precedent, and the agreement of each Incremental
        Lender
        to make incremental Term Loans or Incremental Loans, as applicable, on any
        Increased Facility Closing Date, is subject to the satisfaction, prior to
        or
        concurrently with the making of such incremental Term Loans or Incremental
        Loans, as the case may be, on such Increased Facility Closing Date of the
        conditions precedent set forth in Sections 4.1(iii), 4.5, 4.9, 4.11,
        4.12(i)-(ii), 4.16, 4.17 and 4.18. 

       

      4.1 Loan
        Documents.
        The
        Administrative Agent shall have received (i) this Agreement, executed and
        delivered by the Borrower, (ii) the Guarantee and Collateral Agreement,
        executed and delivered by the Borrower and each Subsidiary Guarantor and
        (iii) a Lender Addendum executed and delivered by each Lender and accepted
        by the Borrower.

       

      4.2 Acquisitions.
        Each
        Acquisition shall have been consummated in accordance with the terms of the
        applicable Acquisition Agreement, as in effect on the date thereof, in all
        material respects without any waiver, modification or amendment thereof that
        is
        materially adverse to the Lenders (as determined by the Administrative Agent),
        unless consented to by the Administrative Agent.

       

      4.3 Pro
        Forma Balance Sheet; Financial Statements.
        The
        Lenders shall have received (i) the Pro Forma Balance Sheet,
        (ii) audited consolidated financial statements of the Borrower for the
        2004, 2005 and 2006 fiscal years and (iii) unaudited interim consolidated
        financial statements of the Borrower for each quarterly period ended subsequent
        to the date of the latest applicable financial statements delivered pursuant
        to
        clause (ii) of this paragraph as to which such financial statements are
        publicly available.

       

      
        
           

        

        
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      4.4 Minimum
        Guaranteed Revenue.
        The
        Administrative Agent shall have received a certificate, dated as of the Closing
        Date and signed by the chief financial officer of the Borrower, certifying
        that,
        as of the Closing Date, the pro forma
        minimum
        guaranteed revenue (defined
        as contractual guaranteed minimums of royalty revenue and advertising) of
        the
        Subsidiaries for the calendar year ending on December 31, 2007, shall equal
        at
        least $30,000,000.

       

      4.5 Approvals.
        All
        governmental and third party approvals necessary in connection with the Rocawear
        Acquisition, the continuing operations of the Borrower and its Subsidiaries
        and
        the transactions contemplated hereby shall have been obtained and be in full
        force and effect, and all applicable waiting periods shall have expired without
        any action being taken or threatened by any competent authority that would
        restrain, prevent or otherwise impose adverse conditions on the Rocawear
        Acquisition or the financing contemplated hereby.

       

      4.6 Related
        Agreements.
        The
        Administrative Agent shall have received (in a form reasonably satisfactory
        to
        the Administrative Agent), true and correct copies, certified as to authenticity
        by the Borrower, of (i) each Acquisition Agreement, (ii) the Specified
        License Agreements, (iii) the Danskin License Agreement and (iv) such other
        documents or instruments as may be reasonably requested by the Administrative
        Agent, including, without limitation, a copy of any debt instrument, security
        agreement or other material contract to which the Loan Parties may be a
        party.

       

      4.7 Fees.
        The
        Lenders and the Administrative Agent shall have received all fees required
        to be
        paid, and all reasonable expenses for which invoices have been presented
        reasonably in advance of the Closing Date (including reasonable fees,
        disbursements and other charges of counsel to the Administrative Agent),
        on or
        before the Closing Date. All such amounts will be paid with proceeds of Term
        Loans made on the Closing Date and will be reflected in the funding instructions
        given by the Borrower to the Administrative Agent on or before the Closing
        Date.

       

      4.8 Business
        Plan.
        The
        Lenders shall have received a satisfactory business plan for fiscal years
        2007 -
        2012 and a satisfactory written analysis of the business and prospects of
        the
        Borrower and its Subsidiaries for the period from the Closing Date through
        2012.

       

      4.9 Solvency
        Certificate.
        The
        Lenders shall have received a reasonably satisfactory solvency certificate
        from
        the chief financial officer of the Borrower which shall document the solvency
        of
        the Borrower and its Subsidiaries considered as a whole after giving effect
        to
        the transactions contemplated hereby.

       

      4.10 Lien
        Searches.
        The
        Administrative Agent shall have received the results of a recent lien search
        in
        the “location” (as defined in the Uniform Commercial Code (“UCC”))
        of
        each of the Sellers and each such search shall reveal no liens on any of
        such
        assets, except for (i) Liens permitted by Section 6.3 and (ii) Liens to be
        discharged substantially concurrently with the initial borrowing by the Borrower
        under this Agreement pursuant to documentation reasonably satisfactory to
        the
        Administrative Agent.

       

      4.11 Closing
        Certificate.
        The
        Administrative Agent shall have received a certificate of each Loan Party,
        dated
        the Closing Date or the Increased Facility Closing Date, as applicable,
        substantially in the form of Exhibit C, with appropriate insertions and
        attachments.

       

      
        
           

        

        
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      4.12 Legal
        Opinions.
        The
        Administrative Agent shall have received the following executed legal
        opinions:

       

      (i) the
        legal
        opinion of Blank Rome LLP, counsel to the Borrower and its Subsidiaries,
        substantially in the form of Exhibit E-1;

       

      (ii) the
        legal
        opinion of Andrew Tarshis, general counsel of the Borrower and its Subsidiaries,
        substantially in the form of Exhibit E-2; and

       

      (iii) to
        the
        extent consented to by the relevant counsel, each legal opinion, if any,
        delivered in connection with the Acquisition Agreements.

       

      Each
        such
        legal opinion referred to in clauses (i) and (ii) shall cover such other
        matters
        incident to the transactions contemplated by this Agreement as the
        Administrative Agent may reasonably require and shall be addressed to the
        Administrative Agent and the Lenders.

       

      4.13 Pledged
        Stock; Stock Powers.
        The
        Administrative Agent shall have received the certificates representing the
        shares of Capital Stock pledged pursuant to the Guarantee and Collateral
        Agreement, together with an undated stock power for each such certificate
        executed in blank by a duly authorized officer of the pledgor
        thereof.

       

      4.14 Filings,
        Registrations and Recordings.
        Each
        document (including, without limitation, any UCC financing statement) required
        by the Security Documents or under law or reasonably requested by the
        Administrative Agent to be filed, registered or recorded in order to create
        in
        favor of the Administrative Agent, for the benefit of the Secured Parties,
        a
        perfected Lien on the Collateral described therein, prior and superior in
        right
        to any other Person (other than with respect to Liens expressly permitted
        by
        Section 6.3), shall have been filed, registered or recorded or shall have
        been
        delivered to the Administrative Agent in proper form for filing, registration
        or
        recordation.

       

      4.15 Insurance.
        The
        Administrative Agent shall have received insurance certificates satisfying
        the
        requirements of Section 5.5 of this Agreement.

       

      4.16 PATRIOT
        Act.
        The
        Lenders shall have received, sufficiently in advance of the Closing Date
        or the
        Increased Facility Closing Date, as applicable, all documentation and other
        information required by bank regulatory authorities under applicable “know your
        customer” and anti-money laundering rules and regulations, including without
        limitation the United States PATRIOT Act.

       

      4.17 Representations
        and Warranties.
        Each of
        the representations and warranties made by any Loan Party in or pursuant
        to the
        Loan Documents shall be true and correct in all material respects on and
        as of
        the Closing Date or the Increased Facility Closing Date, as
        applicable.

       

      4.18 No
        Default.
        No
        Default or Event of Default shall have occurred and be continuing on the
        Closing
        Date or after giving effect to the Loans requested to be made on the Closing
        Date. No Default or Event of Default shall have occurred and be continuing
        on
        the Increased Facility Closing Date or after giving effect to the Loans
        requested to be made on the Increased Facility Closing Date.

       

      Each
        borrowing by the Borrower hereunder of a Term Loan shall constitute a
        representation and warranty by the Borrower as of the date of such extension
        of
        credit that the conditions contained in this Section 4 have been satisfied,
        and each such borrowing by the Borrower hereunder of an incremental Term
        Loan or
        Incremental Loan, as applicable, shall constitute a representation and warranty
        by the Borrower as of the date of such extension of credit that the conditions
        contained in Sections 4.1(iii), 4.5, 4.9, 4.11, 4.12(i)-(ii), 4.16, 4.17
        and
        4.18 have been satisfied.

       

      
        
           

        

        
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      SECTION 5. AFFIRMATIVE
        COVENANTS

       

      The
        Borrower hereby agrees that, so long as the Commitments remain in effect
        or any
        Loan or other amount is owing to any Lender or the Administrative Agent
        hereunder, the Borrower shall and shall cause each of its Subsidiaries
        to:

       

      5.1 Financial
        Statements.
        Furnish
        to the Administrative Agent (who will furnish to each Lender):

       

      (a) as
        soon
        as available, but in any event within 90 days after the end of each fiscal
        year of the Borrower, a copy of the audited consolidated balance sheet of
        the
        Borrower as at the end of such fiscal year and the related audited consolidated
        statements of income and of cash flows for such fiscal year, setting forth
        in
        each case in comparative form the figures as of the end of and for the previous
        fiscal year, reported on without a “going concern” or like qualification or
        exception, or qualification arising out of the scope of the audit, by BDO
        Seidman, LLP or other independent certified public accountants of nationally
        recognized standing; and

       

      (b) as
        soon
        as available, but in any event not later than 50 days after the end of each
        of the first three quarterly periods of each fiscal year of the Borrower,
        the
        unaudited consolidated balance sheet of the Borrower as at the end of such
        quarter and the related unaudited consolidated statements of income and of
        cash
        flows for such quarter and the portion of the fiscal year through the end
        of
        such quarter, setting forth in each case in comparative form the figures
        as of
        the end of and for the corresponding period in the previous year, certified
        by a
        Responsible Officer as being fairly stated in all material respects (subject
        to
        normal year-end audit adjustments);

       

      all
        such
        financial statements to be complete and correct in all material respects
        and to
        be prepared in reasonable detail and in accordance with GAAP applied
        consistently throughout the periods reflected therein and with prior periods
        (except as approved by such accountants or officer, as the case may be, and
        disclosed therein).

       

      5.2 Certificates;
        Other Information.
        Furnish
        to the Administrative Agent (who will furnish to each Lender), or, in the
        case
        of clause (e), to the relevant Lender:

       

      (a) concurrently
        with the delivery of any financial statements pursuant to Section 5.1, (i)
        a Compliance Certificate of a Responsible Officer (x) stating that, to the
        best
        of such Responsible Officer’s knowledge, each Loan Party during such period has
        observed or performed all of its covenants and other agreements, and satisfied
        every condition, contained in this Agreement and the other Loan Documents
        to
        which it is a party to be observed, performed or satisfied by it, and that
        such
        Responsible Officer has obtained no knowledge of any Default or Event of
        Default
        except as specified in such certificate, (y) containing all information and
        calculations necessary for determining compliance by the Borrower and its
        Subsidiaries with the provisions of this Agreement referred to therein as
        of the
        last day of the fiscal quarter or fiscal year of the Borrower, as the case
        may
        be and (z) to the extent not previously disclosed to the Administrative
        Agent, containing a listing of any Intellectual Property acquired by the
        Borrower or any Subsidiary Guarantor since the date of the most recent list
        delivered pursuant to this clause (ii) (or, in the case of the first such
        list so delivered, since the Closing Date); and (ii) a schedule certified
        by a
        Responsible Officer setting forth the aggregate amount of (x) all cash and
        Cash
        Equivalents of the Borrower and its Restricted Subsidiaries and its Unrestricted
        Subsidiaries on a consolidated basis, (y) all Restricted Cash and (z) all
        Unrestricted Cash, in each case showing in reasonable detail how such amounts
        are calculated;

       

      
        
           

        

        
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      (b) as
        soon
        as available, and in any event no later than 75 days after the end of each
        fiscal year of the Borrower, a reasonably detailed consolidated budget for
        the
        following fiscal year (including a projected consolidated balance sheet of
        the
        Borrower as of the end of the following fiscal year, and projected consolidated
        income and a description of the underlying assumptions applicable thereto),
        and,
        as soon as available, significant revisions, if any, of such budget and
        projections with respect to such fiscal year, and the Subsidiaries’ Financial
        Information (collectively, the “Projections”),
        which
        Projections shall in each case be accompanied by a certificate of a Responsible
        Officer stating that such Projections are based on reasonable estimates,
        information and assumptions and that such Responsible Officer has no reason
        to
        believe that such Projections are incorrect or misleading in any material
        respect;

       

      (c) no
        later
        than three Business Days after the effectiveness thereof, copies of any
        amendment, supplement, waiver or other modification with respect to any
        Acquisition Agreement or any Specified License Agreement;

       

      (d) within
        five days after the same are sent, copies of all reports filed on Form 8-K
        that
        the Borrower may make to, or file with, the SEC; and 

       

      (e) promptly,
        such additional financial and other information as any Lender may from time
        to
        time reasonably request.

       

      5.3 Payment
        of Obligations.
        Pay,
        discharge or otherwise satisfy at or before maturity or before they become
        delinquent, as the case may be, all its material obligations of whatever
        nature,
        except where the amount or validity thereof is currently being contested
        in good
        faith by appropriate proceedings and reserves in conformity with GAAP with
        respect thereto have been provided on the books of the Borrower or its
        Subsidiaries, as the case may be.

       

      5.4 Conduct
        of Business and Maintenance of Existence; Compliance.
        (a)(i) Preserve, renew and keep in full force and effect its organizational
        existence and (ii) take all reasonable action to maintain all rights,
        privileges and franchises necessary or desirable in the normal conduct of
        its
        business, except, in each case, as otherwise permitted by Section 6.4 and
        except, the case of clause (ii) above, to the extent that failure to do so
        could not reasonably be expected to have a Material Adverse Effect; and
        (b) comply with all Contractual Obligations and Requirements of Law, except
        to the extent that failure to comply therewith could not, in the aggregate,
        reasonably be expected to have a Material Adverse Effect.

       

      5.5 Maintenance
        of Property; Insurance.
        (a) Keep all Property and systems useful and necessary in its business in
        good working order and condition, ordinary wear and tear excepted and
        (b) maintain with financially sound and reputable insurance companies
        insurance on all its Property in at least such amounts and against at least
        such
        risks (but including in any event public liability, product liability and
        business interruption) as are usually insured against in the same general
        area
        by companies engaged in the same or a similar business.

       

      5.6 Inspection
        of Property; Books and Records; Discussions.
        (a) Keep proper books of records and account in which full, true and
        correct entries in conformity with GAAP and all Requirements of Law shall
        be
        made of all dealings and transactions in relation to its business and activities
        and (b) permit representatives of the Administrative Agent and any Lender
        to visit and inspect any of its properties and examine and make abstracts
        from
        any of its books and records at any reasonable time upon reasonable prior
        written notice, and to discuss the business, operations, properties and
        financial and other condition of the Borrower and its Subsidiaries with officers
        of the Borrower and its Subsidiaries;
        provided,
        that
        all such visits and inspections by all such representatives, shall not occur
        more than once in any twelve-month period.

       

      
        
           

        

        
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      5.7 Notices.
        Promptly after receipt of actual knowledge thereof give notice to the
        Administrative Agent (who will furnish to each Lender) of:

       

      (a) the
        occurrence of any Default or Event of Default;

       

      (b) any
        (i) event of default under any Contractual Obligation of the Borrower or
        any of its Subsidiaries or (ii) litigation, investigation or proceeding
        which may exist at any time between the Borrower or any of its Subsidiaries
        and
        any Governmental Authority, that in either case, if not cured or if adversely
        determined, as the case may be, could reasonably be expected to have a Material
        Adverse Effect;

       

      (c) any
        litigation or proceeding (other than the BAI Litigation and the Unzipped
        Litigation) affecting the Borrower or any of its Subsidiaries (i) in which
        the
        amount involved is $2,500,000 or more and not covered by insurance, (ii)
        in
        which injunctive or similar relief is sought or (iii) which relates to any
        Loan
        Document; 

       

      (d) the
        following events, as soon as possible and in any event within 30 days after
        the
        Borrower knows or has reason to know thereof: (i) the occurrence of any
        Reportable Event with respect to any Plan, a failure to make any required
        contribution to a Plan, the creation of any Lien in favor of the PBGC or
        a Plan
        or any withdrawal from, or the termination, Reorganization or Insolvency
        of, any
        Multiemployer Plan or (ii) the institution of proceedings or the taking of
        any other action by the PBGC or the Borrower or any Commonly Controlled Entity
        or any Multiemployer Plan with respect to the withdrawal from, or the
        termination, Reorganization or Insolvency of, any Plan;

       

      (e) any
        amendment or modification, or any waiver of any provision, of any Specified
        License Agreement; and

       

      (f) any
        development or event that has had or could reasonably be expected to have
        a
        Material Adverse Effect.

       

      Each
        notice pursuant to this Section shall be accompanied by a statement of a
        Responsible Officer setting forth details of the occurrence referred to therein
        and stating what action the Borrower or the relevant Subsidiary proposes
        to take
        with respect thereto.

       

      5.8 Environmental
        Laws.
        (a)
        Comply in all material respects with, and endeavor to ensure compliance in
        all
        material respects by all tenants and subtenants, if any, with, all applicable
        Environmental Laws, and obtain and comply in all material respects with and
        maintain, and endeavor to ensure that all tenants and subtenants obtain and
        comply in all material respects with and maintain, any and all licenses,
        approvals, notifications, registrations or permits required by applicable
        Environmental Laws.

       

      (b) Conduct
        and complete all investigations, studies, sampling and testing, and all
        remedial, removal and other actions required under Environmental Laws and
        promptly comply in all material respects with all lawful orders and directives
        of all Governmental Authorities regarding Environmental Laws.

       

      
        
           

        

        
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      5.9 Interest
        Rate Protection.
        In the
        case of the Borrower, within 120 days after the Closing Date, enter into,
        and thereafter maintain for a period of not less than three years, Hedge
        Agreements to the extent necessary to provide that at least 30% of the aggregate
        principal amount of the Loans is subject to either a fixed interest rate
        or
        interest rate protection for a period of not less than three years, which
        such
        Hedge Agreements shall have terms and conditions reasonably satisfactory
        to the
        Administrative Agent; provided
        that
        Lehman Brothers Special Financing shall have been afforded an opportunity
        to
        provide such Hedge Agreements on terms satisfactory to the Borrower in its
        reasonable discretion.

       

      5.10 Additional
        Collateral, etc. (a)
        With respect to any Property acquired after the Closing Date by any Subsidiary
        (other than (x) any real property or any Property described in
        paragraph (c) of this Section, (y) any Property subject to a Lien expressly
        permitted by Section 6.3(g) and (z) Property acquired by an Excluded
        Foreign Subsidiary) as to which the Administrative Agent, for the benefit
        of the
        Secured Parties, does not have a perfected Lien, promptly (i) execute and
        deliver to the Administrative Agent such amendments to the Guarantee and
        Collateral Agreement or such other documents as the Administrative Agent
        deems
        necessary to grant to the Administrative Agent, for the benefit of the Secured
        Parties, a security interest in such Property and (ii) take all actions
        necessary to grant to the Administrative Agent, for the benefit of the Secured
        Parties, a perfected first priority security interest in such Property,
        including without limitation, the filing of UCC financing statements in such
        jurisdictions as may be required by the Guarantee and Collateral Agreement
        or by
        law.

       

      (b) With
        respect to any fee interest in any real property having a value (together
        with
        improvements thereof) of at least $1,000,000 acquired after the Closing Date
        by
        any Subsidiary (other than any such real property owned by an Excluded Foreign
        Subsidiary or subject to a Lien expressly permitted by Section 6.3(g)),
        promptly (i) execute and deliver a first priority Mortgage in favor of the
        Administrative Agent, for the benefit of the Secured Parties, covering such
        real
        property, (ii) if requested by the Administrative Agent, provide the
        Lenders with (x) title and extended coverage insurance covering such real
        property in an amount at least equal to the purchase price of such real property
        (or such other amount as shall be reasonably specified by the Administrative
        Agent) as well as a current ALTA survey thereof, together with a surveyor’s
        certificate and (y) any consents or estoppels reasonably deemed necessary
        by the Administrative Agent in connection with such Mortgage, each of the
        foregoing in form and substance reasonably satisfactory to the Administrative
        Agent and (iii) if requested by the Administrative Agent, deliver to the
        Administrative Agent legal opinions relating to the matters described above,
        which opinions shall be in form and substance, and from counsel, reasonably
        satisfactory to the Administrative Agent.

       

      (c) With
        respect to any new Subsidiary (other than an Excluded Foreign Subsidiary)
        created or acquired after the Closing Date (which, for the purposes of this
        paragraph, shall include any existing Subsidiary that ceases to be an Excluded
        Foreign Subsidiary), by the Borrower or any of its Subsidiaries, promptly
        (i) execute and deliver to the Administrative Agent such amendments to the
        Guarantee and Collateral Agreement as the Administrative Agent deems necessary
        or advisable to grant to the Administrative Agent, for the benefit of the
        Secured Parties, a perfected first priority security interest in the Capital
        Stock of such new Subsidiary that is owned by the Borrower or any of its
        Subsidiaries, (ii) deliver to the Administrative Agent the certificates
        representing such Capital Stock, together with undated stock powers, in blank,
        executed and delivered by a duly authorized officer of the Borrower or such
        Subsidiary, as the case may be, (iii) cause such new Subsidiary (A) to
        become a party to the Guarantee and Collateral Agreement and (B) to take
        such actions necessary or advisable to grant to the Administrative Agent
        for the
        benefit of the Secured Parties a perfected first priority security interest
        in
        the Collateral described in the Guarantee and Collateral Agreement with respect
        to such new Subsidiary, including, without limitation, the filing of UCC
        financing statements in such jurisdictions as may be required by the Guarantee
        and Collateral Agreement or by law or as may be requested by the Administrative
        Agent, and (iv) if requested by the Administrative Agent, deliver to the
        Administrative Agent legal opinions relating to the matters described above,
        which opinions shall be in form and substance, and from counsel, reasonably
        satisfactory to the Administrative Agent.

       

      
        
           

        

        
          42

          
            

          

        

        
           

        

         

      

      (d) With
        respect to any new Excluded Foreign Subsidiary created or acquired after
        the
        Closing Date by the Borrower or any of its Subsidiaries (other than any Excluded
        Foreign Subsidiaries), promptly (i) execute and deliver to the
        Administrative Agent such amendments to the Guarantee and Collateral Agreement
        or such other documents as the Administrative Agent deems necessary or advisable
        in order to grant to the Administrative Agent, for the benefit of the Secured
        Parties, a perfected first priority security interest in the Capital Stock
        of
        such new Subsidiary that is owned by the Borrower or any of its Subsidiaries
        (other than any Excluded Foreign Subsidiaries), (provided
        that in
        no event shall more than 65% of the total outstanding Capital Stock of any
        such
        new Excluded Foreign Subsidiary be required to be so pledged), (ii) deliver
        to the Administrative Agent the certificates representing such Capital Stock,
        together with undated stock powers, in blank, executed and delivered by a
        duly
        authorized officer of the Borrower or such Subsidiary, as the case may be,
        and
        take such other action as may be necessary or, in the opinion of the
        Administrative Agent, desirable to perfect the Lien of the Administrative
        Agent
        thereon, and (iii) if requested by the Administrative Agent, deliver to the
        Administrative Agent legal opinions relating to the matters described above,
        which opinions shall be in form and substance, and from counsel, reasonably
        satisfactory to the Administrative Agent.

       

      5.11 Further
        Assurances.
        From
        time to time execute and deliver, or cause to be executed and delivered,
        such
        additional instruments, certificates or documents, and take such actions,
        as the
        Administrative Agent may reasonably request for the purposes of implementing
        or
        effectuating the provisions of this Agreement and the other Loan Documents,
        or
        of more fully perfecting or renewing the rights of the Administrative Agent
        and
        the Lenders with respect to the Collateral (or with respect to any additions
        thereto or replacements or proceeds thereof or with respect to any other
        property or assets hereafter acquired by the Borrower or any Subsidiary which
        may be deemed to be part of the Collateral) pursuant hereto or thereto. Upon
        the
        exercise by the Administrative Agent or any Lender of any power, right,
        privilege or remedy pursuant to this Agreement or the other Loan Documents
        which
        requires any consent, approval, recording, qualification or authorization
        of any
        Governmental Authority, the Borrower will execute and deliver, or will cause
        the
        execution and delivery of, all applications, certifications, instruments
        and
        other documents and papers that the Administrative Agent or such Lender may
        be
        required to obtain from the Borrower or any of its Subsidiaries for such
        governmental consent, approval, recording, qualification or
        authorization.

       

      SECTION 6. NEGATIVE
        COVENANTS

       

      The
        Borrower hereby agrees that, so long as any Loan or other amount is owing
        to any
        Lender or the Administrative Agent hereunder, the Borrower shall not, and
        shall
        not permit any of its Subsidiaries to, directly or indirectly:

       

      6.1 Total
        Leverage Ratio.
        Permit
        the Total Leverage Ratio as at the last day of any period of four consecutive
        fiscal quarters of the Borrower (or, if less, the number of full fiscal quarters
        subsequent to the Closing Date) ending with any fiscal quarter during the
        period
        set forth below to exceed the ratio set forth below opposite such fiscal
        quarter:

       

      
        
           

        

        
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                Fiscal
                  Period

              	 	
                Total
                  Leverage Ratio

              	 
	
                June
                  30, 2007 - December 31, 2007

              	 	 	
                5.00:1.00

              	 
	
                March
                  31, 2008 -December 31, 2008

              	 	 	
                4.75:1.00

              	 
	
                March
                  31, 2009 -December 31, 2009

              	 	 	
                4.50:1.00

              	 
	
                March
                  31, 2010 -December 31, 2010

              	 	 	
                4.25:1.00

              	 
	
                March
                  31, 2011 and thereafter

              	 	 	
                4.00:1.00

              	 

      

      

      ;
        provided,
        that
        for the purposes of determining the ratio described above for the fiscal
        quarters of the Borrower ending June 30, 2007, September 30. 2007 and December
        31, 2007, Consolidated EBITDA for the relevant period shall be deemed to
        equal
        Consolidated EBITDA for such fiscal quarter multiplied
        by
        4, 2 and
        4/3, respectively.

       

      6.2 Limitation
        on Indebtedness.
        Create,
        incur, assume or suffer to exist any Indebtedness, except:

       

      (a) Indebtedness
        of any Loan Party pursuant to any Loan Document;

       

      (b) Indebtedness
        of any Wholly Owned Subsidiary Guarantor to the Borrower or any other
        Subsidiary;

       

      (c) Indebtedness
        (including, without limitation, Capital Lease Obligations) secured by Liens
        permitted by Section 6.3(g) in an aggregate principal amount not to exceed
        $10,000,000 at any one time outstanding;

       

      (d) Indebtedness
        outstanding on the date hereof and listed on Schedule 6.2(d) and any
        refinancings, refundings, renewals or extensions thereof (without any increase
        in the principal amount thereof or any shortening of the maturity of any
        principal amount thereof);

       

      (e) Guarantee
        Obligations made in the ordinary course of business by the Borrower or any
        of
        its Subsidiaries of obligations of any Subsidiary Guarantor;

       

      (f) Guarantee
        Obligations made in the ordinary course of business by the Borrower of
        obligations of any Unrestricted Subsidiary in an aggregate amount, together
        with
        any Investment made pursuant to Section 6.8(k) and any Restricted Cash used
        to
        fund a Permitted Unrestricted Subsidiary Acquisition, not to exceed $50,000,000
        plus the Retained Excess Cash Flow Amount during the term of this
        Agreement;

       

      (g) unsecured,
        senior subordinated or subordinated Indebtedness of the Borrower (including
        guarantees thereof by any Subsidiary Guarantor) (such Indebtedness and/or
        guarantees incurred under this clause (g) or refinancings thereof being
        collectively referred to as the “Permitted
        Subordinated Indebtedness”);
        provided
        that (i)
        no scheduled principal payments, prepayments, redemptions or sinking fund
        or
        like payments of any Permitted Subordinated Indebtedness shall be required
        prior
        to the date at least 180 days after the Loan Maturity Date (or, if any
        Incremental Loans are outstanding at the time of such incurrence, the
        Incremental Loan Maturity Date, if later) (unless such Indebtedness constitutes
        a Permitted Convertible Notes Offering, in which case the maturity can be
        five
        years, provided that the Loans shall become due and payable six months prior
        to
        the maturity date of such Permitted Convertible Notes Offering) , (ii) the
        terms
        of subordination applicable to any Permitted Subordinated Indebtedness shall
        be
        reasonably satisfactory to the Administrative Agent and shall, in any event,
        define “senior indebtedness” or a similar phrase for purposes thereof to include
        all of the Obligations of the Loan Parties, (iii) no Default or Event of
        Default
        shall have occurred and be continuing at the time of incurrence of such
        Indebtedness or would result therefrom and (iv) after giving effect to the
        incurrence of such Permitted Subordinated Indebtedness, the Borrower shall
        be in
pro forma
        compliance with Section 6.1; 

       

      
        
           

        

        
          44

          
            

          

        

        
           

        

         

      

      (h) (i)
        obligations of the Borrower for any Earn-Out Consideration under the Acquisition
        Documentation and (ii) obligations of the Borrower or any of its Subsidiaries
        for any other Earn-Out Consideration payable in cash in an aggregate amount
        (for
        this clause (ii)) not to exceed the greater of $10,000,000 or 50% of the
        initial
        purchase price of the relevant Permitted Acquisition Transaction; and

       

      (i) additional
        Indebtedness of the Borrower or any of its Subsidiaries in an aggregate
        principal amount (for the Borrower and all Subsidiaries) not to exceed
        $5,000,000 at any one time outstanding.

       

      6.3 Limitation
        on Liens.
        Create,
        incur, assume or suffer to exist any Lien upon any of its Property, whether
        now
        owned or hereafter acquired, except for:

       

      (a) Liens
        for
        taxes not yet due or that are being contested in good faith by appropriate
        proceedings, provided
        that
        adequate reserves with respect thereto are maintained on the books of the
        Borrower or its Subsidiaries, as the case may be, in conformity with
        GAAP;

       

      (b) carriers’,
        warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens
        arising in the ordinary course of business;

       

      (c) pledges
        or deposits in connection with workers’ compensation, unemployment insurance and
        other social security legislation;

       

      (d) deposits
        to secure the performance of bids, trade contracts (other than for borrowed
        money), leases, statutory obligations, surety and appeal bonds, including
        the
        Replevin Bond, performance bonds and other obligations of a like nature incurred
        in the ordinary course of business;

       

      (e) easements,
        rights-of-way, restrictions and other similar encumbrances incurred in the
        ordinary course of business that do not materially interfere with the ordinary
        conduct of the business of the Borrower or any of its Subsidiaries;

       

      (f) Liens
        in
        existence on the date hereof listed on Schedule 6.3(f), securing Indebtedness
        permitted by Section 6.2(d), provided
        that no
        such Lien is spread to cover any additional Property after the Closing Date
        and
        that the amount of Indebtedness secured thereby is not increased;

       

      (g) Liens
        securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant
        to Section 6.2(c) to finance the acquisition of fixed or capital assets,
provided
        that
        (i) such Liens shall be created substantially simultaneously with the
        acquisition of such fixed or capital assets, (ii) such Liens do not at any
        time encumber any Property other than the Property financed by such Indebtedness
        and (iii) the amount of Indebtedness secured thereby is not
        increased;

       

      (h) Liens
        created pursuant to the Security Documents;

       

      
        
           

        

        
          45

          
            

          

        

        
           

        

         

      

      (i) any
        interest or title of a lessor under any lease entered into by the Borrower
        or
        any other Subsidiary in the ordinary course of its business and covering
        only
        the assets so leased; 

       

      (j) Liens
        on
        the Capital Stock of any Unrestricted Subsidiary to secure the Guarantee
        Obligations of the Borrower with respect to such Unrestricted Subsidiary
        permitted by Section 6.2(f); 

       

      (k) Liens
        not
        otherwise permitted by this Section so long as neither (i) the
        aggregate outstanding principal amount of the obligations secured thereby
        nor
        (ii) the aggregate fair market value (determined, in the case of each such
        Lien, as of the date such Lien is incurred) of the assets subject thereto
        exceeds (as to the Borrower and all Subsidiaries) $5,000,000 at any one
        time;

       

      (l) any
        Lien
        with respect to the Dan River Agreement; 

       

      (m) Liens
        on
        Unrestricted Cash;

       

      (n) the
        interests of licensees under license agreements entered into in the ordinary
        course of business; and

       

      (o) (i)
        Liens
        granted by the Borrower in favor of Unrestricted Subsidiaries in connection
        with
        Permitted Securitization Transactions and Permitted Unrestricted Subsidiary
        Acquisitions and (ii) Liens granted by the Borrower in favor of Restricted
        Subsidiaries in connection with Permitted Acquisitions and Permitted Foreign
        Subsidiary Acquisitions. 

       

      6.4 Limitation
        on Fundamental Changes.
        Enter
        into any merger, consolidation or amalgamation, or liquidate, wind up or
        dissolve itself (or suffer any liquidation or dissolution), or Dispose of
        all or
        substantially all of its Property or business, except that:

       

      (a) any
        Subsidiary of the Borrower may be merged or consolidated with or into any
        Wholly
        Owned Subsidiary Guarantor (provided
        that
        (i) the Wholly Owned Subsidiary Guarantor shall be the continuing or
        surviving entity or (ii) simultaneously with such transaction, the
        continuing or surviving entity shall become a Wholly Owned Subsidiary Guarantor
        and the Borrower shall comply with Section 5.10 in connection therewith);
        and

       

      (b) any
        Subsidiary of the Borrower may Dispose of any or all of its assets (upon
        voluntary liquidation or otherwise) to any Wholly Owned Subsidiary
        Guarantor.

       

      6.5 Limitation
        on Disposition of Property.
        Dispose
        of any of its Property (including, without limitation, receivables and leasehold
        interests), whether now owned or hereafter acquired, or, in the case of any
        Subsidiary, issue or sell any shares of such Subsidiary’s Capital Stock to any
        Person, except:

       

      (a) the
        Disposition of obsolete or worn out Property in the ordinary course of
        business;

       

      (b) the
        sale
        of inventory in the ordinary course of business;

       

      (c) the
        Disposition of cash for payment of any Earn-Out Consideration obligations
        permitted by Section 6.2(h) to the extent related to Permitted Acquisitions
        and
        Permitted Foreign Subsidiary Acquisitions;

       

      
        
           

        

        
          46

          
            

          

        

        
           

        

         

      

      (d) Dispositions
        permitted by Section 6.4(b);

       

      (e) the
        Disposition of any or all of the assets of the Borrower to any Wholly Owned
        Subsidiary Guarantor;

       

      (f) the
        sale
        or issuance of any Subsidiary’s Capital Stock to the Borrower or any Subsidiary
        Guarantor;

       

      (g) the
        Disposition of the Capital Stock of any Unrestricted Subsidiary or its
        assets;

       

      (h) Permitted
        Securitization Transactions;

       

      (i) Permitted
        Unrestricted Subsidiary Acquisitions;

       

      (j) the
        Disposition of other assets having a fair market value not to exceed $10,000,000
        in the aggregate for any of the Borrower’s fiscal years; 

       

      (k) any
        Recovery Event, provided,
        that
        the requirements of Section 2.7(b) are complied with in connection
        therewith; 

       

      (l) Dispositions
        of Unrestricted Cash; 

       

      (m) licenses
        of Intellectual Property in the ordinary course of business; and

       

      (n) Permitted
        Foreign Subsidiary Acquisitions.

       

      6.6 Limitation
        on Restricted Payments.
        Declare
        or pay any dividend on, or make any payment on account of, or set apart assets
        for a sinking or other analogous fund for, the purchase, redemption, defeasance,
        retirement or other acquisition of, any Capital Stock of the Borrower or
        any
        Subsidiary, whether now or hereafter outstanding, or make any other distribution
        in respect thereof, either directly or indirectly, whether in cash or property
        or in obligations of the Borrower or any Subsidiary, or enter into any
        derivatives or other transaction with any financial institution, commodities
        or
        stock exchange or clearinghouse (a “Derivatives
        Counterparty”)
        obligating the Borrower or any Subsidiary to make payments to such Derivatives
        Counterparty as a result of any change in market value of any such Capital
        Stock
        (collectively, “Restricted
        Payments”),
        except that:

       

      (a) any
        Subsidiary may make Restricted Payments to any Wholly Owned Subsidiary Guarantor
        or the Borrower;

       

      (b) the
        Borrower may make Restricted Payments with Unrestricted Cash; and

       

      (c) the
        Borrower may make Restricted Payments in an aggregate amount not to exceed
        $5,000,000 plus, if the Total Leverage Ratio as of the last day of the most
        recent fiscal quarter for which financial statements have been delivered
        pursuant to Section 5.1 (after giving pro forma effect to the making of
        such Restricted Payment) is less than 2.50:1.00, the Retained Excess Cash
        Flow
        Amount; and

       

      (d) the
        Borrower may purchase the Borrower’s common stock or common stock options from
        present or former officers or employees of the Borrower or any Subsidiary
        upon
        the death, disability or termination of employment of such officer or employee,
        provided,
        that
        the aggregate amount of payments under this paragraph subsequent to the date
        hereof (net of any proceeds received by the Borrower subsequent to the date
        hereof in connection with resales of any common stock or common stock options
        so
        purchased) shall not exceed $5,000,000.

       

      
        
           

        

        
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      6.7 Limitation
        on Capital Expenditures.
        Make or
        commit to make any Capital Expenditure, except (i) Capital Expenditures of
        the Borrower and its Subsidiaries in the ordinary course of business not
        exceeding $5,000,000 per fiscal year; provided, that (x) up to $2,500,000
        of any such amount referred to above, if not so expended in the fiscal year
        for
        which it is permitted, may be carried over for expenditure in the next
        succeeding fiscal year and (y) Capital Expenditures made pursuant to this
        Section during any fiscal year shall be deemed made, first, in respect of
        amounts permitted for such fiscal year as provided above and second, in respect
        of amounts carried over from the prior fiscal year pursuant to clause (x)
        above; and (ii) Capital Expenditures made with Unrestricted Cash.

       

      6.8 Limitation
        on Investments.
        Make
        any advance, loan, extension of credit (by way of guaranty or otherwise)
        or
        capital contribution to, or purchase any Capital Stock, bonds, notes, debentures
        or other debt securities of, or any assets constituting an ongoing business
        from, or make any other investment in, any other Person (all of the foregoing,
        “Investments”),
        except:

       

      (a) extensions
        of trade credit in the ordinary course of business;

       

      (b) Investments
        in Cash Equivalents;

       

      (c) Investments
        arising in connection with the incurrence of Indebtedness permitted by
        Section 6.2(b), (e) and (f);

       

      (d) loans
        and
        advances to employees of the Borrower or any Subsidiaries of the Borrower
        in the
        ordinary course of business (including, without limitation, for travel,
        entertainment and relocation expenses) in an aggregate amount for the Borrower
        and Subsidiaries of the Borrower not to exceed $1,000,000 at any one time
        outstanding;

       

      (e) the
        Acquisitions;

       

      (f) Investments
        in assets useful in the Borrower’s business made by any Wholly Owned Subsidiary
        Guarantor with the proceeds of any Reinvestment Deferred Amount; 

       

      (g) Investments
        (other than those relating to the incurrence of Indebtedness permitted by
        Section 6.8(c)) by the Borrower or any of its Subsidiaries in any Person
        that, prior to such Investment, is a Wholly Owned Subsidiary Guarantor;

       

      (h) Permitted
        Acquisitions; 

       

      (i) Permitted
        Securitization Transactions; 

       

      (j) Permitted
        Unrestricted Subsidiary Acquisitions; 

       

      (k) in
        addition to Investments otherwise expressly permitted by this Section,
        Investments by the Borrower or any of its Subsidiaries in an aggregate amount
        (valued at cost),
        together with any Guarantee Obligations of the Borrower incurred pursuant
        to
        Section 6.2(f) and any Restricted Cash used to fund a Permitted Unrestricted
        Subsidiary Acquisition, not
        to
        exceed $50,000,000 plus the Retained Excess Cash Flow Amount during the term
        of
        this Agreement; provided
        that (i)
        no Default or Event of Default shall have occurred and be continuing at the
        time
        of such Investment or shall result therefrom and (ii) the Borrower is in
        pro forma
        compliance with Section 6.1 before and after giving effect to such Investment;
        

       

      
        
           

        

        
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      (l) Investments
        (other than an acquisition of all or a majority controlling interest in the
        Capital Stock, or all or substantially all of the assets, of any Person,
        or of
        all or substantially all of the assets constituting a division, product line
        or
        business line of any Person) made with Unrestricted Cash;

       

      (m) Permitted
        Foreign Subsidiary Acquisitions; and

       

      (n) Investments
        pursuant to the Rocawear Joint Venture Agreement made on the Closing Date
        and
        any future Investments made pursuant to the Rocawear Joint Venture Agreement,
        which future Investments shall not exceed $5,000,000 in the
        aggregate.

       

      6.9 Limitation
        on Optional Payments and Modifications of Debt Instruments, etc. (a)
        Make or offer to make any optional or voluntary payment, prepayment, repurchase
        or redemption of, or otherwise voluntarily or optionally defease, any Permitted
        Subordinated Indebtedness, or segregate funds for any such payment, prepayment,
        repurchase, redemption or defeasance, or enter into any derivative or other
        transaction with any Derivatives Counterparty obligating the Borrower or
        any
        Subsidiary to make payments to such Derivatives Counterparty as a result
        of any
        change in market value of any Permitted Subordinated Indebtedness, (b) amend,
        modify or otherwise change, or consent or agree to any amendment, modification,
        waiver or other change to, any of the terms of any Permitted Subordinated
        Indebtedness (other than any such amendment, modification, waiver or other
        change which (i) would extend the maturity or reduce the amount of any payment
        of principal thereof, reduce the rate or extend the date for payment of interest
        thereon or relax any covenant or other restriction applicable to the Borrower
        or
        any of its Subsidiaries and (ii) does not involve the payment of a consent
        fee),
        (c) designate any Indebtedness of the Borrower or any of its Subsidiaries
        (other
        than the Obligations) as “Designated Senior Indebtedness” for the purposes of
        any Permitted Subordinated Indebtedness or (d) amend its certificate of
        incorporation in any manner reasonably determined by the Administrative Agent
        to
        be materially adverse to the Lenders.

       

      6.10 Limitation
        on Transactions with Affiliates.
        Enter
        into any transaction, including, without limitation, any purchase, sale,
        lease
        or exchange of Property, the rendering of any service or the payment of any
        management, advisory or similar fees, with any Affiliate (other than any
        Wholly
        Owned Subsidiary Guarantor) unless such transaction is (a) otherwise permitted
        under this Agreement, (b) in the ordinary course of business of the Borrower
        or
        such Subsidiary, as the case may be, and (c) upon fair and reasonable terms
        no
        less favorable to the Borrower or such Subsidiary, as the case may be, than
        it
        would obtain in a comparable arm’s length transaction with a Person that is not
        an Affiliate.

       

      6.11 Limitation
        on Sales and Leasebacks.
        Enter
        into any arrangement with any Person providing for the leasing by the Borrower
        or any Subsidiary of real or personal property which has been or is to be
        sold
        or transferred by the Borrower or such Subsidiary to such Person or to any
        other
        Person to whom funds have been or are to be advanced by such Person on the
        security of such property or rental obligations of the Borrower or such
        Subsidiary.

       

      6.12 Limitation
        on Changes in Fiscal Periods.
        Permit
        the fiscal year of the Borrower to end on a day other than December 31 or
        change the Borrower’s method of determining fiscal quarters, provided that the
        Borrower may make one election after the Closing Date to change its fiscal
        year
        end, if the Borrower enters into such amendments to this Agreement as the
        Administrative Agent shall request to reflect such change, including
        modifications to this Section, such that the covenants affected by such change
        shall have the same effect (or, in any case, be substantively no less favorable
        to the Lenders, in the reasonable determination of the Administrative Agent)
        after giving effect thereto as if such change were not made. The Lenders
        hereby
        authorize the Administrative Agent to enter into such amendments to effect
        such
        modifications, if any, in accordance with the provisions of this Section.
        

       

      
        
           

        

        
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      6.13 Limitation
        on Negative Pledge Clauses.
        Enter
        into or suffer to exist or become effective any agreement that prohibits
        or
        limits the ability of the Borrower or any of the Subsidiary Guarantors to
        create, incur, assume or suffer to exist any Lien upon the Collateral, whether
        now owned or hereafter acquired, to secure the Obligations or, in the case
        of
        any Subsidiary Guarantor, its obligations under the Guarantee and Collateral
        Agreement, other than (a) this Agreement and the other Loan Documents and
        (b) any agreements governing any purchase money Liens or Capital Lease
        Obligations otherwise permitted hereby (in which case, any prohibition or
        limitation shall only be effective against the assets financed
        thereby).

       

      6.14 Limitation
        on Restrictions on Subsidiary Distributions.
        Enter
        into or suffer to exist or become effective any consensual encumbrance or
        restriction on the ability of any Subsidiary to (a) make Restricted
        Payments in respect of any Capital Stock of such Subsidiary held by, or pay
        any
        Indebtedness owed to, the Borrower or any other Subsidiary, (b) make
        Investments in the Borrower or any other Subsidiary or (c) transfer any of
        its assets to the Borrower or any other Subsidiary, except for such encumbrances
        or restrictions existing under or by reason of (i) any restrictions
        existing under the Loan Documents, (ii) any restrictions with respect to a
        Subsidiary imposed pursuant to an agreement that has been entered into in
        connection with the Disposition of all or substantially all of the Capital
        Stock
        or assets of such Subsidiary and (iii) restrictions with respect to
        distributions by any Foreign Subsidiary.

       

      6.15 Limitation
        on Lines of Business.
        Enter
        into any business, either directly or through any Subsidiary, except for
        (i)
        those businesses in which the Borrower and its Subsidiaries are engaged on
        the
        date of this Agreement (after giving effect to the Acquisitions) or that
        are
        reasonably related thereto and (ii) those businesses in which the Borrower
        and
        its Subsidiaries are not engaged on the date of this Agreement if (x) such
        businesses are acquired in connection with a Permitted Acquisition Transaction
        and (y) the Borrower intends to Dispose of such businesses or otherwise
        transition such businesses into the licensing business or businesses reasonably
        related thereto.

       

      6.16 Limitation
        on Amendments to Acquisition Documentation.
        (a) Amend, supplement or otherwise modify (pursuant to a waiver or
        otherwise) the terms and conditions of the indemnities and licenses (other
        than
        the Wal-Mart License Agreement) furnished to the Borrower or any of its
        Subsidiaries pursuant to the Acquisition Documentation such that after giving
        effect thereto such indemnities or licenses shall be materially less favorable
        to the interests of the Loan Parties or the Lenders with respect thereto
        or
        (b) otherwise amend, supplement or otherwise modify the terms and
        conditions of the Acquisition Documentation except to the extent that any
        such
        amendment, supplement or modification could not reasonably be expected to
        have a
        Material Adverse Effect or amend or otherwise modify the terms and conditions
        of
        any Specified License Agreement (other than the Wal-Mart License Agreement)
        such
        that after giving effect thereto such Specified License Agreement shall be
        materially less favorable to the interests of the Loan Parties or the Lenders
        with respect thereto.

       

      6.17 Limitation
        on Hedge Agreements.
        Enter
        into any Hedge Agreement other than Hedge Agreements entered into in the
        ordinary course of business, and not for speculative purposes, to protect
        against changes in interest rates or foreign exchange rates. 

       

      
        
           

        

        
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      SECTION 7. EVENTS
        OF
        DEFAULT

       

      If
        any of
        the following events shall occur and be continuing:

       

      (a) the
        Borrower shall fail to pay any principal of any Loan when due in accordance
        with
        the terms hereof; or the Borrower shall fail to pay any interest on any Loan,
        or
        any other amount payable hereunder or under any other Loan Document, within
        five
        days after any such interest or other amount becomes due in accordance with
        the
        terms hereof or thereof; or

       

      (b) any
        representation or warranty made or deemed made by any Loan Party herein or
        in
        any other Loan Document or that is contained in any certificate, document
        or
        financial or other statement furnished by it at any time under or in connection
        with this Agreement or any such other Loan Document shall prove to have been
        inaccurate in any material respect on or as of the date made or deemed made
        or
        furnished; or

       

      (c) any
        Loan
        Party shall default in the observance or performance of any agreement contained
        in clause (i) of Section 5.4(a) (with respect to the Borrower only),
        Section 5.7(a) or Section 6 of this Agreement; or

       

      (d) any
        Loan
        Party shall default in the observance or performance of any other agreement
        contained in this Agreement or any other Loan Document (other than as provided
        in paragraphs (a) through (c) of this Section), and such default shall
        continue unremedied for a period of 30 days; or

       

      (e) the
        Borrower or any of its Subsidiaries shall (i) default in making any payment
        of any principal of any Indebtedness (including, without limitation, any
        Guarantee Obligation, but excluding the Loans) on the scheduled or original
        due
        date with respect thereto; or (ii) default in making any payment of any
        interest on any such Indebtedness beyond the period of grace, if any, provided
        in the instrument or agreement under which such Indebtedness was created;
        or
        (iii) default in the observance or performance of any other agreement or
        condition relating to any such Indebtedness or contained in any instrument
        or
        agreement evidencing, securing or relating thereto, or any other event shall
        occur or condition exist, the effect of which default or other event or
        condition is to cause, or to permit the holder or beneficiary of such
        Indebtedness (or a trustee or agent on behalf of such holder or beneficiary)
        to
        cause, with the giving of notice if required, such Indebtedness to become
        due
        prior to its stated maturity or to become subject to a mandatory offer to
        purchase by the obligor thereunder or (in the case of any such Indebtedness
        constituting a Guarantee Obligation) to become payable; provided,
        that a
        default, event or condition described in clause (i), (ii) or (iii) of this
        paragraph (e) shall not at any time constitute an Event of Default unless,
        at such time, one or more defaults, events or conditions of the type described
        in clauses (i), (ii) and (iii) of this paragraph (e) shall have
        occurred and be continuing with respect to Indebtedness the outstanding
        principal amount of which exceeds in the aggregate $25,000,000; or

       

      (f) (i) the
        Borrower or any of its Subsidiaries shall commence any case, proceeding or
        other
        action (A) under any existing or future law of any jurisdiction, domestic
        or foreign, relating to bankruptcy, insolvency, reorganization or relief
        of
        debtors, seeking to have an order for relief entered with respect to it,
        or
        seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization,
        arrangement, adjustment, winding-up, liquidation, dissolution, composition
        or
        other relief with respect to it or its debts, or (B) seeking appointment of
        a receiver, trustee, custodian, conservator or other similar official for
        it or
        for all or any substantial part of its assets, or , the Borrower or any of
        its
        Subsidiaries shall make a general assignment for the benefit of its creditors;
        or (ii) there shall be commenced against, the Borrower or any of its
        Subsidiaries any case, proceeding or other action of a nature referred to
        in
        clause (i) above that (A) results in the entry of an order for relief
        or any such adjudication or appointment or (B) remains undismissed,
        undischarged or unbonded for a period of 60 days; or (iii) there shall
        be commenced against, the Borrower or any of its Subsidiaries any case,
        proceeding or other action seeking issuance of a warrant of attachment,
        execution, distraint or similar process against all or any substantial part
        of
        its assets that results in the entry of an order for any such relief that
        shall
        not have been vacated, discharged, or stayed or bonded pending appeal within
        60 days from the entry thereof; or (iv), the Borrower or any of its
        Subsidiaries shall take any action in furtherance of, or indicating its consent
        to, approval of, or acquiescence in, any of the acts set forth in
        clause (i), (ii), or (iii) above; or (v), the Borrower or any of its
        Subsidiaries shall generally not, or shall be unable to, or shall admit in
        writing its inability to, pay its debts as they become due; or

       

      
        
           

        

        
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      (g) (i) any
        Person shall engage in any “prohibited transaction” (as defined in
        Section 406 of ERISA or Section 4975 of the Code) involving any Plan,
        (ii) any “accumulated funding deficiency” (as defined in Section 302
        of ERISA), whether or not waived, shall exist with respect to any Plan, or
        any
        Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower
        or
        any Commonly Controlled Entity, (iii) a Reportable Event shall occur with
        respect to, or proceedings shall commence to have a trustee appointed, or
        a
        trustee shall be appointed, to administer or to terminate, any Single Employer
        Plan, which Reportable Event or commencement of proceedings or appointment
        of a
        trustee is, in the reasonable opinion of the Required Lenders, likely to
        result
        in the termination of such Plan for purposes of Title IV of ERISA,
        (iv) any Single Employer Plan shall terminate for purposes of Title IV
        of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in
        the reasonable opinion of the Required Lenders shall be likely to, incur
        any
        liability in connection with a withdrawal from, or the Insolvency or
        Reorganization of, a Multiemployer Plan or (vi) any other event or
        condition shall occur or exist with respect to a Plan; and in each case in
        clauses (i) through (vi) above, such event or condition, together with all
        other such events or conditions, if any, could, in the sole judgment of the
        Required Lenders, reasonably be expected to have a Material Adverse Effect;
        or

       

      (h) one
        or
        more judgments or decrees shall be entered against the Borrower or any of
        its
        Subsidiaries involving for the Borrower and its Subsidiaries taken as a whole
        a
        liability (not paid or fully covered by insurance as to which the relevant
        insurance company has acknowledged coverage) of $25,000,000 or more, and
        all
        such judgments or decrees shall not have been vacated, discharged, stayed
        or
        bonded pending appeal within 30 days from the entry thereof;
        or

       

      (i) any
        of
        the Security Documents shall cease, for any reason (other than by reason
        of the
        express release thereof pursuant to Section 9.15), to be in full force and
        effect, or any Loan Party or any Affiliate of any Loan Party shall so assert,
        or
        any Lien created by any of the Security Documents shall cease to be enforceable
        and of the same effect and priority purported to be created thereby;
        or

       

      (j) the
        guarantee contained in Section 2 of the Guarantee and Collateral Agreement
        shall cease, for any reason (other than by reason of the express release
        thereof
        pursuant to Section 9.15), to be in full force and effect or any Loan Party
        or any Affiliate of any Loan Party shall so assert; or

       

      (k) any
        Change of Control shall occur; or

       

      
        
           

        

        
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      (l) (i)
        any
        Specified License Agreement shall terminate or otherwise cease, for any reason,
        to be in full force and effect or cease to be the legally valid, binding
        and
        enforceable obligation of any Person party thereto; (ii) any Person party
        thereto shall, directly or indirectly, contest such effectiveness, validity,
        binding nature or enforceability by the filing of a claim, complaint or notice
        with an arbitrator or any court or other Governmental Authority; (iii) any
        party
        to a Specified License Agreement shall fail to perform or observe the material
        terms or conditions thereof (including, without limitation, the payment terms
        and conditions) or shall breach or otherwise be in default thereunder, in
        any
        case, beyond any applicable grace period expressly provided for in such
        Specified License Agreement, and any such party pursues a right of termination
        that could reasonably be expected to be successful in a court of law; or
        (iv)
        any party to a Specified License Agreement shall assign (or permit any
        counterparty to assign) any of its rights or obligations under any Specified
        License Agreement other than an assignment to an Affiliate of such party
        so long
        as such assignment is permitted by the applicable Specified License Agreement
        and is not and could not reasonably be expected to be materially adverse
        to the
        Lenders; provided that it shall not be an Event of Default under this paragraph
        if (x) the Borrower shall be in pro forma
        compliance with Section 6.1 (calculated without giving effect to such Specified
        License Agreement) or (y) such Specified License Agreement is replaced (whether
        or not with the same or different parties or the same or different trademarks)
        on or prior to the date that occurs 90 days after any event specified in
        this
        paragraph and such replacement contract is for a period of at least two years
        and provides revenue to the applicable Subsidiary in an amount equal to at
        least
        the amount that would cause the Borrower to be in pro forma
        compliance
        with Section 6.1 (calculated after giving effect to such
        replacement);

      

      then,
        and
        in any such event, (A) if such event is an Event of Default specified in
        clause (i) or (ii) of paragraph (f) above with respect to the
        Borrower, automatically the Commitments shall immediately terminate and the
        Loans hereunder (with accrued interest thereon) and all other amounts owing
        under this Agreement and the other Loan Documents shall immediately become
        due
        and payable, and (B) if such event is any other Event of Default, with the
        consent of the Required Lenders, the Administrative Agent may, or upon the
        request of the Required Lenders, the Administrative Agent shall, by notice
        to
        the Borrower, declare the Loans hereunder (with accrued interest thereon)
        and
        all other amounts owing under this Agreement and the other Loan Documents
        to be
        due and payable forthwith, whereupon the same shall immediately become due
        and
        payable.

       

      SECTION 8. THE
        ADMINISTRATIVE AGENT

       

      8.1 Appointment.
        Each
        Lender hereby irrevocably designates and appoints the Administrative Agent
        as
        the agent of such Lender under this Agreement and the other Loan Documents,
        and
        each Lender irrevocably authorizes the Administrative Agent, in such capacity,
        to take such action on its behalf under the provisions of this Agreement
        and the
        other Loan Documents and to exercise such powers and perform such duties
        as are
        expressly delegated to the Administrative Agent by the terms of this Agreement
        and the other Loan Documents, together with such other powers as are reasonably
        incidental thereto. Notwithstanding any provision to the contrary elsewhere
        in
        this Agreement, the Administrative Agent shall have no duties or
        responsibilities, except those expressly set forth herein, or any fiduciary
        relationship with any Lender, and no implied covenants, functions,
        responsibilities, duties, obligations or liabilities shall be read into this
        Agreement or any other Loan Document or otherwise exist against the
        Administrative Agent.

       

      8.2 Delegation
        of Duties.
        The
        Administrative Agent may execute any of its duties under this Agreement and
        the
        other Loan Documents by or through agents or attorneys-in-fact and shall
        be
        entitled to advice of counsel concerning all matters pertaining to such duties.
        The Administrative Agent shall not be responsible for the negligence or
        misconduct of any agents or attorneys-in-fact selected by it with reasonable
        care.

       

      
        
           

        

        
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      8.3 Exculpatory
        Provisions.
        Neither
        the Administrative Agent nor any of its officers, directors, employees, agents,
        attorneys-in-fact or affiliates shall be (i) liable for any action lawfully
        taken or omitted to be taken by it or such Person under or in connection
        with
        this Agreement or any other Loan Document (except to the extent that any
        of the
        foregoing are found by a final and nonappealable decision of a court of
        competent jurisdiction to have resulted from its or such Person’s own gross
        negligence or willful misconduct) or (ii) responsible in any manner to any
        of the Lenders for any recitals, statements, representations or warranties
        made
        by any Loan Party or any officer thereof contained in this Agreement or any
        other Loan Document or in any certificate, report, statement or other document
        referred to or provided for in, or received by the Administrative Agent under
        or
        in connection with, this Agreement or any other Loan Document or for the
        value,
        validity, effectiveness, genuineness, enforceability or sufficiency of this
        Agreement or any other Loan Document or for any failure of any Loan Party
        to
        perform its obligations hereunder or thereunder. The Administrative Agent
        shall
        not be under any obligation to any Lender to ascertain or to inquire as to
        the
        observance or performance of any of the agreements contained in, or conditions
        of, this Agreement or any other Loan Document, or to inspect the properties,
        books or records of any Loan Party.

       

      8.4 Reliance
        by Administrative Agent.
        The
        Administrative Agent shall be entitled to rely, and shall be fully protected
        in
        relying, upon any instrument, writing, resolution, notice, consent, certificate,
        affidavit, letter, telecopy, telex or teletype message, statement, order
        or
        other document or conversation believed by it to be genuine and correct and
        to
        have been signed, sent or made by the proper Person or Persons and upon advice
        and statements of legal counsel (including, without limitation, counsel to
        the
        Loan Parties), independent accountants and other experts selected by the
        Administrative Agent. The Administrative Agent may deem and treat the payee
        of
        any Note as the owner thereof for all purposes unless such Note shall have
        been
        transferred in accordance with Section 9.6 and all actions required by such
        Section in connection with such transfer shall have been taken. The
        Administrative Agent shall be fully justified in failing or refusing to take
        any
        action under this Agreement or any other Loan Document unless it shall first
        receive such advice or concurrence of the Required Lenders (or, if so specified
        by this Agreement, all Lenders or any other instructing group of Lenders
        specified by this Agreement) as it deems appropriate or it shall first be
        indemnified to its satisfaction by the Lenders against any and all liability
        and
        expense that may be incurred by it by reason of taking or continuing to take
        any
        such action. The Administrative Agent shall in all cases be fully protected
        in
        acting, or in refraining from acting, under this Agreement and the other
        Loan
        Documents in accordance with a request of the Required Lenders (or, if so
        specified by this Agreement, all Lenders or any other instructing group of
        Lenders specified by this Agreement), and such request and any action taken
        or
        failure to act pursuant thereto shall be binding upon all the Lenders and
        all
        future holders of the Loans.

       

      8.5 Notice
        of Default.
        The
        Administrative Agent shall not be deemed to have knowledge or notice of the
        occurrence of any Default or Event of Default hereunder unless the
        Administrative Agent shall have received notice from a Lender or the Borrower
        referring to this Agreement, describing such Default or Event of Default
        and
        stating that such notice is a “notice of default”. In the event that the
        Administrative Agent shall receive such a notice, the Administrative Agent
        shall
        give notice thereof to the Lenders. The Administrative Agent shall take such
        action with respect to such Default or Event of Default as shall be reasonably
        directed by the Required Lenders (or, if so specified by this Agreement,
        all
        Lenders or any other instructing group of Lenders specified by this Agreement);
        provided that unless and until the Administrative Agent shall have received
        such
        directions, the Administrative Agent may (but shall not be obligated to)
        take
        such action, or refrain from taking such action, with respect to such Default
        or
        Event of Default as it shall deem advisable in the best interests of the
        Lenders.

       

      
        
           

        

        
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      8.6 Non-Reliance
        on Administrative Agent and Other Lenders.
        Each
        Lender expressly acknowledges that neither the Administrative Agent nor any
        of
        its officers, directors, employees, agents, attorneys-in-fact or affiliates
        have
        made any representations or warranties to it and that no act by the
        Administrative Agent hereafter taken, including any review of the affairs
        of a
        Loan Party or any affiliate of a Loan Party, shall be deemed to constitute
        any
        representation or warranty by any Agent to any Lender. Each Lender represents
        to
        the Administrative Agent that it has, independently and without reliance
        upon
        the Administrative Agent or any other Lender, and based on such documents
        and
        information as it has deemed appropriate, made its own appraisal of and
        investigation into the business, operations, property, financial and other
        condition and creditworthiness of the Loan Parties and their affiliates and
        made
        its own decision to make its Loans hereunder and enter into this Agreement.
        Each
        Lender also represents that it will, independently and without reliance upon
        the
        Administrative Agent or any other Lender, and based on such documents and
        information as it shall deem appropriate at the time, continue to make its
        own
        credit analysis, appraisals and decisions in taking or not taking action
        under
        this Agreement and the other Loan Documents, and to make such investigation
        as
        it deems necessary to inform itself as to the business, operations, property,
        financial and other condition and creditworthiness of the Loan Parties and
        their
        affiliates. Except for notices, reports and other documents expressly required
        to be furnished to the Lenders by the Administrative Agent hereunder, the
        Administrative Agent shall have no duty or responsibility to provide any
        Lender
        with any credit or other information concerning the business, operations,
        property, condition (financial or otherwise), prospects or creditworthiness
        of
        any Loan Party or any affiliate of a Loan Party that may come into the
        possession of the Administrative Agent or any of its officers, directors,
        employees, agents, attorneys-in-fact or affiliates.

       

      8.7 Indemnification.
        The
        Lenders agree to indemnify the Administrative Agent in its capacity as such
        (to
        the extent not reimbursed by the Borrower and without limiting the obligation
        of
        the Borrower to do so), ratably according to their respective Aggregate Exposure
        Percentages in effect on the date on which indemnification is sought under
        this
        Section (or, if indemnification is sought after the date upon which the
        Commitments shall have terminated and the Loans shall have been paid in full,
        ratably in accordance with such Aggregate Exposure Percentages immediately
        prior
        to such date), for, and to save the Administrative Agent harmless from and
        against, any and all liabilities, obligations, losses, damages, penalties,
        actions, judgments, suits, costs, expenses or disbursements of any kind
        whatsoever that may at any time (including, without limitation, at any time
        following the payment of the Loans) be imposed on, incurred by or asserted
        against the Administrative Agent in any way relating to or arising out of,
        the
        Commitments, this Agreement, any of the other Loan Documents or any documents
        contemplated by or referred to herein or therein or the transactions
        contemplated hereby or thereby or any action taken or omitted by the
        Administrative Agent under or in connection with any of the foregoing; provided
        that no Lender shall be liable for the payment of any portion of such
        liabilities, obligations, losses, damages, penalties, actions, judgments,
        suits,
        costs, expenses or disbursements that are found by a final and nonappealable
        decision of a court of competent jurisdiction to have resulted from the
        Administrative Agent’s gross negligence or willful misconduct. The agreements in
        this Section shall survive the payment of the Loans and all other amounts
        payable hereunder.

       

      8.8 Agent
        in Its Individual Capacity.
        The
        Administrative Agent and its affiliates may make loans to, accept deposits
        from
        and generally engage in any kind of business with any Loan Party as though
        the
        Administrative Agent were not the Administrative Agent. With respect to its
        Loans made or renewed by it, the Administrative Agent shall have the same
        rights
        and powers under this Agreement and the other Loan Documents as any Lender
        and
        may exercise the same as though it were not the Administrative Agent, and
        the
        terms “Lender” and “Lenders” shall include the Administrative Agent in its
        individual capacity.

       

      8.9 Successor
        Administrative Agent.
        The
        Administrative Agent may resign as Administrative Agent upon 30 days’
notice to the Lenders and the Borrower. If the Administrative Agent shall
        resign
        as Administrative Agent under this Agreement and the other Loan Documents,
        then
        the Required Lenders shall appoint from among the Lenders a successor agent
        for
        the Lenders, which successor agent shall (unless an Event of Default under
        Section 7(a) or Section 7(f) with respect to the Borrower shall have
        occurred and be continuing) be subject to approval by the Borrower (which
        approval shall not be unreasonably withheld or delayed), whereupon such
        successor agent shall succeed to the rights, powers and duties of the
        Administrative Agent, and the term “Administrative Agent” shall mean such
        successor agent effective upon such appointment and approval, and the former
        Administrative Agent’s rights, powers and duties as Administrative Agent shall
        be terminated, without any other or further act or deed on the part of such
        former Administrative Agent or any of the parties to this Agreement or any
        holders of the Loans. If no successor agent has accepted appointment as
        Administrative Agent by the date that is 30 days following a retiring
        Administrative Agent’s notice of resignation, the retiring Administrative
        Agent’s resignation shall nevertheless thereupon become effective, and the
        Lenders shall assume and perform all of the duties of the Administrative
        Agent
        hereunder until such time, if any, as the Required Lenders appoint a successor
        agent as provided for above. After any retiring Administrative Agent’s
        resignation as Administrative Agent, the provisions of this Section 8 shall
        inure to its benefit as to any actions taken or omitted to be taken by it
        while
        it was Administrative Agent under this Agreement and the other Loan
        Documents.

       

      
        
           

        

        
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      8.10 Authorization
        to Release Liens and Guarantees.
        The
        Administrative Agent is hereby irrevocably authorized by each of the Lenders
        to
        effect any release of Liens or guarantee obligations contemplated by Section
        9.15.

       

      8.11 The
        Arranger.
        Neither
        the Arranger nor the Syndication Agent, in their respective capacity as such,
        shall have any duties or responsibilities, nor shall it incur any liability,
        under this Agreement and the other Loan Documents.

       

      SECTION 9. MISCELLANEOUS

       

      9.1 Amendments
        and Waivers.
        Neither
        this Agreement or any other Loan Document, nor any terms hereof or thereof
        may
        be amended, supplemented or modified except in accordance with the provisions
        of
        this Section 9.1. The Required Lenders and each Loan Party party to the
        relevant Loan Document may, or (with the written consent of the Required
        Lenders) the Administrative Agent and each Loan Party party to the relevant
        Loan
        Document may, from time to time, (a) enter into written amendments,
        supplements or modifications hereto and to the other Loan Documents (including
        amendments and restatements hereof or thereof) for the purpose of adding
        any
        provisions to this Agreement or the other Loan Documents or changing in any
        manner the rights of the Lenders or of the Loan Parties hereunder or thereunder
        or (b) waive, on such terms and conditions as may be specified in the
        instrument of waiver, any of the requirements of this Agreement or the other
        Loan Documents or any Default or Event of Default and its consequences;
        provided, however, that no such waiver and no such amendment, supplement
        or
        modification shall:

       

      (i) forgive
        the principal amount or extend the final scheduled date of maturity of any
        Loan,
        reduce the stated rate of any interest or fee payable under this Agreement
        (except in connection with the waiver of applicability of any post-default
        increase in interest rates (which waiver shall be effective with the consent
        of
        the Required Lenders)) or extend the scheduled date of any payment thereof,
        or
        increase the amount or extend the expiration date of any Commitment of any
        Lender, in each case without the consent of each Lender directly affected
        thereby;

       

      (ii) amend,
        modify or waive any provision of this Section or reduce any percentage specified
        in the definition of Required Lenders, consent to the assignment or transfer
        by
        the Borrower of any of its rights and obligations under this Agreement and
        the
        other Loan Documents, release all or substantially all of the Collateral
        or
        release all or substantially all of the Subsidiary Guarantors from their
        guarantee obligations under the Guarantee and Collateral Agreement, in each
        case
        without the consent of all the Lenders;

       

      
        
           

        

        
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      (iii) amend,
        modify or waive any provision of Section 8, or any other provision
        affecting the rights, duties or obligations of the Administrative Agent,
        without
        the consent of the Administrative Agent;

       

      (iv) amend,
        modify or waive any provision of Section 2.13 without the consent of each
        Lender directly affected thereby; or

       

      (v) impose
        restrictions on assignments and participations that are more restrictive
        than,
        or additional to, those set forth in Section 9.6.

       

      Any
        such
        waiver and any such amendment, supplement or modification shall apply equally
        to
        each of the Lenders and shall be binding upon the Loan Parties, the Lenders,
        the
        Administrative Agent and all future holders of the Loans. In the case of
        any
        waiver, any Default or Event of Default waived shall be deemed to be cured
        and
        not continuing; but no such waiver shall extend to any subsequent or other
        Default or Event of Default, or impair any right consequent thereon. Any
        such
        waiver, amendment, supplement or modification shall be effected by a written
        instrument signed by the parties required to sign pursuant to the foregoing
        provisions of this Section; provided,
        that
        delivery of an executed signature page of any such instrument by facsimile
        transmission shall be effective as delivery of a manually executed counterpart
        thereof.

       

      For
        the
        avoidance of doubt, this Agreement and any other Loan Document may be amended
        (or amended and restated) with the written consent of the Required Lenders,
        the
        Administrative Agent and each Loan Party to each relevant Loan Document
        (x) to add one or more additional credit facilities to this Agreement and
        to permit the extensions of credit from time to time outstanding thereunder
        and
        the accrued interest and fees in respect thereof (collectively, the
“Additional
        Extensions of Credit”)
        to
        share ratably in the benefits of this Agreement and the other Loan Documents
        with the Loans and the accrued interest and fees in respect thereof and
        (y) to include appropriately the Lenders holding such credit facilities in
        any determination of the Required Lenders. 

       

      It
        is
        understood that any amendments,
        supplements or modifications to
        this
        Agreement (including any amendment and restatement thereof), for
        the
        purpose of modifying any provisions to this Agreement,
        shall
        be considered the same credit facility, as amended, and not a new
        loan.

       

      In
        addition, notwithstanding the foregoing, this Agreement may be amended with
        the
        written consent of the Administrative Agent, the Borrower and the Lenders
        providing the relevant Replacement Loans (as defined below) to permit the
        refinancing or modification of all outstanding Loans (“Refinanced
        Loans”)
        with a
        replacement term loan tranche hereunder (“Replacement
        Loans”),
        provided
        that (a)
        the aggregate principal amount of such Replacement Loans shall not exceed
        the
        aggregate principal amount of such Refinanced Loans, (b) the Applicable Margin
        for such Replacement Loans shall not be higher than the Applicable Margin
        for
        such Refinanced Loans, (c) the weighted average life to maturity of such
        Replacement Loans shall not be shorter than the weighted average life to
        maturity of such Refinanced Loans at the time of such refinancing and (d)
        all
        other terms applicable to such Replacement Loans shall be substantially
        identical to, or less favorable to the Lenders providing such Replacement
        Loans
        than, those applicable to such Refinanced Loans, except to the extent necessary
        to provide for covenants and other terms applicable to any period after the
        latest final maturity of the Loans in effect immediately prior to such
        refinancing.

       

      
        
           

        

        
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      9.2 Notices.
        All
        notices, requests and demands to or upon the respective parties hereto to
        be
        effective shall be in writing (including by telecopy), and, unless otherwise
        expressly provided herein, shall be deemed to have been duly given or made
        when
        delivered, or three Business Days after being deposited in the mail, postage
        prepaid, or, in the case of telecopy notice, when received, addressed
        (a) in the case of the Borrower and the Administrative Agent, as follows
        and (b) in the case of the Lenders, as set forth in an administrative
        questionnaire delivered to the Administrative Agent or on Schedule I to the
        Lender Addendum to which such Lender is a party or, in the case of a Lender
        which becomes a party to this Agreement pursuant to an Assignment and
        Assumption, in such Assignment and Assumption or (c) in the case of any
        party, to such other address as such party may hereafter notify to the other
        parties hereto:

       

      
        	
                The
                  Borrower:

              	
                Iconix
                  Brand Group, Inc.

                1450
                  Broadway, 4th
                  Floor

                New
                  York, New York 10018

                Attn:
                  Neil Cole, CEO

                Telecopy:
                  (212) 391-2057

                Telephone:
                  (212) 730-0030 

              
	 	 
	
                The
                  Administrative Agent:

              	
                Lehman
                  Commercial Paper Inc. Loan Portfolio Group, 5th
                  Floor

                745
                  Seventh Avenue

                New
                  York, New York 10019 

                Attention:
                  Ritam Bhalla

                Telecopy:
                  (646) 834-4997

                Telephone:
                  (212) 526-1819

              

      

       

      Notices
        and other communications to the Lenders hereunder may be delivered or furnished
        by electronic communications pursuant to procedures approved by the
        Administrative Agent; provided
        that the
        foregoing shall not apply to notices pursuant to Section 2 unless otherwise
        agreed by the Administrative Agent and the applicable Lender. The Administrative
        Agent or the Borrower may, in its discretion, agree to accept notices and
        other
        communications to it hereunder by electronic communications pursuant to
        procedures approved by it; provided
        that
        approval of such procedures may be limited to particular notices or
        communications.

       

      9.3 No
        Waiver; Cumulative Remedies.
        No
        failure to exercise and no delay in exercising, on the part of the
        Administrative Agent or any Lender, any right, remedy, power or privilege
        hereunder or under the other Loan Documents shall operate as a waiver thereof;
        nor shall any single or partial exercise of any right, remedy, power or
        privilege hereunder preclude any other or further exercise thereof or the
        exercise of any other right, remedy, power or privilege. The rights, remedies,
        powers and privileges herein provided are cumulative and not exclusive of
        any
        rights, remedies, powers and privileges provided by law.

       

      9.4 Survival
        of Representations and Warranties.
        All
        representations and warranties made herein, in the other Loan Documents and
        in
        any document, certificate or statement delivered pursuant hereto or in
        connection herewith shall survive the execution and delivery of this Agreement
        and the making of the Loans and other extensions of credit
        hereunder.

       

      
        
           

        

        
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      9.5 Payment
        of Expenses.
        The
        Borrower agrees (a) to pay or reimburse the Administrative Agent for all
        its reasonable out-of-pocket costs and expenses incurred in connection with
        the
        syndication of the Facility (other than fees payable to syndicate members)
        and
        the development, preparation and execution of, and any amendment, supplement
        or
        modification to, this Agreement and the other Loan Documents and any other
        documents prepared in connection herewith or therewith, and the consummation
        and
        administration of the transactions contemplated hereby and thereby, including,
        without limitation, the reasonable fees and disbursements and other charges
        of
        one counsel to the Administrative Agent and, if reasonably necessary, one
        local
        counsel in any relevant jurisdiction and the charges of Intralinks, (b) to
        pay or reimburse each Lender and the Administrative Agent for all their costs
        and expenses incurred in connection with the enforcement or preservation
        of any
        rights under this Agreement, the other Loan Documents and any other documents
        prepared in connection herewith or therewith, including, without limitation,
        the
        reasonable fees and disbursements and other charges of one counsel to the
        Administrative Agent and the other Lenders and, if reasonably necessary,
        one
        local counsel in any relevant jurisdiction, (c) to pay, indemnify, or
        reimburse each Lender and the Administrative Agent for, and hold each Lender
        and
        the Administrative Agent harmless from, any and all recording and filing
        fees
        and any and all liabilities with respect to, or resulting from any delay
        in
        paying, stamp, excise and other taxes, if any, which may be payable or
        determined to be payable in connection with the execution and delivery of,
        or
        consummation or administration of any of the transactions contemplated by,
        or
        any amendment, supplement or modification of, or any waiver or consent under
        or
        in respect of, this Agreement, the other Loan Documents and any such other
        documents, and (d) to pay, indemnify or reimburse each Lender, the
        Administrative Agent, their respective affiliates, and their respective
        officers, directors, trustees, employees, advisors, agents and controlling
        persons (each, an “Indemnitee”)
        for,
        and hold each Indemnitee harmless from and against any and all other
        liabilities, obligations, losses, damages, penalties, actions, judgments,
        suits,
        costs, expenses or disbursements of any kind or nature whatsoever incurred
        by an
        Indemnitee or asserted against any Indemnitee arising out of, in connection
        with, or as a result of (i) the execution or delivery of this Agreement,
        any
        other Loan Document or any agreement or instrument contemplated hereby or
        thereby, the performance by the parties hereto or thereto of their respective
        obligations hereunder or thereunder or the consummation of the transactions
        contemplated hereby or thereby, (ii) any Loan or the use or proposed use
        of the
        proceeds thereof, (iii) any actual or alleged presence or release of Materials
        of Environmental Concern on or from any property owned, occupied or operated
        by
        the Borrower or any of its Subsidiaries, or any Environmental Liability related
        in any way to the Borrower or any of its Subsidiaries or any or their respective
        properties, or (iv) any actual or prospective claim, litigation, investigation
        or proceeding relating to any of the foregoing, whether based on contract,
        tort
        or any other theory, and regardless of whether any Indemnitee is a party
        thereto
        (all the foregoing in this clause (d), collectively, the “Indemnified
        Liabilities”),
        provided, that the Borrower shall have no obligation hereunder to any Indemnitee
        with respect to Indemnified Liabilities to the extent such Indemnified
        Liabilities are found by a final and nonappealable decision of a court of
        competent jurisdiction to have resulted from the gross negligence or willful
        misconduct of such Indemnitee. No Indemnitee shall be liable for any damages
        arising from the use by unauthorized persons of information or other materials
        sent through electronic, telecommunications or other information transmission
        systems that are intercepted by such persons or for any special, indirect,
        consequential or punitive damages in connection with the Facility. Without
        limiting the foregoing, and to the extent permitted by applicable law, the
        Borrower agrees not to assert and to cause its Subsidiaries not to assert,
        and
        hereby waives and agrees to cause its Subsidiaries so to waive, all rights
        for
        contribution or any other rights of recovery with respect to all claims,
        demands, penalties, fines, liabilities, settlements, damages, costs and expenses
        of whatever kind or nature, under or related to Environmental Laws, that
        any of
        them might have by statute or otherwise against any Indemnitee. All amounts
        due
        under this Section shall be payable not later than 30 days after written
        demand
        therefor. Statements payable by the Borrower pursuant to this Section shall
        be
        submitted at the address of the Borrower set forth in Section 9.2, or to
        such other Person or address as may be hereafter designated by the Borrower
        in a
        notice to the Administrative Agent. The agreements in this Section shall
        survive
        repayment of the Loans and all other amounts payable hereunder.

       

      
        
           

        

        
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      9.6 Successors
        and Assigns; Participations and Assignments.
        (a)
        This Agreement shall be binding upon and inure to the benefit of the Borrower,
        the Lenders, the Administrative Agent, all future holders of the Loans and
        their
        respective successors and assigns, except that the Borrower may not assign
        or
        transfer any of its rights or obligations under this Agreement without the
        prior
        written consent of the Administrative Agent and each Lender.

       

      (b) Any
        Lender may, without the consent of the Borrower, in accordance with applicable
        law, at any time sell to one or more banks, financial institutions or other
        entities (each, a “Participant”)
        participating interests in any Loan owing to such Lender, any Commitment
        of such
        Lender or any other interest of such Lender hereunder and under the other
        Loan
        Documents. In the event of any such sale by a Lender of a participating interest
        to a Participant, such Lender’s obligations under this Agreement to the other
        parties to this Agreement shall remain unchanged, such Lender shall remain
        solely responsible for the performance thereof, such Lender shall remain
        the
        holder of any such Loan for all purposes under this Agreement and the other
        Loan
        Documents, and the Borrower and the Administrative Agent shall continue to
        deal
        solely and directly with such Lender in connection with such Lender’s rights and
        obligations under this Agreement and the other Loan Documents. In no event
        shall
        any Participant under any such participation have any right to approve any
        amendment or waiver of any provision of any Loan Document, or any consent
        to any
        departure by any Loan Party therefrom, except to the extent that such amendment,
        waiver or consent would require the consent of all Lenders pursuant to
        Section 9.1. The Borrower agrees that if amounts outstanding under this
        Agreement and the Loans are due or unpaid, or shall have been declared or
        shall
        have become due and payable upon the occurrence of an Event of Default, each
        Participant shall, to the maximum extent permitted by applicable law, be
        deemed
        to have the right of setoff in respect of its participating interest in amounts
        owing under this Agreement to the same extent as if the amount of its
        participating interest were owing directly to it as a Lender under this
        Agreement, provided
        that, in
        purchasing such participating interest, such Participant shall be deemed
        to have
        agreed to share with the Lenders the proceeds thereof as provided in
        Section 9.7 as fully as if such Participant were a Lender hereunder. The
        Borrower also agrees that each Participant shall be entitled to the benefits
        of
        Sections 2.14, 2.15 and 2.16 with respect to its participation in the
        Commitments and the Loans outstanding from time to time as if such Participant
        were a Lender; provided
        that, in
        the case of Section 2.15, such Participant shall have complied with the
        requirements of said Section, and provided,
        further,
        that no
        Participant shall be entitled to receive any greater amount pursuant to any
        such
        Sections 2.14, 2.15 or 2.16 than the transferor Lender would have been entitled
        to receive in respect of the amount of the participation transferred by such
        transferor Lender to such Participant had no such transfer
        occurred.

       

      (c) Any
        Lender (an “Assignor”)
        may,
        in accordance with applicable law and upon written notice to the Administrative
        Agent, at any time and from time to time assign to any Lender or any affiliate,
        Related Fund or Control Investment Affiliate thereof or, with the consent
        of the
        Administrative Agent (which, in each case, shall not be unreasonably withheld
        or
        delayed); provided
        that no
        such consent need be obtained by any Lehman Entity, to an additional bank,
        financial institution or other entity (an “Assignee”)
        all or
        any part of its rights and obligations under this Agreement pursuant to an
        Assignment and Assumption, substantially in the form of Exhibit D, executed
        by such Assignee and such Assignor (and, where the consent of the Administrative
        Agent is required pursuant to the foregoing provisions, by the Administrative
        Agent) and delivered to the Administrative Agent for its acceptance and
        recording in the Register; provided
        that no
        such assignment to an Assignee (other than any Lender or any affiliate thereof)
        shall be in an aggregate principal amount of less than $1,000,000 (other
        than in
        the case of an assignment of all of a Lender’s interests under this Agreement),
        unless otherwise agreed by the Borrower and the Administrative Agent. Upon
        such
        execution, delivery, acceptance and recording, from and after the effective
        date
        determined pursuant to such Assignment and Assumption, (x) the Assignee
        thereunder shall be a party hereto and, to the extent provided in such
        Assignment and Assumption, have the rights and obligations of a Lender hereunder
        with Commitments and/or Loans as set forth therein, and (y) the Assignor
        thereunder shall, to the extent provided in such Assignment and Assumption,
        be
        released from its obligations under this Agreement (and, in the case of an
        Assignment and Assumption covering all of an Assignor’s rights and obligations
        under this Agreement, such Assignor shall cease to be a party hereto, except
        as
        to Section 2.14, 2.15 and 9.5 in respect of the period prior to such
        effective date). For purposes of the minimum assignment amounts set forth
        in
        this paragraph, multiple assignments by two or more Related Funds shall be
        aggregated.

       

      
        
           

        

        
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      (d) The
        Administrative Agent shall, on behalf of the Borrower, maintain at its address
        referred to in Section 9.2 a copy of each Assignment and Assumption
        delivered to it and a register (the “Register”)
        for
        the recordation of the names and addresses of the Lenders and the Commitment
        of,
        and principal amount of the Loans owing to, each Lender from time to time.
        The
        entries in the Register shall be conclusive, in the absence of manifest error,
        and the Borrower, the Administrative Agent and the Lenders shall treat each
        Person whose name is recorded in the Register as the owner of the Loans and
        any
        Notes evidencing such Loans recorded therein for all purposes of this Agreement.
        Any assignment of any Loan, whether or not evidenced by a Note, shall be
        effective only upon appropriate entries with respect thereto being made in
        the
        Register (and each Note shall expressly so provide). Any assignment or transfer
        of all or part of a Loan evidenced by a Note shall be registered on the Register
        only upon surrender for registration of assignment or transfer of the Note
        evidencing such Loan, accompanied by a duly executed Assignment and Assumption;
        thereupon one or more new Notes in the same aggregate principal amount shall
        be
        issued to the designated Assignee, and the old Notes shall be returned by
        the
        Administrative Agent to the Borrower marked “canceled”. The Register shall be
        available for inspection by the Borrower or any Lender (with respect to any
        entry relating to such Lender’s Loans) at any reasonable time and from time to
        time upon reasonable prior notice.

       

      (e) Upon
        its
        receipt of an Assignment and Assumption executed by an Assignor and an Assignee
        (and, in any case where the consent of any other Person is required by
        Section 9.6(c), by each such other Person) together with payment to the
        Administrative Agent of a registration and processing fee of $3,500 (treating
        multiple, simultaneous assignments by or to two or more Related Funds as
        a
        single assignment) (except that no such registration and processing fee shall
        be
        payable (y) in connection with an assignment by or to a Lehman Entity or
        (z) in the case of an Assignee which is an affiliate or Related Fund of a
        Lender or a Person under common management with a Lender), the Administrative
        Agent shall (i) promptly accept such Assignment and Assumption and
        (ii) on the effective date determined pursuant thereto record the
        information contained therein in the Register and give notice of such acceptance
        and recordation to the Borrower. On or prior to such effective date, the
        Borrower, at its own expense, upon request, shall execute and deliver to
        the
        Administrative Agent (in exchange for the Notes of the assigning Lender)
        a new
        Note to the order of such Assignee in an amount equal to the Loans assumed
        or
        acquired by it pursuant to such Assignment and Assumption and, if the Assignor
        has retained Loans, upon request, a new Note to the order of the Assignor
        in an
        amount equal to the Loans retained by it hereunder. Such new Note or Notes
        shall
        be dated the Closing Date and shall otherwise be in the form of the Note
        or
        Notes replaced thereby.

       

      (f) For
        avoidance of doubt, the parties to this Agreement acknowledge that the
        provisions of this Section concerning assignments of Loans and Notes relate
        only
        to absolute assignments and that such provisions do not prohibit assignments
        creating security interests in Loans and Notes, including, without limitation,
        any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
        Bank in accordance with applicable law.

       

      (g) Notwithstanding
        anything to the contrary contained herein, any Lender (a “Granting
        Lender”)
        may
        grant to a special purpose funding vehicle (an “SPC”),
        identified as such in writing from time to time by the Granting Lender to
        the
        Administrative Agent and the Borrower, the option to provide to the Borrower
        all
        or any part of any Loan that such Granting Lender would otherwise be obligated
        to make to the Borrower pursuant to this Agreement; provided
        that
        (i) nothing herein shall constitute a commitment by any SPC to make any
        Loan and (ii) if an SPC elects not to exercise such option or otherwise
        fails to provide all or any part of such Loan, the Granting Lender shall
        be
        obligated to make such Loan pursuant to the terms hereof. The making of a
        Loan
        by an SPC hereunder shall utilize the Commitment of the Granting Lender to
        the
        same extent, and as if, such Loan were made by such Granting Lender. Each
        party
        hereto hereby agrees that no SPC shall be liable for any indemnity or similar
        payment obligation under this Agreement (all liability for which shall remain
        with the Granting Lender). In furtherance of the foregoing, each party hereto
        hereby agrees (which agreement shall survive the termination of this Agreement)
        that, prior to the date that is one year and one day after the payment in
        full
        of all outstanding commercial paper or other indebtedness of any SPC, it
        will
        not institute against, or join any other person in instituting against, such
        SPC
        any bankruptcy, reorganization, arrangement, insolvency or liquidation
        proceedings under the laws of the United States or any state thereof. In
        addition, notwithstanding anything to the contrary in this Section 9.6(g),
        any SPC may (A) with notice to, but without the prior written consent of,
        the Borrower and the Administrative Agent and without paying any processing
        fee
        therefor, assign all or a portion of its interests in any Loans to the Granting
        Lender, or with the prior written consent of the Borrower and the Administrative
        Agent (which consent shall not be unreasonably withheld) to any financial
        institutions providing liquidity and/or credit support to or for the account
        of
        such SPC to support the funding or maintenance of Loans, and (B) disclose
        on a confidential basis any non-public information relating to its Loans
        to any
        rating agency, commercial paper dealer or provider of any surety, guarantee
        or
        credit or liquidity enhancement to such SPC; provided
        that
        non-public information with respect to the Borrower may be disclosed only
        with
        the Borrower’s consent which will not be unreasonably withheld. This
        paragraph (g) may not be amended without the written consent of any SPC
        with Loans outstanding at the time of such proposed amendment.

       

      
        
           

        

        
          61

          
            

          

        

        
           

        

         

      

      9.7 Adjustments;
        Set-off.
        (a)
        Except to the extent that this Agreement provides for payments to be allocated
        to a particular Lender, if any Lender (a “Benefited
        Lender”)
        shall
        at any time receive any payment of all or part of the Obligations owing to
        it,
        or receive any collateral in respect thereof (whether voluntarily or
        involuntarily, by set-off, pursuant to events or proceedings of the nature
        referred to in Section 7(f), or otherwise), in a greater proportion than
        any such payment to or collateral received by any other Lender, if any, in
        respect of such other Lender’s Obligations, such Benefited Lender shall purchase
        for cash from the other Lenders a participating interest in such portion
        of each
        such other Lender’s Obligations, or shall provide such other Lenders with the
        benefits of any such collateral, as shall be necessary to cause such Benefited
        Lender to share the excess payment or benefits of such collateral ratably
        with
        each of the Lenders; provided, however, that if all or any portion of such
        excess payment or benefits is thereafter recovered from such Benefited Lender,
        such purchase shall be rescinded, and the purchase price and benefits returned,
        to the extent of such recovery, but without interest.

       

      (b) In
        addition to any rights and remedies of the Lenders provided by law, each
        Lender
        shall have the right, without prior notice to the Borrower, any such notice
        being expressly waived by the Borrower to the extent permitted by applicable
        law, upon any amount becoming due and payable by the Borrower hereunder (whether
        at the stated maturity, by acceleration or otherwise), to set off and
        appropriate and apply against such amount any and all deposits (general or
        special, time or demand, provisional or final), in any currency, and any
        other
        credits, indebtedness or claims, in any currency, in each case whether direct
        or
        indirect, absolute or contingent, matured or unmatured, at any time held
        or
        owing by such Lender or any branch or agency thereof to or for the credit
        or the
        account of the Borrower. Each Lender agrees promptly to notify the Borrower
        and
        the Administrative Agent after any such setoff and application made by such
        Lender, provided
        that the
        failure to give such notice shall not affect the validity of such setoff
        and
        application.

       

      9.8 Counterparts.
        This
        Agreement may be executed by one or more of the parties to this Agreement
        on any
        number of separate counterparts, and all of said counterparts taken together
        shall be deemed to constitute one and the same instrument. Delivery of an
        executed signature page of this Agreement or of a Lender Addendum by facsimile
        transmission shall be effective as delivery of a manually executed counterpart
        hereof. A set of the copies of this Agreement signed by all the parties shall
        be
        lodged with the Borrower and the Administrative Agent.

       

      
        
           

        

        
          62

          
            

          

        

        
           

        

         

      

      9.9 Severability.
        Any
        provision of this Agreement that is prohibited or unenforceable in any
        jurisdiction shall, as to such jurisdiction, be ineffective to the extent
        of
        such prohibition or unenforceability without invalidating the remaining
        provisions hereof, and any such prohibition or unenforceability in any
        jurisdiction shall not invalidate or render unenforceable such provision
        in any
        other jurisdiction.

       

      9.10 Integration.
        This
        Agreement and the other Loan Documents represent the entire agreement of
        the
        Borrower, the Administrative Agent, the Arranger and the Lenders with respect
        to
        the subject matter hereof and thereof, and there are no promises, undertakings,
        representations or warranties by the Arranger, the Administrative Agent or
        any
        Lender relative to subject matter hereof not expressly set forth or referred
        to
        herein or in the other Loan Documents.

       

      9.11 GOVERNING
        LAW.
        THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS
        AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
        WITH, THE LAW OF THE STATE OF NEW YORK.

       

      9.12 Submission
        To Jurisdiction; Waivers.
        Each of
        the parties hereto hereby irrevocably and unconditionally:

       

      (a) submits
        for itself and its Property in any legal action or proceeding relating to
        this
        Agreement and the other Loan Documents to which it is a party, or for
        recognition and enforcement of any judgment in respect thereof, to the
        non-exclusive general jurisdiction of the courts of the State of New York,
        the
        courts of the United States for the Southern District of New York, and appellate
        courts from any thereof;

       

      (b) consents
        that any such action or proceeding may be brought in such courts and waives
        any
        objection that it may now or hereafter have to the venue of any such action
        or
        proceeding in any such court or that such action or proceeding was brought
        in an
        inconvenient court and agrees not to plead or claim the same;

       

      (c) agrees
        that service of process in any such action or proceeding may be effected
        by
        mailing a copy thereof by registered or certified mail (or any substantially
        similar form of mail), postage prepaid, to such party at its address set
        forth
        in Section 9.2 or at such other address of which the Administrative Agent
        shall have been notified pursuant thereto;

       

      (d) agrees
        that nothing herein shall affect the right to effect service of process in
        any
        other manner permitted by law or shall limit the right to sue in any other
        jurisdiction; and

       

      (e) waives,
        to the maximum extent not prohibited by law, any right it may have to claim
        or
        recover in any legal action or proceeding referred to in this Section any
        special, exemplary, punitive or consequential damages.

       

      9.13 Acknowledgments.
        The
        Borrower hereby acknowledges that:

       

      (a) it
        has
        been advised by counsel in the negotiation, execution and delivery of this
        Agreement and the other Loan Documents;

       

      
        
           

        

        
          63

          
            

          

        

        
           

        

         

      

      (b) neither
        the Arranger, the Administrative Agent nor any Lender has any fiduciary
        relationship with or duty to the Borrower arising out of or in connection
        with
        this Agreement or any of the other Loan Documents, and the relationship between
        the Arranger, the Administrative Agent and the Lenders, on one hand, and
        the
        Borrower, on the other hand, in connection herewith or therewith is solely
        that
        of debtor and creditor; and

       

      (c) no
        joint
        venture is created hereby or by the other Loan Documents or otherwise exists
        by
        virtue of the transactions contemplated hereby among the Arranger, the
        Administrative Agent and the Lenders or among the Borrower and the
        Lenders.

       

      9.14 Confidentiality.
        The
        Administrative Agent and each of the Lenders agrees to keep confidential
        all
        non-public information provided to it by any Loan Party pursuant to this
        Agreement that is designated by such Loan Party as confidential; provided
        that
        nothing herein shall prevent the Administrative Agent or any Lender from
        disclosing any such information (a) to the Arranger, the Administrative
        Agent, any other Lender or any Affiliate of any thereof, on a need-to-know
        basis, (b) to any Participant or Assignee (each, a “Transferee”)
        or
        prospective Transferee that agrees to comply with the provisions of this
        Section
        or substantially equivalent provisions, (c) to any of its employees,
        directors, agents, attorneys, accountants and other professional advisors,
        on a
        need-to-know basis, (d) to any financial institution that is a direct or
        indirect contractual counterparty in swap agreements or such contractual
        counterparty’s professional advisor (so long as such contractual counterparty or
        professional advisor to such contractual counterparty agrees to be bound
        by the
        provisions of this Section), (e) upon the request or demand of any
        Governmental Authority having jurisdiction over it; provided
        that
        notice of such disclosure shall be provided to the Loan Parties upon such
        request or demand, (f) in response to any order of any court or other
        Governmental Authority or as may otherwise be required pursuant to any
        Requirement of Law; provided
        that
        notice of such disclosure shall be provided to the Loan Parties upon such
        order,
        or prior to such disclosure if such disclosure is required pursuant to any
        Requirement of Law, (g) in connection with any litigation or similar
        proceeding, provided
        that
        notice of such disclosure shall be provided to the Loan Parties prior to
        such
        disclosure, (h) that has been publicly disclosed other than in breach of
        this Section, or, to the Administrative Agent’s or such Lender’s knowledge,
        other than in breach of any other confidentiality agreement, (i) to the
        National Association of Insurance Commissioners or any similar organization
        or
        any nationally recognized rating agency that requires access to information
        about a Lender’s investment portfolio in connection with ratings issued with
        respect to such Lender or (j) in connection with the exercise of any remedy
        hereunder or under any other Loan Document, to the extent necessary to enable
        the Administrative Agent or such Lender to exercise any such
        remedy.

       

      9.15 Release
        of Collateral and Guarantee Obligations.
        (a)
        Notwithstanding anything to the contrary contained herein or in any other
        Loan
        Document, upon request of the Borrower in connection with any Disposition
        of
        Property permitted by the Loan Documents, the Administrative Agent shall
        (without notice to, or vote or consent of, any Lender, or any affiliate of
        any
        Lender that is a party to any Specified Hedge Agreement) take such actions
        as
        shall be required to release its security interest in any Collateral being
        Disposed of in such Disposition, and to release any guarantee obligations
        under
        any Loan Document of any Person being Disposed of in such Disposition, to
        the
        extent necessary to permit consummation of such Disposition in accordance
        with
        the Loan Documents.

       

      (b) Notwithstanding
        anything to the contrary contained herein or any other Loan Document, when
        all
        Obligations (other than obligations in respect of any Specified Hedge Agreement)
        have been paid in full and all Commitments have terminated or expired, upon
        request of the Borrower, the Administrative Agent shall (without notice to,
        or
        vote or consent of, any Lender, or any affiliate of any Lender that is a
        party
        to any Specified Hedge Agreement) take such actions as shall be required
        to
        release its security interest in all Collateral, and to release all guarantee
        obligations under any Loan Document, whether or not on the date of such release
        there may be outstanding Obligations in respect of Specified Hedge Agreements.
        Any such release of guarantee obligations shall be deemed subject to the
        provision that such guarantee obligations shall be reinstated if after such
        release any portion of any payment in respect of the Obligations guaranteed
        thereby shall be rescinded or must otherwise be restored or returned upon
        the
        insolvency, bankruptcy, dissolution, liquidation or reorganization of the
        Borrower or any Guarantor, or upon or as a result of the appointment of a
        receiver, intervenor or conservator of, or trustee or similar officer for,
        the
        Borrower or any Guarantor or any substantial part of its property, or otherwise,
        all as though such payment had not been made.

       

      
        
           

        

        
          64

          
            

          

        

        
           

        

         

      

      9.16 Accounting
        Changes.
        In the
        event that any “Accounting Change” (as defined below) shall occur and such
        change results in a change in the method of calculation of financial covenants,
        standards or terms in this Agreement, then the Borrower and the Administrative
        Agent agree to enter into negotiations in order to amend such provisions
        of this
        Agreement so as to equitably reflect such Accounting Change with the desired
        result that the criteria for evaluating the Borrower’s financial condition shall
        be the same after such Accounting Change as if such Accounting Change had
        not
        been made. Until such time as such an amendment shall have been executed
        and
        delivered by the Borrower, the Administrative Agent and the Required Lenders,
        all financial covenants, standards and terms in this Agreement shall continue
        to
        be calculated or construed as if such Accounting Change had not occurred.
        “Accounting Change” refers to any change in accounting principles required by
        the promulgation of any rule, regulation, pronouncement or opinion by the
        Financial Accounting Standards Board of the American Institute of Certified
        Public Accountants or, if applicable, the SEC.

       

      9.17 Delivery
        of Lender Addenda.
        Each
        initial Lender shall become a party to this Agreement by delivering to the
        Administrative Agent a Lender Addendum duly executed by such Lender, the
        Borrower and the Administrative Agent.

       

      9.18 WAIVERS
        OF JURY TRIAL.
        THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY
        AND
        UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING
        TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
        THEREIN.

       

      
        
           

        

        
          65

          
            

          

        

        
           

        

         

      

      IN
        WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
        executed and delivered by their proper and duly authorized officers as of
        the
        day and year first above written.

       

      
        	 	
                ICONIX
                  BRAND GROUP, INC. 

                 

                By: 
                  /s/
                  Neil Cole________________________

                Name:
                  Neil Cole

                Title:
                  President and CEO

                
 

                LEHMAN
                  BROTHERS INC.,

                as
                  Arranger

                 

                By: 
                  /s/
                  Michael C.
                  Moravec                                    
                  

                Name:
                  Michael C. Moravec

                Title:
                  MD

                 

                
LEHMAN
                  COMMERCIAL PAPER INC.,

                as
                  Syndication Agent

                 

                By: 
                  /s/
                  Michael C.
                  Moravec                            
                          

                Name:
                  Michael C. Moravec

                Title:
                  MD

                
 

                LEHMAN
                  COMMERCIAL PAPER INC.,

                as
                  Administrative Agent and as a Lender

                 

                By: 
                  /s/
                  Michael C.
                  Moravec                                    
                  

                Name:
                  Michael C. Moravec

                Title:
                  MD

              

      

      

       

      [Signature
        page to the Credit Agreement]

       

      
        
           

        

        
          66

          
            

          

        

        
           

        

      

      List
        of Omitted Schedules and Exhibits

      

      
        	
                Schedule

              	
                Description

              
	 	 
	
                3.4

              	
                Consents,
                  Authorizations, Filings and Notices

              
	
                3.15

              	
                Subsidiaries

              
	
                3.19(a)

              	
                UCC
                  Filing Jurisdictions

              
	
                6.2(d)

              	
                Existing
                  Indebtedness

              
	
                6.3(f)

              	
                Existing
                  Liens

              

      

      

      
        	
                Exhibit

              	
                Description

              
	 	 
	
                A

              	
                Form
                  of Guarantee and Collateral Agreement

              
	
                B

              	
                Form
                  of Compliance Certificate

              
	
                C

              	
                Form
                  of Closing Certificate

              
	
                D

              	
                Form
                  of Assignment and Assumption

              
	
                E-1

              	
                Form
                  of Legal Opinion of Blank Rome LLP

              
	
                E-2

              	
                Form
                  of Legal Opinion of Andrew Tarshis

              
	
                F

              	
                Form
                  of Note

              
	
                G

              	
                Form
                  of Exemption Certificate

              
	
                H

              	
                Form
                  of Lender Addendum

              
	
                I

              	
                Form
                  of Borrowing Notice

              
	
                J

              	
                Form
                  of Increased Facility Activation Notice

              
	
                K

              	
                Form
                  of New Lender Supplement

              
	
                L

              	
                Form
                  of Subsidiaries’ Financial
                  InformationPURCHASE
      AND SALE AGREEMENT

     

    AMONG

     

    UHC
      NEW MEXICO CORPORATION

    as
      Seller,

    CANO
      PETRO OF NEW MEXICO, INC.,

    as
      Buyer,

    and

    CANO
      PETROLEUM, INC.,

    for
      Certain Limited Purposes

    

    

    

    March
      30, 2007

    

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Table
      Of Contents

    

      
        	 	
                Page

              
	 	 
	
                ARTICLE
                  I.
                  DEFINITIONS AND INTERPRETATION

              	
                
                  1

                

              
	
                1.1

              	
                Defined
                  Terms.

              	
                1

              
	
                1.2

              	
                References.

              	
                1

              
	
                1.3

              	
                Articles
                  and Sections.

              	
                1

              
	
                1.4

              	
                Number
                  and Gender.

              	
                2

              
	 	 
	
                ARTICLE
                  II.
                  PURCHASE AND SALE

              	
                
                  2

                

              
	
                2.1

              	
                Purchase
                  and Sale.

              	
                
                  2

                

              
	
                2.2

              	
                Excluded
                  Assets.

              	
                5

              
	
                2.3

              	
                Consideration.

              	
                6

              
	
                2.4

              	
                Assumption
                  of Obligations.

              	
                7

              
	
                2.5

              	
                Retained
                  Liabilities.

              	
                10

              
	
                2.6

              	
                Possession;
                  Risk of Loss.

              	
                11

              
	
                2.7

              	
                Allocation
                  of Adjusted Consideration.

              	
                11

              
	
                2.8

              	
                Restricted
                  Securities.

              	
                12

              
	 	 
	
                ARTICLE
                  III.
                  REPRESENTATIONS AND WARRANTIES

              	
                
                  12

                

              
	
                3.1

              	
                Representations
                  and Warranties of Seller.

              	
                12

              
	
                3.2

              	
                Restricted
                  Shares.

              	
                17

              
	
                3.3

              	
                Accredited
                  Investor; Purchase Entirely For Own Account.

              	
                18

              
	
                3.4

              	
                Disclosure
                  of Information.

              	
                18

              
	
                3.5

              	
                Investment
                  Experience.

              	
                18

              
	
                3.6

              	
                General
                  Solicitation.

              	
                19

              
	
                3.7

              	
                Reliance.

              	
                19

              
	
                3.8

              	
                Representations
                  and Warranties of Buyer and Parent.

              	
                19

              
	
                3.9

              	
                Disclaimers.

              	
                21

              
	 	 
	
                ARTICLE
                  IV.
                  ACCESS; DUE DILIGENCE

              	
                
                  22

                

              
	
                4.1

              	
                Access
                  to Records.

              	
                22

              
	
                4.2

              	
                Operation
                  and Environmental Assessment.

              	
                22

              
	
                4.3

              	
                Defects,
                  Environmental Conditions and Related Adjustments.

              	
                22

              
	 	 
	
                ARTICLE
                  V.
                  OTHER MATTERS PRIOR TO CLOSING

              	
                
                  24

                

              
	
                5.1

              	
                Operations.

              	
                24

              
	
                5.2

              	
                Imbalances
                  and Other Matters.

              	
                25

              
	
                5.3

              	
                Publicity.

              	
                25

              
	
                5.4

              	
                Compliance
                  with Conditions.

              	
                26

              
	
                5.5

              	
                Maintenance
                  of Existence.

              	
                26

              
	
                5.6

              	
                Mutual
                  Assurances.

              	
                26

              
	
                5.7

              	
                Notification
                  of Certain Matters.

              	
                26

              
	
                5.8

              	
                Designation
                  as Operator.

              	
                27

              
	 	 
	
                ARTICLE
                  VI.
                  CONDITIONS; TERMINATION; REMEDIES

              	
                
                  27

                

              
	
                6.1

              	
                Conditions
                  Precedent to Seller’s Obligation to Close.

              	
                27

              
	
                6.2

              	
                
                  Conditions
                    Precedent to Buyer’s and Parent’s Obligation to Close.

                

              	
                28

              

      

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

      
        	
                6.3

              	
                Termination.

              	
                29

              
	
                6.4

              	
                Remedies.

              	
                29

              
	 	 	 
	
                ARTICLE
                  VII.
                  CLOSING

              	
                
                  30

                

              
	
                7.1

              	
                Closing.

              	
                30

              
	
                7.2

              	
                Preliminary
                  Settlement Statement.

              	
                30

              
	
                7.3

              	
                Actions
                  at Closing.

              	
                30

              
	
                7.4

              	
                Records.

              	
                31

              
	
                 

              	 
	
                ARTICLE
                  VIII.
                  POST CLOSING MATTERS

              	
                
                  30

                

              
	
                8.1

              	
                Settlement
                  Statement.

              	
                32

              
	
                8.2

              	
                Further
                  Cooperation.

              	
                32

              
	
                8.3

              	
                Undisbursed
                  Revenues and Payment of Vendor Claims.

              	
                32

              
	
                8.4

              	
                Holdback.

              	
                32

              
	
                8.5

              	
                Transitional
                  Matters.

              	
                33

              
	 	 
	
                ARTICLE
                  IX.
                  SURVIVAL; INDEMNIFICATION

              	
                
                  33

                

              
	
                9.1

              	
                Survival.

              	
                34

              
	
                9.2

              	
                Indemnity
                  as Sole Remedy.

              	
                34

              
	
                9.3

              	
                Indemnities
                  of Buyer.

              	
                34

              
	
                9.4

              	
                Indemnities
                  of Seller.

              	
                34

              
	
                9.5

              	
                Assertion
                  of Claims; Notices; Defense; Settlement.

              	
                35

              
	
                9.6

              	
                Limitation
                  on Damages.

              	
                35

              
	 	 	 
	
                ARTICLE
                  X.
                  MISCELLANEOUS

              	
                
                  37

                

              
	
                10.1

              	
                Exhibits.

              	
                37

              
	
                10.2

              	
                Expenses.

              	
                37

              
	
                10.3

              	
                Proration
                  of Taxes.

              	
                37

              
	
                10.4

              	
                Assignment.

              	
                37

              
	
                10.5

              	
                Notices.

              	
                38

              
	
                10.6

              	
                ENTIRE
                  AGREEMENT; CONFLICTS.

              	
                39

              
	
                10.7

              	
                Amendment.

              	
                39

              
	
                10.8

              	
                Waiver;
                  Rights Cumulative.

              	
                39

              
	
                10.9

              	
                GOVERNING
                  LAW; CONSENT TO JURISDICTION.

              	
                40

              
	
                10.10

              	
                Severability.

              	
                40

              
	
                10.11

              	
                Arbitration.

              	
                40

              
	
                10.12

              	
                Counterparts.

              	
                41

              

      

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

    

     

    
      
        	SCHEDULES	 	 
	
                Schedule
                  1.1

              	
                -

              	
                Defined
                  Terms 

              
	
                Schedule
                  3.1(d)

              	
                -

              	
                Claims
                  and Litigation - Seller

              
	
                Schedule
                  3.1(e)

              	
                -

              	
                Preferential
                  Purchase Rights; Required Third Person Consents to
                  Assignment

              
	
                Schedule
                  3.1(f)

              	
                -

              	
                Required
                  Governmental Consents - Seller

              
	
                Schedule
                  3.1(i)

              	
                -

              	
                AMIs,
                  “Payout”, Reversion/Conversion, and Similar Provisions;
                  Tax Partnerships

              
	
                Schedule
                  3.1(g)

              	
                -

              	
                Leases
                  Excluded From Representation

              
	
                Schedule
                  3.1(k)

              	
                -

              	
                Wells
                  to be Plugged and Abandoned

              
	
                Schedule
                  3.1(m)

              	
                -

              	
                Imbalances

              
	
                Schedule
                  3.1(n)

              	
                -

              	
                Vendor
                  Claims

              
	
                Schedule
                  3.1(r)

              	
                -

              	
                Insurance
                  Coverage

              
	
                Schedule
                  3.2(g)

              	
                -

              	
                Required
                  Governmental Consents - Buyer

              
	 	 	 
	
                EXHIBITS

              	 	 
	
                Exhibit
                  A

              	
                -

              	
                Leases

              
	
                Exhibit
                  B

              	
                -

              	
                Wells;
                  Working Interests and Net Revenue Interests; Allocated
                  Values

              
	
                Exhibit
                  C

              	
                -

              	
                Real
                  Property Interests

              
	
                Exhibit
                  D

              	
                -

              	
                Personal
                  Property

              
	
                Exhibit
                  E

              	
                -

              	
                Contracts

              
	
                Exhibit
                  F

              	
                -

              	
                Permits;
                  Transferable Permits

              
	
                Exhibit
                  G

              	
                -

              	
                Form
                  of Assignment, Bill of Sale, and Conveyance

              
	
                Exhibit
                  H

              	
                -

              	
                Form
                  of Transitional Matters Agreement

              
	
                Exhibit
                  I

              	
                -

              	
                Form
                  of Seller’s Opinion of Counsel
                  Letter

              

      

    

     

    
      
        
        

      

      
        iii

        
          

        

      

      
        
        

      

    

     

    ASSET
      PURCHASE AND SALE AGREEMENT

     

    THIS
      ASSET PURCHASE AND SALE AGREEMENT (“Agreement”)
      is
      executed as of this 13th day of March 2007, by UHC
      NEW
      MEXICO
      CORPORATION, a New Mexico CORPORATION (“Seller”),
      CANO
      PETRO OF NEW MEXICO, INC., a Texas corporation, or its designated Affiliate
      (“Buyer”)
      and
      CANO PETROLEUM, INC., a Delaware corporation, the parent of Buyer (“Parent”).

     

    RECITALS

     

    WHEREAS,
      Seller is the owner of certain oil and gas properties and assets located in
      the
      State of New Mexico described more particularly herein;

     

    WHEREAS,
      Seller desires to sell and convey, and Buyer desires to purchase and pay for,
      all of such oil and gas properties and assets on the terms set forth
      herein.

     

    NOW,
      THEREFORE, for and in consideration of the mutual promises contained herein,
      the
      benefits to be derived by each Party hereunder, and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      Seller, Buyer and Parent, for the limited purpose of the Parent Restricted
      Stock, agree as follows:

     

    ARTICLE
      I.

    DEFINITIONS
      AND INTERPRETATION

     

    1.1 Defined
      Terms.
      In
      addition to the terms defined in the introductory paragraph and the Recitals
      of
      this Agreement, for purposes hereof, the capitalized expressions and terms
      set
      forth in Schedule
      1.1
      shall
      have the meanings set forth therein, unless expressly indicated otherwise.
      Other
      terms may be defined elsewhere in this Agreement and shall, for purposes hereof,
      have the meanings so specified, unless expressly indicated otherwise.

     

    1.2 References.
      The
      words
“hereby,” “herein,” “hereinabove,” “hereinafter,” “hereinbelow,” “hereof,”
“hereto,” “hereunder,” and words of similar import when used in this Agreement
      shall refer to this Agreement as a whole and not to any particular article,
      section, or provision of this Agreement. References in this Agreement to
      articles, sections, exhibits, or schedules are to such articles, sections,
      exhibits, or schedules of this Agreement unless otherwise
      specified.

     

    1.3 Articles
      and Sections.
      This
      Agreement, for convenience only, has been divided into articles and sections.
      The rights and other legal relations of the parties hereto shall be determined
      from this Agreement as an entirety and without regard to the aforesaid division
      into articles and sections and without regard to headings prefixed to such
      articles and sections.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    1.4 Number
      and Gender.
      Whenever
      the context requires, reference herein made to a single number shall be
      understood to include the plural; and likewise, the plural shall be understood
      to include the singular. Words denoting sex shall be construed to include the
      masculine, feminine, and neuter, when such construction is appropriate; and
      specific enumeration shall not exclude the general but shall be construed as
      cumulative. Definitions of terms defined in the singular or plural shall be
      equally applicable to the plural or singular, as applicable, unless otherwise
      indicated.

     

    ARTICLE
      II.

    PURCHASE
      AND SALE

     

    2.1 Purchase
      and Sale.
      Subject
      to the terms hereof, Seller agrees to sell and convey to Buyer, and Buyer agrees
      to purchase from Seller and pay for, the following properties and assets
      (collectively, the “Assets”):
      

     

    (a) the
      undivided Working Interests, associated Net Revenue Interests, and other
      interests set forth on Exhibit
      B,
      together with any and all other rights, titles, and interests of Seller
      (including in each case, without limitation, fee mineral interests, leasehold
      interests, royalty interests, overriding royalty interests, production payments,
      net profits interests, carried interests, reversionary interests, possibilities
      of reverter, and conversion rights and options) in, to, under, or derived from
      (i) the oil and gas leases described more particularly on Exhibit
      A
      and the
      leasehold estates created thereby, as to all lands and depths covered thereby
      or
      the applicable part or portion thereof if specifically limited in depth and/or
      areal extent in Exhibit
      A
      (collectively, the “Leases”),
      (ii)
      the lands covered by the Leases or otherwise described on Exhibit
      A,
      (iii)
      all units created by the pooling, unitization, and communitization agreements
      in
      effect with respect to the Leases and the lands covered thereby or otherwise
      described on Exhibit
      A,
      and
      (iv) the oil and gas leases and lands included in any units with which the
      Leases or the lands covered thereby or otherwise described on Exhibit
      A
      may have
      been pooled, unitized, or communitized, and all other rights, interests,
      privileges, benefits, and powers of any kind or character conferred upon Seller
      as the owner of any of such interests; 

     

    (b) the
      undivided Working Interests and the associated Net Revenue Interests set forth
      in Exhibit
      B,
      together with any and all other rights, titles, and interests of Seller, in
      and
      to the wells for the production of Hydrocarbons that are located on the Leases
      or on other leases or lands with which the Leases or the lands covered thereby
      or otherwise described on Exhibit
      A
      may have
      been pooled, unitized, or communitized, also described more particularly on
      Exhibit_B
      (collectively, the “Wells”);

     

    (c) all
      of
      Seller’s rights, titles, and interests in and to all crude oil, natural gas,
      condensate, distillate, natural gasoline, natural gas liquids, plant products,
      refined petroleum products, other liquid or gaseous hydrocarbons (including,
      without limitation, coalbed methane), sulphur, other gases (including, without
      limitation, hydrogen and carbon dioxide), and every other mineral or substance,
      or any of them, the right to explore for which, or an interest in which, is
      granted pursuant to the Leases or the other interests described herein
      (“Hydrocarbons”)
      (i)
      produced from or allocable to the interests of Seller described in clauses
      (a)
      and (b) of this Section
      2.1
      and
      existing in pipelines, storage tanks, or other processing or storage facilities
      upstream of the delivery points to the relevant purchasers as of the Effective
      Time, and (ii) produced from or allocable to such interests of Seller from
      and
      after the Effective Time;

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (d) all
      of
      Seller’s rights, titles, and interests in and to all fee surface interests in
      land, surface leases, easements, rights-of-way, servitudes, licenses,
      franchises, road, railroad, and other surface use permits or agreements, and
      similar rights and interests (if any) located on the lands covered by the Leases
      or otherwise described on Exhibit
      A
      or on
      any units with which the Leases or the lands covered thereby or otherwise
      described on Exhibit
      A
      may have
      been pooled, unitized, or communitized, or that otherwise relate to, used in
      connection with or obtained for use in connection with the interests of Seller
      described in clauses (a) and (b) of this Section
      2.1,
      described more particularly on Exhibit
      C
      (collectively, the “Real
      Property Interests”);

     

    (e) all
      of
      Seller’s rights, titles, and interests in and to all equipment, machinery,
      fixtures, inventory, improvements, and other personal, mixed, or movable
      property, located on or off the lands covered by the Leases or otherwise
      described on Exhibit
      A
      or with
      which the Leases or the lands covered thereby or otherwise described on
Exhibit
      A
      have
      been pooled, unitized, or communitized, to the extent used in connection with
      or
      attributable to the interests of Seller described in clauses (a) and (b) of
      this
Section
      2.1
      (except
      for any such personal property leased from third Persons), including, without
      limitation: water wells; saltwater disposal wells and facilities; injection
      wells and facilities; well equipment; casing; rods; tanks and tank batteries;
      boilers; tubing; pumps; pumping units and engines; platforms; Christmas trees;
      derricks; production facilities (whether surface or sub-sea); compressors and
      compression equipment; dehydration units and facilities; heater-treaters;
      processing, fractionation, treatment, and separation plants and facilities;
      testing and sampling equipment; sulfur recovery units and facilities; valves;
      gauges; meters; generators; motors; gun barrels; flow lines; water lines; gas
      lines; gathering lines, laterals and trunk lines, and other pipe lines; gas
      systems (for gathering, treatment, and compression); chemicals; solutions;
      water
      systems (for treatment, disposal, and injection); power plants; poles; lines;
      transformers; starters and controllers; machine shops; tools; storage yards
      and
      equipment, materials, and supplies stored therein, to the extent charged or
      reasonably chargeable to the interests of Seller described in clauses (a) and
      (b) of this Section
      2.1;
      vehicles; trailers; boats; buildings and camps; office furnishings and
      equipment; telegraph, telephone, remote telemetry, and other communication
      systems; loading docks, loading racks, and shipping facilities; spare parts;
      and
      any and all additions or accessions to, substitutions for, and replacements
      of
      any of the foregoing, wherever located, together with all attachments,
      components, parts, equipment, and accessories installed thereon or affixed
      thereto, all as described more particularly on Exhibit
      D
      (collectively, the “Personal
      Property”);

     

    (f) all
      fees,
      rentals, proceeds, payments, revenues, and other rights and economic benefits
      of
      every kind and character accruing or payable to the owners of the Assets that
      are attributable to the period from and after the Effective Time; 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (g) all
      of
      Seller’s rights, titles, and interests in and to all Contracts, the transfer of
      which is not prohibited or restricted by a preferential right to purchase,
      required consent to assignment, right of first refusal, right of first offer,
      or
      similar provision or as to which the required waivers or consents have been
      obtained, or the appropriate time period for asserting such rights has expired,
      in either case as of the Closing Date (collectively, the “Transferred
      Contracts”);
      

     

    (h) all
      Permits that are transferable by Seller to Buyer, described more particularly
      on
Exhibit
      F;
      

     

    (i) all
      of
      Seller’s rights, titles, and interests in and to all intangible rights, inchoate
      rights, transferable rights under warranties made by prior owners,
      manufacturers, vendors, and third Persons, and rights accruing under applicable
      statutes of limitation or prescription, insofar only as the foregoing rights
      and
      interests relate or are attributable to the items listed in this Section
      2.1,
      and do
      not constitute Excluded Assets, but including, without limitation, all Claims
      of
      Seller with respect to underproduction accounts or credits pertaining to
      Imbalances in existence as of the Effective Time (collectively, “Intangible
      Rights”);
      

     

    (j) all
      files, records (including, without limitation, land and title records, plats,
      surveys, abstracts of title, title insurance policies, title opinions, and
      title
      curative, lease, contract, division order, marketing, correspondence,
      operations, environmental, insurance, production, accounting, regulatory, and
      facility and well records and files), and other information that relate in
      any
      way to any of the items listed in this Section
      2.1,
      are in
      the possession of Seller, and the disclosure and transfer of which is not
      prohibited by confidentiality or other contractual arrangements in existence
      on
      the Closing Date (collectively, the “Records”);
      and

     

    (k) all
      of
      Seller’s rights, titles, and interests in and to all maps, logs, geological,
      geophysical, reserve engineering, and other scientific and technical
      information, reports, and data (including, without limitation, conventional
      and
      3-D seismic data) that relate in any way to the items listed in this
Section
      2.1,
      are
      owned by Seller, do not constitute Excluded Assets, and the disclosure and
      transfer of which is not prohibited by confidentiality or other contractual
      arrangements in existence on the Closing Date (collectively, the “Transferable
      Data”);
      

     

    LESS AND EXCEPT
      the
      Excluded Assets. The conveyance of the Assets shall be effective as of the
      Effective Time, except for the assumption by Buyer of certain Liabilities
      associated with the Assets that are provided, in Section
      2.4,
      to be
      assumed as of the Possession Time.

     

    2.2 Excluded
      Assets.
      Seller
      excepts, reserves, and retains to itself the following properties and assets
      (collectively, the “Excluded
      Assets”):
      

     

    (a) all
      corporate, financial, legal, and tax records of Seller;

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (b) all
      deposits, cash, checks in process of collection, cash equivalents, and funds
      attributable to Seller’s interest in the Assets for the period prior to the
      Effective Time, except as provided for in Section
      8.3;

     

    (c) all
      Hydrocarbons produced from or allocable to the Assets prior to the Effective
      Time, except for those Hydrocarbons described in Section
      2.1(c)(i);

     

    (d) all
      documents and records of Seller subject to the attorney/client privilege,
      confidentiality agreements, claims of privilege, or other restrictions on
      access;

     

    (e) all
      rights, interests, and Claims that Seller may have under any policy of insurance
      or indemnity, surety bond, or any insurance or condemnation proceeds or
      recoveries from third Persons relating to property damage or casualty loss
      affecting the Assets occurring prior to the Possession Time; 

     

    (f) all
      Claims, whether in contract, in tort, or arising by operation of Law, and
      whether asserted or unasserted as of the Possession Time, that Seller may have
      against any Person arising out of acts, omissions, or events, or injury to
      or
      death of Persons or loss or destruction of or damage to property, relating
      in
      any way to, the Assets that occurred prior to the Possession Time; provided,
      however, that no such Claim may be settled, compromised, or otherwise resolved
      in a manner that results in an obligation borne by Buyer or the Assets from
      and
      after the Possession Time without the prior written consent of Buyer;

     

    (g) all
      exchange traded futures contracts and over-the-counter derivative contracts
      of
      Seller as to which Seller has an open position as of the Effective Time;

     

    (h) any
      and
      all rights to use Seller’s name, marks, trade dress or insignia, or to use the
      name of any Affiliate of Seller, and all of Seller’s intellectual property,
      including, without limitation, proprietary or licensed computer software;
      patents; trade secrets; copyrights; geological and geophysical information
      and
      data (including, without limitation, conventional and 3-D seismic data) licensed
      from third Persons, and such Seller’s proprietary interpretations thereof;
      economic analyses; and pricing forecasts;

     

    (i) all
      amounts due or payable to Seller as adjustments to insurance premiums related
      to
      the Assets for periods prior to the Effective Time;

     

    (j) all
      Claims of Seller for refunds of or any loss carry-forwards with respect to
      Property-Related Taxes and income or franchise taxes relating to the Assets
      for
      periods prior to the Effective Time; 

     

    (k) all
      audit
      rights and all amounts due or payable to Seller as refunds, adjustments, or
      settlements of disputes arising under the Leases, the Real Property Interests,
      the Permits, and the Contracts for periods prior to the Effective Time;

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (l) all
      trade
      credits and the proceeds of all accounts receivable, notes receivable,
      instruments, general intangibles, and other receivables due or payable to Seller
      relating to the Assets that accrued prior to the Effective Time; 

     

    (m) except
      as
      otherwise provided herein, all fees, rentals, proceeds, payments, revenues,
      rights, and economic benefits of every kind and character (and all security
      or
      other deposits made) payable to the owners of the Assets and that are
      attributable to the period prior to the Effective Time; and

     

    (n) all
      interests, rights, property, and assets of Seller not located on or used in
      connection with the Assets or otherwise specifically included in the definition
      of the Assets.

     

    2.3 Consideration.
      (a)
      The
      purchase price for the Properties shall be (i) $7,000,000, subject to adjustment
      as provided in Section
      2.3(b)
      (the
      "Cash
      Purchase Price"),
      and
      (ii) 404,204 shares of restricted common stock of the Parent (the “Parent
      Stock Consideration”)
      (such
      actual shares being issued to Seller being referred to as the “Parent
      Restricted Stock”).
      The
      Cash Purchase Price and the Parent Stock Consideration is referred to in this
      Agreement as the “Base
      Purchase Price”
and
      the
      Cash Purchase Price, as adjusted pursuant to Section 2.3(b) and (c), is referred
      to in this Agreement as the "Adjusted
      Cash Purchase Price"
      and the
      Base Consideration, as adjusted by the Adjusted Cash Purchase Price, is referred
      to in this Agreement as the “Adjusted
      Base Consideration.”

     

    (b) The
      Cash
      Purchase Price shall be adjusted upward
      by the
      following:

     

    
      	 	
              (i)

            	
              the
                amount of the value of all merchantable Hydrocarbons produced from
                or
                allocable to the Assets existing in pipelines, storage tanks, or
                other
                processing or storage facilities (including, without limitation,
                unsold
                inventories of plant products owned by Seller, if any) upstream of
                the
                delivery points to the relevant purchasers as of the Effective Time,
                the
                value to be based on the contract price applicable to such Hydrocarbons
                in
                effect as of the Effective Time (or the market value, if there is
                no
                contract price, in effect as of the Effective Time), less amounts
                payable
                as royalties, overriding royalties, and other burdens upon such
                Hydrocarbons and Property-Related Taxes deducted by the purchaser
                of such
                Hydrocarbons;

            

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (ii)

            	
              the
                amount of all direct capital, operating, and other expenditures and
                costs
                and all prepaid costs and expenses attributable to the Assets (exclusive
                of Property-Related Taxes) incurred and actually paid by or on behalf
                of
                Seller in the ordinary course of owning and operating the Assets
                that are
                attributable to the period from the Effective Time through the Possession
                Time, including,
                without
                limitation,
                (A) royalties, overriding royalties, and other similar burdens on
                production, (B) rentals, shut-in well payments, and other lease
                maintenance payments made under the terms of the Leases, (C) except
                as
                otherwise provided below in clause (D)(1) of this paragraph, the
                direct
                overhead and other charges and expenses billed to Seller by the operator
                or operators (including, without limitation, Seller or its Affiliates)
                of
                the Assets under applicable operating agreements, including, without
                limitation, unreimbursed expenses paid by Seller on behalf of third
                Persons to which Seller is entitled to reimbursement under such operating
                agreements, and (D) premiums paid by Seller with respect to any policy
                of
                insurance or indemnity or any surety bond directly related to the
                Assets
                and allocable to the period from the Effective Time through the Possession
                Time, but exclusive of
                (1) direct overhead and other charges billed by Seller or its Affiliate
                as
                operator of an Asset, to Seller, to the extent that such charges
                exceed
                the like charges invoiced by Seller or its Affiliate to other co-owners
                of
                interests in the relevant Asset, (2) expenses incurred by Seller
                in
                connection with the cure or remediation of Defects or Environmental
                Conditions pursuant to Section
                4.3,
                and
                (3) the general, administrative, and office overhead expenses of
                Seller;

            

    

     

    
      	 	
              (iii)

            	
              any
                increase required as the result of the proration of Property-Related
                Taxes
                under Section
                10.3;

            

    

     

    
      	 	
              (iv)

            	
              the
                amount of the value of any Imbalance as to which Seller is in an
“under”
                position as of the Effective Time, as agreed upon by Seller and Buyer
                pursuant to Section
                5.4;
                and

            

    

     

    
      	 	
              (v)

            	
              any
                other amount provided for elsewhere in this Agreement or otherwise
                agreed
                upon by Seller and Buyer as being an increase to the Cash Purchase
                Price.

            

    

     

    (c) The
      Cash
      Purchase Price shall be adjusted downward
      by:

     

    
      	 	
              (i)

            	
              reductions
                (if any) provided for in Sections
                4.3
                and 5.2;
                

            

    

     

    
      	 	
              (ii)

            	
              the
                proceeds received by Seller from the sale of Hydrocarbons produced
                from or
                allocable to the Assets during the period from the Effective Time
                through
                the Closing Date, less amounts payable as royalties, overriding royalties,
                and other burdens upon such Hydrocarbons and Property-Related Taxes
                deducted by the purchaser of such Hydrocarbons;

            

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	 	
              (iii)

            	
              all
                other fees, rentals, proceeds from any permitted sale, salvage, or
                other
                disposition, and other revenues pertaining to the Assets that are
                attributable to, and were received by Seller during, the period from
                the
                Effective Time through the Closing Date (excluding overhead reimbursements
                to Seller under applicable operating agreements under which Seller
                is the
                operator);

            

    

     

    
      	 	
              (iv)

            	
              the
                amount of the value of any Imbalance as to which Seller is in an
“over”
                position as of the Effective Time, as well as the amount of the value
                of
                any Hydrocarbons produced from or allocable to the Assets that third
                Persons may otherwise be entitled to receive out of Seller’s interest in
                such Assets after the Effective Time without making full payment
                therefore
                at or after the time of delivery as the result of a “take-or-pay”,
                prepayment, forward sale, production payment, deferred production,
                or
                similar arrangement in existence as of the Effective Time, such value
                to
                be as agreed upon by Seller and Buyer pursuant to Section
                5.4;

            

    

     

    
      	 	
              (v)

            	
              any
                reduction required as the result of the proration of Property-Related
                Taxes under Section 10.3; and

            

    

     

    
      	 	
              (vi)

            	
              any
                other amount provided for elsewhere in this Agreement or otherwise
                agreed
                upon by Seller and Buyer as being a reduction in the Cash Purchase
                Price.

            

    

     

    (d)
       The
      Cash
      Purchase Price, as adjusted pursuant to Sections
      2.3(b)
      and
2.3(c),
      shall
      be referred to herein as the “Adjusted
      Cash Purchase Price”.
      All
      adjustments to the Cash Purchase Price provided for in Sections
      2.3(b)
      and
2.3(c)
      shall be
      determined without duplication and on an accrual basis, in accordance with
      generally accepted accounting principles consistently applied. 

     

    2.4 Assumption
      of Obligations.
      Subject
      to the terms of this Agreement, upon the Closing, Buyer assumes and agrees
      to
      pay, perform, and discharge the following duties, obligations, and Liabilities
      (collectively, the “Assumed
      Liabilities”),
      effective as of the Effective Time or the Possession Time, as applicable, as
      set
      forth below: 

     

    (a) the
      performance of the terms, conditions, and covenants of, and the discharge of
      Seller’s duties, obligations, and liabilities (other than obligations or
      liabilities for the payment of money) arising under the terms of, the Leases,
      the Real Property Interests, the Permits, and the Transferred Contracts for
      the
      period from and after the Possession Time; 

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (b) all
      obligations and Liabilities of Seller for the payment of money with respect
      to
      the Assets (including, without limitation, the payment of Seller’s costs and
      expenses incurred in connection with the Assets and the payment of Seller’s
      royalties, overriding royalties, and other similar burdens on production, as
      well as all rentals, shut-in well payments, minimum royalties, and other lease
      maintenance payments under the terms of the Leases) for the period from and
      after the Effective Time; 

     

    (c) all
      obligations of Seller regarding the plugging and abandonment of all Wells and
      Personal Property and the performance of all related salvage, site clearance,
      and surface restoration operations in accordance with applicable Law and the
      terms of the Leases and applicable Transferred Contracts;

     

    (d) ALL
      ASSUMED ENVIRONMENTAL LIABILITIES;

     

    (e) EXCEPT
      FOR RETAINED LIABILITIES, ALL OTHER CLAIMS AND LIABILITIES FOR INJURY TO OR
      DEATH OF ANY PERSON, PERSONS, OR OTHER LIVING THINGS, OR LOSS OR DESTRUCTION
      OF
      OR DAMAGE TO PROPERTY AFFECTING OR RELATING TO THE ASSETS, REGARDLESS OF WHETHER
      SUCH CLAIM OR LIABILITY RESULTS, IN WHOLE OR IN PART, FROM THE NEGLIGENCE OR
      STRICT LIABILITY OF SELLER OR ITS AFFILIATES, EMPLOYEES, AGENTS, OR
      REPRESENTATIVES, TO THE EXTENT THAT SUCH CLAIM OR LIABILITY, OR THE ACTS,
      OMISSIONS, EVENTS, OR CONDITIONS GIVING RISE THERETO, ARISES, OCCURS, OR EXISTS
      AT OR AFTER THE POSSESSION TIME; 

     

    (f) all
      obligations of Seller owed to other Persons with respect to Imbalances (if
      any)
      in existence at or arising after the Effective Time; 

     

    (g) all
      Claims and Liabilities relating to the payment of taxes (including interest,
      penalties, and additions to tax) for which Buyer has agreed to be responsible
      under the terms hereof;

     

    (h) all
      obligations of Seller (if any) relating to the accounting for and distribution
      or payment of proceeds from the sale of the Hydrocarbons produced from or
      allocable to the Assets, including, without limitation, the distribution or
      payment of funds held in suspense as of the Closing Date and transferred to
      Buyer pursuant to Section
      8.3;
      

     

    (i) the
      responsibility for compliance with applicable Laws relating to the Assets,
      and
      the maintenance and, when necessary, procurement of Permits required by any
      Governmental Authority in connection with the Assets, in each case for the
      period from and after the Possession Time;

     

    
      
        
        

      

      
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    (j) all
      Claims and Liabilities arising out of, resulting from, or relating in any way
      to
      Environmental Conditions, on or relating to the Assets that become Assumed
      Liabilities by operation of Section
      4.3;
      and

     

    (k) all
      other
      duties, obligations, Liabilities, and Claims, whether in contract, in tort,
      or
      arising by operation of Law, accruing or resulting from, arising out of, or
      otherwise associated with the Assets for the period from and after the
      Possession Time.

     

    2.5 Retained
      Liabilities.
      Subject
      to the terms of this Agreement, Seller hereby expressly retains and agrees
      to
      pay, perform, and discharge the following duties, obligations, and Liabilities
      (collectively, the “Retained
      Liabilities”):
      

     

    (a) the
      performance of the terms, conditions, and covenants of, and the discharge of
      Seller’s duties, obligations, and Liabilities (other than obligations or
      Liabilities for the payment of money) arising under the terms of, the Leases,
      the Real Property Interests, the Transferable Permits, and the Contracts for
      the
      period prior to the Possession Time; 

     

    (b) except
      for Assumed Liabilities, all obligations and Liabilities of Seller for the
      payment of money with respect to the Assets (including, without limitation,
      the
      payment of Seller’s costs and expenses incurred in connection with the Assets
      and the payment of Seller’s royalties, overriding royalties, and other similar
      burdens on production, as well as all rentals, shut-in well payments, minimum
      royalties, and other lease maintenance payments under the Leases) for the period
      prior to the Effective Time; 

     

    (c) all
      Claims and Liabilities relating to the payment of taxes (including interest,
      penalties, and additions to tax) for which Seller has agreed to be responsible
      hereunder;

     

    (d) except
      for Assumed Liabilities, all Claims and Liabilities, whether in contract, in
      tort, or arising by operation of Law, against or suffered by Seller that relate
      in any way to, the Assets (INCLUDING,
      WITHOUT LIMITATION, INJURY TO OR DEATH OF ANY PERSON, PERSONS, OR OTHER LIVING
      THINGS, OR LOSS OR DESTRUCTION OF OR DAMAGE TO PROPERTY AFFECTING OR RELATING
      TO
      THE ASSETS, REGARDLESS OF WHETHER SUCH CLAIM OR LIABILITY RESULTS, IN WHOLE
      OR
      IN PART, FROM THE NEGLIGENCE OR STRICT LIABILITY OF BUYER OR ITS AFFILIATES,
      EMPLOYEES, AGENTS, OR REPRESENTATIVES),
      to
      extent that any such Claim or Liability, or the acts, omissions, events, or
      conditions giving rise thereto, arose, occurred, or existed prior to the
      Possession Time, regardless of whether such Claim or Liability has been asserted
      as of the Possession Time; 

     

    (e) all
      Claims (if any) of third Persons, whether as the result of audits or otherwise,
      to refunds, adjustments, settlements of disputes, or other amounts of any kind
      due under the terms of the Leases, the Real Property Interests, the Transferable
      Permits, or the Contracts and attributable to the period prior to the Effective
      Time; 

     

    
      
        
        

      

      
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    (f) all
      amounts payable by Seller under the terms of all exchange traded futures
      contracts and over-the-counter derivative contracts to which Seller is a party
      as of the Effective Time, including, without limitation, all breakage costs
      (if
      any) incurred by Seller under the terms of any such agreement as the result
      of
      the transactions contemplated in this Agreement; 

     

    (g) all
      indebtedness (if any) of Seller, whether or not encumbering all or any portion
      of the Assets; 

     

    (h) ALL
      RETAINED ENVIRONMENTAL LIABILITIES; and 

     

    (i) except
      for Assumed Liabilities, all other duties, obligations, Claims, and Liabilities,
      whether in contract, in tort, or arising by operation of Law, accruing or
      resulting from, arising out of, or otherwise associated with (i) the Assets
      for
      the period prior to the Possession Time, and (ii) the Excluded
      Assets.

     

    2.6 Possession;
      Risk of Loss.
      As
      of the
      Possession Time, Seller shall deliver to Buyer exclusive possession and control
      of the Assets. Seller agrees to cooperate with Buyer to facilitate the
      transition of the ownership and (if applicable) operation of the Assets to
      Buyer. As between Seller and Buyer, and subject to the terms of Sections
      2.4
      and
2.5,
      Seller
      shall, severally according to their respective ownership interests in the Assets
      and not jointly, assume and bear all risk of loss associated with the Assets
      prior to the Possession Time, and Buyer shall assume and bear all risk of loss
      associated with the Assets from and after the Possession Time. 

     

    2.7 Allocation
      of Adjusted Consideration.
      Buyer
      and
      Seller shall use commercially reasonable efforts to agree, on or before the
      Closing Date, upon an allocation of the Adjusted Base Consideration among the
      Assets for financial accounting and tax purposes in accordance with Section
      1060
      of the Code. Buyer and Seller shall each file a Form 8594 (Asset Acquisition
      Statement Under Section 1060) on a timely basis, reporting the allocation of
      the
      Adjusted Base Consideration consistent with such allocation. Buyer and Seller
      shall file, on a timely basis, any amendments required to such Form 8594 as
      a
      result of a subsequent increase or decrease of the Adjusted Base Consideration
      after the Closing Date. Buyer and Seller shall not take any position on their
      respective income tax returns that is inconsistent with the allocation of the
      Adjusted Base Consideration as so agreed, or as adjusted as the result of any
      subsequent increase or decrease in the Adjusted Base Consideration. If Buyer
      and
      Seller are unable to agree on the allocation of the Adjusted Base Consideration
      provided for in this Section
      2.7
      by the
      Closing Date, either Buyer or Seller may initiate arbitration of such dispute
      pursuant to the terms of Section
      10.11.
      In that
      event, the Closing shall be deferred until such dispute is resolved as provided
      in Section
      10.11.

     

    2.8 Restricted
      Securities. 

     

    (a) The
      parties acknowledge that the shares of Parent Restricted Stock shall not have
      been registered and shall be characterized as “restricted securities” under U.S.
      federal securities laws, and, under such laws, such shares may be resold without
      registration under the Securities Act only in certain limited circumstances.
      Each certificate evidencing shares of Parent Restricted Stock to be issued
      pursuant to this Agreement shall bear the following legend as well as any legend
      contemplated by this Agreement or required by the laws of the State of Delaware
      or any other jurisdiction:

     

    
      
        
        

      

      
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    “THE
      SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
      HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
      “SECURITIES ACT”). SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
      ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT
      OR AN
      OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
      REGISTRATION IS NOT REQUIRED.

     

    THE
      SALE,
      TRANSFER OR OTHER DISPOSITION OF THESE SHARES IS SUBJECT TO RESTRICTIONS AS
      SET
      FORTH IN THE PURCHASE AND SALE AGREEMENT BY AND AMONG UHC NEW MEXICO
      CORPORATION, CANO PETRO OF NEW MEXICO, INC. AND CANO PETROLEUM, INC. DATED
      AS OF
      MARCH 29, 2007, A COPY OF WHICH IS AVAILABLE AT THE PRINCIPAL OFFICE OF THE
      COMPANY”

     

    (b) The
      holder of shares of Parent Restricted Stock shall be restricted from selling,
      transferring or otherwise disposing of any or all of such shares until the
      first
      anniversary of the Closing Date, and, thereafter, in any ninety (90) day period,
      the holder of shares of Parent Restricted Stock, to the extent permitted by
      law,
      may only sell, transfer or otherwise dispose of a maximum of 25% of the total
      number of shares of Parent Restricted Stock the holder received in connection
      with the transactions contemplated herein and each certificate representing
      shares of Parent Restricted Stock to be issued pursuant to this Agreement shall
      contain a legend to that effect. 

     

    ARTICLE
      III.

    REPRESENTATIONS
      AND WARRANTIES

     

    3.1 Representations
      and Warranties of Seller.
      Seller
      represents and warrants to Buyer and Parent as follows:

     

    (a) Seller
      is
      a corporation duly formed, currently existing, and in good standing under the
      Laws of the State of New Mexico. 

     

    (b) Seller
      has full capacity, power, and authority to enter into and perform this Agreement
      and the transactions contemplated herein. The execution, delivery, and
      performance by Seller of this Agreement has been duly and validly authorized
      and
      approved by all necessary action on the part of Seller and Seller’s parent, and
      this Agreement and the documents executed in connection herewith are, or upon
      their execution and delivery will be, the valid and binding obligations of
      Seller and enforceable against Seller in accordance with their terms, subject
      to
      the effects of bankruptcy, insolvency, reorganization, moratorium, and similar
      Laws, as well as to principles of equity (regardless of whether such
      enforceability is considered in a proceeding in equity or at law).

     

    
      
        
        

      

      
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    (c) The
      execution, delivery, and performance by Seller of this Agreement and the
      consummation of the transactions contemplated herein will not (i) conflict
      with
      or result in a breach of any provisions of the organizational documents of
      Seller or Seller’s parent, (ii) result in a default or the creation of any Lien
      or give rise to any right of termination, cancellation, or acceleration under
      any of the terms of any Lease, Contract, Real Property Interest, Permit, note,
      bond, mortgage, indenture, license, or other agreement, document, or instrument
      to which Seller is a party or by which Seller or any of the Assets may be bound,
      or (iii) violate any
      order, writ, injunction, judgment, decree, or Law applicable to Seller or the
      Assets.

     

    (d) Except
      as
      otherwise reflected in Schedule
      3.1(d),
      there
      is no Claim by any Person or Governmental Authority (including, without
      limitation, expropriation or forfeiture proceedings), and no legal,
      administrative, or arbitration proceeding pending or, to Seller’s Knowledge,
      threatened against Seller or the Assets, or to which Seller is a party, that
      reasonably may be expected to (i) impair Seller’s title to any of the
      Assets, (ii) hinder or impede the operation of all or any portion of the
      Assets, (iii) subject the owner or operator of the Assets to liability in
      favor of any Governmental Authority or other Person as the result of the alleged
      violation of, or non-compliance with, any Environmental Law by Seller or any
      Affiliate of Seller with respect to the Assets or require the owner or operator
      of the Assets to remediate, remove, or respond to an Environmental Condition,
      or
      a threatened Environmental Condition, on or affecting the Assets, or
      (iv) otherwise adversely affect the Assets or the ability of Seller to
      consummate the transactions contemplated in this Agreement. Further, except
      as
      otherwise reflected in Schedule
      3.1(d),
      there
      has been no Release or Threatened Release of Environmental Contaminants at,
      to,
      from or about the Assets.

     

    (e) Except
      as
      otherwise reflected in Schedule
      3.1(e),
      none of
      the Leases, Real Property Interests, or Contracts is subject to a preferential
      right to purchase, third Person consent to assignment requirement, right of
      first refusal, right of first offer, or similar right or
      restriction.

     

    (f) Except
      for approvals by Governmental Authorities customarily obtained after the
      Closing, no
      authorization, consent, approval, exemption, franchise, permit, or license
      of,
      or filing with, any Governmental Authority is required to authorize, or is
      otherwise required by any Governmental Authority in connection with, the valid
      execution and delivery by Seller of this Agreement, the transfer of the Assets
      to Buyer, or the performance by Seller of its other obligations
      hereunder.

     

    
      
        
        

      

      
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    (g) Except
      as
      set forth on Schedule
      3.1(g), each
      Lease
      is in full force and effect. Seller has, in all material respects, fulfilled
      all
      requirements for filings, certificates, consents, approvals, disclosures, and
      similar matters contained in the Leases and applicable Law, and Seller is fully
      qualified to own, operate, and transfer the Leases under the terms thereof
      and
      applicable Law. Seller is not in material breach or material default, and there
      has occurred no event, fact, or circumstance that, with the lapse of time or
      the
      giving of notice, or both, would constitute such a material breach or material
      default by Seller, with respect to any terms of any Lease, and, to Seller’s
      Knowledge, no other Person owning an interest in, or serving as operator of,
      any
      Lease is in material breach or material default with respect to any of its
      obligations thereunder. No lessor under any Lease has given or, to Seller’s
      Knowledge, threatened to give notice of any action to terminate, cancel,
      rescind, repudiate, or procure a judicial reformation of any Lease or any
      provision thereof. The Leases contain no express obligations on the part of
      the
      owner(s) thereof, applicable after the Effective Time, to engage in continuous
      or other development operations in order to maintain any Lease. The Leases
      contain no provisions that increase the royalty share of the lessor thereunder,
      except such increases as are reflected in the Net Revenue Interests for the
      Leases and Wells set forth in Exhibit
      B.
      Seller
      has correctly made, or caused to be correctly made, all payments, including,
      without limitation, royalties, rentals, shut-in well payments, and other lease
      maintenance payments, due in respect of the Leases thereunder.

     

    (h) Each
      of
      the Real Property Interests is in full force and effect. Seller has, in all
      material respects, fulfilled all requirements for filings, certificates,
      consents, approvals, disclosures, and similar matters contained in the Real
      Property Interests and applicable Law, and Seller is fully qualified to own,
      operate, and transfer the Real Property Interests under the terms thereof and
      applicable Law. Seller is not in material breach or material default, and there
      has occurred no event, fact, or circumstance that, with the lapse of time or
      the
      giving of notice, or both, would constitute such a material breach or material
      default by Seller, with respect to any of its obligations under any Real
      Property Interest, and, to Seller’s Knowledge, no other Person owning an
      interest in any Real Property Interest or serving as operator of any Property
      is
      in material breach or material default with respect to any of its obligations
      thereunder. No grantor, lessor, licensor, or other counterparty under any Real
      Property Interest has given or, to Seller’s Knowledge, threatened to give notice
      of any action to terminate, cancel, rescind, repudiate, or procure a judicial
      reformation of any Real Property Interest or any provision thereof. Seller
      has
      correctly made, or caused to be correctly made, all rental and other payments
      due in respect of the Real Property Interests thereunder. 

     

    (i) Seller
      has furnished to Buyer true and correct copies of all of the Contracts described
      on Exhibit
      D,
      and
      there are no contracts, agreements, instruments, or documents affecting the
      Assets other than the Contracts described on Exhibit
      D.
      With
      respect to the Contracts: (i) all Contracts are in full force and effect; (ii)
      Seller is not in material breach or material default, and there has occurred
      no
      event, fact, or circumstance that, with the lapse of time or the giving of
      notice, or both, would constitute such a material breach or material default
      by
      Seller, with respect to the terms of any Contract; (iii) to Seller’s Knowledge,
      no other party is in material breach or material default with respect to the
      terms of any Contract; and (iv) Neither Seller nor, to Seller’s Knowledge, any
      other party to any Contract has given or threatened to give notice of any action
      to terminate, cancel, rescind, or procure a judicial reformation of any Contract
      or any provision thereof. The Assets are not subject to any Contract containing
      an area of mutual interest, maintenance of uniform interest, “before payout” or
“after payout” reversion or conversion, or other provision under which Seller or
      Buyer may be obligated to make assignments to third Persons of interests in
      any
      Asset after the Effective Time, except such assignments of interests as are
      reflected in Schedule
      3.1(i)
      and are
      taken into account in the Working Interests and Net Revenue Interests set forth
      for the Leases and Wells in Exhibit
      B.
      Except
      as otherwise shown on Schedule
      3.1(i),
      the
      Assets are not subject to any tax partnership agreement.

     

    
      
        
        

      

      
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    (j) The
      Permits described on Exhibit
      E
      constitute all necessary Permits affecting or pertaining to the Assets. All
      Transferable Permits are also described on Exhibit
      E.
      Seller
      or, to Seller’s Knowledge, each operator of the Assets, as applicable, has
      complied in all material respects with all Laws and Permits relating to the
      Assets, including, without limitation, Environmental Laws and Laws requiring
      the
      provision of surety bonds or other forms of security or financial assurance
      with
      respect to the performance of operations (including, without limitation,
      plugging and abandonment operations) on the Assets. Seller or, to Seller’s
      Knowledge, each operator of the Assets, as applicable, has all Permits required
      in connection with the ownership and operation of the Assets (including those
      required under Environmental Laws), and has properly made all filings necessary
      or appropriate to obtain such Permits. All of such Permits and filings are
      in
      full force and effect and to the extent necessary, Seller has filed for renewal
      of any such Permits in a manner so that the expiring Permits remain in full
      force and effect during the pendency of the application for renewal. Neither
      Seller nor, to Seller’s Knowledge, any other Person has received notice from any
      Governmental Authority or other Person that any such applicable Law, Permit,
      or
      filing has been violated or not complied with respect to the Assets by Seller
      or
      other Person.

     

    (k) As
      of the
      date of this Agreement, the Wells described on Exhibit
      B
      are the
      only wells for the production of Hydrocarbons currently located on the Leases.
      All of such Wells have been drilled, completed, and operated within the
      boundaries of the Leases or within the limits otherwise permitted by contract
      and by applicable Law and in compliance with the provisions of the applicable
      Contracts and all applicable Laws. The production of Hydrocarbons from such
      Wells has not been in excess of the allowable production established for each
      Well. Except as otherwise provided in Schedule
      3.1(k),
      none of
      the Wells has been plugged and abandoned.

     

    (l) There
      are
      no calls on production, options to purchase, or similar rights in effect with
      respect to any portion of Seller’s shares of the Hydrocarbons, and all Contracts
      for the sale of Hydrocarbons are terminable without penalty on no more than
      thirty (30) days’ prior notice. Seller is currently receiving the prices
      provided for under such sales Contracts with respect to the Hydrocarbons. All
      proceeds from the sale of Hydrocarbons attributable to the interests of Seller
      in the Assets have been and are being disbursed to Seller under appropriate
      division orders, transfer orders, or similar documents signed by or otherwise
      binding on Seller, and no portion of any such proceeds is being held in
      suspense, subject to a Claim for refund by the purchaser, used as an offset
      or
      as collateral for other obligations (whether disputed or undisputed), or
      otherwise not being paid to Seller as it becomes due in the ordinary course
      of
      business. 

     

    
      
        
        

      

      
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    (m) Except
      as
      shown in Schedule
      3.1(m),
      as of
      the date of execution of this Agreement, Seller has no Claim constituting an
      Asset, or is subject to any obligation constituting an Assumed Liability, with
      respect to any Imbalance that relates to any of the Assets. Except for the
      Imbalances (if any) shown in Schedule
      3.1(m)
      as to
      which Seller is subject to an obligation constituting an Assumed Liability,
      Seller is not on the date of execution of this Agreement, nor will be after
      the
      Effective Time, obligated by virtue of any prepayment made under any sales
      Contract or other Contract containing a "take-or-pay" clause, or under any
      production payment, forward sale, balancing, deferred production, or similar
      arrangement, to deliver Hydrocarbons produced from or allocable to any Asset
      at
      some future time without receiving full payment therefore at or after the time
      of delivery. 

     

    (n) Except
      as
      set forth on Schedule
      3.1(n),
      Seller
      has paid all amounts owed in connection with the Assets for which Seller has
      received invoices from the operator(s) thereof, and there are no outstanding
      calls or payments due from Seller under the terms of the Contracts. Schedule
      3.1(n) contains
      a true and complete list and description, as of the date of execution of this
      Agreement, of all authorities for expenditures, plans of exploration and/or
      development, and other commitments as to which Seller has become obligated
      regarding drilling, reworking, or other operations or other capital expenditures
      on or relating to the Assets for which all of the activities or expenditures
      anticipated in such AFEs, plans, or commitments have not been completed prior
      to
      the date of this Agreement. Except as set forth in Schedule
      3.1(n),
      neither
      the Leases nor the Contracts contain any express contractual obligation to
      drill
      additional Hydrocarbon wells or engage in other operations on the Assets as
      to
      which Seller has become obligated, except for obligations arising under offset
      well provisions and obligations arising under Contracts that allow the parties
      thereto to elect whether to participate. There are no material operations on
      the
      Leases under any of the Contracts with respect to which Seller or any other
      Person has become a non-consenting party, except for those operations set forth
      on Schedule
      3.1(n),
      the
      effects of which are reflected in the Working Interests and Net Revenue
      Interests set forth for the Leases and Wells in Exhibit
      B.
      The
      matters set forth on Schedule
      3.1(n)
      are
      referred to herein as the “Vendor
      Claims.”

     

    (o) Except
      with respect to those Property-Related Taxes prorated between Seller and Buyer
      as provided in Section
      10.3,
      during
      the period of Seller’s ownership of the Assets, all Property-Related Taxes
      imposed or assessed with respect to, measured by, charged against, or
      attributable to the Assets, or the ownership thereof, or the production,
      processing, gathering, treatment, transportation, and marketing of Hydrocarbons
      therefrom or allocable thereto, in each case that became due and payable prior
      to the Effective Time have been properly paid. 

     

    (p) Seller
      has not engaged any financial advisor, broker, or finder, or incurred any
      liability, contingent or otherwise, in favor of any such other Person relating
      to the transactions contemplated in this Agreement. 

     

    (q) There
      are
      no bankruptcy, insolvency, reorganization, or arrangement proceedings pending,
      being contemplated by, or to Seller’s Knowledge, threatened against Seller or
      any Affiliate that controls Seller. 

     

    
      
        
        

      

      
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    (r) Schedule
      3.1(r)
      lists
      all insurance policies or self-insurance programs maintained in effect by Seller
      or its Affiliates with respect to the Assets as of the date of execution of
      this
      Agreement. Seller, or its Affiliates, have paid all premiums required under,
      and
      are otherwise in compliance with, the terms of all such insurance policies
      or
      self-insurance programs, all of which policies or programs, or renewals thereof,
      have been during the period of Seller’s ownership of the Assets, and are as of
      the date of execution of this Agreement, in full force and effect.

     

    (s) Since
      December 31, 2006, there has not occurred a Material Adverse
      Change.

     

    (t) The
      information relating to Seller and the Assets which has been made available
      to
      Buyer is not false or misleading with respect to any material fact and does
      not
      omit any material fact necessary in order to make the statements therein not
      misleading. 

     

    3.2 Restricted
      Shares.The
      Seller understands that: 

     

    (a) the
      shares of Parent Restricted Stock comprising the Parent Stock Consideration
      to
      be delivered pursuant to this Agreement are “restricted securities” under the
      federal securities laws of the United States inasmuch as they have not been
      registered under the Securities Act of 1933, as amended (the “Securities
      Act”),
      and
      shall be acquired from Parent in a transaction exempt from registration under
      the Securities Act pursuant to Section 4(2) thereof or Regulation D promulgated
      thereunder;

     

    (b) the
      shares of Parent Restricted Stock must be held indefinitely unless a subsequent
      disposition thereof is registered under the Securities Act or is exempt from
      registration. In this connection, Seller represents that it is familiar with
      Rule 144 promulgated under the Securities Act, as currently in effect, and
      understands the resale limitations imposed thereby and by the Securities Act;
      

     

    (c) the
      shares of Parent Restricted Stock will bear a legend to such effect;

     

    (d) Purchaser
      will cause its transfer agent to make a notation on its transfer books to such
      effect; and

     

    (e) The
      holder of shares of Parent Restricted Stock shall be restricted from selling,
      transferring or otherwise disposing of any or all of such shares until the
      first
      anniversary of the Closing Date, and, thereafter, in any ninety (90) day period,
      holder of shares of Parent Restricted Stock, to the extent permitted by law,
      may
      only sell, transfer or otherwise dispose of a maximum of 25% of the total number
      of shares of Parent Restricted Stock such holder received in connection with
      the
      transactions contemplated herein. 

     

    
      
        
        

      

      
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    3.3 Accredited
      Investor; Purchase Entirely For Own Account.
      Seller
      is
      an accredited investor as defined in Regulation D under the Securities Act.
      Seller is acquiring the shares of Parent Restricted Stock pursuant to this
      Agreement for investment only for its own account, not as a nominee or agent,
      and not with a view to the resale or distribution of any part thereof and shall
      not offer to sell or otherwise dispose of any of the shares of Parent Restricted
      Stock so acquired by the Seller in violation of the registration requirements
      of
      the Securities Act or the securities laws of any other jurisdiction applicable
      to the transactions contemplated hereby or the Seller. By executing this
      Agreement, the Seller further represents that it does not have any contract,
      undertaking, agreement or arrangement with any person to sell, transfer or
      grant
      participations to such person or to any third person, with respect to any of
      the
      shares of the Parent Restricted Stock.

     

    3.4 Disclosure
      of Information.
      Seller
      represents and warrants to Buyer and Parent as follows:

     

    (a) Seller
      has conducted its own independent investigation, review and analysis of the
      business, operations, assets, liabilities, results of operations, financial
      condition and prospects of Buyer; and

     

    (b) Seller
      acknowledges that, except as set forth in this Agreement, none of Buyer, Parent
      nor any of their affiliates, employees, agents, advisors or representatives
      (collectively, “Buyer
      Affiliates”)
      makes
      or has made any representation or warranty, either express or implied, as to
      the
      accuracy or completeness of any of the information provided or made available
      to
      Seller or any of its affiliates, employees, agents or representatives
      (collectively, “Seller
      Affiliates”).
      Seller further agrees that, to the fullest extent permitted by law, neither
      Buyer, Parent nor any Buyer Affiliate shall have any liability or responsibility
      whatsoever to the Sellers or any Seller Affiliate on any basis (including in
      contract or tort, under federal or state securities laws or otherwise) based
      upon any information provided or made available, or statements made, to Seller
      or Seller Affiliate (or any omissions therefrom), other than (in the case of
      Buyer or Parent) in respect of the specific representations and warranties
      set
      forth in Section
      3.8
      of this
      Agreement.

     

    3.5 Investment
      Experience.
      Seller
      has such knowledge and experience in financial and business matters as to be
      capable of evaluating the merits and risks of the investment in the shares
      of
      Parent Restricted Stock. The Seller is able to bear the economic risk of its
      investment in the shares of Parent Restricted Stock for an indefinite period
      of
      time and can afford a complete loss of his investment in the shares of Parent
      Restricted Stock.

     

    3.6 General
      Solicitation.
      Seller
      was not offered or sold the shares of Parent Restricted Stock, directly or
      indirectly, by means of any form of general solicitation or general
      advertisement.

     

    3.7 Reliance.
      Seller
      understands and acknowledges that: (i) the shares of Parent Restricted Stock
      are
      being offered and sold to it without registration under the Securities Act
      in a
      transaction that is exempt from the registration provisions of the Securities
      Act and (ii) the availability of such exemption depends in part on, and Buyer
      and Parent will rely upon the accuracy and truthfulness of, the foregoing
      representations and the Seller hereby acknowledges and consents to such
      reliance.

     

    
      
        
        

      

      
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    3.8 Representations
      and Warranties of Buyer and Parent.Buyer,
      and Parent, with regard to representations 3.8(b), (c), (d), (e) and (f),
      represents and warrants to Seller as follows:

     

    (a) Buyer
      is
      a corporation duly organized, validly existing, and in good standing under
      the
      Laws of the State of Texas. Buyer has all requisite power and authority to
      own
      and operate its property and to carry on its business as now
      conducted.

     

    (b) Each
      of
      Buyer and Parent has full capacity, power, and authority to enter into and
      perform this Agreement and the transactions contemplated herein. The execution,
      delivery, and performance by Buyer and Parent of this Agreement have been duly
      and validly authorized and approved by all necessary action of Buyer and Parent.
      This Agreement and the documents executed in connection herewith are, or upon
      their execution and delivery will be, the valid and binding obligations of
      Buyer
      and Parent and enforceable against Buyer and Parent in accordance with their
      terms, subject to the effects of bankruptcy, insolvency, reorganization,
      moratorium, and similar Laws, as well as to principles of equity (regardless
      of
      whether such enforceability is considered in a proceeding in equity or at law)
      provided that only the obligations regarding the Parent Restricted Stock are
      valid and binding obligations of Parent. The Parent Stock Consideration when
      issued to the Seller pursuant to this Agreement will constitute duly authorized,
      validly issued, fully paid and non-accessible shares of Parent Restricted
      Stock.

     

    (c) The
      execution, delivery, and performance by Buyer and Parent (for the limited
      purposes relating to the Parent Restricted Stock) of this Agreement and the
      consummation of the transactions contemplated herein will not (i) conflict
      with
      or result in a breach of any provision of the organizational documents of Buyer
      or Parent, (ii) result in a default or the creation of any Lien or give rise
      to
      any right of termination, cancellation, or acceleration under any of the terms
      of any note, bond, mortgage, indenture, license, or other agreement to which
      Buyer or Parent is a party or by which Buyer, Parent, or any of its property
      may
      be bound, or (iii) violate any order, writ, injunction, judgment, decree, or
      Law
      applicable to Buyer or its property.

     

    (d) There
      is
      no Claim by any Person or Governmental Authority (including, without limitation,
      expropriation or forfeiture proceedings), and no legal, administrative, or
      arbitration proceeding pending or, to Buyer’s or Parent’s Knowledge, threatened
      against Buyer, or to which Buyer is a party, that reasonably may be expected
      to
      have a material adverse effect upon the ability of Buyer or Parent to consummate
      the transactions contemplated in this Agreement.

     

    (e) Except
      for approvals by Governmental Authorities customarily obtained after the
      Closing, no
      authorization, consent, approval, exemption, franchise, permit, or license
      of,
      or filing with, any Governmental Authority or any other Person is required
      to
      authorize, or is otherwise required in connection with, the valid execution
      and
      delivery by Buyer and Parent of this Agreement, the performance by Buyer of
      its
      obligations hereunder and thereunder or the performance by Parent of its limited
      obligations hereunder and thereunder regarding the Parent Restricted
      Stock.

     

    
      
        
        

      

      
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    (f) 
      Buyer
      has not engaged any other financial advisor, broker, agent or finder, or
      incurred any liability, contingent or otherwise, in favor of any other such
      Person relating to the transactions contemplated by this Agreement for which
      Seller would be responsible.

     

    (g) There
      are
      no bankruptcy, insolvency, reorganization, or arrangement proceedings pending,
      being contemplated by, or, to Buyer’s Knowledge, threatened against Buyer or any
      Affiliate that controls Buyer.

     

    (h) Buyer
      is
      acquiring the Assets for its own account, for investment, and not with a view
      to, or for offer or resale in connection with, a distribution thereof
      (including, without limitation, the transfer of fractional undivided interests
      therein) within the meaning of the Securities Act of 1933, as amended, and
      the
      rules and regulations promulgated thereunder, or a distribution thereof in
      violation of any applicable securities Law. If, in the future, Buyer sells,
      transfers, or otherwise disposes of the Assets, or any portion thereof, or
      any
      fractional undivided interest therein, Buyer will do so in full compliance
      with
      any applicable securities Laws. 

     

    (i) Parent
      has filed with the SEC, and has heretofore made available to the Seller true
      and
      complete copies of, each quarterly report, annual report, current report and
      proxy statement required to be filed with the SEC since June 30, 2006 under
      the
      Securities Exchange Act of 1934 (collectively, the “Parent SEC Reports”). As of
      the respective dates such Parent SEC Reports were filed or, if any such Parent
      SEC Reports were amended, as of the date such amendment was filed, each of
      the
      Parent SEC Reports, including any financial statements or schedules included
      therein, (a) complied in all material respects with all applicable
      requirements of the Securities Act of 1933 and the Exchange Act of 1934, as
      the
      case may be, and the applicable rules and regulations promulgated thereunder,
      and (b) did not contain any untrue statement of a material fact or omit to
      state
      a material fact required to be stated therein or necessary in order to make
      the
      statements therein, in light of the circumstances under which they were made,
      not misleading. 

     

    (j) Buyer
      has
      such knowledge and experience in the ownership and operation of oil and gas
      properties and financial and business matters as to be able to evaluate the
      merits and risks of an investment in the Assets. Buyer is able to bear the
      risks
      of an investment in the Assets and understands risks of, and other
      considerations relating to, a purchase of the Assets.

     

    
      
        
        

      

      
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    3.9 Disclaimers.
      To
      the
      extent required by applicable Law to be operative, the disclaimers of certain
      warranties contained in this Section
      3.9
      are
“conspicuous disclaimers” for purposes of any applicable Law. THE
      EXPRESS REPRESENTATIONS AND WARRANTIES OF SELLER CONTAINED IN SECTIONS 3.1
      THROUGH 3.8 ABOVE AND THE SPECIAL WARRANTY OF TITLE BY SELLER IN THE CONVEYANCE
      (COLLECTIVELY “SELLER’S
      WARRANTIES”)
      ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES,
      EXPRESS, IMPLIED, STATUTORY OR OTHERWISE. SELLER EXPRESSLY DISCLAIMS ANY AND
      ALL
      SUCH OTHER REPRESENTATIONS AND WARRANTIES. WITHOUT LIMITATION OF THE FOREGOING
      AND EXCEPT FOR SELLER’S WARRANTIES, THE ASSETS SHALL BE CONVEYED PURSUANT HERETO
      WITHOUT (a) ANY WARRANTY OR REPRESENTATION WHETHER EXPRESS, IMPLIED, STATUTORY
      OR OTHERWISE RELATING TO TITLE TO ANY OF THE ASSETS, THE CONDITION, QUANTITY,
      QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY TO THE MODELS OR SAMPLES
      OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR ITS FITNESS FOR ANY PURPOSE
      OR (b) ANY OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTY OR REPRESENTATION
      WHATSOEVER.

     

    ARTICLE
      IV.

    ACCESS;
      DUE DILIGENCE

     

    4.1 Access
      to Records.
      Through
      the Closing Date, Seller shall provide to Buyer and its representatives full
      access, during normal business hours (and, if reasonably requested, such other
      times as Buyer may deem necessary to complete its due diligence within the
      time
      period provided herein and for a period of one hundred twenty (120) days after
      the closing date) at Seller’s offices, to all books, records, documents, and
      information of every kind and character (including, without limitation,
      originals or photocopies, as available, of the Leases, the Real Property
      Interests, the Contracts, the Permits, the Records, and the Transferable Data)
      in Seller’s possession relating in any way to the Assets. Seller shall also
      cause their employees, counsel, accountants, and other consultants to cooperate
      with and assist Buyer in connection with such due diligence review. Unless
      prohibited from doing so by confidentiality or other contractual arrangements
      between Seller and third Persons, Buyer shall have the right to photocopy such
      books, records, documents, and information, or any portion thereof, at Buyer’s
      expense. If Buyer requests information not in the possession of Seller, Seller
      shall use reasonable efforts to obtain the requested information, at Buyer’s
      expense, from the applicable operators or other Persons. 

     

    4.2 Operation
      and Environmental Assessment.
      Through
      the Closing Date, Seller shall afford, or shall use reasonable efforts to cause
      relevant operators or other Persons to afford, to Buyer and its authorized
      representatives, at reasonable times and at the sole cost, risk, and expense
      of
      Buyer or its representatives, as applicable, reasonable access to and entry
      upon
      all of the Leases, Wells, and Real Property Interests for the purposes of
      Buyer’s on-site inspections and inventories of the Assets (including, without
      limitation, the witnessing of well tests, the examination of well logs and
      other
      geological and geophysical data, and the performance of soil and water tests
      and
      such other tests, inspections, examinations, investigations, and studies as
      Buyer deems necessary to permit Buyer to prepare reserve engineering and other
      reports relating to, and assess the operational and environmental condition
      of,
      the Assets) and reasonable access to any employees or contract personnel that
      have been involved with the operation, maintenance, or development of the
      Assets.

     

    
      
        
        

      

      
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    4.3 Defects,
      Environmental Conditions and Related Adjustments. From
      time
      to time on or before the Closing Date and for one hundred twenty (120) days
      following the Closing Date, Buyer may give to Seller written notice of any
      claimed Defect or Environmental Condition discovered by Buyer. Each such notice
      shall set forth (i) a detailed description of the relevant Defect or
      Environmental Condition and, as applicable, the Asset affected thereby, (ii)
      the
      Defect Amount or Remediation Estimate applicable thereto as determined by Buyer,
      and (iii) the specific documentation or action that Buyer requests to cure
      or
      remedy such Defect or Environmental Condition. In addition, if Seller is aware
      or becomes aware, between the date of execution of this Agreement and the
      Closing Date, of any Environmental Condition affecting any Asset, Seller shall
      provide to Buyer written notice of such fact. Any Environmental Condition thus
      brought to Buyer’s attention by Seller shall be deemed to have been asserted by
      Buyer in a timely manner as provided in this Section
      4.3(a).
      Defects
      and Environmental Conditions discovered by Buyer in its due diligence pertaining
      to the Assets but not asserted in a timely manner as provided in this
Section
      4.3(a)
      shall be
      deemed to have been waived by Buyer, and shall become Assumed Liabilities for
      purposes hereof.

    

    (b) Seller
      shall have the first right and option, but not the obligation, to cure or remedy
      all such Defects or Environmental Conditions at Seller’s sole cost, risk, and
      expense (and in the case of an Environmental Condition, in accordance with
      applicable Environmental Laws) consistent with the current use of the Asset
      and
      in a manner reasonably acceptable to Buyer. If Seller elects to cure or remedy
      a
      Defect or Environmental Condition, Seller shall provide to Buyer written notice
      of such fact no later than three (3) Business Days after their receipt of
      Buyer’s notice. The failure of Seller to give such notice to Buyer within such
      three-Business Day period shall constitute an election by Seller not to cure
      or
      remedy the relevant Defect or Environmental Condition. 

     

    (c) If
      Seller
      elects to cure or remedy a Defect or Environmental Condition, Seller will
      commence such curative activities or remediation as soon as reasonably
      practicable after their receipt of Buyer’s notice and shall promptly and
      diligently continue such efforts until such Defect or Environmental Condition
      has been fully cured or remediated (in the case of an Environmental Condition,
      in accordance with applicable Environmental Laws), but in no event more than
      sixty (60) days after Buyer’s notice. If Seller does not complete such curative
      activities or remediation prior to the expiration of such sixty-day
      period, (i) Buyer may elect to offer Seller an extension of time within which
      to
      complete such curative or remedial actions; or (ii) in the absence of such
      an
      extension, Sections
      4.3(d)
      and
4.3(e),
      or
Section
      4.3(f),
      as
      applicable, will govern.

     

    (d) If
      Seller
      elects, or is deemed to have elected, not to cure a Defect asserted in a timely
      manner under Section
      4.3(a),
      or if
      Seller is unable to cure a Defect in a timely manner as provided in Section
      4.3(c),
      then
      except as provided hereinafter, Buyer shall have the right to an adjustment
      to
      the Adjusted Cash Consideration, by the Defect Amount for such Defect, which
      adjustment shall be accomplished by access to the Holdback, as provided in
      Section
      8.4
      below,
      except that no downward adjustment of the Adjusted Cash Purchase Price on
      account of Defects shall occur unless the aggregate amount of all Defect Amounts
      exceeds $25,000 (the “Defect Amount Threshold”), but if the Defect Amount
      Threshold is met, the Defect Amount for all Defects shall reduce the Cash
      Purchase Price subject to the limits set forth in Section
      8.4.

     

    
      
        
        

      

      
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    (e) If
      Buyer
      purchases at the Closing an Asset burdened by a preferential right to purchase
      or similar right that has not been exercised as of the Closing Date, regardless
      of whether the time period for the exercise of such right has expired, no
      reduction of the Adjusted Consideration paid at the Closing shall be made with
      respect thereto. If, for any reason, such preferential right to purchase or
      similar right is successfully exercised by the holder thereof after the Closing,
      Buyer shall be entitled to retain all proceeds paid for the affected Asset
      by
      the holder of the relevant preferential right to purchase or similar right,
      and
      Seller shall pay to Buyer, in cash, an amount equal to the excess
      (if any)
      of the Allocated Value of such Asset (adjusted as provided in Sections
      2.3(c)(ii)
      and
2.3(d)(ii)
      and net
      of applicable Property-Related Taxes) over
      the
      proceeds received by Buyer from the holder of such preferential right to
      purchase. 

     

    (f) If
      Seller
      elects, or is deemed to have elected, not to remedy an Environmental Condition
      asserted in a timely manner under Section
      4.3(a),
      or if
      Seller is unable to remedy an Environmental Condition in a timely manner as
      provided in Section
      4.3(c),
      then
      except as provided hereinafter, Buyer shall receive a reduction in the Cash
      Purchase Price equal to the actual costs, including, without limitation,
      Liabilities to Governmental Authorities and other Persons (or in the absence
      of
      actual costs, the Remediation Estimate agreed to by Seller and Buyer or
      determined by arbitration as provided in Section
      4.3(g)),
      to
      remedy the relevant Environmental Condition, in which case, such unremedied
      Environmental Condition shall become an Assumed Liability for purposes
      hereof.

     

    (g) Seller
      and Buyer shall endeavor, in good faith, to agree on the existence of all
      claimed Defects or Environmental Conditions, the methods of curing or remedying
      such Defects or Environmental Conditions, and the Defect Amounts or Remediation
      Estimates applicable thereto. In the event of a dispute concerning any of such
      matters that is not resolved prior to the Closing, either Buyer or Seller may
      initiate arbitration of such dispute pursuant to the terms of Section
      10.11.
      Following the issuance of the arbitrator’s decision, Seller and Buyer shall have
      the rights and options provided in Section
      4.3(d)
      and
Section
      4.3(e),
      or
Section
      4.3(f),
      as
      applicable.

     

    
      
        
        

      

      
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    ARTICLE
      V.

    OTHER
      MATTERS PRIOR TO CLOSING

     

    5.1 Operations.
      Through
      the Possession Time, Seller shall, to the extent within their reasonable
      control: (a) cause the Assets to be maintained and operated in a good and
      workmanlike manner consistent with past practices and in compliance with
      applicable Laws; (b) obtain the prior written consent of Buyer as to all
      material decisions relating to the Assets (other than decisions required for
      safety purposes or by other emergencies), including, without limitation, (i)
      all
      contracts or agreements regarding the sale of Hydrocarbons with terms of ninety
      (90) days or more, (ii) proposed expenditures after the date of this Agreement
      related to any individual Asset in an amount greater than U.S. $25,000.00,
      net
      to Seller’s interests, (iii) all farmout or farmin proposals or agreements, (iv)
      all operations as to which Seller or any other co-owner of an Asset proposes
      not
      to participate, (v) the plugging and abandonment of any Well or Personal
      Property included in the Assets, (vi) the amendment, release, or abandonment
      of
      any Lease, or portion thereof, (vii) the waiver, compromise, or settlement
      of
      any right or Claim pertaining to the Assets, (viii) all amendments to, or
      waivers of rights under, or termination of any Real Property Interest or
      Contract, and (ix) the initiation of any proceeding before any Governmental
      Authority pertaining to the Assets; (c) perform all material obligations of
      Seller under the Leases, Real Property Interests, Contracts, and Permits; (d)
      promptly notify Buyer of (i) any notice or threatened notice of which Seller
      becomes aware relating to any default, inquiry into any possible default, or
      action to alter, terminate, rescind, repudiate, or procure a judicial
      reformation of any Lease, Real Property Interest, Contract, or Permit, or any
      provision thereof, (ii) any new suit, action, or other proceedings before any
      court or Governmental Authority relating to the Assets, and (iii) any other
      event, fact, or circumstance of which Seller becomes aware that may materially
      impair the value of the Assets or the ability of Seller to consummate the
      transactions contemplated herein; (f) maintain all permits in full force and
      effect (including making application for renewal of Permits if required for
      such
      Permits to remain in full force and effect during the pendency of the
      application and make or give all notifications, filings, consents, or approvals
      from, to, or with all Governmental Authorities, and take all other actions
      reasonably requested by Buyer that are necessary for, and cooperate with Buyer
      in obtaining, the issuance, assignment, or transfer, as the case may be, by
      each
      such Governmental Authority of such Permits as may be necessary for Buyer own
      and operate the Assets after the Closing; (g) maintain in effect insurance
      with
      respect to the Assets providing the same type of coverage, in the same amounts,
      and with the same deductibles as the insurance maintained in effect by Seller
      with respect to the Assets and described on Schedule
      3.1(r);
      (h)
      timely pay and discharge when due all costs and expenses incurred in connection
      with the Assets, except to the extent contested in good faith by Seller
      utilizing appropriate actions, and otherwise keep the Assets free of Liens
      that
      do not constitute Permitted Encumbrances; and (i) not mortgage, pledge,
      encumber, dedicate, or sell, or agree to mortgage, pledge, encumber, dedicate,
      or sell, any portion of the Assets except for the disposition of Hydrocarbons
      in
      the ordinary course of Seller’s business pursuant to Contracts in effect on the
      date hereof. 

     

    5.2 Imbalances
      and Other Matters.
      As
      soon
      as reasonably practicable, but in no event later than ten (10) Business Days
      after, the Effective Time, Seller shall provide to Buyer written notice setting
      forth the status and extent of any Imbalances, as well as any “take-or-pay”,
      prepayment, forward sale, production payment, deferred production, and similar
      arrangements, in effect with respect to the Assets as of the Effective Time.
      For
      purposes of the adjustment of the Cash Purchase Price pursuant to Sections
      2.3(b)
      and
2.3(c),
      such
      Imbalances and other arrangements shall be valued based upon the contract price
      applicable to the relevant category of Hydrocarbons (or if there is no contract
      price, the market value thereof) as of the Effective Time. In the event of
      a
      dispute concerning the market value of any such Hydrocarbons that is not
      resolved prior to the Closing, either Buyer or Seller may initiate arbitration
      of such dispute pursuant to the terms of Section
      10.11.
      In that
      event, if necessary, the Closing shall be deferred until three (3) Business
      Days
      after the issuance of the decision of the arbitrators as to such
      dispute.

     

    
      
        
        

      

      
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    5.3 Publicity. Seller,
      Buyer and Parent shall consult with each other with regard to all press releases
      or other public or private announcements issued or made at or after the date
      of
      execution hereof concerning this Agreement or the transactions contemplated
      herein that names the other party, and, except as may be required by applicable
      Laws or the applicable rules and regulations of any stock exchange, neither
      Buyer, Seller nor Parent shall issue any such press release or other publicity
      that names the other party without the prior written consent of the other party,
      which shall not be unreasonably withheld.

     

    5.4 Compliance
      with Conditions.
      Promptly
      following the execution of this Agreement, Seller shall send to the holder
      of
      each preferential right to purchase, right of first refusal, right of first
      offer, or similar right burdening an Asset and each Person whose consent to
      an
      assignment of an Asset is required prior to the Closing such written notice
      concerning the transactions contemplated in this Agreement as is required under
      the terms of the document or instrument creating such right or requiring such
      consent, requesting, as applicable, the waiver of the relevant right or the
      granting of the required consent. In addition, each Party will proceed
      diligently to cause all of the conditions to the other Party’s obligations to
      close to be satisfied. If the conditions to a Party’s obligations to close have
      been satisfied, or expressly waived by such Party, in a timely manner as
      provided herein, and such Party refuses to close, the Party refusing to close,
      at the option of the other Party or Parties, as applicable, shall be deemed
      to
      have breached this Agreement. 

     

    5.5 Maintenance
      of Existence.
      Until
      the
      Closing, Buyer and Seller shall maintain its existence and its rights and
      franchises and procure the extension or renewal of any right, franchise, or
      privilege expiring as the result of the lapse of time.

     

    5.6 Mutual
      Assurances.
      Subject
      to the terms of this Agreement, each Party will use reasonable commercial
      efforts to take, or to cause to be taken, all actions and to do, or cause to
      be
      done, all things necessary, proper, or advisable under applicable Laws to
      consummate and make effective the transactions contemplated by this Agreement,
      including (a) cooperation in determining whether any action, approval, or waiver
      by or in respect of, or filing with, any Governmental Authority is required
      in
      connection with the consummation of the transactions contemplated by this
      Agreement; (b) cooperation in seeking and obtaining any such actions, approvals,
      waivers, or filings; and (c) the execution of any additional instruments
      necessary to consummate the transactions contemplated hereby.

     

    
      
        
        

      

      
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    5.7 Notification
      of Certain Matters.
      Each
      Party shall give prompt notice to the other Party or Parties, as applicable,
      of
      (a) the occurrence or nonoccurrence of any event that would be likely to cause
      any representation or warranty of such Party contained in this Agreement to
      be
      untrue or inaccurate in any material respect at or prior to the Closing Date
      and
      (b) any material failure of such Party to comply with or satisfy any covenant,
      condition, or agreement to be complied with or satisfied by it hereunder;
      provided, however, that the delivery of any notice pursuant to this Section
      5.8
      shall
      not limit or otherwise affect the remedies available hereunder to the Party
      or
      Parties, as applicable, receiving such notice.

     

    5.8 Designation
      as Operator.
      On
      the
      Closing Date, except as provided in Section
      8.5 or
      otherwise agreed by the Parties, Seller shall resign as operator of all Assets
      as to which Seller has served as operator prior to the Closing. Seller does
      not
      warrant or guarantee that, after the Closing, Buyer will become the operator
      of
      any Asset operated by Seller or prior to the Closing as to which there are
      co-owners of the relevant Lease(s). With respect to each such Asset, Seller
      shall support Buyer in Buyer’s efforts to be named replacement operator of such
      Assets under the terms of the applicable Contracts effective as of the
      Possession Time (or as soon thereafter as is reasonably practicable) and will
      use reasonable commercial efforts to obtain the votes of the other co-owners
      in
      the relevant Lease(s) in favor of such election. With respect to each Asset
      owned in its entirety by Seller, within five (5) Business Days after the
      Closing, and with respect to each Asset as to which there are co-owners of
      the
      relevant Lease(s), within five (5) Business Days after Buyer is named
      replacement operator under the terms of the applicable Contracts, Seller and
      Buyer shall make all necessary filings and take all other actions necessary
      to
      cause the resignation of Seller as operator and Buyer’s designation as the
      replacement operator of such Assets to be recognized and, if required, approved
      by all relevant Governmental Authorities. In each case, Seller shall use
      reasonable commercial efforts to assist Buyer in assuming the timely operation
      and management of such Assets. 

     

    ARTICLE
      VI.

    CONDITIONS;
      TERMINATION; REMEDIES

     

    6.1 Conditions
      Precedent to Seller’s Obligation to Close.
      All
      obligations of Seller under this Agreement are subject, at Seller’s option, to
      the fulfillment, on or prior to the Closing Date, of each of the following
      conditions: 

     

    (a) each
      and
      every representation and warranty of Buyer and Parent, with regard to the Parent
      Restricted Stock, under this Agreement shall be true and accurate in all
      material respects (and in all respects, in the case of representations and
      warranties qualified by materiality) as of the date when made and shall be
      deemed to be made again at and as of the Closing Date and shall then be true
      and
      accurate in all material respects (and in all respects, in the case of
      representations and warranties qualified by materiality);

     

    (b) Buyer
      and
      Parent, with regard to the Parent Restricted Stock, shall have performed and
      complied in all material respects with each and every covenant, agreement,
      and
      condition required by this Agreement to be performed or complied with, executed
      and delivered all documents required to be delivered, and otherwise taken all
      actions required to be taken, in each case by Buyer or Parent on or prior to
      the
      Closing Date; 

     

    
      
        
        

      

      
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    (c) no
      suit,
      action, or other proceeding shall be pending or threatened before any court
      or
      arbitration tribunal or any Governmental Authority seeking to enjoin, restrain,
      prohibit, or declare illegal, or seeking substantial damages in connection
      with,
      the transactions contemplated in this Agreement;

     

    (d) Buyer
      and
      Parent shall have received all consents, authorizations, waivers, and approvals
      required to be obtained prior to the Closing by any court or Governmental
      Authority under any applicable Law concerning the transactions contemplated
      herein;

     

    (e) Buyer
      and
      Parent shall have delivered to Seller a certificate, dated and effective as
      of
      the Closing Date, executed by the president or an authorized vice president
      of
      Buyer and Parent, certifying to Seller that on the Closing Date, the
      representations and warranties of Buyer and Parent contained in this Agreement
      are true and correct in all material respects (and in all respects, in the
      case
      of representations and warranties qualified by materiality) and all covenants
      of
      Buyer and Parent contained herein have been performed in all material respects
      provided that Parent’s certificate shall only relate to the Parent Restricted
      Stock;

     

    6.2 Conditions
      Precedent to Buyer’s and Parent’s Obligation to Close.
      All
      obligations of Buyer and Parent under this Agreement are subject, at Buyer’s and
      Parent’s option, to the fulfillment, on or prior to the Closing Date, of each of
      the following conditions: 

     

    (a) each
      and
      every representation and warranty of Seller under this Agreement shall be true
      and accurate in all material respects (and in all respects, in the case of
      representations and warranties qualified by materiality) as of the date when
      made and shall be deemed to be made again at and as of the Closing Date and
      shall then be true and accurate in all material respects (and in all respects,
      in the case of representations and warranties qualified by materiality);

     

    (b) Seller
      shall have performed and complied in all material respects with each and every
      covenant, agreement, and condition required by this Agreement to be performed
      or
      complied with, executed and delivered all documents required to be delivered,
      and otherwise taken all actions required to be taken, in each case by Seller
      on
      or prior to the Closing Date; 

     

    (c) no
      suit,
      action, or other proceeding shall be pending or threatened before any court
      or
      arbitration tribunal or any Governmental Authority seeking to restrain,
      prohibit, or declare illegal, or seeking substantial damages in connection
      with,
      the transactions contemplated in this Agreement; 

     

    (d) Seller
      shall have received all consents, authorizations, waivers, and approvals
      required to be obtained prior to the Closing by any court or Governmental
      Authority under any applicable Law concerning the transactions contemplated
      herein (including, without limitation, all consents and authorizations, if
      any,
      from Governmental Authorities required to be obtained with respect to the
      Transferable Permits prior to the Closing); 

     

    
      
        
        

      

      
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    (e) Seller
      shall have delivered to Buyer all consents to assignment, waivers of
      preferential rights to purchase, and other similar matters (if any) from third
      Persons required to be obtained prior to the Closing under the terms of the
      Leases, the Real Property Interests, and the Contracts, in each case as a result
      of the transactions contemplated in this Agreement;

     

    (f) Seller
      shall have delivered to Buyer and Parent a certificate, dated and effective
      as
      of the Closing Date, executed by the president or an authorized vice president
      of Seller, certifying to Buyer that, on the Closing Date, the representations
      and warranties of Seller contained in this Agreement are true and correct in
      all
      material respects (and in all respects, in the case of representations and
      warranties qualified by materiality) and that all covenants of Seller contained
      herein have been performed in all material respects;

     

    (g) Seller
      shall have delivered to Buyer and Parent an opinion, dated the Closing Date,
      of
      _______________, counsel for Seller, that is in the form set forth on
Exhibit
      I.

     

    (h) Buyer
      shall have completed due diligence reviews satisfactory to Buyer with respect
      to
      the Assets; and

     

    (i) Parent
      shall have received all necessary approvals from the American Stock Exchange
      to
      issue the Parent Restricted Stock.

     

    6.3 Termination.
      This
      Agreement may be terminated, and the transactions contemplated herein may be
      abandoned at any time prior to the Closing:

     

    (a) by
      mutual
      written consent of Seller or Buyer and Parent; 

     

    (b) by
      Seller, at Seller’s option, if any of the conditions applicable to Buyer or
      Parent set forth above in Section
      6.1
      have not
      been satisfied as provided therein on or before the Scheduled Closing Date;
      and

     

    (c) by
      Buyer
      and Parent, at Buyer’s and Parent’s option, if any of the conditions applicable
      to Seller set forth above in Section
      6.2
      have not
      been satisfied as provided therein on or before the Scheduled Closing
      Date.

     

    6.4 Remedies.
      If
      this
      Agreement is terminated by (a) either Seller or Buyer and Parent pursuant
      to Section
      6.3(a),
      (b) Seller pursuant to Section
      6.3(b)
      if the
      condition in Section
      6.1(c)
      is not
      satisfied, or (c) Buyer and Parent pursuant to Section
      6.3(c)
      if the
      condition in Section
      6.2(c),
      Section
      6.2(g),
      Section
      6.2(h),
      or
Section
      6.2(i)
      is not
      satisfied, no Party shall have any further liability to the other as the result
      of such termination. If this Agreement is otherwise terminated pursuant to
      either Section
      6.3(b)
      or
Section
      6.3(c),
      the
      terminating Party shall be entitled to all remedies available at law or in
      equity, including, without limitation, the remedy of specific performance,
      subject to the terms of Section
      9.6.
      If a
      Party resorts to legal proceedings to enforce this Agreement or any part
      thereof, the prevailing Party in such proceedings shall be entitled to recover
      all costs incurred by such Party, including reasonable attorneys’ fees, in
      addition to any other relief to which such Party may be entitled.

     

    
      
        
        

      

      
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    ARTICLE
      VII.

    CLOSING

    

    7.1 Closing.
      The
      Closing shall be held at the offices of Buyer as indicated in Section 10.5
      at
      10:00 A.M., Central Time, on March 30, 2007 (the “Scheduled
      Closing Date”),
      or on
      such other date as may be agreed to by the Parties. The date of the Closing,
      whenever it occurs as provided herein, is referred to herein as the
“Closing
      Date.”
      

     

    7.2 Preliminary
      Settlement Statement.
      No
      later
      than three (3) Business Days prior to the Closing Date, Seller shall prepare
      and
      submit to Buyer a preliminary settlement statement (the “Preliminary
      Settlement Statement”),
      which
      sets forth Seller’s estimate of the Adjusted Consideration, reflecting the
      calculation of the Cash Purchase Price in accordance with Section
      2.3(b)
      and each
      adjustment and proration and its method of calculation made in accordance with
      this Agreement as of the date of preparation of such Preliminary Settlement
      Statement, together with the designation of Seller’s account for the wire
      transfer of such estimated Adjusted Consideration pursuant to Section
      7.3.
      If, for
      any reason, Buyer disputes any information contained in the Preliminary
      Settlement Statement, and Buyer and Seller are unable to resolve such dispute
      prior to the Closing Date, the Parties shall submit the dispute to arbitration
      pursuant to Section
      10.11,
      and the
      Closing shall be deferred until three (3) Business Days after the issuance
      of
      the decision of the arbitrators as to such dispute.

     

    7.3 Actions
      at Closing.
      At
      the
      Closing, Seller, Buyer and Parent shall take the following actions:

     

    (a) Seller
      and Buyer shall each execute and deliver (i) the Conveyance in sufficient
      counterparts to facilitate recording in all relevant jurisdictions and
      (ii) the Preliminary Settlement Statement.

     

    (b) Buyer
      shall deliver to Seller the estimated Adjusted Consideration reflected in the
      Preliminary Settlement Statement, less the Holdback, by bank wire transfer
      of
      immediately available U.S. funds to the account designated in the Preliminary
      Settlement Statement.

     

    (c) Seller
      shall deliver to Buyer (i) releases of all Liens (if any) encumbering the Assets
      that do not constitute Permitted Encumbrances, (ii) transfer orders or letters
      in lieu thereof, on forms provided by Buyer, directing all purchasers of
      production to make payment to Buyer of proceeds attributable to Hydrocarbons
      produced from the Assets after the Effective Time, (iii) all consents, waivers,
      and other similar matters pertaining to the Assets obtained by Seller prior
      to
      the Closing, and (iv) all undisbursed revenues that Seller is required to
      deliver to Buyer under Section
      8.3.

     

    
      
        
        

      

      
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    (d) Seller
      shall deliver to Buyer and Parent the certificates provided for in Section
      6.2(f).
      

     

    (e) Buyer
      and
      Parent shall deliver to Seller the certificate provided for in Section
      6.1(e).

     

    (f) Seller
      shall deliver to Buyer a statement that satisfies the requirements of Treas.
      Reg. §1.1445-2(b)(2),
      certifying that Seller is not a “foreign” Person for federal income tax
      purposes. 

     

    (g) Parent
      shall have delivered to Seller copies of instructions to Parent’s transfer agent
      directing the transfer agent to issue as soon as possible shares of Parent
      Restricted Stock (registered in the name of such Seller in an aggregate amount
      equal to the Parent Stock Consideration).

     

    (h) Seller
      shall deliver to Buyer, in a form acceptable to Buyer, a letter from its
      majority shareholder, Lothian Oil, Inc., stating that it agrees with the sale
      of
      the Assets and would vote in favor of such sale in a shareholders meeting of
      the
      Seller had such a metting been necessary and been called.

     

    (i) Seller,
      Buyer and Parent shall execute such other documents and take such other actions
      as are provided for elsewhere in this Agreement or as may be necessary to
      consummate the transactions contemplated herein, including, but not limited
      to,
      the Transitional Matters Agreement.

     

    7.4 Records.
      At
      any
      time after the Closing, pursuant to Buyer’s reasonable instructions, Seller
      shall deliver to Buyer the Records. Buyer shall be entitled to all original
      Records affecting all of the Assets. Seller may make and retain, at their
      expense, copies of the Records prior to the delivery thereof to Buyer. Buyer
      agrees to maintain all Records until the fifth (5th)
      anniversary of the Closing Date (or such longer period of time as Seller may
      request for those Records relevant for tax audit purposes), or, if any of such
      Records pertain to a Claim pending at such fifth anniversary date, until such
      Claim is finally resolved and the time for all appeals has been exhausted.
      Buyer
      will provide to Seller reasonable access to the Records for purposes of
      obtaining information for the preparation of tax returns, financial statements,
      and other legitimate business purposes of Seller.

     

    
      
        
        

      

      
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    ARTICLE
      VIII.

    POST
      CLOSING MATTERS

     

    8.1 Settlement
      Statement.
      On
      or
      before one hundred twenty (120) days after the Closing Date, Buyer will prepare
      a final accounting statement, subject to verification by Seller, which sets
      forth the final calculation and amount of the Cash Purchase Price (including
      all
      adjustments thereto) in accordance with Sections
      2.3(b)
      and
2.3(c),
      the
      calculations used to determine such amounts, and the actual proration of all
      other amounts required by this Agreement (the “Final
      Settlement Statement”).
      No
      later than fifteen (15) days after Seller’s receipt of the Final Settlement
      Statement from Buyer (but no earlier than one hundred twenty (120) days after
      the Closing Date), Seller shall deliver to Buyer written notice setting forth
      any changes to the Final Settlement Statement proposed by Seller. On or before
      fifteen (15) days after Buyer’s receipt of Seller’s proposed changes to the
      Final Settlement Statement, Buyer and Seller shall agree on the Final Settlement
      Statement and, as the case may be, shall pay to the other such sums as may
      be
      found to be due in the final accounting. All amounts paid pursuant to this
      Section
      8.1
      shall be
      delivered by wire transfer of immediately available U.S. funds to the account
      specified in writing by the relevant Party. If Buyer and Seller are unable
      to
      agree on the Final Settlement Statement on or before fifteen (15) days after
      Buyer’s receipt of Seller’s proposed changes thereto, then Buyer and Seller
      shall submit all unresolved claims and amounts for arbitration in accordance
      with the terms of Section
      10.11.

     

    8.2 Further
      Cooperation.
      After
      the
      Closing Date, Buyer and Seller shall execute and deliver, or shall cause to
      be
      executed and delivered from time to time, such further instruments of conveyance
      and transfer, and shall take such other actions as either Party may reasonably
      request, to convey and deliver the Assets to Buyer, to perfect Buyer’s title
      thereto, and to accomplish the orderly transfer of the Assets to Buyer in the
      manner contemplated by this Agreement. If, after the Closing Date, either Seller
      or Buyer receives monies belonging to the other, such amounts shall be promptly
      disbursed to the Party entitled to receive them. If an invoice or other evidence
      of an obligation is received by Seller or Buyer, which is either an obligation
      assumed by the other Party or partially an obligation of both Seller and Buyer,
      the Parties shall consult with each other, and an adjustment for such amount
      will be made either on the Final Settlement Statement, or, if the evidence
      of
      the obligation is not received until after the completion of the final
      accounting pursuant to Section
      8.1,
      in cash
      as the Parties may agree. If Seller and Buyer are unable to agree on the
      disposition of such an obligation, Seller and Buyer shall submit the matter
      to
      binding arbitration in accordance with the terms of Section
      10.11.

     

    8.3 Undisbursed
      Revenues and Payment of Vendor Claims.
      No
      later
      than the Closing Date, Seller shall disburse to Buyer all monies (if any)
      relating to the Assets that Seller is obligated to pay or disburse to other
      Persons (including amounts held in suspense by Seller) and that, as of the
      Closing Date, have not been thus paid or disbursed. Buyer shall take and apply
      such funds in a manner consistent with prudent oil and gas business practices
      to
      satisfy the Claims of third Persons with respect to such monies. Seller shall
      cooperate with Buyer following the Closing to assure the proper disbursement
      of
      any such funds. On or before thirty(30) days after the Closing Date, Seller
      shall pay all of the Vendor Claims and all other claims that should have been
      scheduled on Schedule
      3.1(n)
      in order
      to make the representations in Section
      3.1
      true and
      correct. Except with respect to payments necessary for the release of the
      Sterling Bank lien, Seller shall first apply all cash proceeds from the sale
      of
      the Property to Vendors Claims as found on Schedule
      3.1(n),
      until
      all such claims are satisfied.

     

    
      
        
        

      

      
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    8.4 Holdback.
      Buyer
      shall retain Eight Hundred Thousand Dollars ($800,000.00) of the Cash
      Consideration (the “Holdback”)
      following the Closing Date, and Buyer may apply the Holdback to satisfy claims
      of Buyer against Seller under this Agreement or under the Conveyance.
      Notwithstanding any other provision of this Agreement (including without
      limitation Section
      2.5 and
      Section
      9.4),
      Buyer’s
      sole recourse after the Closing Date for any claim against Seller under this
      Agreement or the Conveyance, including claims for Defect Values (collectively,
      all such claims are “Holdback
      Claims”),
      shall
      be to the Holdback, as the Holdback amount may exist from time to time under
      the
      provisions of this Section
      8.4,
      but
      such limitation on Buyer’s recourse shall not limit Seller’s obligations under
      this Article
      VIII
      (including the obligation to pay Vendor Claims). Buyer shall give notice to
      Seller of any application by Buyer of any portion of the Holdback, and any
      dispute regarding such application shall be submitted for arbitration in
      accordance with the terms of Section
      10.11.
      The
      amount of the Holdback shall be decreased on the following schedule, with the
      excess available at each date being paid by Buyer to Seller: (i) forty-five
      days
      after the Closing Date, Buyer shall release to Seller Two Hundred Thousand
      Dollars ($200,000.00), which Seller shall use to pay any remaining unpaid Vendor
      Claims; (ii) sixty (60) days after the Closing Date, Buyer shall release to
      Seller all of the Holdback except for the sum of Four Hundred Thousand Dollars
      ($400,000.00) plus the amount of Holdback Claims identified by Buyer as of
      such
      date; (iii) ninety (90) days after the Closing Date, Buyer shall release to
      Seller all of the Holdback except for the sum of Two Hundred Thousand Dollars
      ($200,000.00) plus the amount of Holdback Claims identified by Buyer as of
      such
      date; and (iv) any portion of the Holdback remaining unapplied after one hundred
      twenty (120) days following the Closing Date shall be paid to Seller. Interim
      accounting for the Holdback shall be provided on the dates noted in the
      preceding sentence and an accounting for the entire Holdback shall be included
      in the
      Final
      Settlement Statement.

     

    8.5 Transitional
      Matters.

     

    From
      the
      Closing Date until the Transitional Matters Agreement is terminated, Seller
      shall perform certain operating and administrative services with respect to
      such
      oil and gas properties as described in the Transitional Matters
      Agreement.

     

    ARTICLE
      IX.

    SURVIVAL;
      INDEMNIFICATION

     

    9.1 Survival.
      All
      representations, warranties, covenants, agreements, and indemnities of Buyer
      (and Parent with regard to the Parent Restricted Stock) and Seller under this
      Agreement shall survive the Closing and the delivery of the Conveyance, shall
      not be merged with or into the Conveyance, and shall remain in force and effect
      as provided in this Section
      9.1,
      as
      applicable, regardless of any investigation at any time made by or on behalf
      of
      Buyer, Parent or Seller, or of any information that Buyer, Parent or Seller
      may
      have with respect thereto. Such survival does not obligate any Party to make
      any
      further representation or warranty after the Closing Date, or to cause any
      representation or warranty made hereunder to remain true and correct after
      the
      Closing Date. 

     

    
      
        
        

      

      
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    9.2 Indemnity
      as Sole Remedy.
      Except
      to
      the extent otherwise provided in Section
      6.4
      and
Section
      8.4,
      the
      indemnity provided by each Party to the other under this Article
      IX
      shall
      constitute the sole and exclusive remedy for such Party and its Indemnity Group
      after the Closing with respect to (a) the inaccuracy or breach of any
      representation or warranty made by another Party hereunder and (b) a breach
      or default in the performance by such other Party of any covenant or agreement
      of such other Party contained in this Agreement. Except as otherwise provided
      in
Section
      6.4. Section
      8.4 and
      this
Article
      IX,
      each
      Party hereby waives any Claim arising under common law, any statute, or
      otherwise against another Party arising from or out of the inaccuracy or breach
      of any representation or warranty made by the other Party hereunder or the
      breach or default in the performance by such other Party of any covenant or
      agreement of such other Party contained in this Agreement.

     

    9.3 Indemnities
      of Buyer.
      Regardless
      of any investigation made at any time by or on behalf of any Party or any
      information any Party may have, and regardless of the presence or absence of
      insurance, Buyer shall indemnify and hold harmless Seller and its Indemnity
      Group from and against any and all Claims and Liabilities caused by, arising
      out
      of, resulting from, or relating in any way to, and to pay to Seller or its
      Indemnity Group any sum that Seller or its Indemnity Group pays, or becomes
      obligated to pay, on account of: (a) any breach or default in the performance
      by
      Buyer or Parent of any covenant or agreement of Buyer or Parent contained in
      this Agreement or any document executed in connection herewith; (b) any breach
      of a warranty or an inaccurate or erroneous representation made by Buyer or
      Parent in this Agreement (provided, however, that for purposes of this
Section
      9.3,
      all
      qualifications relating to materiality contained in such representations and
      warranties shall be disregarded); and (c) all Assumed Liabilities.

     

    9.4 Indemnities
      of Seller.
      Regardless
      of any investigation made at any time by or on behalf of any Party or any
      information any Party may have, and regardless of the presence or absence of
      insurance, Seller shall indemnify and hold harmless Buyer and its Indemnity
      Group from and against any and all Claims and Liabilities caused by, arising
      out
      of, resulting from, or relating in any way to, and to pay Buyer or its Indemnity
      Group any sum that Buyer or its Indemnity Group pays or becomes obligated to
      pay, on account of: (a) any breach or default in the performance by Seller
      of
      any covenant or agreement of Seller contained in this Agreement or any document
      executed in connection herewith; (b) any breach of a warranty or an inaccurate
      or erroneous representation made by Seller in this Agreement (provided, however,
      that for purposes of this Section
      9.4,
      all
      qualifications relating to materiality contained in such representations and
      warranties, except for Section
      3.1(s),
      shall
      be disregarded); and (c) all Retained Liabilities. 

     

    9.5 Assertion
      of Claims; Notices; Defense; Settlement. (a) Upon
      the
      discovery by a Party entitled to indemnification under any provision of this
      Agreement (the “Indemnified
      Party”)
      of
      facts believed to entitle such Party to indemnification hereunder, including
      the
      receipt by any such Party of notice of a Claim from any third Person, the
      Indemnified Party shall give prompt written notice of any such Claim to the
      Party obligated to provide the requested indemnification (the “Indemnifying
      Party”).
      Each
      such notice shall set forth the facts known to the Indemnified Party pertaining
      to the relevant Claim and shall specify the manner in which the Indemnified
      Party proposes to respond to such Claim. 

     

    
      
        
        

      

      
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    (b) Within
      ten (10) days after the receipt by the Indemnifying Party of such notice, the
      Indemnifying Party shall state in writing to the Indemnified Party: (i) whether
      the Indemnified Party may proceed to respond to the Claim in the manner set
      forth in its notice, or (ii) whether the Indemnifying Party shall assume
      responsibility for and conduct the negotiation, defense, or settlement of the
      Claim, and if so, the specific manner in which the Indemnifying Party proposes
      to proceed. If the Indemnifying Party assumes control of the Claim, the
      Indemnified Party shall at all times have the right to participate in the
      defense thereof and to be represented, at its sole expense, by counsel selected
      by it. No such Claim shall be compromised or settled by either the Indemnifying
      Party or the Indemnified Party, as applicable, in any manner that admits
      liability on the part of the other Party or that might otherwise adversely
      affect the interest of such other Party without the prior written consent of
      such other Party, which consent will not be unreasonably withheld or delayed.
      As
      a condition precedent to indemnification under this Agreement, the Indemnified
      Party shall assign to the Indemnifying Party, and the Indemnifying Party shall
      become subrogated to, all rights and Claims, up to the amount of
      indemnification, of the Indemnified Party against third Persons arising out
      of
      or pertaining to the matters for which the Indemnifying Party shall provide
      indemnification. The amount of the Indemnified Party’s Claim for indemnification
      shall be reduced by the amount of any insurance reimbursement paid to the
      Indemnified Party pertaining to the Claim.

     

    9.6 Limitation
      on Damages.
      For
      the
      breach or non-performance by any Party of any representation, warranty,
      covenant, or agreement contained in this Agreement, the liability of the obligor
      shall be limited to direct actual damages only, except to the extent that the
      obligee is entitled to specific performance or injunctive relief. AS
      BETWEEN THE PARTIES, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT,
      NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY AS THE RESULT OF A BREACH OR A
      VIOLATION OF ANY REPRESENTATION, WARRANTY, COVENANT, AGREEMENT, OR CONDITION
      CONTAINED IN THIS AGREEMENT FOR SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE,
      EXEMPLARY, OR INDIRECT DAMAGES, LOST PROFITS, OR OTHER BUSINESS INTERRUPTION
      DAMAGES, IN TORT, IN CONTRACT, UNDER ANY INDEMNITY PROVISION, ARISING BY
      OPERATION OF LAW (INCLUDING, WITHOUT LIMITATION, STRICT LIABILITY), OR
      OTHERWISE. WITH RESPECT TO CLAIMS BY THIRD PERSONS, A PARTY MAY RECOVER FROM
      ANY
      OTHER PARTY ALL COSTS, EXPENSES, OR DAMAGES (INCLUDING, WITHOUT LIMITATION,
      SPECIAL, CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES),
      LOST PROFITS, AND OTHER BUSINESS INTERRUPTION DAMAGES IN ADDITION TO ACTUAL
      DIRECT DAMAGES PAID OR OWED TO ANY SUCH THIRD PERSON IN SETTLEMENT OR
      SATISFACTION OF CLAIMS AS TO WHICH THE RELEVANT PARTY IS ENTITLED TO
      INDEMNIFICATION HEREUNDER.

     

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    ARTICLE
      X.

    MISCELLANEOUS

     

    10.1 Exhibits.
      All
      exhibits and schedules referred to in this Agreement are hereby incorporated
      into this Agreement by reference and constitute a part of this Agreement for
      all
      purposes. Each Party and its counsel has received a complete set of exhibits
      and
      schedules prior to and as of the date of execution of this
      Agreement.

     

    10.2 Expenses.
      Except
      as
      otherwise specifically provided herein, all fees, costs, and expenses incurred
      by Buyer and Seller in negotiating this Agreement and in consummating the
      transactions contemplated by this Agreement shall be paid by the Party incurring
      the same, including, without limitation, legal and accounting fees, costs,
      and
      expenses. All required documentary, filing, and recording fees and expenses
      in
      connection with the filing and recording of the Conveyance and other instruments
      required to convey title to the Assets to Buyer shall be borne by
      Buyer.

     

    10.3 Proration
      of Taxes.
      Each
      Party shall assume responsibility for, and shall bear and pay, all federal
      income taxes, state income taxes, franchise taxes, and other similar taxes
      (including any applicable interest or penalties) incurred by or imposed upon
      such Party with respect to the transactions described in this Agreement. Seller
      shall assume responsibility for, and shall bear and pay, all Transfer Taxes
      incurred or imposed with respect to the transfer of the Assets. Seller shall
      assume responsibility for, and shall bear and pay, all Property-Related Taxes
      (including any applicable penalties and interest) based upon or measured by
      the
      ownership of the Assets or the receipt of proceeds therefrom, but exclusive
      of
      income taxes, and assessed against the Assets by any taxing authority for the
      period prior to the Effective Time. Buyer shall be responsible for, and shall
      bear and pay, all such Property-Related Taxes assessed against the Assets by
      any
      taxing authority for any period that begins on or after the Effective Time.
      For
      purposes of this Agreement, the foregoing proration of Property-Related Taxes
      shall be accomplished as an adjustment to the Cash Purchase Price and, in the
      case of ad valorem and other property taxes, shall be based upon the ad valorem
      and other property taxes actually assessed against the Assets for 2006, or,
      in
      the absence of such assessments, the ad valorem and other property taxes
      actually assessed against the Assets for 2005. In the event of a conflict
      between the terms of this Section
      10.3
      and any
      other provision of this Agreement, the terms of this Section
      10.3
      shall
      govern and control.

     

    10.4 Assignment.
      Neither
      Seller, Buyer nor Parent shall assign this Agreement, except to an Affiliate
      of
      the assigning Party by assignment, transfer of equity, merger, reorganization,
      or consolidation, without the prior written consent of the non-assigning Party,
      which shall not be unreasonably withheld or delayed. Any such assignment of
      rights shall provide for the assumption by the transferee of the obligations
      of
      the assigning Party under this Agreement. No assignment of any rights hereunder
      shall relieve the assigning Party of any obligations or responsibilities
      hereunder. Upon the assumption by such a transferee of the obligations of the
      assigning Party under this Agreement, such transferee shall become primarily
      liable for all such obligations assumed. Notwithstanding any such assumption,
      however, if such a transferee fails to perform any of the obligations thus
      assumed, the assigning Party shall remain liable for the performance thereof.
      Subject to the foregoing, this Agreement shall be binding upon and inure to
      the
      benefit of the Parties and their respective successors and assigns.

     

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

     

    10.5 Notices.
      All
      notices and communications required or permitted to be given hereunder shall
      be
      in writing and shall be delivered personally, or sent by bonded overnight
      courier, or by telex or facsimile transmission (provided any such telegram,
      telex, or facsimile transmission is confirmed either orally or by written
      confirmation), addressed to the appropriate Party at the address for such Party
      shown below or at such other address as such Party shall have theretofore
      designated by written notice delivered to the Party giving such
      notice:

     

    
      	
              If
                to Buyer:

               

              Cano
                Petro of New Mexico, Inc.

              Burnett
                Plaza

              801
                Cherry Street

              Suite
                3200, Unit 25

              Fort
                Worth, Texas

              Attn:
                General Counsel

              Telephone
                No: 817 698-0900 

              Facsimile
                No: 817 334-0222 

            	 
	 	 
	
              If
                to Parent:

               

              Cano
                Petroleum, Inc.

              Burnett
                Plaza

              801
                Cherry Street

              Suite
                3200, Unit 25

              Fort
                Worth, Texas

              Attn:
                General Counsel

              Telephone
                No: 817 698-0900 

              Facsimile
                No: 817 334-0222

            	 
	 	 
	
              If
                to Seller:

               

              UHC
                New Mexico Corporation

              200
                N. Lorraine

              Suite
                400

              Midland,
                Texas 79701

              Attn:
                CEO

              Telephone
                No.: 432 686-2618

              Telecopier:
                432 686-2458

            	 

    

    

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

     

    Any
      notice given in accordance herewith shall be deemed to have been given on the
      Business Day when delivered to the addressee in person or by telex, facsimile,
      or bonded overnight courier; provided, however, that if any such notice is
      received after normal business hours, the notice will be deemed to have been
      given on the next succeeding Business Day. Any Party may change the address,
      telephone number, and facsimile number to which such communications to such
      Party are to be addressed by giving written notice to the other Party in the
      manner provided in this Section
      10.5.

     

    10.6 ENTIRE
      AGREEMENT; CONFLICTS.
      THIS
      AGREEMENT, THE EXHIBITS HERETO, THE CONVEYANCE CONSTITUTE THE ENTIRE AGREEMENT
      AMONG THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ALL
      PRIOR AGREEMENTS, UNDERSTANDINGS, NEGOTIATIONS, AND DISCUSSIONS, WHETHER ORAL
      OR
      WRITTEN, OF THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF. THERE ARE
      NO
      WARRANTIES, REPRESENTATIONS, OR OTHER AGREEMENTS BETWEEN THE PARTIES RELATING
      TO
      THE SUBJECT MATTER THEREOF EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR IN THE
      CONVEYANCE, AND NEITHER BUYER NOR SELLER SHALL BE BOUND BY OR LIABLE FOR ANY
      ALLEGED REPRESENTATION, PROMISE, INDUCEMENT, OR STATEMENT OF INTENTION NOT
      SO
      SET FORTH. IN THE EVENT OF A CONFLICT BETWEEN THE TERMS OF THIS AGREEMENT AND
      THE TERMS OF THE CONVEYANCE, THE TERMS OF THIS AGREEMENT SHALL GOVERN AND
      CONTROL; PROVIDED, HOWEVER, THAT THE INCLUSION IN THE CONVEYANCE OF TERMS NOT
      ADDRESSED IN THIS AGREEMENT SHALL NOT BE DEEMED A CONFLICT, AND ALL SUCH
      ADDITIONAL TERMS SHALL BE GIVEN FULL FORCE AND EFFECT, SUBJECT TO THE TERMS
      OF
      THIS SECTION
      10.6.

     

    10.7 Amendment.
      This
      Agreement may be amended only by an instrument in writing executed by the
      Parties.

     

    10.8 Waiver;
      Rights Cumulative.
      Any
      of
      the terms, covenants, representations, warranties, or conditions hereof may
      be
      waived only by a written instrument executed by or on behalf of the Party
      waiving compliance. No course of dealing on the part of Buyer, Parent or Seller,
      or their respective officers, employees, agents, or representatives, or any
      failure by Buyer, Parent or Seller to exercise any of its rights under this
      Agreement, shall operate as a waiver thereof or affect in any way the right
      of
      such Party at a later time to enforce the performance of such provision. No
      waiver by any Party of any condition, or any breach of any term, covenant,
      representation, or warranty contained in this Agreement, in any one or more
      instances, shall be deemed to be or construed as a further or continuing waiver
      of any such condition or breach or a waiver of any other condition or of any
      breach of any other term, covenant, representation, or warranty. The rights
      of
      Buyer, Parent and Seller under this Agreement shall be cumulative, and the
      exercise or partial exercise of any such right shall not preclude the exercise
      of any other right.

     

    
      
        
        

      

      
        37

        
          

        

      

      
        
        

      

    

     

    10.9 GOVERNING
      LAW; CONSENT TO JURISDICTION.  THIS
      AGREEMENT AND THE LEGAL RELATIONS AMONG THE PARTIES SHALL BE GOVERNED AND
      CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY
      CONFLICTS OF LAW RULE OR PRINCIPLE THAT MIGHT REFER CONSTRUCTION OF SUCH
      PROVISIONS TO THE LAWS OF ANOTHER JURISDICTION. ALL OF THE PARTIES CONSENT
      TO
      THE EXERCISE OF JURISDICTION IN PERSONAM BY THE COURTS OF THE STATE OF TEXAS
      FOR
      ANY ACTION ARISING OUT OF THIS AGREEMENT. ALL ACTIONS OR PROCEEDINGS WITH
      RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED
      TO, OR FROM THIS AGREEMENT SHALL BE LITIGATED IN COURTS HAVING SITUS IN TARRANT
      COUNTY, TEXAS.

     

    10.10 Severability.
      If
      any
      term or other provision of this Agreement is invalid, illegal, or incapable
      of
      being enforced by any rule of Law or public policy, all other conditions and
      provisions of this Agreement shall nevertheless remain in full force and effect
      so long as the economic or legal substance of the transactions contemplated
      hereby is not affected in any adverse manner to any Party. Upon such
      determination that any term or other provision is invalid, illegal, or incapable
      of being enforced, the Parties shall negotiate in good faith to modify this
      Agreement so as to effect the original intent of the Parties as closely as
      possible in an acceptable manner to the end that the transactions contemplated
      hereby are fulfilled to the extent possible.

     

    10.11 Arbitration.
      

     

    (a) Any
      disagreement, difference, or dispute among the Parties provided in this
      Agreement to be resolved by arbitration shall be resolved pursuant to
      arbitration according to the procedures set forth in this Section
      10.11.
      Any
      Party may commence an arbitration proceeding hereunder by giving written notice
      to the other Party. No later than five (5) Business Days after the delivery
      of
      the notice commencing the arbitration proceeding, Seller and Buyer (including
      on
      behalf of Parent) shall each select an arbitrator. Promptly following their
      selection, the arbitrators selected by Seller and Buyer jointly shall select
      a
      third arbitrator. All arbitrators selected under this Agreement shall have
      at
      least eight (8) years of professional experience in the oil, gas, or accounting
      industries, as applicable, and shall not previously have been employed by any
      of
      the Parties and shall not have a direct or indirect interest in any of the
      Parties or the subject matter of the arbitration. The arbitration hearing shall
      commence as soon as is practical, but in no event later than thirty (30) days
      after the selection of the third arbitrator. If any arbitrator selected under
      this Section
      10.11(a)
      should
      die, resign, or otherwise be unable to perform his duties hereunder, a successor
      arbitrator shall be selected pursuant to the procedures set forth in this
Section
      10.11(a).

     

    (b) The
      arbitrators shall settle all disputes in accordance with the Federal Arbitration
      Act and the Commercial Arbitration Rules of the American Arbitration
      Association, to the extent that such Rules do not conflict with the terms of
      such Act or the terms of this Agreement. Any arbitration hearing shall be held
      in Dallas County, Texas. The decision of the arbitrators shall be final and
      binding on the Parties and, if necessary, may be enforced in any court of
      competent jurisdiction. The Law governing all such disputes shall be the Laws
      of
      the State of Texas,
      including, without limitation, the Uniform Commercial Code as in effect in
      the
      State of Texas,
      as the
      same may be amended from time to time, but without regard to conflicts of laws
      principles. The fees and expenses of the arbitrators shall be shared one-half
      by
      Seller and one-half by Buyer. Any payment to be made as the result of any
      dispute resolved by arbitration hereunder shall be accomplished pursuant to
      the
      Final Settlement Statement, with the final payments due thereunder being
      deferred until the arbitrators have rendered their decisions on all matters
      to
      be resolved by arbitration hereunder. 

     

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

     

    10.12 Counterparts.
      This
      Agreement may be executed in any number of counterparts, and each such
      counterpart hereof shall be deemed to be an original instrument, but all of
      such
      counterparts shall constitute for all purposes one agreement. This Agreement
      may
      be executed by the Parties in different locations and shall become binding
      upon
      all Parties upon the exchange by the Parties of executed signature pages by
      facsimile; provided, however, that no later than five (5) Business Days after
      such execution hereof by facsimile, the Parties shall have executed and
      delivered each to the other a fully executed original counterpart of this
      Agreement.

     

    *
      * * * * * *

     

    
      
        
        

      

      
        39

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the date
      first
      above written.

     

     

    
      	 	 	 
	 	SELLER:
	 	 
	 	UHC
              NEW MEXICO
              CORPORATION 
	 
 	 
 	 
 
	 	By:  	 
	 	
               

              Name:  

            	
              
________________________________________
	 	Title:   	________________________________________

    

     

    
      	 	 	 
	 	BUYER:
	 	 
	 	CANO
              PETRO OF NEW
              MEXICO, INC.
	 
 	 
 	 
 
	 	By:  	 
	 	
              

              Jeff
                Johnson

              President

            
	 	 

    

    
       

      
        	 	 	 
	 	PARENT:
	 	 
	 	CANO
                PETROLEUM,
                INC., (only with regard to the Parent Restricted Stock)
	 
 	 
 	 
 
	 	By:  	 
	 	
                

                
                  Jeff
                    Johnson

                  Chairman
                    and Chief Executive Officer

                

              
	 	 

      

       

      
        
          
          

        

        
          40

          
            

          

        

        
          
          

        

      

    

    
       

    

    SCHEDULE
      1.1

    

    DEFINED
      TERMS

    

    The
      following terms and expressions shall have the meanings set forth in the
      indicated provisions of this Agreement: “Adjusted Base Consideration” ,
Section
      2.3(a);
      "Adjusted Cash Purchase Price", Section
      2.3(a);“Adjusted
      Consideration”, Section 2.3(d);
      “Allocable
      Acreage”,
      Section 6.5;
“AMI”,
      Section 8.4;
      “Assets”, Section 2.1;
      “Assumed Liabilities”, Section 2.4;
“Base
      Purchase Price” and “Cash Purchase Price”, Section
      2.3(a);
      “Closing Date”, Section 7.1;
      “Deposit”, Section 5.3; “Final Settlement Statement”, Section 8.1;
      “Holdback” and “Holdback Claims”, Section
      8.4“Hydrocarbons”,
      Section 2.1(c);
      “Indemnified Party” and “Indemnifying Party”, Section 9.5(a);
      “Intangible Rights”, Section 2.1(i);
      “Leases”, Section 2.1(a);
“Parent
      Restricted Stock” and “Parent Stock Consideration”, Section
      2.3(a);
      “Personal Property”, Section 2.1(e);
      “Preliminary Settlement Statement”, Section 7.2;
“Real
      Property Interests”, Section 2.1(d);
      “Records”, Section 2.1(j);
      “Retained Liabilities”, Section 2.5;
      “Transferred Contracts”, Section 2.1(g);
“Vendor
      Claims”, Section
      3.1(n) and
      “Wells”, Section
      2.1(b).

    

    In
      addition, the following terms and expressions shall have the meanings set forth
      hereinafter:

     

    “Affiliate”
means,
      with respect to a Party, any Person that directly or indirectly controls, is
      controlled by, or is under common control with, the relevant Party. For purposes
      of this definition, the term “control” means the possession, directly or
      indirectly, of the power to direct or cause the direction of the management
      and
      policies of a Person, whether through ownership of voting securities, contract,
      voting trust, membership in management or in the group appointing or electing
      management, or otherwise through formal or informal arrangements or business
      relationships. 

     

    “Allocated
      Value”
means,
      with respect to each Well, Real Property Interest, item of Personal Property,
      and other Asset to which value is allocated herein, the amount set forth on
      Exhibit
      B
      under
      the column styled “Allocated Value” for such Well, Real Property Interest, item
      of Personal Property, or other Asset. For purpose of this Agreement, Seller
      and
      Buyer agree and stipulate that the Allocated Values set forth in Exhibit
      B
      have
      been established solely for use in calculating adjustments to the Cash Purchase
      Price as provided herein, and not for purposes of federal or state income
      taxation, such Allocated Values being solely for the convenience of the
      Parties.

     

    “Assumed
      Environmental Liabilities”
means,
      collectively, ALL
      CLAIMS AND LIABILITIES (INCLUDING, WITHOUT LIMITATION, CLAIMS AND LIABILITIES
      RELATING TO ENVIRONMENTAL CONDITIONS THAT BECOME “ASSUMED ENVIRONMENTAL
      LIABILITIES” BY OPERATION OF SECTION 4.3,
      BUT EXCLUDING THE RETAINED ENVIRONMENTAL LIABILITIES) ARISING OUT OF, RESULTING
      FROM, OR RELATING IN ANY WAY TO THE EXISTENCE OF AN ENVIRONMENTAL CONDITION
      ON
      OR RELATING TO ONE OR MORE ASSETS (INCLUDING, WITHOUT LIMITATION, CLAIMS AND
      LIABILITIES FOR INJURY TO OR DEATH OF ANY PERSON, PERSONS, OR OTHER LIVING
      THINGS, OR LOSS OR DESTRUCTION OF OR DAMAGE TO PROPERTY OCCURRING AS THE RESULT
      THEREOF), REGARDLESS OF WHETHER SUCH ENVIRONMENTAL CONDITION IS KNOWN,
      ANTICIPATED, OR SUSPECTED AS OF THE POSSESSION TIME, OR RESULTS, IN WHOLE OR
      IN
      PART, FROM THE NEGLIGENCE OR STRICT LIABILITY OF ANY SELLER OR ITS RESPECTIVE
      AFFILIATES, EMPLOYEES, AGENTS, OR REPRESENTATIVES, AND REGARDLESS OF WHETHER
      SUCH ENVIRONMENTAL CONDITION, OR THE ACTS, OMISSIONS, EVENTS, OR CONDITIONS
      GIVING RISE THERETO AROSE, OCCURRED, OR EXISTED BEFORE, AT, OR AFTER THE
      POSSESSION TIME.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    “Business
      Day”
means
      any day other than a Saturday, Sunday, or other day on which commercial banks
      in
Dallas,
      Texas,
      are required or authorized by Law to be closed.

     

    “Claims”,
      for
      purposes of this Agreement, means any and all claims, demands, Liens, notices
      of
      non-compliance or violation, notices of liability or potential liability,
      investigations, actions (whether judicial, administrative, or arbitrational),
      causes of action, suits, and controversies.

     

    “Closing”
means
      the consummation of the transactions contemplated in this
      Agreement.

     

    “Code”
means
      the United States Internal Revenue Code of 1986, as amended.

     

    “Contracts”
means
      all seismic or other exploration agreements; farm-in, farm-out, and
      participation agreements; dry hole, acreage contribution, and bottom hole
      agreements; partnership, joint venture, and similar agreements; Hydrocarbon
      purchase, sale, exchange, gathering, storage, transportation, and marketing
      agreements; acquisition agreements; operating agreements; area of interest
      agreements; balancing agreements; pooling, communization, and unitization
      agreements; processing, fractionation, condensate removal and handling,
      dehydration, treatment, and separation agreements; saltwater, water, and waste
      injection and disposal agreements; options; service agreements; communications,
      facilities, and equipment leases and licenses, to the extent transferable;
      and
      other contracts, agreements, and rights owned by Seller, in whole or in part,
      to
      the extent that they are (i) appurtenant to or affect the properties and rights
      comprising the Assets, or (ii) used or held for use in connection with the
      use,
      ownership, or operation thereof, all as described more particularly on
Exhibit
      E.

     

    “Conveyance”
means
      the Assignment, Bill of Sale, and Conveyance substantially in the form attached
      hereto as Exhibit
      G.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    “Defect”
means
      any Lien, charge, contract, agreement, obligation, or defect of title, other
      than a Permitted Encumbrance, that causes, or could reasonably be expected
      (in
      Buyer’s good faith judgment) to cause: (a) a loss of title, in whole or in
      part, by Seller with respect to an Asset; (b) the title to an Asset not to
      be good, valid, and indefeasible; (c) an Asset to be subject to a Lien
      other than a Permitted Encumbrance; (d) in the case of a Lease or Well, and
      without limiting clauses (a), (b), and (c) of this definition, (i) Seller
      to receive a percentage of all Hydrocarbons produced, saved, and marketed from
      or allocable to such Lease or Well that is less than the Net Revenue Interest
      set forth in Exhibit
      B
      for such
      Lease or Well, without reduction, suspension, or termination for the productive
      life of such Lease or Well, or (ii) Seller to be obligated to bear a
      percentage of the costs and expenses of operations on and the maintenance and
      development of such Lease or Well that is greater than the Working Interest
      set
      forth for such Lease or Well on Exhibit
      B
      without
      increase for the productive life of such Lease or Well, unless such greater
      Working Interest yields a correspondingly greater Net Revenue Interest; or
      (e) Seller’s interest in any Asset otherwise to be extinguished or the
      operation, use, possession, ownership, or value of Seller’s interest in any
      Asset to be materially affected or interfered with, except for Permitted
      Encumbrances. The term “Defect” shall include a preferential right to purchase,
      right of first refusal, right of first offer, or similar right affecting any
      Asset (including, without limitation, any Contract) that is exercised prior
      to
      the Closing, or a third Person consent to assignment required before an Asset
      may be assigned and that is not obtained prior to the Closing.

     

    “Defect
      Amount”
means:
      (a) if the relevant Defect affects all of Seller’s interest in an Asset, such
      that the Defect results in a complete failure of title with respect thereto,
      the
      Defect Amount shall equal the full Allocated Value for the affected Asset;
      (b)
      if the Defect constitutes undischarged taxes, indebtedness, or Liens encumbering
      all or any portion of any Asset, the Defect Amount shall equal the sum necessary
      to be paid to the obligee to remove the Defect; (c) if the Defect results from
      a
      deficiency in Seller’s actual Net Revenue Interest relative to that shown for
      the affected Lease or Well on Exhibit
      B
      and on
      which the Allocated Value of such Lease or Well is based,
      the Defect Amount shall equal the positive difference
      (if any)
      obtained by subtracting
      (i) the
product
      obtained
      by multiplying
      the
      Allocated Value for the affected Lease or Well by the ratio of
      the
      actual Net Revenue Interest being conveyed to
      the Net
      Revenue Interest set forth for such Lease or Well on Exhibit
      B,
      from
      (ii) the
      Allocated Value for such Lease or Well; (d) if the Defect results from Seller’s
      actual expense-bearing interest in a Lease or Well being greater than the
      Working Interest shown for the affected Lease or Well on Exhibit
      B and
      on
      which the Allocated Value of such Lease or Well is based, and such larger
      expense-bearing interest is not accompanied by a proportionate increase in
      Seller’s Net Revenue Interest in such Lease or Well, the Defect Amount shall
      equal the positive difference
      (if any)
      obtained by subtracting
      (i) a
      recalculated Allocated Value for such Lease or Well using the same production
      rates, pricing, costs, tax forecasts, and discount factors used to calculate
      the
      original Allocated Value for such Lease or Well, adjusted to account for the
      diminution in the net present value of the future cash flows that results from
      the higher expense-bearing interest, from
      (ii) the
      Allocated Value for such Lease or Well set forth on Exhibit
      B;
      and (e)
      if the Defect is one other than the Defects described above in clauses (a),
      (b),
      (c), and (d) of this definition, the Defect Amount shall equal an amount
      determined by Seller and Buyer by evaluating the portion of the Assets affected
      by such Defect, the legal effect of the Defect, and the potential economic
      effect of the Defect over the life of the Assets affected. 

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    “Effective
      Time”
means
      7:00 a.m., Central Time, on February 1, 2007.

     

    “Environmental
      Contaminants”
means
      “hazardous substances” and “pollutants or contaminants”, as those terms are
      defined in Section
      101
      of the
      Comprehensive Environmental Response, Compensation and Liability Act
      (“CERCLA”),
      petroleum, including any fraction thereof,” and “natural gas, natural liquids,
      liquefied natural gas, or synthetic gas usable for fuel” as those terms are used
      in Section 101 of CERCLA, any “solid or hazardous waste” as those terms are
      defined or used in the Resource Conservation and Recovery Act, and any wastes
      regulated by applicable rules of the Railroad Commission of Texas. The term
      also
      includes naturally occurring radioactive material (“NORM”)
      concentrated, disposed of, released or present on, resulting from, or in
      association with Hydrocarbon activities.

     

    “Environmental
      Condition”
means:
      (a) any event or condition (including, without limitation, any Release) with
      respect to air, land, soil, surface, subsurface strata, surface water, ground
      water, or sediment that causes the Assets to become subject to (or their owner
      or operator to have Liability or be potentially liable for) any removal,
      remediation, or response action under, or not be in compliance with, any
      Environmental Law or any Permit pursuant to any Environmental Law; (b) the
      existence of any written or oral Claim pending or threatened that reasonably
      may
      be expected to subject the Assets or the owner or the operator of the Assets
      to
      liability in favor of any Governmental Authority as the result of the alleged
      violation by such owner or operator or any other Person of any Environmental
      Law
      as it pertains to the Assets or the existence of any event or condition on
      the
      Assets described in this definition; (c) the failure of the Assets to be in
      compliance, or the owner or operator of the Assets to comply, in each case
      in
      all material respects with all applicable Environmental Laws with respect to
      the
      Assets; (d) the failure of the owner or operator of the Assets to obtain or
      maintain in full force and effect any Permit required under applicable
      Environmental Laws with respect to the Assets; or (e) any event or condition
      described in the preceding clauses (a), (b), (c), and (d) that results, or
      could
      reasonably be expected to result, in Liability to any Governmental Authority
      for
      any removal, remediation, or response action, or any other Person for injury
      to
      or death of any Person, Persons, or other living thing, or damage, loss, or
      destruction of property located on the Assets. An event or circumstance that
      results in the inaccuracy or breach of the representations and warranties
      contained in Section
      3.1(d)(iii)
      or
Section
      3.1(j)
      (insofar
      only as such representation and warranty relates to environmental matters)
      shall
      constitute an Environmental Condition. The term “Environmental Condition”
includes, without limitation, any release, disposal, spilling, leaking, pouring,
      emission, emptying, discharge, injection, escape, transmission, leaching, or
      dumping (collectively, a “Release”),
      or
      any threatened Release, of any Environmental Contaminants from, or related
      in
      any way to the use, ownership, or operation of, the Assets that has not been
      remedied in accordance with all applicable Environmental Laws.

     

    “Environmental
      Laws”
means
      all applicable Laws (including, without limitation, the Comprehensive
      Environmental Response, Compensation, and Liability Act, the Resource
      Conservation and Recovery Act, and the Oil Pollution Act of 1990, the Texas
      Solid Waste Disposal Act, and applicable rules of the Texas Railroad Commission
      relating to the management or disposal of oilfield waste, in each case as
      amended from time to time) relating to the protection of the public health,
      welfare, and environment, worker protection, emergency planning, and/or a
      community’s right to know, including, without limitation, those Laws relating to
      the storage, handling, and use of chemicals and other hazardous materials,
      those
      relating to the Release, generation, processing, treatment, storage,
      transportation, disposal, or other management of waste materials of any kind,
      those relating to the protection of environmentally sensitive areas, and
      employee health and safety.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    “Governmental
      Authority”
means
      any governmental or quasi-governmental federal, state, provincial, county,
      city,
      or other political subdivision of the United States, any foreign country, or
      any
      department, bureau, agency, commission, court, or other statutory or regulatory
      body or instrumentality thereof. 

     

    “Imbalance”
means
      any imbalance between (a) the quantity of Hydrocarbons produced from any Well
      and allocated to a Person from time to time and the share of such production
      to
      which such Person is actually entitled by virtue of its ownership interest
      in
      such Well, (b) the quantity of Hydrocarbons produced from or allocable to the
      Assets delivered, and the quantity of such Hydrocarbons received, in each case
      for gathering, transportation, or storage for the account of a Person, (c)
      the
      quantity of Hydrocarbons produced from or allocable to the Assets delivered
      for
      processing or refining, and the quantity of products or residue Hydrocarbons
      redelivered, in each case for the account of a Person, and (d) other similar
      types of Hydrocarbon-related imbalances attributable to the Assets.

     

    “Indemnity
      Group”
means,
      for any Party, the Affiliates, officers, directors, managers, members, partners,
      employees, agents, and representatives of the relevant Party and for Buyer,
      Buyer’s Indemnity Group includes Parent and its Indemnity Group.

     

    “Knowledge”,
      when
      used with reference to either Party, means (a) knowledge of those matters of
      which the relevant Party is charged with constructive notice under applicable
      Law, and (b) the actual knowledge of the current directors and officers of
      such
      Party. 

     

    “Laws”
means
      all constitutions, laws, statutes, ordinances, rules, regulations, orders,
      and
      decrees of the United States, any foreign country, and any local, state,
      provincial, or federal political subdivision or agency thereof, as well as
      all
      judgments, decrees, orders, and decisions of courts having the effect of law
      in
      each such jurisdiction, including, without limitation, all Environmental
      Laws.

     

    “Liabilities”
means,
      for purposes of this Agreement, any and all losses, judgments, damages,
      liabilities, injuries, costs, expenses, interest, penalties, taxes, fines,
      obligations, and deficiencies. As used herein, the term “Liabilities” includes,
      without limitation, reasonable attorneys’ fees and other costs and expenses of
      any Party receiving indemnification hereunder incident to the investigation
      and
      defense of any Claim that results in litigation, or the settlement of any Claim,
      or the enforcement by any Party receiving indemnification hereunder of the
      provisions of Article
      IX,
      as
      applicable.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    “Lien”
means
      any mortgage, deed of trust, pledge, security interest, encumbrance, lien,
      or
      charge of any kind (including any agreement to grant any of the foregoing),
      any
      conditional sale or title retention agreement, any lease in the nature thereof,
      or the filing of or agreement to give any financing statement under the Uniform
      Commercial Code of any jurisdiction.

     

    “Material
      Adverse Change”
means
      an event, occurrence, development, or condition that is materially adverse
      to
      the Assets taken as a whole, excluding (a) any general, regional, industry-wide,
      economic, or political event, occurrence, development, or condition (including,
      without limitation, the price of Hydrocarbons), whether domestic or
      international, and (b) any change in the condition of the Assets during the
      period from the date of this Agreement through the Possession Time resulting
      from normal depletion of Hydrocarbon reserves or the depreciation of the
      Personal Property through ordinary wear and tear.

     

    “Net
      Revenue Interest”
means,
      with respect to each Lease and Well, the interest in and to all Hydrocarbons
      produced and saved from or attributable to the Lease(s) on which such Well
      is
      located, after giving effect to all valid royalties, overriding royalties,
      production payments, net profits interests, carried interests, reversionary
      interests, and other similar interests constituting burdens upon, measured
      by,
      or payable out of Hydrocarbons produced and saved from or attributable to such
      Lease(s) and Wells.

     

    “Parties”
means,
      collectively, Seller, Buyer and Parent.

     

    “Permits”
      means the permits, licenses, authorizations, certificates, registrations, or
      other approvals (other than permits and licenses constituting Real Property
      Interests) granted by any Governmental Authority that pertain or relate in
      any
      way to the Assets, described more particularly on Exhibit
      F.

     

    “Permitted
      Encumbrances”
      means:

     

    (a) preferential
      rights to purchase any Asset (including, without limitation, any Contract),
      required non-governmental, third Person consents to assignment, and similar
      agreements with respect to which, prior to the Closing, (i) waivers or consents
      are obtained from the appropriate Persons, or (ii) the appropriate time period
      for asserting such rights has expired without an exercise of such right;

     

    (b) required
      non-governmental, third Person consents to assignment if such consent is of
      a
      type customarily obtained subsequent to a sale or conveyance, and the failure
      to
      obtain such consent would not have a material adverse effect on the use or
      value
      of the Assets; 

     

    (c) Liens
      for
      taxes or assessments not yet delinquent or, if delinquent, those taxes or
      assessments that are being contested in good faith by proceedings diligently
      conducted in the normal course of business;

     

    (d) all
      rights to consent by, required notices to, filings with, or other actions by
      Governmental Authorities in connection with the sale or conveyance of the Assets
      if the same are customarily obtained, given, or made subsequent to such sale
      or
      conveyance; 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (e) the
      Leases, the Contracts, the Permits, and the Real Property
      Interests;

     

    (f) all
      easements, rights-of-way, servitudes, permits, licenses, surface leases, and
      other rights to use the surface (in addition to the Real Property Interests)
      affecting or pertaining to the Assets, but that are not included in the Assets
      and do not interfere materially with the ownership, operation, value, or use
      of
      the Assets; 

     

    (g) lessor’s
      royalties, overriding royalties, division orders, production payments, net
      profits interests, carried interests, rights to recoupment, unitization,
      pooling, proration, and spacing designations, orders, and agreements,
      reversionary interests, and similar burdens, if the net cumulative effect
      thereof does not operate to cause Seller to receive less than the Net Revenue
      Interest set forth on Exhibit
      B
      of all
      Hydrocarbons produced, saved, and marketed from any Lease or Well or bear and
      pay more than the Working Interest shown on Exhibit
      B
      of all
      costs and expenses of operations in respect of such Lease or Well without a
      proportionate increase in the associated Net Revenue Interest; 

     

    (h) any
      operator’s or other inchoate or undetermined Lien or charge, whether statutory
      or contractual, constituting or securing the payment of expenses which were
      or
      will be incurred in the ordinary course of business and incidental to the
      maintenance, development, production, or operation of any Asset, to the extent
      the same secure amounts not yet due and payable or that are being contested
      in
      good faith by proceedings diligently conducted in the normal course of
      business;

     

    (i) any
      Lien
      created under the terms of any Lease, Real Property Interest, or Contract to
      secure the performance of the lessee’s obligations thereunder; 

     

    (j) conventional
      rights of reassignment; 

     

    (k) the
      rights reserved to, vested in, or imposed by any Governmental Authority to
      control, regulate, or monitor the Assets in any manner, and all applicable
      Laws;

     

    (l) Defects
      and Environmental Conditions waived in writing by Buyer; 

     

    (m) any
      matters set forth in the Schedules to this Agreement; and 

     

    (n) all
      other
      Liens, charges, encumbrances, contracts, agreements, instruments, obligations,
      and irregularities affecting any Asset that in the aggregate are not such as
      to
      (i) interfere materially with the ownership, operation, value, or use of
      such Asset for the purposes for which it is held; (ii) prevent Seller from
      receiving any proceeds from the sale of any Hydrocarbons; or (iii) cause
      Seller (A) to receive less than the Net Revenue Interest set forth on
Exhibit
      B
      of all
      Hydrocarbons produced, saved, and marketed from any Lease or Well, or
      (B) bear and pay more than the Working Interest shown on Exhibit
      B
      of all
      costs and expenses of operations in respect of such Lease or Well without a
      proportionate increase in the associated Net Revenue Interest.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    “Person”
means
      any individual, corporation, limited liability company, partnership, trust,
      unincorporated organization, Governmental Authority, or any other form of
      entity.

     

    “Possession
      Time”
means
      the time on the Closing Date when all of the actions required under Section
      7.3
      to be
      taken by Seller and Buyer at the Closing have been taken.

     

    “Property-Related
      Taxes”
means
      any and all ad valorem, property, severance, generation, conversion, Btu or
      gas,
      transportation, utility, gross receipts, privilege, consumption, excise, lease,
      transaction, and other taxes, franchise fees, governmental charges or fees,
      licenses, fees, permits, and assessments, or increases therein, and any interest
      or penalties thereon, other than Transfer Taxes and taxes based on or measured
      by net income or net worth.

     

    “Remediation
      Estimate”
means,
      with respect to an Environmental Condition, the estimated cost (inclusive of
      Liabilities to Governmental Authorities and other Persons reasonably anticipated
      to be incurred by Seller as the result of such Environmental Condition),
      determined by Buyer in good faith, to remediate the relevant Environmental
      Condition in accordance with applicable Environmental Laws.

     

    “Retained
      Environmental Liabilities”
means
      ALL
      LIABILITIES ARISING OUT OF, RESULTING FROM, OR RELATING IN ANY WAY TO THE
      EXISTENCE OF AN ENVIRONMENTAL CONDITION ON OR RELATING TO ONE OR MORE ASSETS
      (INCLUDING, WITHOUT LIMITATION, LIABILITY FOR INJURY TO OR DEATH OF ANY PERSON,
      PERSONS, OR OTHER LIVING THINGS, OR LOSS OR DESTRUCTION OF OR DAMAGE TO PROPERTY
      OCCURRING AS THE RESULT THEREOF), REGARDLESS OF WHETHER SUCH ENVIRONMENTAL
      CONDITION IS KNOWN, ANTICIPATED, OR SUSPECTED AS OF THE POSSESSION TIME,
TO THE EXTENT ONLY THAT
      SUCH ENVIRONMENTAL CONDITION, OR THE ACTS, OMISSIONS, EVENTS, OR CONDITIONS
      GIVING RISE THERETO, AROSE, EXISTED, OR OCCURRED, IN WHOLE OR IN PART, PRIOR
      TO
      THE POSSESSION TIME.

     

    “Transfer
      Taxes”
means
      any sales, use, stock, stamp, document, filing, recording, registration, and
      similar tax or charge, including, without limitation, any interest or penalties
      thereon.

     

    “Transitional
      Matters Agreement”
means
      the Transitional Matters Agreement substantially in the form attached hereto
      as
Exhibit
      H

     

    “Working
      Interest”
means,
      with respect to each Lease or Well, the interest of Seller that is burdened
      with
      the obligation to bear and pay costs of operations on or in respect of such
      Lease or Well.

     

    
      
        
        

      

      
        8

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