Document:

Exhibit
4.2

 

FINANCING
AGREEMENT

 

Financing Agreement, dated as of December 15, 2004, by and among RUSS
BERRIE AND COMPANY, INC., a New Jersey corporation (the ”Borrower”),
each subsidiary of the Borrower listed as a “Guarantor” on the signature pages
hereto (each a “Guarantor” and collectively, jointly and severally, the “Guarantors”),
the lenders from time to time party hereto (each a “Lender” and
collectively, the ”Lenders”), ABLECO FINANCE LLC, a Delaware
limited liability company (“Ableco”), as collateral agent for the
Lenders (in such capacity, together with any successor collateral agent,
the ”Collateral Agent”), and Ableco, as administrative agent for
the Lenders (in such capacity, together with any successor administrative
agent, the ”Administrative Agent” and together with the Collateral
Agent, each an “Agent” and collectively, the “Agents”).

 

RECITALS

 

The Borrower has asked the Lenders to extend credit to the Borrower
consisting of a term loan in the aggregate principal amount of
$125,000,000.  The proceeds of the term
loan shall be used to finance, in part, the acquisition of all of the
outstanding membership interests, and all of the outstanding warrants to
purchase membership interests, of Kids Line, LLC, a Delaware limited liability
company (“Kids Line”), and to pay fees and expenses related to such
acquisition and this Agreement.  The
Lenders are severally, and not jointly, willing to extend such credit to the
Borrower subject to the terms and conditions hereinafter set forth.

 

In consideration of the premises and the covenants and agreements
contained herein, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS; CERTAIN TERMS

 

Section 1.01                Definitions.  As used in this Agreement, the following
terms shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:

 

“Ableco”
has the meaning specified therefore in the preamble hereto.

 

“Account
Debtor” means any Person who is or who may become obligated under, with
respect to, or on account of, an Account Receivable, chattel paper, or a
general intangible.

 

“Account Receivable” means, with respect to any Person, all of
such Person’s now owned or hereafter acquired right, title, and interest with
respect to “accounts” (as that term is defined in the Code), any and all “supporting
obligations” (as that term is defined in the Code) in respect thereof, and any
and all other accounts receivable, collections and payments receivable
(including insurance proceeds, proceeds of cash sales, rental proceeds and tax
refunds).

 

 

“Acquisition” means the purchase of all of the outstanding
membership interests of Kids Line, and all outstanding warrants for the
purchase of membership interests of Kids Line, from the Selling Parties, all as
contemplated by and transacted in accordance with the terms and conditions of
the Acquisition Agreement.

 

“Acquisition Agreement” means that certain Membership Interest
Purchase Agreement dated as of December 15, 2004, by and among the
Borrower, Kids Line and the Selling Parties.

 

“Acquisition Closing Letter” means a letter, in form and
substance reasonably satisfactory to Agents, from all parties to the
Acquisition Agreement (a) setting forth the full amount of the purchase price
to be paid for the consummation of the Acquisition on the “Closing Date” (as
such term is defined in the Acquisition Agreement), and (b) representing that,
upon receipt by the Selling Parties of such purchase price amount, all
conditions to such consummation of the Acquisition shall have been satisfied
and the Borrower shall have completed its purchase of the “Units” and the “Warrants”
as such terms are defined in the Acquisition Agreement.

 

“Acquisition Documents” means, collectively, the Acquisition
Agreement, the and all other instruments and agreements executed in connection
therewith, each in form and substance reasonably satisfactory to the Agents and
the Lenders.

 

“Action” has the meaning specified therefor in Section 12.12.

 

“Administrative Agent” has the meaning specified therefor in the
preamble hereto.

 

“Administrative Agent’s Account” means an account at a bank
designated by the Administrative Agent from time to time as the account into
which the Borrower shall make all payments to the Administrative Agent for the
benefit of the Agents and the Lenders under this Agreement and the other Loan
Documents.

 

“Affiliate” means, with respect to any Person, any other Person
that directly or indirectly through one or more intermediaries, controls, 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 (i) vote 10% or
more of the Capital Stock having ordinary voting power for the election of
directors of such Person or (ii) direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.  Notwithstanding anything herein to the
contrary, in no event shall any Agent or any Lender be considered an “Affiliate”
of any Loan Party.

 

“After Acquired Property” means any interest in real property
acquired by the Borrower or any of its Subsidiaries after the date hereof with
a Current Value in excess of $750,000 in the case of a fee interest or
requiring the payment of annual rent exceeding in the aggregate $250,000 in the
case of a leasehold interest.

 

“Agent” and “Agents” have the meanings specified therefor
in the preamble hereto.

 

2

 

“Agreement” means this Financing Agreement, including all
amendments, modifications and supplements thereto and any exhibits or schedules
to any of the foregoing, and shall refer to the Agreement as the same may be in
effect at the time such reference becomes operative.

 

“Applicable Excess Cash Flow Prepayment Percentage” means, for
any Fiscal Year of the Borrower and its Subsidiaries, (i)  if the Funded Debt Ratio as of the last day
of such Fiscal Year equals or exceeds 3.00 to 1.00, 75%, and (ii) if the Funded
Debt Ratio as of the last day of such Fiscal Year is less than 3.00 to 1.00,
50%; provided, however, that if the Borrower fails to provide the
certificate of Authorized Officer of the Borrower as required by Section 7.01(a)(iv)
containing the Funded Debt Ratio for such Fiscal Year on or before the date
when due thereunder, the Applicable Excess Cash Flow Prepayment Percentage
shall mean 75%.

 

“Assignment and Acceptance” means an assignment and acceptance
entered into by an assigning Lender and an assignee, and accepted by the
Collateral Agent, in accordance with Section 12.07 hereof and
substantially in the form of Exhibit A-1 hereto or such other form
acceptable to the Collateral Agent.

 

“Authorized Officer” means, with respect to any Person, the
chief executive officer, chief financial officer, president or executive vice
president of such Person.

 

“Backup Letter of Credit” has the meaning specified therefor in Section 2.09(a).

 

“Backup Letter of Credit Issuer” means the bank which is from
time to time the issuer of the Backup Letter of Credit.

 

“Backup Letter of Credit Lien” means the security interest
granted in favor of the Backup Letter of Credit Issuer on a deposit account of
the Borrower maintained with the Backup Letter of Credit Issuer, solely to
secure the Borrower’s obligations with respect to the Backup Letter of Credit.

 

“Backup Letter of Credit Reimbursement Agreement” means that
certain letter agreement dated the Effective Date between the Borrower and
Wells Fargo Foothill, Inc., as to issuance of, and the reimbursement of
drawings under, the Backup Letter of Credit.

 

“Backup Letter of Credit Required Amount” means, (i) prior to
the Backup Letter of Credit Requirement Termination Date, $10,000,000, less the
aggregate amount indefeasibly paid to the Collateral Agent upon drawing on the
Backup Letter of Credit, and (ii) on and after the Backup Letter of Credit
Requirement Termination Date, $0.

 

“Backup Letter of Credit Requirement Termination Date” means the
first Business Day immediately following the date a certificate of an
Authorized Officer of the Borrower is delivered to the Agents as required by Section 7.01(a)(iv)
relating to the end of a fiscal quarter of the Borrower and its Subsidiaries,
certifying that the Funded Debt Ratio as of the last day of such fiscal quarter
is less than 3.00:1.00.

 

“Bankruptcy Code” means the United States Bankruptcy Code (11
U.S.C. § 101, et  seq.), as amended, and any successor
statute.

 

3

 

“Base LIBOR Rate” means the rate per annum, determined by
Administrative Agent in accordance with its customary procedures, and utilizing
such electronic or other quotation sources as it considers appropriate (rounded
upwards, if necessary, to the next 1/16%), on the basis of the rates at which
Dollar deposits are offered to major banks in the London interbank market on or
about 11:00 a.m. (New York time) 2 Business Days prior to the commencement of
the applicable Interest Period, for a term and in amounts comparable to the
Interest Period and amount of the LIBOR Rate Loan requested by the Borrower in
accordance with this Agreement, which determination shall be conclusive in the
absence of manifest error. 
Notwithstanding the foregoing, the Base LIBOR Rate shall be subject to a
minimum rate of one and three-quarters percentage points per annum (1.75%
p.a.), and, accordingly, to the extent that the Base LIBOR Rate on any day
would be less than the foregoing minimum rate, the Base LIBOR Rate hereunder
for such day automatically shall be deemed increased to such minimum rate.

 

“BNY” means The Bank of New York.

 

“Board” means the Board of Governors of the Federal Reserve
System of the United States.

 

“Board of Directors” means the board of directors of Borrower or
any committee thereof duly authorized to act on behalf of the board of
directors.

 

“Borrower” has the meaning specified therefor in the preamble
hereto.

 

“Borrower Financial Statements” means (i) the audited
consolidated balance sheet of the Borrower and its Subsidiaries for the Fiscal
Year ended December 31, 2003, and the related consolidated statement of
operations, shareholders’ equity and cash flows for the Fiscal Year then ended,
and (ii) the unaudited consolidated balance sheet of the Borrower and its Subsidiaries for the ten months ended October 31,
2004, and the related consolidated statement of operations, shareholder’s
equity and cash flows for the ten months then ended.

 

 “Business Day” means any
day other than a Saturday, Sunday or other day on which commercial banks in New
York City are authorized or required to close, except that, if a determination
of a Business Day shall relate to a LIBOR Rate Loan, the term “Business Day”
also shall exclude any day on which banks generally are closed for dealings in
Dollar deposits in the London interbank market.

 

“Capital Expenditures” means, with respect to any Person for any
period, the sum of the aggregate of all expenditures by such Person and
its Subsidiaries during such period that in accordance with GAAP are or should
be included in “property, plant and equipment” or in a similar fixed asset
account on its balance sheet, whether such expenditures are paid in cash or
financed and including all Capitalized Lease Obligations incurred during such
period.

 

“Capital Guideline” means any law, rule, regulation, policy,
guideline or directive (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) (i) regarding capital
adequacy, capital ratios, capital requirements, the calculation of a bank’s
capital or similar matters, or (ii) affecting the amount of capital required to
be obtained or maintained by any Lender, any Person controlling any Lender, or
the manner in

 

4

 

which any Lender, any Person controlling any
Lender, allocates capital to any of its contingent liabilities, advances,
acceptances, commitments, assets or liabilities.

 

“Capitalized Lease” means, with respect to any Person, any lease
of real or personal property by such Person as lessee which is required in
accordance with GAAP to be capitalized on the balance sheet of such Person.

 

“Capitalized Lease Obligations” means, with respect to any
Person, obligations of such Person and its Subsidiaries under Capitalized
Leases, and, for purposes hereof, the amount of any such obligation shall be
the capitalized amount thereof determined in accordance with GAAP.

 

“CapitalSource” means CapitalSource Finance LLC, a Maryland
limited liability company.

 

“Capital Stock” means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, and (ii)
with respect to any Person that is not a corporation, any and all partnership,
membership or other equity interests of such Person.

 

“Cash and Cash Equivalents” means all cash, deposit or
securities account balances, certificates of deposit or other financial
instruments properly classified as cash or cash equivalents under GAAP.

 

“CFC” means a controlled foreign corporation (as that term is
defined in the IRC).

 

“Change of
Control” means each occurrence of any of the following:

 

(a)                                  the
shares of common stock of the Borrower ceases to be listed for trading on a
national securities exchange,

 

(b)                                 any
“person” or “group” (within the meaning of Sections 13(d) and 14(d) of the
Exchange Act), other than Permitted Holders, becomes the beneficial owner (as
defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of 40% or
more of the Capital Stock of Borrower having the right to vote for the election
of members of the Board of Directors,

 

(c)                                  a
majority of the members of the Board of Directors do not constitute Continuing
Directors,

 

(d)                                 the
Borrower ceases to own and control 100% of the shares of the Capital Stock of
each of the Borrower’s Subsidiaries, unless otherwise permitted hereunder, or

 

(e)                                  (i)
the Borrower consolidates with or merges into
another entity or conveys, transfers or leases all or substantially all of its
property and assets to any Person, or (ii) any entity consolidates with or
merges into the Borrower, which in either event set forth in clause (i) or (ii)
is pursuant to a transaction in which the outstanding voting Capital Stock of
the Borrower is reclassified or changed into
or exchanged for cash, securities or other property, other than any such
transaction in which the Permitted Holder shall have a beneficial ownership in
the

 

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aggregate of at least 50.1% of the aggregate voting
power of all Capital Stock of the resulting, surviving or transferee entity.

 

“Closing Fee” has the meaning specified therefor in Section 2.06(a).

 

“Code” means the New York Uniform Commercial Code, as in effect
from time to time; provided, however, that in the event that, by
reason of mandatory provisions of law, any or all of the attachment,
perfection, priority, or remedies with respect to Collateral Agent’s Liens on
any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of New York, the term “Code”
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority, or remedies.

 

“Collateral” means all of the property and assets and all
interests therein and proceeds thereof now owned or hereafter acquired by any
Person upon which a Lien is granted or purported to be granted by such Person
as security for all or any part of the Obligations.

 

“Collateral Agent” has the meaning specified therefor in the
preamble hereto.

 

“Collateral Agent Advances” has the meaning specified therefor
in Section 10.08(a).

 

“Collection Account” and “Collection Accounts” have the
meanings specified therefor in Section 8.01(a).

 

 “Commitment” means, with
respect to each Lender, the commitment of such Lender to make its portion of
the Term Loan to the Borrower in the amount set forth in Schedule T-1
hereto, as the same may be terminated or reduced from time to time in
accordance with the terms of this Agreement.

 

“Consolidated EBITDA” means, with respect to any Person for any
period, the Consolidated Net Income of such Person and its Subsidiaries for
such period, minus the aggregate amount of cash and non-cash non-recurring
income and gains of such Person and its Subsidiaries for such period to the
extent included in determining Consolidated Net Income of such Person and its
Subsidiaries for such period, plus (i) without duplication, the sum
of the following amounts of such Person and its Subsidiaries for such
period and to the extent deducted in determining Consolidated Net Income of
such Person and its Subsidiaries for such period:  (A) Consolidated Net Interest Expense, (B)
income tax expense, (C) depreciation expense, (D) amortization expense,
(E) cash and non-cash non-recurring expenses and charges, and (F) all fees,
expenses or charges incident to the Acquisition (but exclusive of all fees,
expenses or charges arising from any Indebtedness of such Person or its
Subsidiaries to the extent included in clause (A) of this definition) in an
aggregate amount not to exceed $3,000,000.

 

“Consolidated Funded Indebtedness” means, with respect to any
Person at any date, all Indebtedness of such Person, determined on a consolidated
basis in accordance with GAAP, which by its terms matures more than one year
after the date of calculation, and any such Indebtedness maturing within one
year from such date which is renewable or extendable at the option of such
Person to a date more than one year from such date, including, in any event,
but

 

6

 

without duplication, with respect to the
Borrower and its Subsidiaries, the amount of their Capital Lease Obligations,
but excluding, with respect to the Borrower and its Subsidiaries, (i)
Indebtedness to the extent permitted by clauses (g) and (h) of the definition
of “Permitted Indebtedness”, (ii) Indebtedness of Borrower and the other Loan
Parties for Earnout Consideration, and (iii) Indebtedness of Borrower and its
Subsidiaries constituting Indebtedness of a type described in clauses (viii),
(ix), (x) or (xi) of the definition of Indebtedness.

 

“Consolidated Net Income” means, with respect to any Person for
any period, the net income (loss) of such Person and its Subsidiaries for such
period, determined on a consolidated basis and in accordance with GAAP, but
excluding from the determination of Consolidated Net Income (without
duplication) (a) any non-cash extraordinary or non-recurring gains or
losses or non-cash gains or losses from Dispositions, (b) restructuring
charges, (c) effects of discontinued operations, (d) non-cash interest,
and (e) any tax refunds, net operating losses or other net tax benefits.

 

“Consolidated Net Interest Expense” means, with respect to any
Person for any period, gross interest expense of such Person and its
Subsidiaries for such period determined on a consolidated basis and in
accordance with GAAP (including, without limitation, interest expense paid to
Affiliates of such Person and the amortization of fees payable in connection
with financing incurred to consummate the Acquisition (including, without
limitation, any fees or expenses payable to the Agents or Lenders hereunder or
pursuant to the commitment letter related hereto) or Indebtedness constituting
Permitted Indebtedness hereunder), less (i) the sum of
(A) interest income for such period and (B) gains for such period on
Hedging Agreements (to the extent not included in interest income above and to
the extent not deducted in the calculation of gross interest expense), plus
(ii) the sum of (A) losses for such period on Hedging Agreements (to
the extent not included in such gross interest expense) and (B) the
upfront costs or fees for such period associated with Hedging Agreements (to
the extent not included in such gross interest expense), in each case,
determined on a consolidated basis and in accordance with GAAP.

 

“Contingent Obligation” means, with respect to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations (“primary obligations”) of
any other Person (the ”primary obligor”) in any manner, whether directly
or indirectly, including, without limitation, (i) the direct or indirect
guaranty, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of a primary obligor, (ii) the obligation
to make take-or-pay or similar payments, if required, regardless of
nonperformance by any other party or parties to an agreement, (iii) any
obligation of such Person, whether or not contingent, (A) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (B) 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, (C) to purchase property, assets,
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 (D) otherwise to assure or hold harmless the
holder of such primary obligation against loss in respect thereof; provided,
however, that the term “Contingent Obligation” shall not include any
product warranties extended in the ordinary course

 

7

 

of business. 
The amount of any Contingent Obligation shall (subject to any limitation
set forth therein) be deemed to be an amount equal to the stated or
determinable amount of the primary obligation with respect to which such
Contingent Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability with respect thereto
(assuming such Person is required to perform thereunder), as determined by such
Person in good faith.

 

“Continuing Director” means (a) any member of the Board of
Directors who was a director (or comparable manager) of Borrower on the
Effective Date, and (b) any individual who becomes a member of the Board of
Directors after the Effective Date if such individual was appointed or
nominated for election to the Board of Directors by a majority of the
Continuing Directors.

 

“Control Agreement” means a control agreement, in form and
substance satisfactory to the Collateral Agent, executed and delivered by the
Borrower or one of its Subsidiaries, Collateral Agent and the applicable
securities intermediary (as that term is defined in the Code), with respect to
a securities account (as that term is defined in the Code) maintained by such
securities intermediary located in the United States, or a bank (as that term
is defined in the Code), with respect to a deposit account (as that term is
defined in the Code) maintained by a branch of such bank located in the United
States, the execution of which control agreement results in the perfection of
the Collateral Agent’s Lien on such deposit account or securities account, as
the case may be, to secure the Obligations.

 

“CPC/KL Holdings” means CPC/KL Holdings, LLC, a Delaware limited
liability company.

 

“Current Value” has the meaning specified therefor in Section 7.01(o).

 

“December 2004 Dividend” means that certain cash dividend
of $0.30 per common share of the Borrower’s common stock, declared by the Board
of Directors of Borrower on November 3, 2004 and paid on December 3,
2004 to shareholders of record as of November 19, 2004, in an aggregate
amount not to exceed $6,250,000.

 

“Default” means an event which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default.

 

“Disposition” means any transaction, or series of related
transactions, pursuant to which any Person or any of its Subsidiaries sells,
assigns, transfers or otherwise disposes of any property or assets (whether now
owned or hereafter acquired) to any other Person, in each case, whether or not
the consideration therefor consists of cash, securities or other assets owned
by the acquiring Person.

 

“Dollar,” “Dollars” and the symbol “$” each means
lawful money of the United States of America.

 

“Domestic Subsidiary” means any Subsidiary of the Borrower that
is not a CFC.

 

8

 

“Domestic Unrestricted Cash” means, as of any date of
determination, the amount of Unrestricted Cash of the Borrower and its Domestic
Subsidiaries that is subject to a Control Agreement and that is either on
deposit in a deposit account (as that term is defined in the Code) with a
branch office of a bank located in the United States, or in a securities
account (as such term is defined in the Code) with a securities intermediary
located within the United States, or any combination thereof.

 

“Dollar Equivalent Amount” means, as of any date of
determination with respect to any amount of money denominated in a currency
other than Dollars, the amount of such money converted into Dollars at the
foreign currency exchange rate for such currency into Dollars as reasonably
determined by Administrative Agent to be in effect on such date.

 

“Earnout Consideration” means the “Earnout Consideration” as
defined in the Acquisition Agreement as in effect on the date hereof (without
giving effect to any amendment or other modification thereof after the
Effective Date, except to the extent expressly consented to by the Required
Lenders).

 

“Earnout Sellers” means, collectively, the “Deferred Payout
Sellers” as defined in the Acquisition Agreement as in effect on the date
hereof (without giving effect to any amendment or other modification thereof
after the Effective Date, except to the extent expressly consented to by the
Required Lenders or those permitted by Section 7.02(r)).

 

“Earnout Sellers Agent” means California KL Holdings, Inc., a
California corporation, as agent for the Earnout Sellers.

 

“Earnout Sellers Lien” means the Lien in favor of the Earnout
Sellers under the Earnout Security Documents, which Lien shall at all times be
junior in priority to the Liens in favor of the Collateral Agent securing the
Obligations.

 

“Earnout Security Documents” means, collectively, the Guaranty
and the Subordinated Security Agreement, each dated as of the Effective Date,
executed by the Loan Parties in favor of Earnout Sellers Agent for the benefit
of the Earnout Sellers as security for the Loan Parties’ obligations with
respect to payment of the Earnout Consideration, and any other agreement,
instrument, and other document executed and delivered pursuant thereto or
related to such security interests, in each case as in effect on the date
hereof (without giving effect to any amendment or other modification thereof
after the Effective Date).

 

“EDA” means the New Jersey Economic Development Authority, a
public body corporate and politic constituting an instrumentality of the State
of New Jersey.

 

“EDA Bondholders” means, collectively, the holders of EDA Bonds.

 

“EDA Bonds” means, collectively, Variable/Fixed Rate Economic
Development Bonds (Russell Berrie – 1983 Project) issued pursuant to the EDA
Bond Indenture.

 

“EDA Bond Indenture” means that certain Indenture of Trust dated
as of December 1, 1983 by the EDA and the EDA Bond Trustee with respect to
the EDA Bonds.

 

9

 

“EDA Bond Trustee” means Deutsche Bank Trust Company Americas,
as successor trustee to Bankers Trust Company under the EDA Bond Indenture.

 

“EDA Borrower” means the Estate of Russell Berrie.

 

“EDA Documents” means, collectively, the EDA Loan Guarantee, the
EDA Standby L/C Reimbursement Agreement and the EDA Financing Statements.

 

“EDA Financing Statements” means (i) that certain financing
statement naming the Borrower as debtor and EDA Standby L/C Issuer as secured
party, filed on February 17, 2000 in the UCC Section, Department of
Treasury of the State of New Jersey under file number 1957259, and (ii) that
certain financing statement naming the Borrower as debtor and EDA Bond Trustee
as secured party, filed on December 10, 2004 in the UCC Section,
Department of Treasury of the State of New Jersey under file number 22713766.

 

“EDA Loan Agreement” means that certain Loan Agreement dated as
of December 1, 1983 between EDA and EDA Borrower.

 

“EDA Loan Guarantee” means that certain Guarantee dated as of December 1,
1983, as amended through the Effective Date (without giving effect to any
amendment or other modification thereof after the Effective Date, except to the
extent expressly consented to by the Required Lenders), by the Borrower in
favor of the EDA, the EDA Bond Trustee and EDA Bondholders, purporting to
guaranty the obligations of EDA Borrower under the EDA Loan Agreement.

 

“EDA Lien” means the security interest granted by the Borrower
in favor of the EDA Bond Trustee and the EDA Standby L/C Issuer on accounts
receivable and inventory of the Borrower to secure its obligations under the
EDA Loan Guarantee and the EDA Standby L/C Reimbursement Agreement.

 

“EDA Standby L/C Issuer” means The Bank of New York.

 

“EDA Standby L/C” means that certain Letter of Credit dated March 25,
1994, as amended as the Effective Date (without giving effect to any amendment
or other modification thereof after the Effective Date, except to the extent
expressly consented to by the Required Lenders and except for Non-Materially
Adverse Amendments), issued by the EDA Standby L/C Issuer for the account of
the Borrower in a maximum amount available to be drawn thereunder of
$7,388.356.16.

 

“EDA Standby L/C Reimbursement Agreement” means that certain
Amended and Restated Letter of Credit Reimbursement Agreement dated as of March 25,
1994, as amended through the Effective Date (without giving effect to any
amendment or other modification thereof after the Effective Date, except to the
extent expressly consented to by the Required Lenders) between the EDA Standby
L/C Issuer and the Borrower.

 

“Effective Date” means the date, which all of the conditions
precedent set forth in Section 5.01 are first satisfied or waived
by the Agents and the Lenders and the Term Loan is advanced to the Borrower.

 

10

 

“Employee Plan” means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained (or that was
maintained at any time during the six (6) calendar years preceding the date of
any borrowing hereunder) for employees of any Loan Party or any of its ERISA
Affiliates.

 

“Environmental Actions” means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
Governmental Authority involving violations of Environmental Laws or Releases
of Hazardous Materials (i) from any assets, properties or businesses of any
Loan Party or any of its Subsidiaries or any predecessor in interest; (ii) from
adjoining properties or businesses; or (iii) onto any facilities which received
Hazardous Materials generated by any Loan Party or any of its Subsidiaries or
any predecessor in interest.

 

“Environmental Laws” means the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. § 9601, et  seq.),
the Hazardous Materials Transportation Act (49 U.S.C. § 1801, et  seq.),
the Resource Conservation and Recovery Act (42 U.S.C. § 6901, et
seq.), the Federal Clean Water Act (33 U.S.C. § 1251 et
seq.), the Clean Air Act (42 U.S.C. § 7401 et  seq.),
the Toxic Substances Control Act (15 U.S.C. § 2601 et  seq.)
and the Occupational Safety and Health Act (29 U.S.C. § 651 et
seq.), as such laws may be amended or otherwise modified from time to
time, and any other present or future federal, state, local or foreign statute,
ordinance, rule, regulation, order, judgment, decree, permit, license or other
binding determination of any Governmental Authority imposing liability or
establishing standards of conduct for protection of the environment or other
government restrictions relating to the protection of the environment or the
release, emission, deposit, discharge, leaching, migration or spill of any
Hazardous Materials into the environment.

 

“Environmental Liabilities and Costs” means all liabilities,
monetary obligations, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, experts and consultants
and costs of investigations and feasibility studies), fines, penalties,
sanctions and interest incurred as a result of any claim or demand by any
Governmental Authority or any third party, and which relate to any
environmental condition or a Release of Hazardous Materials from or onto
(i) any property currently or formerly owned by any Loan Party or any of
its Subsidiaries or (ii) any facility which received Hazardous Materials
generated by any Loan Party or any of its Subsidiaries.

 

“Environmental Lien” means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.

 

“ERISA” means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, and regulations
thereunder, in each case, as in effect from time to time.  References to sections of ERISA shall be
construed also to refer to any successor sections.

 

“ERISA Affiliate” means, with respect to any Person, any trade
or business (whether or not incorporated) which is a member of a group of which
such Person is a member

 

11

 

and which would be deemed to be a “controlled
group” within the meaning of Sections 414(b), (c), (m) and (o) of the IRC.

 

“Event of Default” means any of the events set forth in Section 9.01.

 

“Excess Cash Flow” means, with respect to any Person for any
period, (i) Consolidated Net Income of such Person and its Subsidiaries
for such period, plus (ii) all non-cash items of such Person and
its Subsidiaries deducted in determining Consolidated Net Income for such
period, less (iii) the sum of (A) all non-cash items of such
Person and its Subsidiaries included in determining Consolidated Net Income for
such period, (B) all scheduled and mandatory cash principal payments on
the Term Loan made during such period, and all scheduled cash principal
payments on other Indebtedness of such Person or any of its Subsidiaries during
such period to the extent such other Indebtedness is permitted to be incurred,
and such payments are not prohibited to be made, under this Agreement,
(C) the cash portion of Capital Expenditures made by such Person and its
Subsidiaries during such period to the extent permitted to be made under this
Agreement, (D) cash dividends paid by the Borrower, but only to the extent
permitted by Section 7.02(h), (E) the excess, if any, of
Working Investment at the end of such period over Working Investment at the
beginning of such period (or minus the excess, if any, of Working Investment at
the beginning of such period over Working Investment at the end of such period)
and (F) the amount of optional cash principal prepayments made by the Borrower
pursuant to Section 2.05(b) during such period and optional cash principal
prepayments on Indebtedness of such Person or any of its Subsidiaries made
during such period to the extent such other Indebtedness is permitted to be
incurred, and such optional prepayments are not prohibited to be made, under
the Loan Documents.

 

“Exchange Act” means the Securities Exchange Act of 1934, as
amended.

 

“Exempt Foreign Disposition” means a sale for consideration
consisting entirely of cash, of (i) that certain real property and improvements
thereon owned in fee by Russ Berrie (U.K.) Limited and located at 40 Oriana
Way, Nursling Industrial Estate, Southhampton, United Kingdom, or (ii) that
certain real property and improvements thereon beneficially owned by Tri Russ
International (Hong Kong) Limited and located at Fifth and Sixth Floors of
Block C and Space Nos. 20, 21, and 22 on the First Floor of Block B of Sea View
Estate, No. 8 Watson Road, North Point, Hong Kong.

 

“Existing CapitalSource Facility” means, collectively, that
certain Note and Equity Purchase Agreement dated as of March 15, 2002,
entered into by and among CPC/KL Holdings, Kids Line and CapitalSource, as
amended by that certain First Amendment dated as of January 1, 2004, and
any and all other documents executed in connection therewith.

 

“Existing Credit Facility” means that certain Revolving Credit
Agreement dated as of March 15, 2002 by and among CPC/KL Holdings and Kids
Line.

 

“Existing GECC Facility” means, collectively, that certain
Credit Agreement dated as of March 15, 2002, entered into and among CPC/KL
Holdings, as borrower, Kids Line, as a credit party, and GE Capital, as a
lender and as agent for the lenders, as amended by that

 

12

 

certain First Amendment dated as of January 1,
2003 and that certain Second Amendment dated as of December 31, 2003, and
any and all other documents executed in connection therewith.

 

“Existing Kids Line, Inc. Guaranty” means that certain guaranty
executed by Kids Line in favor of Kids Line, Inc., a California corporation
(now known as California KL Holdings, Inc.), purporting to guaranty the
obligations of CPC/KL Holdings to Kids Line, Inc. under that certain Junior
Subordinated Promissory Note dated March 15, 2002, an 18% undivided
interest in which was subsequently assigned to Greif & Co.

 

“Existing Lenders” means the lenders party to the Existing
Credit Facility.

 

“Extraordinary Receipts” means any cash received by the Borrower
or any of its Subsidiaries not in the ordinary course of business (and not
consisting of proceeds of Dispositions or Indebtedness), including, without
limitation, (i) foreign, United States, state or local tax refunds,
(ii) pension plan reversions, (iii) proceeds of insurance,
(iv) judgments, proceeds of settlements or other consideration of any kind
in connection with any cause of action, (v) condemnation awards (and
payments in lieu thereof), (vi) indemnity payments (but excluding
therefrom such portion of any indemnity payments equal to cash payments
actually made by the Borrower or any of its Subsidiaries to Persons other than
the Borrower or any of its Subsidiaries or Affiliates, but only to the extent
paid in respect of bona fide liabilities owing to such Person), and
(vii) any purchase price adjustment received in connection with the
Acquisition Agreement or any other purchase agreement.

 

“Facility” means that certain parcel of real property located at
2305 Breton Industrial Park Drive S.E., Kentwood, Michigan 49508, including,
without limitation, all buildings and other improvements thereon, all fixtures
located at or used in connection with such facility, all whether now or
hereafter existing.

 

“Federal Funds Rate” means, for any period, a fluctuating
interest rate per annum equal to, for each day during such period, 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 which is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.

 

“Field Survey and Audit” means a field survey and audit of the
Loan Parties and an appraisal of the Collateral performed by auditors,
examiners and/or appraisers selected by the Collateral Agent, at the sole cost
and expense of the Borrower.

 

“Final Maturity Date” means November 14, 2007, or such
earlier date on which the Term Loan shall become due and payable in accordance
with the terms of this Agreement and the other Loan Documents.

 

“Fiscal Year” means the fiscal year of the Borrower and its
Subsidiaries ending on December 31 of each year.

 

13

 

“Fixed Charge Coverage Ratio” means, with respect to any Person
for any fiscal quarter, the ratio of (i) the 25% of TTM EBITDA of such
Person and its Subsidiaries as of the last day of such fiscal quarter, less
Capital Expenditures made by such Person and its Subsidiaries for such fiscal
quarter, to (ii) the sum of (A) all principal of Indebtedness of such
Person and its Subsidiaries scheduled to be paid or prepaid during such fiscal
quarter, plus (B) Consolidated Net Interest Expense of such Person
and its Subsidiaries for such fiscal quarter, plus (C) all income tax
liabilities of such Person and its Subsidiaries that accrued during such fiscal
quarter, to the extent that the amount of such liabilities is greater than
zero.  In determining the Fixed Charge Coverage
Ratio for a particular period, the calculation of the income tax liabilities of
such Person and its Subsidiaries described in clause (ii)(C) of the immediately
preceding sentence shall be made without giving effect to any tax refunds, net
operating losses or other net tax benefits that were received during such
period on account of any prior periods.

 

“Foreign Unrestricted Cash” means as of any date of
determination and with respect to a Subsidiary of the Borrower which is a CFC,
all Unrestricted Cash of such Subsidiary.

 

“Funded Debt Ratio” means, as of any date of determination, the
ratio of (i) the Consolidated Funded Indebtedness of the Borrower and its
Subsidiaries as of such date, to (ii) TTM EBITDA of the Borrower and its
Subsidiaries as of such date.

 

“Funding Losses” has the meaning specified therefore in Section 2.04(c)(ii)(B).

 

“GAAP” means generally accepted accounting principles in effect
from time to time in the United States, applied on a consistent basis, provided
that for the purpose of Section 7.03 hereof and the definitions
used therein, “GAAP” shall mean generally accepted accounting principles in
effect on the date hereof and consistent with those used in the preparation of
the Borrower Financial Statements, provided, further, that if there occurs after
the date of this Agreement any change in GAAP that affects in any respect the
calculation of any covenant contained in Section 7.03 hereof, the
Collateral Agent and the Borrower shall negotiate in good faith amendments to
the provisions of this Agreement that relate to the calculation of such
covenant with the intent of having the respective positions of the Lenders and
the Borrower after such change in GAAP conform as nearly as possible to their
respective positions as of the date of this Agreement and, until any such
amendments have been agreed upon, the covenants in Section 7.03
hereof shall be calculated as if no such change in GAAP has occurred.

 

“GE Capital” means General Electric Capital Corporation, a
Delaware corporation.

 

“Governmental Authority” means any nation or government, any
Federal, state, city, town, municipality, county, local or other political
subdivision thereof or thereto and any department, commission, board, bureau,
instrumentality, agency or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.

 

“Guaranteed Obligations” has the
meaning specified therefor in Section 11.01.

 

14

 

“Guarantor” (i) has the meaning specified therefor in the
preamble to this Agreement, and (ii) means each other Person which
guarantees, pursuant to Section 7.01(b) or otherwise, all or any
part of the Obligations.

 

“Guaranty” means (i) the guaranty of each Guarantor party hereto
contained in Article XI hereof, and (ii) each guaranty substantially
in the form of Exhibit G-1, made by any other Guarantor in favor of
the Collateral Agent for the benefit of the Lenders pursuant to Section 7.01(b)
or otherwise.

 

“Hazardous Materials” means (a) any element, compound or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws or that is likely to cause immediately, or at some future
time, harm to or have an adverse effect on, the environment or risk to human
health or safety, including, without limitation, any pollutant, contaminant,
waste, hazardous waste or toxic substance which is defined or identified in any
Environmental Law and which is present in the environment in such quantity or
state that it contravenes any Environmental Law; (b) petroleum and its
refined products; (c) polychlorinated biphenyls; (d) any substance
exhibiting a hazardous waste characteristic, including, without limitation,
corrosivity, ignitability, toxicity or reactivity as well as any radioactive or
explosive materials; and (e) any asbestos-containing materials and hazardous
substances listed or classified as such under Environmental Laws.

 

“Hedging Agreement” means any interest rate, foreign currency,
commodity or equity swap, collar, cap, floor or forward rate agreement, or
other agreement or arrangement designed to protect against fluctuations in
interest rates or currency, commodity or equity values (including, without
limitation, any option with respect to any of the foregoing and any combination
of the foregoing agreements or arrangements), and any confirmation executed in
connection with any such agreement or arrangement.

 

“Hedging Agreement Counterparty Deposit Account” means any
deposit account (or comparable account in the case of foreign situated
accounts) maintained by any financial institution identified in items 1 through
9 of Schedule 7.02(b) which both (i) maintains such deposit account
or other comparable foreign account and (ii) is a counterparty to Hedging
Agreements with the Borrower or any of its Subsidiaries pursuant to the
financing facilities so described in Schedule 7.02(b).

 

“Highest Lawful Rate” means, with respect to any Agent or any
Lender, the maximum non-usurious interest rate, if any, that at any time or
from time to time may be contracted for, taken, reserved, charged or received
on the Obligations under laws applicable to such Agent or such Lender which are
currently in effect or, to the extent allowed by law, under such applicable
laws which may hereafter be in effect and which allow a higher maximum
non-usurious interest rate than applicable laws now allow.

 

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvement Act
of 1976, as amended and in effect on the Effective Date.

 

15

 

“Inactive
Subsidiary” means RBCACQ, Inc., a California corporation, Fluf N’ Stuf,
Inc., a Pennsylvania corporation, RBTACQ, Inc., an Ohio corporation, and P/F
Done, Inc., a Pennsylvania corporation.

 

“Indebtedness” means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money;
(ii) all obligations of such Person for the deferred purchase price of
property or services (other than trade payables or other accounts payable
incurred in the ordinary course of such Person’s business and not outstanding
for more than 90 days after the date such payable was created); (iii) all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments or upon which interest payments are customarily made;
(iv) all reimbursement, payment or other obligations and liabilities of
such Person created or arising under any conditional sales or other title
retention agreement with respect to property used and/or acquired by such
Person, even though the rights and remedies of the lessor, seller and/or lender
thereunder may be limited to repossession or sale of such property; (v) all
Capitalized Lease Obligations of such Person; (vi) all obligations and
liabilities, contingent or otherwise, of such Person, in respect of letters of
credit, acceptances and similar facilities; (vii) all obligations and
liabilities, calculated in accordance with GAAP and accepted practice, of such
Person under Hedging Agreements; (viii) all Contingent Obligations of such
Person; (ix) liabilities incurred under Title IV of ERISA with
respect to any plan (other than a Multiemployer Plan) covered by Title IV
of ERISA and maintained for employees of such Person or any of its ERISA
Affiliates; (x) withdrawal liability incurred under ERISA by such Person
or any of its ERISA Affiliates with respect to any Multiemployer Plan; (xi) all
other items which, in accordance with GAAP, would be included as liabilities on
the liability side of the balance sheet of such Person; and (xii) all
obligations referred to in clauses (i) through (xi) of this definition of
another Person secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) a Lien upon property
owned by such Person, even though such Person has not assumed or become liable
for the payment of such Indebtedness, with the amount of Indebtedness under
this clause (xii) being deemed equal to the fair market value of all property
subject to such Liens, as reasonably determined by Collateral Agent.  The Indebtedness of any Person shall include
the Indebtedness of any partnership of or joint venture in which such Person is
a general partner or a joint venturer.

 

“Indemnified Matters” has the meaning specified therefor in Section 12.15.

 

“Indemnitees” has the meaning specified therefor in Section 12.15.

 

“Infant Line TTM EBITDA” means, as of any date of determination,
the sum of (i) TTM EBITDA of Sassy as of such date, and (ii) TTM EBITDA of Kids
Line as of such date.

 

“Insolvency Proceeding” means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors,
formal or informal moratoria, compositions, or extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.

 

16

 

“Intercompany Subordination Agreement” means the Intercompany
Subordination Agreement, dated as of the Effective Date, duly executed by each
of the Loan Parties, substantially in the form of Exhibit I-1.

 

“Interest Period” means, with respect to each LIBOR Rate Loan, a
period commencing on the date of the making of such LIBOR Rate Loan and ending
1, 2, 3 or 6 months thereafter; provided, however, that (a) if
any Interest Period would end on a day that is not a Business Day, such
Interest Period shall be extended (subject to clauses (c)-(e) below) to the
next succeeding Business Day, (b) interest shall accrue at the applicable rate
based upon the LIBOR Rate from and including the first day of each Interest
Period to, but excluding, the day on which any Interest Period expires, (c) any
Interest Period that would end on a day that is not a Business Day shall be
extended to the next succeeding Business Day unless such Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Business Day, (d) with respect to an 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), the Interest Period shall end on the last Business Day of the calendar
month that is 1, 2, 3 or 6 months after the date on which the Interest Period
began, as applicable, and (e) Borrower may not elect an Interest Period which
will end after the Final Maturity Date.

 

 “IRC” means the Internal
Revenue Code of 1986, as amended (or any successor statute thereto) and the
regulations thereunder.

 

“Inventory” means all of each of the Loan Parties’ now owned
and/or hereafter acquired right, title, and interest with respect to inventory
as defined in the Code.

 

“Kids Line” has the meaning specified therefor in the recitals
hereto.

 

“Kids Line Financial Statements” means (i) the audited
consolidated balance sheet of the Kids Line and its Subsidiaries for the Fiscal
Year ended December 31, 2003, and the related consolidated statement of
operations, shareholders’ equity and cash flows for the Fiscal Year then ended,
and (ii) the unaudited consolidated balance sheet of the Kids Line and its
Subsidiaries for the ten months ended October 31, 2004, and the related
consolidated statement of operations, shareholder’s equity and cash flows for
the ten months then ended.

 

“Lease” means any lease of real property to which any Loan Party
or any of its Subsidiaries is a party as lessor or lessee.

 

“Lender” has the meaning specified therefor in the preamble
hereto.

 

“Liabilities” has the meaning specified therefor in Section 2.07.

 

“LIBOR Deadline” has the meaning set forth in Section 2.04(c)(ii)(A).

 

“LIBOR
Notice” means a written notice in the form of Exhibit L-1.

 

“LIBOR Option” has the meaning specified therefor in Section 2.04(c)(i).

 

17

 

“LIBOR Rate” means, for each Interest Period for each LIBOR Rate
Loan, the rate per annum determined by Administrative Agent (rounded upwards,
if necessary, to the next 1/16%) by dividing (a) the Base LIBOR Rate for such
Interest Period, by (b) 100% minus the Reserve Percentage.  The LIBOR Rate shall be adjusted on and as of
the effective day of any change in the Reserve Percentage.

 

“LIBOR Rate Loan” means each portion of the Term Loan that bears
interest at a rate determined by reference to the LIBOR Rate.

 

 “Lien” means any
mortgage, deed of trust, pledge, lien (statutory or otherwise), security
interest, charge or other encumbrance or security or preferential arrangement
of any nature, including, without limitation, any right of setoff, right of
recoupment, conditional sale or title retention arrangement, any Capitalized
Lease and any collateral assignment, deposit arrangement or financing lease
intended as, or having the effect of, security.

 

“Loan Account” means an account maintained hereunder by the
Administrative Agent on its books of account at the Payment Office, and with
respect to the Borrower, in which the Borrower will be charged with the Term
Loan made to, and all other Obligations incurred by, the Borrower.

 

“Loan Document” means this Agreement, any Guaranty, any Security
Agreement, any Mortgage, any Intercompany Subordination Agreement, the Seller
Subordination Agreement, the Backup Letter of Credit, any UCC Filing
Authorization Letter and any other agreement, instrument, and other document
executed and delivered pursuant hereto or thereto or otherwise evidencing or
securing the Term Loan, or any other Obligation.

 

“Loan Party” means the Borrower and/or any Guarantor.

 

“Loan Servicing Fee” has the meaning specified therefor in Section 2.06(d).

 

“Lockbox Bank” has the meaning specified therefor in Section 8.01(a).

 

“Lockboxes” has the meaning specified therefor in Section 8.01(a).

 

“Material Adverse Effect” means a material adverse effect on any
of (i) the operations, business, assets, liabilities, properties or
condition (financial or otherwise) of (A) the Loan Parties and their
Subsidiaries (other than Kids Line and its Subsidiaries and Sassy and its
Subsidiaries) taken as a whole, (B) Kids Line and its Subsidiaries, taken as a
whole, or (C) Sassy and its Subsidiaries, taken as a whole, (ii) the
ability of any Loan Party to perform any of its obligations under any Loan
Document to which it is a party, (iii) the legality, validity or
enforceability of this Agreement or any other Loan Document, (iv) the
rights and remedies of any Agent or any Lender under any Loan Document, or
(v) the validity, perfection or priority of a Lien in favor of the
Collateral Agent for the benefit of the Lenders on any material portion of the
Collateral.

 

“Material Contract” means, with respect to any Person, (i) each
contract or agreement to which such Person or any of its Subsidiaries is a
party involving aggregate consideration payable to or by such Person or such
Subsidiary of $250,000 or more (other than

 

18

 

purchase orders in the ordinary course of the
business of such Person or such Subsidiary and other than contracts that by
their terms may be terminated by such Person or Subsidiary in the ordinary
course of its business upon less than 60 days notice without penalty or
premium) and (ii) the Acquisition Documents, and (iii) all other contracts
or agreements material to the business, operations, condition (financial or
otherwise), or properties of such Person or such Subsidiary.

 

“Moody’s” means Moody’s Investors Service, Inc. and any
successor thereto.

 

“Mortgage” means a mortgage, deed of trust or deed to secure
debt, in form and substance satisfactory to the Collateral Agent, made by a
Loan Party in favor of the Collateral Agent for the benefit of the Lenders,
securing the Obligations and delivered to the Collateral Agent pursuant to the
provisions hereof or otherwise.

 

“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3)
of ERISA to which any Loan Party or any of its ERISA Affiliates has contributed
to, or has been obligated to contribute, at any time during the preceding six
(6) years.

 

“Net Cash Proceeds” means, (i) with respect to any
Disposition by any Person or any of its Subsidiaries, the amount of cash
received (directly or indirectly) from time to time (whether as initial
consideration or through the payment or disposition of deferred consideration)
by or on behalf of such Person or such Subsidiary, in connection therewith
after deducting therefrom only (A) the amount of any Indebtedness secured
by any Permitted Lien on any asset (other than Indebtedness assumed by the
purchaser of such asset) which is required to be, and is, repaid in connection
with such Disposition (other than Indebtedness under this Agreement),
(B) reasonable and customary expenses, fees and commissions (including,
without limitation, those of attorneys, accountants and other professionals)
related thereto incurred by such Person or such Subsidiary in connection
therewith, (C) transfer taxes paid to any taxing authorities by such
Person or such Subsidiary in connection therewith, and (D) net income
taxes to be paid in connection with such Disposition (after taking into account
any tax credits or deductions and any tax sharing arrangements) and
(ii) with respect to the issuance or incurrence of any Indebtedness by any
Person or any of its Subsidiaries, or the sale or issuance by any Person or any
of its Subsidiaries of any shares of its Capital Stock, the aggregate amount of
cash received (directly or indirectly) from time to time (whether as initial
consideration or through the payment or disposition of deferred consideration)
by or on behalf of such Person or such Subsidiary in connection therewith,
after deducting therefrom only (A) reasonable and customary expenses,
fees, commissions (including, without limitation, those of attorneys,
accountants and other professionals) and underwriters discounts related thereto
incurred by such Person or such Subsidiary in connection therewith, (B)
transfer taxes paid by such Person or such Subsidiary in connection therewith
and (C) net income taxes to be paid in connection therewith (after taking into
account any tax credits or deductions and any tax sharing arrangements); in
each case of clause (i) and (ii) to the extent, but only to the extent, that
the amounts so deducted are (x) actually paid to a Person that, except in
the case of reasonable out-of-pocket expenses, is not an Affiliate of such
Person or any of its Subsidiaries and (y) properly attributable to such
transaction or to the asset that is the subject thereof.

 

19

 

“Non-Materially Adverse Amendment” means, as to any specified
agreement or other document, any amendment or other modification to such
agreement or document which would not be materially adverse to the rights and
interests of the Lenders and Agents, provided that not less than 7 Business
Days before the effectiveness of such amendment or modification, Borrower shall
have furnished written notice to the Administrative Agent of such proposed
amendment or modification, and Administrative Agent shall not have objected to
such amendment or modification prior to the effectiveness thereof.

 

“Obligations” means all present and future indebtedness,
obligations, and liabilities of each Loan Party to the Agents and the Lenders,
or any of them, under the Loan Documents, whether or not the right of payment
in respect of such claim is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, disputed, undisputed, legal, equitable, secured,
unsecured, and whether or not such claim is discharged, stayed or otherwise
affected by any proceeding referred to in Section 9.01.  Without limiting the generality of the
foregoing, the Obligations of each Loan Party under the Loan Documents include
(a) the obligation (irrespective of whether a claim therefor is allowed in
any Insolvency Proceeding) to pay principal, interest, charges, expenses, fees,
attorneys’ fees and disbursements, indemnities and other amounts payable by
such Person under the Loan Documents, and (b) the obligation of such
Person to reimburse any amount in respect of any of the foregoing that any
Agent or any Lender (in its sole discretion) may elect to pay or advance on
behalf of such Person.

 

“Operating Lease Obligations” means all obligations for the
payment of rent for any real or personal property under leases or agreements to
lease, other than Capitalized Lease Obligations.

 

“Other Material Contracts” means the Material Contracts other
than Acquisition Documents, the Earnout Security Documents, the EDA Documents,
and the Backup Letter of Credit Reimbursement Agreement.

 

“Other Taxes” has the meaning specified therefor in Section 2.08(a)(iii).

 

“Participant Register” has the meaning specified therefor in Section 12.07(b)(v).

 

“Payment Office” means the Administrative Agent’s office located
at 299 Park Avenue, 23rd Floor, New York, New York 10171, or at such
other office or offices of the Administrative Agent as may be designated in
writing from time to time by the Administrative Agent to the Collateral Agent
and the Borrower.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any
successor thereto.

 

“Permits” has the meaning specified therefor in Section 6.01(n).

 

“Permitted
Dispositions” means (a) sales or other dispositions of Inventory to buyers
in the ordinary course of business, (b) sales or other dispositions of obsolete
or worn-out equipment in the ordinary course of business, (c) sales or other
dispositions of other property or assets for cash in an aggregate amount not
less than the fair market value of such property or assets, provided
that the Net Cash Proceeds of such Dispositions in the case of clauses (b) and
(c)

 

20

 

do not exceed
$200,000 in the aggregate in any twelve-month period, (d) the use or transfer
of money or Cash and Cash Equivalents by the Borrower and its Subsidiaries in a
manner that is not prohibited by the terms of this Agreement or the other Loan
Documents, (e) the licensing by the Borrower and its Subsidiaries, on a
non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business, (f) the granting of leases
or subleases to other Persons not materially interfering with the conduct of
business of any of the Loan Parties, and (g) any Exempt Foreign Disposition.

 

“Permitted Holder” means (i) Angelica Berrie, (ii) any lineal
descendant of Russell Berrie, (iii) the Estate of Russell Berrie, (iv) The
Russell Berrie 2002A Trust, (v) The Russell Berrie 2002 Annuity Trust, (vi) The
Russell Berrie Foundation, a New Jersey nonprofit corporation, (vii) any trust
created pursuant to the terms of the instruments governing or creating any of
the Persons referred to in clause (iii) (iv), (v) or (vi), and (viii) any
fiduciary of any of the Persons referred to in clause (iii) (iv), (v) or (vi).

 

“Permitted Indebtedness” means:

 

(a)                                  any
Indebtedness owing to any Agent and any Lender under this Agreement and the
other Loan Documents;

 

(b)                                 Indebtedness
listed on Schedule 7.02(b), and the extension of maturity,
refinancing or modification of the terms thereof; provided, however,
that (i) such extension, refinancing or modification is pursuant to material
terms that are not less favorable to the Loan Parties and the Lenders than the
material terms of the Indebtedness being extended, refinanced or modified and
(ii) after giving effect to such extension, refinancing or modification, the
amount of such Indebtedness is not greater than the amount of Indebtedness
outstanding immediately prior to such extension, refinancing or modification
plus accrued interest thereon and the fees and premiums incurred in connection
with the extension, refinancing, or modification;

 

(c)                                  Indebtedness
evidenced by Capitalized Lease Obligations entered into in order to finance
Capital Expenditures made by the Loan Parties in accordance with the provisions
of Section 7.02(g), which Indebtedness, when aggregated with the
principal amount of all other Indebtedness incurred under this clause (c) and
clause (d) of this definition, does not exceed $5,000,000 at any time
outstanding;

 

(d)                                 purchase
money Indebtedness incurred to enable a Loan Party to acquire equipment in the
ordinary course of its business, which Indebtedness, when aggregated with the
principal amount of all other Indebtedness incurred under this clause (d) and
clause (c) of this definition, does not exceed $5,000,000 at any time
outstanding;

 

(e)                                  Indebtedness
permitted under Section 7.02(e);

 

(f)                                    Indebtedness
of the Borrower or any of its Subsidiaries under any Hedging Agreement so long
as such Hedging Agreements are used solely as a part of its normal business
operations as a risk management strategy and/or hedge against changes resulting
from market operations and not as a means to speculate for investment purposes
on trends and shifts in financial or commodities markets;

 

21

 

(g)                                 Indebtedness
of the Borrower or any of its Subsidiaries in respect of commercial letters of
credit from time to time issued for the account of the Borrower or any of its
Subsidiaries and for the benefit of vendors for the payment of Borrower’s or
such Subsidiary’s purchases of inventory from such vendors, so long as such
Indebtedness is unsecured or secured only by a Lien constituting a Permitted
Lien under clause (n) of the definition of Permitted Lien, which Indebtedness,
when aggregated with Indebtedness in respect of commercial and standby letters
of credit specified in Schedule 7.02(b), does not exceed
$10,000,000 at any time available to be drawn, or subject to reimbursement
obligations;

 

(h)                                 Indebtedness
of the Borrower owing to the Backup Letter of Credit Issuer under the Backup
Letter of Credit Reimbursement Agreement (without giving effect to any
amendment or other modification thereof after the Effective Date, except to the
extent expressly consented to by the Required Lenders and except for
Non-Materially Adverse Amendments) in a principal amount not to exceed the
lesser of (i) the aggregate amount available to be drawn under the Backup
Letter of Credit, or (ii) $10,000,000;

 

(i)                                     Indebtedness
of the Borrower under the EDA Bond Loan Guarantee;

 

(j)                                     Indebtedness
of the Borrower under the EDA Standby L/C Reimbursement Agreement; and

 

(k)                                  Subordinated
Debt.

 

“Permitted Investments” means (i) marketable direct
obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States, in each case, maturing within six
months from the date of acquisition thereof; (ii) commercial paper,
maturing not more than 12 months after the date of issue rated P-1 by Moody’s
or A-1 by Standard & Poor’s; (iii) certificates of deposit maturing
not more than one year after the date of issue, issued by commercial banking
institutions and money market or demand deposit accounts maintained at
commercial banking institutions, each of which is a member of the Federal
Reserve System and has a combined capital and surplus and undivided profits of
not less than $500,000,000; (iv) repurchase agreements having maturities
of not more than 90 days from the date of acquisition which are entered into
with banks included in the commercial banking institutions described in
clause (iii) above and which are secured by marketable direct obligations
of the United States Government or any agency thereof, (v) money market
accounts maintained with mutual funds incorporated or organized under the laws
of a jurisdiction of the United States and having assets in excess of
$2,500,000,000; and (vi) tax exempt securities of issuers organized under
the laws of a jurisdiction of the United States and rated A or better by Moody’s
or A+ or better by Standard & Poor’s.

 

“Permitted Liens” means:

 

(a)                                  Liens
securing the Obligations;

 

(b)                                 Liens
for taxes, assessments and governmental charges the payment of which is not
required under Section 7.01(c);

 

22

 

(c)                                  Liens
imposed by law, such as carriers’, warehousemen’s, mechanics’, materialmen’s
and other similar Liens arising in the ordinary course of business and securing
obligations (other than Indebtedness for borrowed money) that are not overdue
by more than 30 days or are being contested in good faith and by
appropriate proceedings promptly initiated and diligently conducted, and a
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made therefor;

 

(d)                                 Liens
described on Schedule 7.02(a), but not the extension of coverage
thereof to other property or assets;

 

(e)                                  Liens
arising under Capital Leases or securing purchase money Indebtedness permitted
under the definition of Permitted Indebtedness; provided, however,
that (A) no such Lien shall extend to or cover any other property of any
Loan Party or any of its Subsidiaries, and (B) the principal amount of the
Indebtedness secured by any such Lien shall not exceed the lesser of 100% of
the fair market value or the cost of the property so held or acquired;

 

(f)                                    deposits
and pledges of cash securing (i) obligations incurred in respect of workers’
compensation, unemployment insurance or other forms of governmental insurance
or benefits, (ii) the performance of bids, tenders, leases, contracts
(other than for the payment of money), statutory obligations and similar
obligations, or (iii) obligations on surety or appeal bonds, but only to the
extent such deposits or pledges are incurred or otherwise arise in the ordinary
course of business and secure obligations not past due;

 

(g)                                 easements,
zoning restrictions and similar encumbrances on real property and minor
irregularities in the title thereto that do not (i) secure obligations for the
payment of money or (ii) materially impair the value of such property or its
use by any Loan Party or any of its Subsidiaries in the normal conduct of such
Person’s business;

 

(h)                                 leases
or subleases granted to other Persons not materially interfering with the
conduct of the business of the Borrower or any of its Subsidiaries;

 

(i)                                     precautionary
UCC financing statement filings regarding operating leases;

 

(j)                                     Liens
arising out of the existence of judgments or awards not giving rise to an Event
of Default;

 

(k)                                  statutory
and common law landlords’ liens under leases to which the Borrower
or any of its Subsidiaries is a party;

 

(l)                                     the
Backup Letter of Credit Lien, but only to the extent that the cash balance of
the deposit account subject to the Backup Letter of Credit Lien does not exceed
the lesser of (i) 110% of the aggregate amount from time to time available
to be drawn under the Backup Letter of Credit, or (ii) $11,000,000;

 

23

 

(m)                               the
EDA Lien, but only to the extent securing Borrower’s obligations under the EDA
Loan Guarantee and the EDA Standby L/C Reimbursement Agreement in a combined
amount not exceeding $2,000,000;

 

(n)                                 security
interests granted in favor of issuers of commercial letters of credit described
in clause (g) of the definition of Indebtedness on deposit accounts of the
Borrower or its Subsidiaries, solely to secure Borrower’s or such Subsidiary’s
obligations in respect of such commercial letters of credit, but only to the
extent that the aggregate cash balances of such deposit accounts shall not
exceed $10,000,000;

 

(o)                                 Liens
on deposit accounts (or comparable accounts in the case of foreign situated
accounts) granted or arising in the ordinary course of business in favor of
depositary banks maintaining such deposit accounts or other comparable foreign
accounts solely to secure customary account fees and charges payable in respect
of such deposit accounts or other comparable foreign accounts and overdrafts;

 

(p)                                 Liens
in favor of custom brokers for taxes, assessments and governmental charges the
payment of which is not required under Section 7.01(c) payable in
connection with the importation of inventory in the ordinary course of business
of the Borrower and its Subsidiaries;

 

(q)                                 the
Earnout Sellers Lien;

 

(r)                                    only
during the one year period commencing on the Effective Date, Liens on Hedging
Agreement Counterparty Deposit Accounts, to secure the obligations of such
Person such Hedging Agreements entered into with the depositary bank; and

 

(s)                                  Liens
securing refinancing Indebtedness permitted to be incurred hereunder; provided,
that such Liens do not extend to any property or assets other than the property
or assets that served as collateral for the refinanced Indebtedness.

 

“Person” means an individual, corporation, limited liability
company, partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or other enterprise or entity or Governmental
Authority.

 

 “Post-Default Rate” means
a rate of interest per annum equal to the rate of interest otherwise in effect
from time to time pursuant to the terms of this Agreement plus 2.0 percentage
points, or, if a rate of interest is not otherwise in effect, interest at the
highest rate specified herein for the Term Loan prior to the Event of Default
plus 2.0 percentage points.

 

“Prior Backup Letter of Credit” has the meaning specified
therefor in Section 2.09(b).

 

“property” means any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.

 

“Pro Rata Share” means:

 

24

 

(a)                                  with
respect to a Lender’s obligation to make the Term Loan and right to receive
payments of interest, fees, and principal with respect thereto, the percentage
obtained by dividing (i) such Lender’s Commitment, by (ii) the Total
Commitment, provided that if the Total Commitment has been reduced to
zero, the numerator shall be the aggregate unpaid principal amount of such
Lender’s portion of the Term Loan and the denominator shall be the aggregate
unpaid principal amount of the Term Loan, and

 

(b)                                 with
respect to all other matters (including, without limitation, the
indemnification obligations arising under Section 10.05), the
percentage obtained by dividing (i) the unpaid principal amount of such
Lender’s portion of the Term Loan, by (ii) the aggregate unpaid principal
amount of the Term Loan.

 

“Purchase Price” means, with respect to any acquisition, an
amount equal to the sum of (i) the aggregate consideration, whether cash,
property or securities (including, without limitation, the fair market value of
any Capital Stock of any Loan Party or its Subsidiaries issued in connection
with such Acquisition), paid or delivered by a Loan Party or its Subsidiaries
in connection with such Acquisition, plus (ii) the aggregate amount of
liabilities of the acquired business (net of current assets of the acquired
business) that would be reflected on a balance sheet (if such were to be
prepared) of the Borrower and its Subsidiaries after giving effect to such
Acquisition.

 

“Qualified Cash” means, as of any date of determination, the sum
of (i) Domestic Unrestricted Cash, (ii) Foreign Unrestricted Cash, and (iii)
the maximum amount available to be drawn, as of such date of determination,
under the Backup Letter of Credit; provided, however, without
limiting the generality of the foregoing and notwithstanding any other
provision contained herein, Qualified Cash shall in no event include any cash,
cash on deposit, deposit account, security account or other property in any way
securing the reimbursement and other obligations of the Borrower or its
Subsidiaries with respect to the Backup Letter of Credit; provided, further,
that notwithstanding any other provision contained herein to the contrary, (i)
for the 120 day period commencing on the Effective Date, Qualified Cash may
include cash in an amount not to exceed $5,000,000 deposited in deposit
accounts and subject to a Lien otherwise qualifying as a Permitted Lien under
clause (n) of the definition of Permitted Liens, and (ii) for the one year
period commencing on the Effective Date, Qualified Cash shall include, for each
Hedging Agreement Counterparty Deposit Account maintained with a financial
institution, the amount of (A) Cash and Cash Equivalents of the Borrower or any
of its Subsidiaries held in all such Hedging Agreement Counterparty Deposit
Accounts, less (B) 30% of the notional amount of all Hedging Agreements of such
Person in effect with the financial institution maintaining such Hedging
Agreement Counterparty Deposit Account.

 

“Rating Agencies” has the meaning specified therefor in Section 2.07.

 

“Reference Bank” means JPMorgan Chase Bank, its successors or
any other commercial bank used by Administrative Agent in the ordinary course
of business as a basis for determining interest rates for loans and designated
by the Administrative Agent to the Borrower from time to time.

 

25

 

“Reference Rate” means the rate of interest publicly announced
by the Reference Bank in New York, New York from time to time as its reference
rate, base rate or prime rate; provided, however, that the
Reference Rate shall be subject to a minimum rate of four and three-quarters
percentage points per annum (4.75% p.a.), and, accordingly, to the extent that
the Reference Rate on any day would be less than the foregoing minimum rate,
the Reference Rate hereunder for such day automatically shall be deemed
increased to such minimum rate. The reference rate, base rate or prime rate is
determined from time to time by the Reference Bank as a means of pricing some
loans to its borrowers and neither is tied to any external rate of interest or
index nor necessarily reflects the lowest rate of interest actually charged by
the Reference Bank to any particular class or category of customers.  Subject to the minimum rate for the Reference
Rate described in this definition, each change in the Reference Rate shall be
effective from and including the date such change is publicly announced as
being effective.

 

“Reference Rate Loan” means each portion of the Term Loan that
bears interest at a rate determined by reference to the Reference Rate.

 

“Register” has the meaning specified therefor in Section 12.07(b)(ii).

 

“Registered Loan” has the meaning specified therefore in Section 12.07(b)(ii).

 

“Regulation T”, “Regulation U” and “Regulation X”
mean, respectively, Regulations T, U and X of the Board or any successor, as
the same may be amended or supplemented from time to time.

 

“Release” means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, seeping,
migrating, dumping or disposing of any Hazardous Material (including the
abandonment or discarding of barrels, containers and other closed receptacles
containing any Hazardous Material) into the indoor or outdoor environment,
including, without limitation, the movement of Hazardous Materials through or
in the ambient air, soil, surface or ground water, or property.

 

“Remedial Action” means all actions taken to (i) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate or in any other
way address Hazardous Materials in the indoor or outdoor environment; (ii)
prevent or minimize a Release or threatened Release of Hazardous Materials so
they do not migrate or endanger or threaten to endanger public health or
welfare or the indoor or outdoor environment; (iii) perform pre-remedial
studies and investigations and post-remedial operation and maintenance
activities; or (iv) any other actions authorized by 42 U.S.C. § 9601.

 

“Reportable Event” means an event described in Section 4043
of ERISA (other than an event not subject to the provision for 30-day notice to
the PBGC under the regulations promulgated under such Section).

 

“Required Lenders” means Lenders whose Pro Rata Shares
(calculated under clause (b) of the definition thereof) aggregate at least 51%.

 

“Reserve Percentage” means, on any day, for any Lender, the
maximum percentage prescribed by the Board (or any successor Governmental
Authority) for determining

 

26

 

the reserve requirements (including any
basic, supplemental, marginal, or emergency reserves) that are in effect on
such date with respect to eurocurrency funding (currently referred to as “eurocurrency
liabilities”) of that Lender, but so long as such Lender is not required or
directed under applicable regulations to maintain such reserves, the Reserve
Percentage shall be zero.

 

“Russ Berrie UK” means Russ Berrie (U.K.) Limited, a corporation
organized under the laws of the United Kingdom.

 

“Sassy” means Sassy, Inc., an Illinois corporation.

 

“SEC” means the Securities and Exchange Commission or any other
similar or successor agency of the Federal government administering the
Securities Act.

 

“Securities Act” means the Securities Act of 1933, as amended,
or any similar Federal statute, and the rules and regulations of the SEC
thereunder, all as the same shall be in effect from time to time.

 

“Securitization” has the meaning specified therefor in Section 2.07.

 

“Securitization Parties” has the meaning specified therefor in Section 2.07.

 

“Security Agreement” means a Security Agreement made by a Loan
Party in favor of the Collateral Agent for the benefit of the Lenders,
substantially in the form of Exhibit S-1, securing the Obligations
and delivered to the Collateral Agent.

 

“Selling Parties” means, collectively, each of the “Sellers” as
defined in the Acquisition Agreement.

 

“Seller Subordination Agreement” means that certain
Subordination Agreement dated as of the Effective Date by and among the “Deferred
Payout Sellers”, as defined in the Acquisition Agreement, and the
Administrative Agent, substantially in the form of Exhibit SS-1.

 

“Solvent” means, with respect to any Person on a particular
date, that on such date (i) the fair value of the property of such Person
is not less than the total amount of the liabilities of such Person,
(ii) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of
such Person on its existing debts as they become absolute and matured,
(iii) such Person is able to realize upon its assets and pay its debts and
other liabilities, contingent obligations and other commitments as they mature
in the normal course of business, (iv) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person’s
ability to pay as such debts and liabilities mature, and (v) such Person is
not engaged in business or a transaction, and is not about to engage in
business or a transaction, for which such Person’s property would constitute
unreasonably small capital.

 

“South Brunswick Property” means that certain real property
located at 2520 Route 130, Cranbury (South Brunswick), New Jersey 08512,
including, without limitation, all that certain warehouse space and other
buildings and other improvements thereon, all fixtures located at or used in
connection with such real property.

 

27

 

“Standard & Poor’s” means Standard & Poor’s Ratings
Services, a division of The McGraw-Hill Companies, Inc. and any successor
thereto.

 

“Subordinated Debt” means Indebtedness of the Borrower which is
on terms and conditions (including, without limitation, payment terms, interest
rates, covenants, remedies, defaults and other material terms) satisfactory to
the Collateral Agent and the Required Lenders and which has been expressly
subordinated in right of payment to all Indebtedness of the Borrower under the
Loan Documents by the execution and delivery of a subordination agreement, in
form and substance satisfactory to the Collateral Agent and the Required
Lenders.

 

“Subsidiary” means, with respect to any Person at any date, any
corporation, limited or general partnership, limited liability company, trust,
estate, association, joint venture or other business entity (i) the
accounts of which would be consolidated with those of such Person in such
Person’s consolidated financial statements if such financial statements were
prepared in accordance with GAAP or (ii) of which more than 50% of
(A) the outstanding Capital Stock having (in the absence of contingencies)
ordinary voting power to elect a majority of the board of directors or other
managing body of such Person, (B) in the case of a partnership or limited
liability company, the interest in the capital or profits of such partnership
or limited liability company or (C) in the case of a trust, estate,
association, joint venture or other entity, the beneficial interest in such
trust, estate, association or other entity business is, at the time of
determination, owned or controlled directly or indirectly through one or more
intermediaries, by such Person.

 

“Taxes” has the meaning specified therefor in Section 2.08(a).

 

“Term Loan” has the meaning specified therefor in Section 2.01(a).

 

“Term Loan Obligations” means any Obligations with respect to
the Term Loan (including without limitation, the principal thereof, the interest
thereon, and the fees and expenses specifically related thereto).

 

“Termination Event” means (i) a Reportable Event with respect to
any Employee Plan, (ii) any event that causes any Loan Party or any of its
ERISA Affiliates to incur liability under Section 409, 502(i), 502(l),
515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971
or 4975 of the IRC, (iii) the filing of a notice of intent to terminate an
Employee Plan or the treatment of an Employee Plan amendment as a termination
under Section 4041 of ERISA, (iv) the institution of proceedings by
the PBGC to terminate an Employee Plan, or (v) any other event or
condition which might constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any Employee
Plan.

 

“Title Insurance Policy” means a mortgagee’s loan policy, in
form and substance satisfactory to the Collateral Agent, together with all
endorsements made from time to time thereto, issued by or on behalf of a title
insurance company satisfactory to the Collateral Agent, insuring the Lien
created by a Mortgage in an amount and on terms reasonably satisfactory to the
Collateral Agent, delivered to the Collateral Agent.

 

“Total Commitment” means $125,000,000, which amount is the sum
of the amounts of the Lenders’ Commitments.

 

28

 

 

“TTM EBITDA” means, as of any date of determination and with
respect to a Person, the Consolidated EBITDA of such Person and its
Subsidiaries for the 12 month period most recently ended; provided, however,
that for purposes of computing TTM EBITDA of the Borrower and its Subsidiaries
for the one-year period following the Effective Date, Consolidated EBITDA for
the Borrower and its Subsidiaries for (i) each fiscal month during the period
from January 1, 2004 to November 30, 2004 shall be as set forth in Schedule C-1
hereto, and (ii) the period from December 1, 2004 through the Effective
Date shall equal the amount set forth in Schedule C-1 hereto.

 

“UCC Filing Authorization Letter” means a letter duly executed
by each Loan Party authorizing the Collateral Agent to file financing
statements in such office or offices as may be necessary or, in the opinion of
the Collateral Agent, desirable to perfect the security interests purported to
be created by the Security Agreement.

 

“Unrestricted Cash” means, as of any date of determination and
with respect to a Person, the amount of unrestricted Cash and Cash Equivalents
of such Person that is not subject to any Lien (other than Liens in favor of
the Collateral Agent and the Earnout Sellers Lien).

 

“WARN” has the meaning specified therefor in Section 6.01(z).

 

“WFF” means Wells Fargo Foothill, Inc., to the extent a Lender
hereunder.

 

“Working Investment” means, at any date of determination
thereof, (i) the sum, for any Person and its Subsidiaries, of (A) the
unpaid face amount of all Accounts Receivable of such Person and its
Subsidiaries as at such date of determination, plus (B) the
aggregate amount of inventory of such Person and its Subsidiaries, plus
(C) the aggregate amount of prepaid expenses and other current assets of such
Person and its Subsidiaries as at such date of determination, minus
(ii) the sum, for such Person and its Subsidiaries, of (A) the unpaid
amount of all accounts payable of such Person and its Subsidiaries as at such
date of determination, plus (B) the aggregate amount of all accrued
expenses of such Person and its Subsidiaries as at such date of determination
(but, excluding from accounts payable and accrued expenses, the current portion
of long-term debt and all accrued interest).

 

Section 1.02                Terms Generally. 
The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. 
Whenever the context may require, any pronoun shall include the corresponding
masculine, feminine and neuter forms. 
The words “include”, “includes” and “including” shall be deemed to be
followed by the phrase “without limitation”, whether or not so expressly stated
in each such instance.  The word “will” shall be construed to have the same meaning and effect
as the word “shall”.  Unless the context
requires otherwise, (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (b) any reference
herein to any Person shall be construed to include such Person’s successors and
assigns, (c) the words “herein”, “hereof” and “hereunder”, and words of similar
import, shall be construed to refer to this Agreement in its entirety and not
to any particular provision hereof, (d) all references herein to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections

 

29

 

of,
and Exhibits and Schedules to, this Agreement and (e) the words “asset” and “property”
shall be construed to have the same meaning and effect and to refer to any and
all tangible and intangible assets and properties, including cash, securities,
accounts and contract rights.  References
in this Agreement to “determination” by any Agent include estimates honestly
made by such Agent (in the case of quantitative determinations) and beliefs
honestly held by such Agent (in the case of qualitative determinations).

 

Section 1.03                Accounting and Other Terms.  Unless otherwise expressly provided herein,
each accounting term used herein shall have the meaning given it under
GAAP.  All terms used in this Agreement
which are defined in Article 8 or Article 9 of the Code and which are
not otherwise defined herein shall have the same meanings herein as set forth
therein.

 

Section 1.04                Time References. 
Unless otherwise indicated herein, all references to time of day refer
to Eastern Standard Time or Eastern daylight saving time, as in effect in New
York City on such day.  For purposes of
the computation of a period of time from a specified date to a later specified
date, the word “from” means “from and including” and the words “to” and “until”
each means “to but excluding”; provided, however, that with
respect to a computation of fees or interest payable to any Agent or any
Lender, such period shall in any event consist of at least one full day.

 

ARTICLE II

THE TERM LOAN

 

Section 2.01                Commitment.  (a)  Subject to the terms and conditions
and relying upon the representations and warranties herein set forth, each
Lender severally agrees to make a term loan (collectively, the “Term Loan”)
to the Borrower on the Effective Date, in an aggregate principal amount equal
to the amount of such Lender’s Commitment.

 

(b)                                 Notwithstanding
the foregoing, the aggregate principal amount of the Term Loan made on the
Effective Date shall not exceed the Total Commitment.  Any principal amount of the Term Loan that is
repaid or prepaid may not be reborrowed.

 

Section 2.02                Making the
Term Loan.  (a)  The Borrower shall give the Administrative
Agent prior telephonic notice (immediately confirmed in writing), not later
than 12:00 noon (New York City time) on the date which is 2 Business Days
prior to the date of the proposed Term Loan (or such shorter period as the
Administrative Agent is willing to accommodate from time to time, but in no
event later than 12:00 noon (New York City time) on the borrowing date of the
proposed Term Loan).  Such notice shall
be irrevocable and shall specify (i) the principal amount of the proposed
Term Loan, (ii) the proposed borrowing date, which must be a Business Day,
and must be the Effective Date.

 

(b)                                 Except
as otherwise provided in this Section 2.02(b), the Term Loan shall
be made by the Lenders simultaneously and proportionately to their Pro Rata
Shares of the Total Commitment, as the case may be, it being understood that no
Lender shall be responsible for any default by any other Lender in that other
Lender’s obligations to make the Term Loan requested hereunder, nor shall the
Commitment of any Lender be increased or

 

30

 

decreased as a result of the
default by any other Lender in that other Lender’s obligation to make the Term
Loan requested hereunder, and each Lender shall be obligated to make the Term
Loan required to be made by it by the terms of this Agreement regardless of the
failure by any other Lender.

 

Section 2.03                Repayment of Term Loan; Evidence of
Debt.

 

(a)                                  The
outstanding principal of the Term Loan shall be repayable in consecutive
quarterly installments, on the last day of each March, June, September and
December commencing on March 31, 2005 and ending on the Final
Maturity Date, consisting of (i) twelve (12) installments, each in an
amount equal to $1,750,000, followed by (ii) one (1) installment, in an
amount equal to $104,000,000; provided, however, that the last
such installment shall be in the amount necessary to repay in full the unpaid
principal amount of the Term Loan.  The
outstanding principal of the Term Loan shall, in all events, be repaid in full
on the Final Maturity Date.

 

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

 

(c)                                  The
Administrative Agent shall maintain accounts in which it shall record (i) the
amount of the Term Loan made hereunder, (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) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender’s share thereof.

 

(d)                                 The
entries made in the accounts maintained pursuant to subsections (b) or (c)
of this Section 2.03 shall be prima  facie evidence of
the existence and amounts of the obligations recorded therein; provided
that the failure of any Lender or the Administrative Agent to maintain such
accounts or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Term Loan in accordance with the terms of this
Agreement.

 

(e)                                  Any
Lender may request that the Term Loan made by it be evidenced by a promissory
note.  In such event, the Borrower shall
execute and deliver to such Lender a promissory note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) in a form furnished by the Collateral Agent and reasonably acceptable
to the Borrower.  Thereafter, the Term
Loan evidenced by such promissory note and interest thereon shall at all times
(including after assignment pursuant to Section 12.07) be
represented by one or more promissory notes in such form payable to the order
of the payee named therein (or, if such promissory note is a registered note,
to such payee and its registered assigns).

 

Section 2.04                Interest.

 

(a)                                  Term
Loan.  The Term Loan shall bear
interest on the principal amount thereof from time to time outstanding, from
the date of the making of the Term Loan

 

31

 

until
such principal amount is repaid, as follows: (i) if the relevant portion of the
Term Loan is a LIBOR Rate Loan, at a rate per annum equal to the LIBOR Rate
plus 7.00 percentage points, and (ii) otherwise, at a rate per annum equal to
the Reference Rate plus 4.25 percentage points.

 

(b)                                 Default
Interest.  To the extent permitted by
law, upon the occurrence and during the continuance of an Event of Default, the
principal of, and all accrued and unpaid interest on, the Term Loan, all fees,
all indemnities, or any other Obligations of the Loan Parties under this
Agreement and the other Loan Documents, shall bear interest, from the date such
Event of Default occurred until the date such Event of Default is cured or
waived in writing in accordance herewith, at a rate per annum equal at all
times to the Post-Default Rate.

 

(c)                                  LIBOR
Option.

 

(i)                                     Interest
and Interest Payment Dates.  In lieu
of having interest charged at the rate based upon the Reference Rate, the Borrower
shall have the option (the “LIBOR Option”) to have interest on all or a
portion of the Term Loan be charged at a rate of interest based upon the LIBOR
Rate.  Interest on LIBOR Rate Loans shall
be payable on the earliest of (A) the last day of the Interest Period
applicable thereto; provided, however, that, subject to the
following clauses (B) and (C), in the case of any Interest Period greater than
3 months in duration, interest shall be payable at 3 month intervals after the
commencement of the applicable Interest Period and on the last day of such
Interest Period, (B) the occurrence of an Event of Default in consequence of
which the Required Lenders or Collateral Agent on behalf thereof elect to
accelerate the maturity of all or any portion of the Obligations, or (C)
termination of this Agreement pursuant to the terms hereof.  Interest at the Post-Default Rate shall be
payable on demand.  On the last day of
each applicable Interest Period, unless the Borrower properly has exercised the
LIBOR Option with respect thereto, the interest rate applicable to such LIBOR
Rate Loan automatically shall convert to the rate of interest then applicable
to the Term Loan accruing interest based on the Reference Rate hereunder.  At any time that an Event of Default has
occurred and is continuing, the Borrower no longer shall have the option to
request that the Term Loan bear interest at the LIBOR Rate and Administrative
Agent shall have the right to convert the interest rate on all outstanding
LIBOR Rate Loans to the rate then applicable to Reference Rate Loans hereunder.

 

(ii)                                  LIBOR
Election.

 

(A)                              The
Borrower may, at any time and from time to time, so long as no Event of Default
has occurred and is continuing, elect to exercise the LIBOR Option by notifying
Administrative Agent prior to 11:00 a.m. (New York time) at least 3 Business
Days prior to the commencement of the proposed Interest Period (the “LIBOR
Deadline”).  Notice of the Borrower’s
election of the LIBOR Option for a permitted portion of the Term Loan and an
Interest Period pursuant to this Section shall be made by delivery to
Administrative Agent of a LIBOR Notice received by Administrative Agent before
the LIBOR Deadline.  Promptly upon its
receipt of each such LIBOR Notice, Administrative Agent shall provide a copy
thereof to each of the Lenders.

 

32

 

(B)                                Each
LIBOR Notice shall be irrevocable and binding on the Borrower.  In connection with each LIBOR Rate Loan, the
Borrower shall indemnify, defend, and hold Administrative Agent and the Lenders
harmless against any loss, cost, or expense incurred by Administrative Agent or
any Lender as a result of (1) the payment of any principal of any LIBOR Rate
Loan other than on the last day of an Interest Period applicable thereto
(including as a result of an Event of Default), (2) the conversion of any LIBOR
Rate Loan other than on the last day of the Interest Period applicable thereto,
or (3) the failure to borrow, convert, continue or prepay any LIBOR Rate Loan
on the date specified in any LIBOR Notice delivered pursuant hereto (such
losses, costs, and expenses, collectively, “Funding Losses”).  Funding Losses shall, with respect to
Administrative Agent or any Lender, be deemed to equal the amount determined by
Administrative Agent or such Lender to be the excess, if any, of (x) the amount
of interest that would have accrued on the principal amount of such LIBOR Rate
Loan had such event not occurred, at the LIBOR Rate that would have been
applicable thereto, for the period from the date of such event to the last day
of the then current Interest Period therefor (or, in the case of a failure to
borrow, convert or continue, for the period that would have been the Interest
Period therefor), minus (y) the amount of interest that would accrue on such
principal amount for such period at the interest rate which Administrative
Agent or such Lender would be offered were it to be offered, at the
commencement of such period, Dollar deposits of a comparable amount and period
in the London interbank market.  A
certificate of Administrative Agent or a Lender delivered to the Borrower
setting forth any amount or amounts that Administrative Agent or such Lender is
entitled to receive pursuant to this Section shall be conclusive absent
manifest error.  Notwithstanding the
foregoing, in the event that the prepayment of principal of the Term Loan, and
the payment of interest on the principal so prepaid, as required by Section 2.05(c)
would result in Funding Losses, then the Administrative Agent may elect, in its
sole discretion, either to hold such payments in a separate non-interest
bearing deposit account in the name of the Administrative Agent, for
application in respect of the Term Loan on the last day of the Interest Period
then in effect so as to eliminate any such Funding Losses, or to waive the
application of this Section 2.04(c)(ii)(B) solely with respect to
such payments, and Administrative Agent shall promptly notify Borrower of its
election.

 

(C)                                The
Borrower only may exercise the LIBOR Option for the entire amount of the
outstanding Term Loan.

 

(iii)                               Prepayments.  The Borrower may prepay LIBOR Rate Loans at
any time; provided, however, that in the event that LIBOR Rate
Loans are prepaid on any date that is not the last day of the Interest Period
applicable thereto, including as a result of any automatic prepayment through
the required application by Administrative Agent of proceeds of collections in
accordance with Section 4.04 or for any other reason, including
early termination of the term of this Agreement or acceleration of all or any
portion of the Obligations pursuant to the terms hereof, the Borrower shall
indemnify, defend, and hold Administrative

 

33

 

Agent and the Lenders and their participants harmless
against any and all Funding Losses in accordance with subsection (ii)
above.

 

(iv)                              Special
Provisions Applicable to LIBOR Rate.

 

(A)                              The
LIBOR Rate may be adjusted by Administrative Agent with respect to any Lender
on a prospective basis to take into account any additional or increased costs
to such Lender of maintaining or obtaining any eurodollar deposits or increased
costs due to changes in applicable law occurring subsequent to the commencement
of the then applicable Interest Period, including changes in tax laws (except
changes of general applicability in corporate income tax laws) and changes in
the reserve requirements imposed by the Board of Governors of the Federal
Reserve System (or any successor), excluding the Reserve Percentage, which
additional or increased costs would increase the cost of funding loans bearing
interest at the LIBOR Rate.  In any such
event, the affected Lender shall give the Borrower and Administrative Agent written
notice of such a determination and adjustment and Administrative Agent promptly
shall transmit the notice to each other Lender and, upon its receipt of the
notice from the affected Lender, the Borrower may, by notice to such affected
Lender (1) require such Lender to furnish to the Borrower a statement setting
forth the basis for adjusting such LIBOR Rate and the method for determining
the amount of such adjustment, or (2) repay the LIBOR Rate Loans with respect
to which such adjustment is made (together with any amounts due under subsection (ii)(B)
above).

 

(B)                                In
the event that any change in any law, regulation, treaty, or directive, or any
change therein or in the interpretation of application thereof, shall at any
time after the date hereof, in the reasonable opinion of any Lender, make it unlawful
or impractical for such Lender to fund or maintain LIBOR Rate Loans or to
continue such funding or maintaining, or to determine or charge interest rates
at the LIBOR Rate, such Lender shall give written notice of such changed
circumstances to Administrative Agent and the Borrower and Administrative Agent
promptly shall transmit the notice to each other Lender and (1) in the case of
any LIBOR Rate Loans of such Lender that are outstanding, the date specified in
such Lender’s notice shall be deemed to be the last day of the Interest Period
of such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender
thereafter shall accrue interest at the rate then applicable to the Reference
Rate Loan, and (2) the Borrower shall not be entitled to elect the LIBOR Option
until such Lender determines that it would no longer be unlawful or impractical
to do so.

 

(v)                                 No
Requirement of Matched Funding. 
Anything to the contrary contained herein notwithstanding, neither
Administrative Agent, nor any Lender, nor any of their participants, is
required actually to acquire eurodollar deposits to
fund or otherwise match fund any Obligation as to which interest accrues at the
LIBOR Rate.  The provisions of this Section shall
apply as if each Lender or its participants had match funded any Obligation as

 

34

 

to which interest is accruing at
the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the
amount of the LIBOR Rate Loans.

 

(vi)                              Interest
Payment in respect of Reference Rate Loans. 
Interest on the Reference Rate Loan shall be payable monthly, in
arrears, on the first day of each month, commencing on the first day of the
month following the Effective Date and at maturity (whether upon demand, by
acceleration or otherwise).  Interest at
the Post-Default Rate shall be payable on demand.  The Borrower hereby authorizes the
Administrative Agent to, and the Administrative Agent may, from time to time,
charge the Loan Account pursuant to Section 4.02 with the amount of
any interest payment due hereunder.

 

(vii)                           General.  All interest shall be computed on the basis
of a year of 360 days for the actual number of days, including the first day
but excluding the last day, elapsed.

 

Section 2.05                Termination of Commitment;
Prepayment of the Term Loan.

 

(a)                                  Termination
of Commitment.  The Total Commitment
shall terminate upon the making of the Term Loan on the Effective Date.

 

(b)                                 Optional Prepayment.  The
Borrower may, upon at least 5 Business Days prior written notice to the
Administrative Agent, prepay without penalty or premium the principal of the
Term Loan, in whole or in part.  Each
prepayment made pursuant to this 

Section 2.05(b) shall be accompanied by the payment of accrued
interest to the date of such payment on the amount prepaid.  Each such prepayment shall be applied ratably
against the remaining installments of principal of the Term Loan.

 

(c)                                  Mandatory
Prepayment.

 

(i)                                     Within
10 days after delivery to the Agents and the Lenders of audited annual
financial statements pursuant to Section 7.01(a)(ii), commencing
with the delivery to the Agents and the Lenders of the financial statements for
the Fiscal Year ended December 31, 2005 or, if such financial statements
are not delivered to the Agents and the Lenders on the date such statements are
required to be delivered pursuant to Section 7.01(a)(ii), 10 days
after the date such statements are required to be delivered to the Agents and
the Lenders pursuant to Section 7.01(a)(ii), the Borrower shall prepay
the outstanding principal amount of the Term Loan in an amount equal to the
Applicable Excess Cash Flow Prepayment Percentage of the Excess Cash Flow of
the Borrower and its Subsidiaries for such Fiscal Year.

 

(ii)                                  Immediately
upon receipt of any proceeds of any Disposition by any Loan Party or its
Subsidiaries other than a Permitted Disposition (other than a Permitted
Disposition of the type described in clauses (b) and (c) of the definition of
Permitted Disposition), the Borrower shall prepay the outstanding principal
amount of the Term Loan in an amount equal to 100% of the Net Cash Proceeds
received by such Person in connection with such Disposition; provided, however,
that, if the completion of Exempt Foreign Dispositions shall have permitted
Borrower to pay dividends on common shares of its Capital Stock pursuant to Section 7.02(s)(iii),
then notwithstanding any provision contained in this Section 2.05(c)(ii)
to the contrary, Borrower shall prepay the outstanding principal amount of the
Term Loan in an

 

35

 

amount equal to (A) 100% of the
Net Cash Proceeds received by the Subsidiaries of Borrower from such Foreign
Exempt Dispositions, less (B) the aggregate amount of the dividends
actually paid in the fiscal quarter ending March 31, 2005 by Borrower on
the common shares of its Capital Stock in accordance with Section 7.02(s)(iii).  Nothing contained in this clause (ii) shall
permit any Loan Party or any of its Subsidiaries to make a Disposition of any
property other than a Permitted Disposition.

 

(iii)                               Upon
the issuance or incurrence by any Loan Party or any of its Subsidiaries of any
Indebtedness (other than Indebtedness referred to in clauses (a), (b),
(c), (d), (e), and (f) of the definition of Permitted Indebtedness), or the
sale or issuance by any Loan Party or any of its Subsidiaries of any shares of
its Capital Stock, the Borrower shall prepay the Term Loan in an amount equal
to 100% of the Net Cash Proceeds received by such Person in connection therewith;
provided that in the case that the aggregate amount of Net Cash Proceeds from
such sale or issuance is less than $5,000, the Borrower shall hold such Net Cash
Proceeds until the earlier of (A) the next succeeding prepayment under this Section 2.05(c),
or (B) when such amount of Net Cash Proceeds, when aggregated with other Net
Cash Proceeds from subsequent sales or issuances of such Capital Stock, exceeds
$5,000, at which time Borrower shall prepay all such Net Cash Proceeds.  The provisions of this subsection (iii)
shall not be deemed to be implied consent to any such issuance, incurrence or
sale otherwise prohibited by the terms and conditions of this Agreement.

 

(iv)                              Upon
the receipt by any Loan Party or any of its Subsidiaries of any Extraordinary
Receipts in excess of the first $25,000 of such Extraordinary Receipts received
in any Fiscal Year, the Borrower shall prepay the outstanding principal of the
Term Loan in an amount equal to 100% of such Extraordinary Receipts, net of any
customary and reasonable expenses (including, without limitation, any attorney,
accountant or other professional fees) incurred in collecting such
Extraordinary Receipts; provided, however, that, if the Borrower’s
receipt of United States federal income tax refunds attributable to its fiscal
year ended December 31, 2004 shall have permitted Borrower to pay
dividends on common shares of its Capital Stock pursuant to Section 7.02(s)(iv),
then notwithstanding any provision contained in this Section 2.05(c)(iv)
to the contrary, Borrower shall prepay the outstanding principal amount of the
Term Loan in an amount equal to (A) 100% of the Net Cash Proceeds received by
Borrower from all such United States federal income tax refunds, less
(B) the aggregate amount of the dividends actually paid in the fiscal quarter
ending June 30, 2005 by Borrower on the common shares of its Capital Stock
in accordance with Section 7.02(s)(iv).  Any
payments required to be made under this Section 2.05(c)(iv) shall
be applied as set forth in Section 2.05(d); provided, however,
that so long as no Default or Event of Default has occurred and is continuing
or would result therefrom, the Borrower may, on or prior to the date of any
insurer’s payment of the proceeds of Extraordinary Receipts in the form of
proceeds of insurance, by written notice to the Agents, request that the amount
of the required prepayment, as set forth in this Section 2.05(c)(iv),
not occur at such time and that such proceeds instead be used to repair,
replace or restore the casualty which precipitated receipt of such proceeds of
insurance, with such notice setting forth in particular the proposed usage of
such proceeds of insurance.  If such
notice is timely given and if, in the reasonable judgment of the Collateral
Agent, the Loan Parties have Cash and Cash Equivalents and/or casualty and
business interruption insurance proceeds in amounts sufficient to ensure that
Borrower will be able to make payment as and when due of the Obligations that
will be payable during the period of repair, replacement, or restoration, the

 

36

 

Collateral Agent shall notify the applicable insurer
to permit payment of such proceeds to Borrower, and Borrower shall be relieved
of its obligation to make such mandatory prepayment at such time.  If, within 270 days after the date of the
Borrower’s receipt of the proceeds of such Extraordinary Receipts, the Borrower
provides the Administrative Agent reasonably detailed reporting indicating that
the Borrower has invested all or a portion of such proceeds in assets used or
useful in the business of the Borrower as it exists as of the date hereof, then
the required prepayment shall be reduced on a dollar-for-dollar basis with the
amount of the proceeds so invested; provided further, however,
that if, on such 270th day all or any portion of such proceeds have
not been so invested, the portion remaining shall be used to make the required
prepayment (as set forth above) as of such 270th day.

 

(d)                                 Application of
Payments.  Each prepayment made
pursuant to subsection (c) above shall be applied ratably against
the remaining installments of principal of the Term Loan.

 

(e)                                  Interest
and Fees.  Any prepayment made
pursuant to this Section 2.05 (other than prepayments made pursuant
to subsection (c)(i) of this Section 2.05)
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of prepayment, and if such prepayment would reduce the amount of
the outstanding Term Loan to zero, such prepayment shall be accompanied by the
payment of all fees accrued to such date pursuant to Section 2.06.  All prepayments, and all payments of
interest, made pursuant to this Section 2.05 shall be subject to
terms of Section 2.04(c)(ii)(B).

 

(f)                                    Cumulative
Prepayments.  Except
as otherwise expressly provided in this Section 2.05, payments with
respect to any subsection of this Section 2.05 are in addition
to payments made or required to be made under any other subsection of this
Section 2.05.

 

Section 2.06                Fees.

 

(a)                                  Closing
Fee.  On or prior to the Effective
Date, the Borrower shall pay to the Administrative Agent for the account of the
Lenders, in accordance with a written agreement among such Lenders, a non-refundable
closing fee (the “Closing Fee”) equal to $1,562,500 in the aggregate.

 

(b)                                 Loan
Servicing Fee.  From and after the
Effective Date and until the later of (i) the Final Maturity Date and (ii) the
date on which all Obligations are paid in full, the Borrower shall pay to the
Administrative Agent for the account of the Agents, in accordance with a
written agreement between such Agents, a non-refundable loan servicing fee (the
“Loan Servicing Fee”) equal to $30,000 each quarter, which shall be
payable on the Effective Date (payable ratably based on the number of days
remaining in the calendar quarter in which the Effective Date occurs) and
quarterly in advance thereafter on the first day of each calendar quarter
commencing on January 1, 2005.

 

Section 2.07                Securitization.  The Borrower hereby acknowledges that the Lenders
and their Affiliates may sell or securitize the Term Loan (a “Securitization”)
through the pledge of the Term Loan as collateral security for loans to the
Lenders or their Affiliates or through the sale of the Term Loan or the
issuance of direct or indirect interests in the Term Loan,

 

37

 

which loans to the Lenders or
their Affiliates or direct or indirect interests will be rated by Moody’s,
Standard & Poor’s or one or more other rating agencies (the “Rating
Agencies”).  The Borrower shall
cooperate with the Lenders and their Affiliates to effect the Securitization
including, without limitation, by (a) amending this Agreement and the
other Loan Documents, and executing such additional documents, as reasonably
requested by the Lenders in connection with the Securitization, provided
that (i) any such amendment or additional documentation does not
impose additional costs (other than those costs of a de minimis nature)
on the Borrower and (ii) any such amendment or additional documentation
does not adversely affect the rights (other than those effects of a de minimis nature), or increase the obligations (other than those
increases of a de minimis nature), of the
Borrower under the Loan Documents or change or affect in a manner adverse to
the Borrower the financial terms of the Term Loan, (b) providing such
information as may be reasonably requested by the Lenders in connection with
the rating of the Term Loan or the Securitization, and (c) providing in
connection with any rating of the Term Loan a certificate (i) agreeing to
indemnify the Lenders and their Affiliates, any of the Rating Agencies, or any
party providing credit support or otherwise participating in the Securitization
(collectively, the “Securitization Parties”) for any losses, claims,
damages or liabilities (the ”Liabilities”) to which the Lenders,
their Affiliates or such Securitization Parties may become subject insofar as
the Liabilities arise out of or are based upon any untrue statement of any material
fact contained in any Loan Document or in any writing delivered by or on behalf
of any Loan Party or any of its Subsidiaries to any Agent or Lender in
connection with any Loan Document or arise out of or are based upon the
omission to state therein 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, and such indemnity
shall survive any transfer by the Lenders or their successors or assigns of the
Term Loan and (ii) agreeing to reimburse the Agents, the Lenders and their
Affiliates for any legal or other expenses reasonably incurred by such Persons
in connection with defending the Liabilities.

 

Section 2.08                Taxes.  (a)  All
payments made by the Borrower hereunder or under any other Loan Document shall
be made without set-off, counterclaim, deduction or other defense.  Except as otherwise provided in this Section 2.08,
all such payments shall be made free and clear of and without deduction for any
present or future income, franchise, sales, use, excise, stamp or other taxes,
levies, imposts, deductions, charges, fees, withholdings, restrictions or
conditions of any nature now or hereafter imposed, levied, collected, withheld
or assessed by any jurisdiction (whether pursuant to United States Federal,
state, local or foreign law) or by any political subdivision or taxing
authority thereof or therein, and all interest, penalties or similar
liabilities, excluding taxes (i) imposed on, or measure by, the recipient’s
overall net income or overall gross income imposed by the United States, the
jurisdiction under the laws of which such recipient is incorporated or
otherwise organized, in which such recipient is a resident for income tax purposes,
or in which such recipient’s principal executive office or lending office is
located, in each case, including any political subdivision thereof, or (ii)
branch profits taxes, franchise taxes, or similar taxes, in each case measured
by the overall net income or overall gross income imposed by any jurisdiction
in which the recipient has a lending office or branch office upon such branch
or office (such nonexcluded taxes, levies, imposts, deductions, charges, fees,
withholdings, restrictions, conditions, interest, penalties, and other similar
liabilities being hereinafter collectively referred to as “Taxes”).  If the Borrower shall be required by law,
rule, regulation or any interpretation of any relevant Governmental Authority
to deduct or to withhold any Taxes from or in respect of any amount payable
hereunder,

 

38

 

(i)                                     the
amount so payable shall be increased to the extent necessary so that after
making all required deductions and withholdings (including Taxes on amounts
payable to the Lenders or the Agents pursuant to this sentence) the Lenders and
the Agents receive an amount equal to the sum they would have received had no
such deduction or withholding been made,

 

(ii)                                  the Borrower shall make such deduction or withholding, and

 

(iii)                               the Borrower shall pay the full amount deducted or withheld
to the relevant taxation authority in accordance with applicable law. Whenever
any Taxes are payable by the Borrower, as promptly as possible thereafter, the
Borrower shall send the Lenders and the Agents an official receipt (or, if an
official receipt is not available, such other documentation as shall be
satisfactory to the Lenders and/or the Agents, as the case may be) showing
payment. In addition, the Borrower agrees to pay any present or future stamp,
documentary, excise, property or similar taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery,
performance, recordation or filing of, or otherwise with respect to, this
Agreement or any other Loan Document other than the foregoing excluded taxes
(hereinafter referred to as “Other Taxes”).

 

(b)                                 The
Borrower will indemnify the Lenders and the Agents for the amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.08) paid
by any Lender or any Agent and any liability (including penalties, interest and
expenses for nonpayment, late payment or otherwise) arising therefrom or with
respect thereto. This indemnification shall be paid within 10 days from the
date on which any such Lender or any such Agent makes written demand therefor,
which demand shall identify the nature and amount of Taxes or Other Taxes for
which indemnification is being sought and the basis of the claim.

 

(c)                                  Each
Lender that is not a “United States person” within the meaning of the IRC
hereby agrees that:

 

(i)                                     it
shall, no later than the Effective Date (or, in the case of a Lender which
becomes a party hereto pursuant to Section 12.07 hereof after the
Effective Date, promptly after the date upon which such Lender becomes a party
hereto), and from time to time thereafter as may be required by the IRC or
other laws of the United States as a condition to exemption from United States
withholding tax (but only so long thereafter as such Lender remains lawfully
able to do so), deliver to the Agents: 
(A) accurate, complete and signed originals of U.S. Internal
Revenue Service Form W-8ECI or successor form, (B) accurate, complete and
signed originals of U.S. Internal Revenue Service Form W-8BEN or successor
form, or (C) accurate, complete and signed originals of U.S. Internal
Revenue Service Form W-8IMY or successor form, in each case, indicating that
such Lender is on the date of delivery thereof entitled to receive payments of
principal, interest and fees for the account of its lending office under this
Agreement, if applicable, free from withholding of United States Federal income
tax;

 

39

 

(ii)                                  if
at any time such Lender changes its lending office or offices or selects an
additional lending office for purposes of this Agreement, it shall, at the same
time or reasonably promptly thereafter, deliver to the Agents the appropriate
forms as described in clause (i) above in replacement for, or in addition
to, the forms previously delivered by it hereunder; and

 

(iii)                               if
such Lender that is not a “United States person” within the meaning of the IRC is
claiming an exemption from withholding of United States Federal income tax
under Section 871(h) or Section 881(c) of the IRC, such Lender
represents and warrants that such Lender is (A) not a “bank” within the meaning
of Section 881(c)(3)(A) of the IRC, (B) not a “10 percent shareholder” of
the Borrower within the meaning of Section 871(h)(3)(B) of the IRC and (C)
not a controlled foreign corporation receiving interest from a related person
within the meaning of Section 864(d)(4) of the IRC, and such Lender that
is not a “United States person” within the meaning of the IRC agrees that it
shall provide the Agents with prompt notice at any time after becoming a Lender
hereunder in the event that at such time it could no longer make any of the
foregoing representations and warranties.

 

(d)                                 If
the Borrower fails to perform any of its obligations under this Section 2.08,
the Borrower shall indemnify the Lenders and the Agents for any taxes, interest
or penalties that may become payable as a result of any such failure.  The obligations of the Borrower under this Section 2.08
shall survive the termination of this Agreement and the payment of the Term
Loan and all other amounts payable hereunder.

 

(e)                                  For
any period with respect to which a Lender has failed to provide the Agents with
the appropriate form, certificate or other document described in (c) above
(other than if such failure is due to a change in law occurring after the date
on which such form, certificate or other document was initially required to be
provided), such Lender shall not be entitled to additional amounts or
indemnification under subsections (a) or (b) of this Section 2.08
with respect to Taxes imposed by the United States by reason of such failure
unless such failure is cured.

 

(f)                                    Any
Lender claiming additional amounts or an indemnification payment pursuant to
this Section 2.08 agrees to use reasonable efforts (if requested in
writing to do so in writing by the Borrower and subject to such Lender’s
internal policies and legal and regulatory restrictions) to change the
jurisdiction of its applicable lending office if (i) the making of such a
change would avoid the need for, or materially reduce the amount of, such
additional amounts or indemnification payments, (ii) would not require such
Lender to disclose any information such Lender deems confidential, and (iii)
would not, in the sole determination of such Lender, otherwise be
disadvantageous to such Lender.

 

(g)                                 If
any Lender (or a Transferee) shall become aware that it is entitled to claim a
refund from a Governmental Authority in respect of Taxes or Other Taxes with
respect to which any Loan Party has paid additional amounts pursuant to this Section 2.08,
it shall promptly notify the Borrower of the availability of such refund claim
and shall, within 30 days after receipt of a written request by the Borrower,
make a claim to such Governmental Authority for such refund at the Loan Parties’
expense.  If any Lender (or a Transferee)
receives a refund (including pursuant to a claim for refund made pursuant to
the preceding sentence) in

 

40

 

respect of any Taxes or Other
Taxes with respect to which any Loan Party has paid additional amounts pursuant
to this Section 2.08, it shall within 30 days from the date of such
receipt pay over such refund to the Borrower, net of all out-of-pocket expenses
of such Lender (or Transferee).

 

Section 2.09                Backup
Letter of Credit.  (a)  On the Effective Date, the Borrower shall
deliver, or cause to be delivered, to the Collateral Agent an irrevocable
standby letter of credit in an aggregate amount available to be drawn of
$10,000,000, for the account of the Borrower and for the benefit of the
Collateral Agent and its successors and assigns, issued by bank with a credit
rating announced by Standard & Poor’s of AA or higher and otherwise
satisfactory to the Collateral Agent in its reasonable discretion, and
providing for (i) an initial expiration date of no earlier than January 15,
2006, (ii) automatic and successive extensions of the expiration date thereof
for a period of one year, unless at least 60 days prior to the expiration date
thereof then in effect, the issuer of the Backup Letter of Credit notifies the
Collateral Agent of its election not to extend the expiration date thereof,
(iii) partial drawings under the Backup Letter of Credit, (iv) transferability
of the Backup Letter of Credit occasioned by the appointment of a successor
Collateral Agent pursuant to the provisions hereunder, and any such transfer
shall not require any fee or other expense payable to the issuer of the Backup Letter
of Credit in excess of $500, and (v) such other provisions as reasonably required
by the Collateral Agent (together with any substitute Backup Letter of Credit
delivered as provided in Section 2.09(b), the “Backup Letter of
Credit”).

 

(b)                                 In
the event that (i) prior to the Backup Letter of Credit Requirement Termination
Date, the Backup Letter of Credit Issuer notifies the Collateral Agent of its
election not to extend the expiration date of the Backup Letter of Credit for a
period of one year, or (ii) after the issuance of the Backup Letter of Credit
and prior to the Backup Letter of Credit Requirement Termination Date, the
credit rating of the Backup Letter of Credit Issuer announced by Standard &
Poor’s shall be less than AA (the Backup Letter of Credit described in clauses
(i) and (ii) above being referred to herein as the “Prior Backup Letter of
Credit”), then no later than 30 days prior to the expiration date of the
Prior Backup Letter of Credit (in the case of clause (i) above), or no later
than 30 days following notice therefor by the Collateral Agent (in the case of
clause (ii) above), the Borrower shall promptly deliver to the Collateral Agent
a substitute irrevocable standby letter of credit in an aggregate amount
available to be drawn equal to the Backup Letter of Credit Required Amount,
with an initial expiration date of not earlier than thirteen months from the
date of issuance of such substitute Backup Letter of Credit and otherwise
meeting the requirements for a Backup Letter of Credit set forth in Section 2.09(a),
whereupon the Collateral Agent shall cooperate with the Borrower to deliver to
the issuer of the Prior Backup Letter of Credit such documents as may
reasonably be necessary to induce such issuer to terminate the Prior Backup
Letter of Credit.

 

(c)                                  The
Backup Letter of Credit constitutes additional security for the
Obligations.  Collateral Agent shall be
entitled to make one or more drawings on the Backup Letter of Credit upon the
occurrence of any of the following: (i) the occurrence and continuance of an
Event of Default, or (ii) the Borrower shall have failed to deliver, within the
time period provided for in Section 2.09(b), any substitute Backup
Letter of Credit required by Section 2.09(b).  All proceeds of drawings under the Backup
Letter of Credit shall be applied to the

 

41

 

outstanding Obligations in
accordance with the provisions of this Agreement, without regard to any
subsequent occurrence of the Backup Letter of Credit Requirement Termination
Date.

 

(d)                                 Upon
the occurrence of the Backup Letter of Credit Requirement Termination Date, if
any, the Collateral Agent shall promptly deliver to the issuer of the Backup
Letter of Credit such documents as may reasonably be necessary to induce such
issuer to terminate the Backup Letter of Credit.

 

(e)                                  Collateral
Agent, for the ratable account of the Lenders, shall reimburse Borrower for (i)
the letter of credit fee actually assessed by the Backup Letter of Credit
Issuer on, and actually paid to the Backup Letter of Credit Issuer by, the
Borrower pursuant to Section 2(d) of the Backup Letter of Credit
Reimbursement Agreement, for the period from the Effective Date until the first
anniversary thereof, based on the average daily amounts available to be drawn
under the Backup Letter of Credit, and (ii) reasonable fees and costs of legal
counsel to Borrower incurred and paid by Borrower in connection with the Backup
Letter of Credit; provided, however, that Borrower shall not be
entitled to receive reimbursements under this Section 2.09(e): (x)
in any amount whatsoever, if a Default or an Event of Default shall have
occurred at any time during the period from the Effective Date until the first
anniversary thereof, (y) with respect to the fee described in clause (i)
above, in any amount in excess of $125,000, and (z) with respect to the fees
and costs described in clause (ii) above, in any amount in excess of $5,000.

 

ARTICLE III

[INTENTIONALLY OMITTED]

 

ARTICLE IV

FEES, PAYMENTS AND OTHER COMPENSATION

 

Section 4.01                Audit and Collateral Monitoring
Fees.  The Borrower acknowledges that pursuant to,
and subject to the limitations set forth in, Section 7.01(f),
representatives of the Agents may visit any Loan Party and/or conduct audits,
inspections and/or field examinations of any Loan Party and valuations or
appraisals of any or all of the Collateral and/or business or enterprise
valuations of the Loan Parties at any time and from time to time in a manner so
as to not unduly disrupt the business of such Loan Party.  The Borrower agrees to pay (i) $1,750 per day
per examiner plus the examiner’s out-of-pocket costs and reasonable expenses
incurred in connection with all such visits, audits, inspections, valuations
and field examinations and (ii) the cost of all audits, appraisals and
valuations conducted by third party auditors or appraisers on behalf of the
Agents.

 

Section 4.02                Payments; Computations and Statements.  (a) 
The Borrower will make each payment under this Agreement not later than
12:00 noon (New York City time) on the day when due, in lawful money of
the United States of America and in immediately available funds, to the
Administrative Agent’s Account.  All
payments received by the Administrative Agent after 12:00 noon (New York City
time) on any Business Day will be credited to the Loan Account on the next
succeeding Business Day.  All payments
shall be made

 

42

 

by the Borrower without set-off, counterclaim,
deduction or other defense to the Agents and the Lenders.  Except as provided in Section 2.02,
after receipt, the Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal ratably to the
Lenders in accordance with their Pro Rata Shares and like funds relating to the
payment of any other amount payable to any Lender to such Lender, in each case
to be applied in accordance with the terms of this Agreement, provided that the
Administrative Agent will cause to be distributed all interest and fees
received from or for the account of the Borrower not less than once each month
and in any event promptly after receipt thereof.  The Lenders and the Borrower hereby authorize
the Administrative Agent to, and the Administrative Agent shall, from time to
time, charge the Loan Account of the Borrower with any amount due and payable
by the Borrower under any Loan Document. 
Each of the Lenders and the Borrower agrees that the Administrative
Agent shall have the right to make such charges whether or not any Default or
Event of Default shall have occurred and be continuing or whether any of the
conditions precedent in Section 5.02 have been satisfied.  Whenever any payment to be made under any
such Loan Document shall be stated to be due on a day other than a Business
Day, such payment shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.  All computations
of fees shall be made by the Administrative Agent on the basis of a year of
360 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such fees are
payable.  Each determination by the
Administrative Agent of an interest rate or fees hereunder shall be conclusive
and binding for all purposes in the absence of manifest error.

 

(b)                                 The
Administrative Agent shall provide the Borrower, promptly after the end of each
calendar month, a summary statement (in the form from time to time used by the
Administrative Agent) of the opening and closing daily balances in the Loan
Account of the Borrower during such month, the amounts and dates of all
payments on account of the Term Loan during such month, the amount of interest
accrued on the Term Loan to the Borrower during such month, the amount of
charges to the Loan Account, and the amount and nature of any charges to the
Loan Account made during such month on account of fees, commissions, expenses
and other Obligations.  All entries on
any such statement shall be presumed to be correct and, 30 days after the same
is sent, shall be final and conclusive absent manifest error.

 

Section 4.03                Sharing of
Payments, Etc. 
Except as provided in Section 2.02 hereof and any written
agreement among the Agents and/or the Lenders, if any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of any Obligation in excess of its ratable
share of payments on account of similar obligations obtained by all the
Lenders, such Lender shall forthwith purchase from the other Lenders such
participations in such similar obligations held by them as shall be necessary
to cause such purchasing Lender to share the excess payment ratably with each
of them; provided, however, that if all or any portion of such
excess payment is thereafter recovered from such purchasing Lender, such
purchase from each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender’s ratable share (according to the
proportion of (i) the amount of such Lender’s required repayment to (ii) the
total amount so recovered from the purchasing Lender of any interest or other
amount paid by the purchasing Lender in respect of the total amount so
recovered).  The Borrower agrees that any
Lender so purchasing a

 

43

 

participation
from another Lender pursuant to this Section 4.03 may, to the
fullest extent permitted by law, exercise all of its rights (including the
Lender’s right of set-off) with respect to such participation as fully as if
such Lender were the direct creditor of the Borrower in the amount of such
participation.

 

Section 4.04                Apportionment
of Payments.  Subject to Section 2.02
hereof and to any written agreement among the Agents and/or the Lenders:

 

(a)                                  all
payments of principal and interest in respect of the outstanding Term Loan, all
payments of fees (other than the audit and collateral monitoring fees provided
for in Section 4.01) and all other payments in respect of any other
Obligations, shall be allocated by the Administrative Agent among such of the
Lenders as are entitled thereto, in proportion to their respective Pro Rata
Shares or otherwise as provided herein or, in respect of payments not made on
account of the Term Loan as designated by the Person making payment when the
payment is made.

 

(b)                                 After
the occurrence and during the continuance of an Event of Default, the
Administrative Agent may, and upon the direction of the Required Lenders shall,
apply all payments in respect of any Obligations and all proceeds of the
Collateral, subject to the provisions of this Agreement, (i) first,
ratably to pay the Obligations in respect of any fees, expense reimbursements,
indemnities and other amounts then due to the Agents until paid in full;
(ii) second, ratably to pay any fees and indemnities then due to
the Lenders until paid in full; (iii) third, ratably to pay
interest due in respect of the Term Loan until paid in full; (iv) fourth,
ratably to pay principal of the Term Loan until paid in full, and (v) fifth,
to the ratable payment of all other Obligations then due and payable.

 

(c)                                  In
each instance, so long as no Event of Default has occurred and is continuing, Section 4.04(b)
shall not be deemed to apply to any payment by the Borrower specified by the
Borrower to the Administrative Agent to be for the payment of Term Loan
Obligations then due and payable under any provision of this Agreement or the
prepayment of all or part of the principal of the Term Loan in accordance with
the terms and conditions of Section 2.05.

 

(d)                                 For
purposes of the foregoing, “paid in full” means payment of all amounts owing
under the Loan Documents according to the terms thereof, including loan fees,
service fees, professional fees, interest (and specifically including interest
accrued after the commencement of any Insolvency Proceeding), default interest,
interest on interest, and expense reimbursements, whether or not the same would
be or is allowed or disallowed in whole or in part in any Insolvency
Proceeding.

 

(e)                                  In
the event of a direct conflict between the priority provisions of this Section 4.04
and other provisions contained in any other Loan Document, it is the intention
of the parties hereto that both such priority provisions in such documents
shall be read together and construed, to the fullest extent possible, to be in
concert with each other.  In the event of
any actual, irreconcilable conflict that cannot be resolved as aforesaid, the
terms and provisions of this Section 4.04 shall control and govern.

 

44

 

Section 4.05                Increased Costs and Reduced Return.  (a)  If any Lender, or any Agent
shall have determined that the adoption or implementation of, or any change in,
any law, rule, treaty or regulation, or any policy, guideline or directive of,
or any change in, the interpretation or administration thereof by, any court,
central bank or other administrative or Governmental Authority, or compliance
by any Lender, or any Agent or any Person controlling any such Lender, any such
Agent with any directive of, or guideline from, any central bank or other
Governmental Authority or the introduction of, or change in, any accounting
principles applicable to any Lender, any Agent or any Person controlling any
such Lender, any such Agent (in each case, whether or not having the force of law),
shall (i) subject any Lender, any Agent, or any Person controlling any
such Lender or, any such Agent to any tax, duty or other charge with respect to
this Agreement or the Term Loan made by such Lender or such Agent or change the
basis of taxation of payments to any Lender or any Agent or any Person
controlling any such Lender or any such Agent of any amounts payable hereunder
(except for taxes (A) imposed on, or measure by, such Lender’s or such Agent’s
overall net income or overall gross income imposed by the United States, the
jurisdiction under the laws of which such Lender or such Agent is incorporated
or otherwise organized, in which such Lender or such Agent is a resident for
income tax purposes, or in which such Lender’s or such Agent’s principal
executive office or lending office is located, in each case, including any
political subdivision thereof, or (B) branch profits taxes, franchise taxes, or
similar taxes, in each case measured by the overall net income or overall gross
income imposed by any jurisdiction in which such Lender or such Agent has a
lending office or branch office which, in each case shall be reimbursable as
set forth in Section 2.08), (ii) impose, modify or deem applicable
any reserve, special deposit or similar requirement against the Term Loan, or
against assets of or held by, or deposits with or for the account of, or credit
extended by, any Lender, any Agent or any Person controlling any such Lender or
any such Agent or (iii) impose on any Lender, any Agent or any Person controlling
any such Lender or any such Agent any other condition regarding this Agreement
or the Term Loan, and the result of any event referred to in clauses (i), (ii)
or (iii) above shall be to increase the cost to any Lender or any Agent of
making the Term Loan, or agreeing to make the Term Loan or to reduce any amount
received or receivable by any Lender or any Agent hereunder, then, upon demand
by any such Lender or any such Agent, the Borrower shall pay to such Lender or
such Agent such additional amounts as will compensate such Lender or such Agent
for such increased costs or reductions in amount.

 

(b)                                 If
any Lender or any Agent shall have determined that any Capital Guideline or the
adoption or implementation of, or any change in, any Capital Guideline by the
Governmental Authority charged with the interpretation or administration
thereof, or compliance by any Lender, any Agent or any Person controlling such
Lender or such Agent with any Capital Guideline or with any request or
directive of any such Governmental Authority with respect to any Capital
Guideline, or the implementation of, or any change in, any applicable
accounting principles (in each case, whether or not having the force of law),
either (i) affects or would affect the amount of capital required or
expected to be maintained by any Lender, any Agent or any Person controlling
such Lender or such Agent, and any Lender or any Agent determines that the
amount of such capital is increased as a direct or indirect consequence of the
Term Loan made or maintained, any Lender’s, any Agent’s or any such other
controlling Person’s other obligations hereunder, or (ii) has or would
have the effect of reducing the rate of return on any Lender’s, any Agent’s or
any such other controlling Person’s capital to a level below that which such
Lender, such Agent or such controlling Person could have achieved but for such
circumstances as a

 

45

 

consequence
of the Term Loan made or maintained, or any agreement to make the Term Loan, or
such Lender’s, such Agent’s or such other controlling Person’s other
obligations hereunder (in each case, taking into consideration, such Lender’s,
such Agent’s or such other controlling Person’s policies with respect to
capital adequacy), then, upon demand by any Lender, or any Agent, the Borrower
shall pay to such Lender or such Agent from time to time such additional
amounts as will compensate such Lender or such Agent for such cost of
maintaining such increased capital or such reduction in the rate of return on
such Lender’s, such Agent’s or such other controlling Person’s capital.

 

(c)                                  All
amounts payable under this Section 4.05 shall bear interest from
the date that is ten (10) days after the date of written demand by any Lender
or any Agent until payment in full to such Lender or such Agent at the
Reference Rate.  A certificate of such
Lender or such Agent claiming compensation under this Section 4.05,
specifying the event herein above described and the nature of such event shall
be submitted by such Lender or such Agent to the Borrower, setting forth the
additional amount due and an explanation of the calculation thereof, and such
Lender’s or such Agent’s reasons for invoking the provisions of this Section 4.05,
and shall be final and conclusive absent manifest error. To the extent that any
Lender or any Agent could materially mitigate the amounts payable under this Section 4.05
by the redesignation of such Lender’s or such Agent’s lending office with
respect to its portion of the Term Loan, and such redesignation would not
otherwise be materially disadvantageous to such Lender or such Agent or would
not be inconsistent with such Lender’s or such Agent’s internal policies of
general application, such Lender or such Agent shall use reasonable commercial
efforts to so redesignate such lending office.

 

ARTICLE V

CONDITIONS TO LOANS

 

Section 5.01                Conditions
Precedent.  The obligation
of the Lenders (or any member thereof) to make the Term Loan,
is subject to the fulfillment, to the satisfaction of the Agents, of each of
the conditions precedent set forth below:

 

(a)                                  Payment
of Fees, Etc.  The Borrower shall
have paid all fees, costs, expenses and taxes then payable pursuant to Sections
2.06 and/or 12.04.

 

(b)                                 Representations
and Warranties; No Event of Default. 
The following statements shall be true and correct:  (i) the representations and warranties
contained in Article VI and in each other Loan Document, certificate or
other writing delivered to any Agent or any Lender pursuant hereto or thereto
on or prior to the Effective Date are true and correct in all material respects
(except that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof) on and as of the Effective Date as though made
on and as of such date (it being understood and agreed that any representation
or warranty which by its terms is made as of a specified date shall be required
to be true and correct in all material respects only as of such specified date)
and (ii) no Default or Event of Default shall have occurred and be
continuing on the Effective Date or would result from this Agreement or the
other Loan Documents becoming effective in accordance with its or their respective
terms.

 

46

 

(c)                                  Legality.  The making of the Term Loan shall not
contravene any law, rule or regulation applicable to any Agent or any Lender.

 

(d)                                 Delivery
of Documents.  The Collateral Agent
shall have received on or before the Effective Date the following, each in form
and substance reasonably satisfactory to the Collateral Agent and, unless
indicated otherwise, dated the Effective Date:

 

(i)                                     a
Security Agreement, duly executed by each Loan Party, together with (A) the
original stock certificates representing all of the Capital Stock of such Loan
Party’s Subsidiaries (other than any CFC) and all intercompany promissory notes
of such Loan Parties, accompanied by undated stock powers executed in blank and
other proper instruments of transfer, and (B) the original stock certificates
representing 65% of the Capital Stock of each of Loan Party’s Subsidiaries
which is a CFC (other than Tri-Russ International (Hong Kong) Limited, Russ
Berrie (Benelux) B.V., and Russ Berrie (Ireland) Limited), accompanied by
undated stock powers executed in blank and other proper instruments of transfer;

 

(ii)                                  a Patent Security Agreement, duly executed by Borrower,
Sassy and Kids Line;

 

(iii)                               a Trademark Security Agreement, duly executed by Borrower,
Sassy and Kids Line;

 

(iv)                              a Copyright Security Agreement, duly executed by Borrower,
Sassy and Kids Line;

 

(v)                                 the Intercompany Subordination Agreement, duly executed by
each Loan Party;

 

(vi)                              a
UCC Filing Authorization Letter, duly executed by each Loan Party, together
with appropriate financing statements duly filed in such office or offices as
may be necessary or, in the reasonable opinion of the Collateral Agent,
desirable to perfect the security interests purported to be created by each
Security Agreement and each Mortgage;

 

(vii)                           certified
copies of all effective financing statements which name as debtor any Loan
Party and which are filed in the offices referred to in clause (iv) above,
together with copies of such financing statements, none of which, except as
otherwise agreed in writing by the Collateral Agent, shall cover any of the
Collateral and the results of searches for any tax Lien and judgment Lien filed
against such Person or its property, which results, except as otherwise agreed
to in writing by the Collateral Agent, shall not show any such Liens;

 

(viii)                        a satisfactory Phase I Environmental Site Assessment of each
Facility, in form and substance and by an independent firm satisfactory to the
Collateral Agent;

 

(ix)                                [Reserved];

 

(x)                                   the Backup Letter of Credit;

 

47

 

(xi)                                a
copy of the resolutions of each Loan Party, certified as of the Effective Date
by an Authorized Officer thereof, authorizing (A) the transactions contemplated
by the Loan Documents to which such Loan Party is or will be a party, and
(B) the execution, delivery and performance by such Loan Party of each
Loan Document to which such Loan Party is or will be a party and the execution
and delivery of the other documents to be delivered by such Person in
connection herewith and therewith;

 

(xii)                             a
certificate of an Authorized Officer of each Loan Party, certifying the names
and true signatures of the representatives of such Loan Party authorized to
sign each Loan Document to which such Loan Party is or will be a party and the
other documents to be executed and delivered by such Loan Party in connection
herewith and therewith, together with evidence of the incumbency of such
authorized officers;

 

(xiii)                          a
certificate of the appropriate official(s) of the state of organization and
each state of foreign qualification of each Loan Party certifying as to the
subsistence in good standing of, and the payment of taxes by, such Loan Party
in such states;

 

(xiv)                         a
true and complete copy of the charter, certificate of formation, certificate of
limited partnership or other publicly filed organizational document of each
Loan Party certified as of a recent date not more than 30 days prior to the
Effective Date by an appropriate official of the state of organization of such
Loan Party which shall set forth the same complete name of such Loan Party as
is set forth herein and the organizational number of such Loan Party, if an
organized number is issued in such jurisdiction;

 

(xv)                            a
copy of the charter and by-laws, limited liability company agreement, operating
agreement, agreement of limited partnership or other organizational document of
each Loan Party, together with all amendments thereto, certified as of the
Effective Date by an Authorized Officer of such Loan Party;

 

(xvi)                         an
opinion of (A) Kaye Scholer, LLP; Wilentz, Goldman & Spitzer, P.A., and
other counsel to the Loan Parties, substantially in the form of Exhibit
5.01(d)(xvi) and as to such other matters as the
Collateral Agent may reasonably request, and (B) Sidley Austin Brown & Wood
LLP, counsel to the Selling Parties as defined in the Acquisition Agreement, as
to such matters as the Collateral Agent may reasonably request;

 

(xvii)                      a certificate of an Authorized Officer of each Loan Party,
certifying as to the matters set forth in Section 5.01(b);

 

(xviii)                   a
copy of the Borrower Financial Statements, together with a certificate of an
Authorized Officer of the Borrower setting forth all existing Indebtedness (to
the extent required to be disclosed thereon in accordance with GAAP), pending
or threatened litigation or claims and other contingent liabilities of the
Borrower and its Subsidiaries;

 

(xix)                           a
copy of the Kids Line Financial Statements, together with a certificate of the
an Authorized Officer of the Borrower setting forth all existing Indebtedness
(to the extent required to be disclosed thereon in accordance with GAAP),
pending or threatened litigation or claims and other contingent liabilities of
the Kids Line and its Subsidiaries;

 

48

 

(xx)                              a copy of the financial projections described in Section 6.01(g)(iii)
hereof, which projections shall be reasonably satisfactory in form and
substance to the Agents;

 

(xxi)                           a
certificate of the chief financial officer of the Borrower, setting forth in
reasonable detail the calculations required to establish compliance, on a pro
forma basis based on the completion of the Acquisition and the financing
hereunder, and after giving effect to the payment in full of the December 2004
Dividend, with each of the financial covenants contained in Section 7.03;

 

(xxii)                        [Reserved];

 

(xxiii)                     evidence
of the insurance coverage required by Section 7.01 and the terms of
each Security Agreement and each Mortgage and such other insurance coverage
with respect to the business and operations of the Loan Parties as the
Collateral Agent may reasonably request, in each case, where requested by the
Collateral Agent, with such endorsements as to the named insureds or loss
payees thereunder as the Collateral Agent may request and providing that such
policy may be terminated or canceled (by the insurer or the insured thereunder)
only upon 30 days prior written notice to the Collateral Agent and each
such named insured or loss payee;

 

(xxiv)                    [Reserved];

 

(xxv)                       [Reserved];

 

(xxvi)                    an amendment to the EDA Standby L/C Reimbursement Agreement
eliminating the Borrower’s obligation to deliver cash collateral pursuant to Section 1.4
thereof;

 

(xxvii)                 copies
of Earnout Security Documents, the Backup Letter of Credit Reimbursement
Agreement, the EDA Documents and the other Material Contracts as in effect on
the Effective Date, certified as true and correct copies thereof by an
Authorized Officer of the Borrower, together with a certificate of an
Authorized Officer of the Borrower stating that such agreements remain in full
force and effect and that none of the Loan Parties has breached or defaulted in
any of its obligations under such agreements;

 

(xxviii)              a
termination and release agreement with respect to the Existing Credit Facility
and all related documents, duly executed by Kids Line and its Subsidiaries
parties thereto and the Existing Lenders, together with termination statements
for all financing statements filed by the Existing Lenders and covering any
portion of the Collateral;

 

(xxix)                      a
termination and release agreement with respect to the Existing GE Capital
Facility and all related documents, duly executed by CPC/KL Holdings, Kids Line
and its Subsidiaries parties thereto and GE Capital, together with termination
statements for all financing statements filed by GE Capital and covering any
portion of the Collateral;

 

49

 

(xxx)                         a
termination and release agreement with respect to the Existing CapitalSource
Facility and all related documents, duly executed by the CPC/KL Holdings, Kids
Line and its Subsidiaries parties thereto and CapitalSource, together with
termination statements for all financing statements filed by CapitalSource and
covering any portion of the Collateral;

 

(xxxi)                      a
termination and release agreement with respect to the Existing Kids Line, Inc.
Guaranty and all related documents, duly executed by Kids Line, Inc., a
California corporation, and Kids Line and its Subsidiaries parties thereto;

 

(xxxii)                   the
termination of the existing $20,000,000 line of credit and the modification of
the commercial letter of credit facility provided by the Bank of New York for
the benefit of the Borrower and Russ Berrie UK to comply with the requirements
of clause (g) of Permitted Indebtedness;

 

(xxxiii)                the Seller Subordination Agreement, duly executed by the
Earnout Seller Agent;

 

(xxxiv)               Flow
of Funds Agreement executed by the Selling Parties, the Borrower and
Administrative Agent, in form and substance satisfactory to the Administrative
Agent;

 

(xxxv)                  such
depository account, blocked account, lockbox account and similar agreements and
other documents, each in form and substance reasonably satisfactory to the
Agents, as the Agents may request with respect to the Borrower’s cash
management system;

 

(xxxvi)               the
amended and restated limited liability company agreement of Kids Line,
effecting among other things, the designation of the Borrower as the sole
member and the election of the 5 members to the board of directors of Kids
Line, certified as of the Effective Date by an Authorized Officer of Kids Line;

 

(xxxvii)            a
certificate of the chief executive officer or the chief financial officer of
the Borrower, certifying that attached thereto are complete and correct copies
of the Acquisition Agreement and other Acquisition Documents; and

 

(xxxviii)         such other agreements, instruments, approvals, opinions and
other documents, each satisfactory to the Collateral Agent in form and
substance, as the Collateral Agent may reasonably request.

 

(e)                                  Material
Adverse Effect.  The Collateral Agent
shall have determined, in its reasonable judgment, that no event or development
shall have occurred since December 31, 2003 which could reasonably be expected
to result in a Material Adverse Effect.

 

(f)                                    Consummation
of Acquisition.  The Acquisition,
including all of the terms and conditions thereof, shall have been duly
authorized by the Board of Directors and (if required by applicable law) the
shareholders of the parties to the Acquisition Documents, the waiting period
under the HSR Act applicable to the Acquisition shall have terminated, and

 

50

 

concurrently
with the making of the Term Loan, (i) the Acquisition shall have been
consummated pursuant to the Acquisition Documents (without any further
amendment or modification thereto that is materially adverse to the Borrower
without the consent of the Agents), and all conditions precedent to the
obligations of the Borrower to the consummation of the Acquisition shall have
been satisfied (or, with the prior written consent of Agents, waived by the
Borrower), (ii) Borrower shall have purchased pursuant to the Acquisition
Agreement (no provision of which shall have been amended or otherwise modified
or waived without the prior written consent of the Agents), and shall have
become the owner, free and clear of all Liens other than Permitted Liens, of
all of the “Units” and “Warrants” (as such terms are defined in the Acquisition
Agreement) for a cash purchase price payable at closing not in excess of
$128,000,000 (plus a cash balance of up to $150,000), (iii)  the proceeds of the Term Loan shall have been
contemporaneously applied in full to pay the Purchase Price payable pursuant to
the Acquisition Agreement for such Units and Warrants, and the closing and
other costs relating thereto, which closing and other costs, aggregated with
the costs payable on the Effective Date hereunder, shall in no event exceed
$6,500,000, and (iv) each of the Borrower and Selling Parties shall have fully
performed all of the obligations to be performed by it under the Acquisition
Agreement as of the Effective Date.

 

(g)                                 Funding
of the Acquisition.  Pursuant to the Acquisition
Closing Letter, Administrative Agent shall have received from the Borrower cash
in an amount no less than $9,500,000 to be applied to the payment of the
Purchase Price of the “Units” and “Warrants” pursuant to the Acquisition
Agreement.

 

(h)                                 Proceedings;
Receipt of Documents.  All
proceedings in connection with the making of the Term Loan and the other
transactions contemplated by this Agreement and the other Loan Documents, and
all documents incidental hereto and thereto, shall be satisfactory to the
Collateral Agent and its counsel, and the Collateral Agent and such counsel
shall have received all such information and such counterpart originals or
certified or other copies of such documents as the Collateral Agent or such
counsel may reasonably request.

 

(i)                                     Management
Reference Checks.  The Collateral
Agent shall have received satisfactory reference checks for key management of
each Loan Party.

 

(j)                                     Due
Diligence.  The Agents shall have
completed their legal due diligence with respect to each Loan Party and the
results thereof shall be acceptable to the Agents, in their reasonable
discretion, including, without limitation, satisfactory resolution of the
comments and other inquiries made by the SEC with respect to the Borrower’s
Form 10-K for the Fiscal Year of Borrower and its Subsidiaries ended December 31,
2003, whether by letter dated October 13, 2004 or any other communication;
provided, however, that with respect to the foregoing SEC
comments and inquiries, such portion of the condition precedent contained in
this subsection (j) shall be deemed satisfied by Borrower’s
delivery of a written statement executed by an Authorized Officer that, as of
the Effective Date, the SEC has made no further inquiries with respect to
Borrower’s response letter to the SEC dated November 3, 2004.

 

(k)                                  Acquisition
Documents.  Agents shall have
received copies of each of the Acquisition Documents, each of which shall be in
form and substance satisfactory to the

 

51

 

Lenders, together with a certificate of the Secretary
of Holdings certifying each such document as being a true, correct, and
complete copy thereof and in full force and effect.

 

(l)                                     Qualified
Cash.  After giving effect to the
payment in full of (i) the Purchase Price for the “Units” and the “Warrants”
(as defined in the Acquisition Agreement) pursuant to and in accordance with
the Acquisition Agreement, (ii) the fees, costs and expenses payable on the
Effective Date and arising from and incurred in connection with the Acquisition
and the Loan Documents, and (iii) the December 2004 Dividend (or the
funding of a reserve for such payment), the Dollar Equivalent Amount of
Qualified Cash shall equal or exceed $40,000,000.

 

Section 5.02                Conditions Subsequent to the Term
Loan.  The obligation of any
Agent or any Lender to make the Term Loan is subject to the fulfillment of each
of the following conditions subsequent (the failure by Borrower or any other
Loan Party to so perform or cause to be performed constituting an Event of
Default) within the time period specified below (as such time period may be
extended by Collateral Agent in its sole discretion):

 

(a)                                  The
Borrower shall cause delivery to Collateral Agent of, (1) within 20 Business
Days after the Effective Date, original stock certificates representing 65% of
the Capital Stock of Russ Berrie (Ireland) Limited, accompanied by undated
stock powers executed in blank and other proper instruments of transfer, and in
the case of Russ Berrie (Benelux) B.V., other instruments evidencing ownership
thereof, (2) within 60 days after the Effective Date, original stock
certificates representing 65% of the Capital Stock of Tri-Russ International
(Hong Kong) Limited, accompanied by undated stock powers executed in blank and
other proper instruments of transfer and (3) within 90 days after the Effective
Date, original reissued stock certificates representing 100% of the Capital
Stock of Russ Berrie & Co. (West), Inc. marked with transfer restriction
legends satisfactory to Collateral Agent, accompanied by undated stock powers
executed in blank and other proper instruments of transfer.

 

(b)                                 The
Borrower shall cause the delivery to Collateral Agent, within 45 days after the
Effective Date, in form and substance satisfactory to Collateral Agent and in
accordance with the requirements of Section 7.01(o), mortgages and
all other documents required pursuant to such Section 7.01(o)
relating thereto with respect to each Sassy’s interest in the Facility.

 

(c)                                  The
Loan Parties shall use commercially reasonable efforts to cause the delivery to
the Collateral Agent, within 45 days after the Effective Date, of a landlord
waiver, in form and substance satisfactory to the Collateral Agent, executed with
respect to each of the following leased locations: (i) 111 Bauer Drive,
Oakland, NJ 07436, (ii) 2520 Route 130, Cranbury (South Brunswick), NJ 08512,
(iii) 2249 South McDowell Blvd., Petaluma, CA 94954, (iv) 1120 36th Street, SW,
Grand Rapids, MI 49501, (v) 2601 Sequoia Drive, South Gate, California, and (vi)
1490 West Walnut Parkway, Compton, CA 90220.

 

(d)                                 The
Loan Parties shall use commercially reasonable efforts to cause the delivery to
Collateral Agent, within 45 days after the Effective Date, of a collateral
access agreement, in form and substance satisfactory to the Collateral Agent,
executed with respect to each of the following third party locations at which Collateral
with a fair market value in excess of $250,000 is routinely or regularly situated:
(i) Quality Assured Plastics, Inc., 1200 Crandall

 

52

 

Parkway,
Lawrence, MI 49064, (ii) Roher Corp., 717 Seville Road, Wadsworth, OH 44281,
(iii) Pratt Industries (USA), 2000 Beverly SW, Grand Rapids, MI 49509, (iv)
Display Pack, Inc., 1340 Monroe NW, Grand Rapids, MI 49505, (v) Steketee-Van
Huis, Inc., 13 West 4th Street, Holland, MI 49423, (vi) Knight Paper Box, 4651
West 72nd Street, Chicago, IL 60629, (vii) 2601 Sequoia Drive, South Gate, CA
90280, (viii) 1490 West Walnut Parkway, Compton, CA 90220, (ix) DSD Companies –
2411 Santa Fe Avenue, Redondo Beach, CA 90278, and (x) DSD Companies – 5745
Harbor Vitae Avenue, Los Angeles, CA 90045.

 

(e)                                  Within
60 days after the Effective Date, the Borrower shall have entered into a lease
with the EDA Borrower with respect to the South Brunswick Property for a lease
term of not less than five years from the effectiveness of such lease, and
further providing for the Borrower’s right to cure payment defaults under the
EDA Loan Agreement.

 

(f)                                    Within
90 days after the Effective Date, perfection of security interests in favor of
Collateral Agent in deposit accounts of the Borrower or the other Loan Parties
maintained in Korea and Australia to the reasonable satisfaction of Collateral
Agent, effected under the applicable foreign law, and in the event such
perfection is not accomplished with respect to any deposit account within such
time period, closure of such deposit account within 30 days thereafter.

 

(g)                                 The
Loan Parties shall use commercially reasonable efforts to cause the perfection
of security interests in favor of Collateral Agent in deposit accounts of the
Borrower or the other Loan Parties maintained in China to the reasonable
satisfaction of Collateral Agent, effected under the
applicable foreign law.

 

(h)                                 Within
90 days after the Effective Date, perfection of security interests in favor of
Collateral Agent in 65% of the Capital Stock of Amram’s Distributing Ltd. and Russ
Berrie (U.K.) Limited to the reasonable satisfaction of Collateral Agent,
effected under the law of Canada and the United Kingdom, respectively.

 

(i)                                     Within
45 days after the Effective Date, the Loan Parties shall deliver Control
Agreements executed by the applicable securities intermediaries on securities
accounts of the Loan Parties maintained with Merrill Lynch and Fidelity
Investments Institutional Operations Company, Inc., in each case satisfactory
to Collateral Agent, and in the event such any such Control Agreement is not so
delivered within such time period, the Loan Parties shall effect Collateral
Agent’s perfection thereon within 30 days thereafter under Section 8-106(d)(1)
of the Code, provided, however, that for so long as perfection is
not accomplished during the time periods described above, the Loan Parties
shall maintain on deposit in such securities account no more than the minimum
balance required by the applicable securities intermediaries.

 

(j)                                     Kids
Line shall have given, to such portion of its Account Debtors, irrevocable
instructions to remit payments with respect to Accounts Receivable of the Borrower
to be made by checks or other drafts to Lockboxes and to remit all payments to
be made by wire transfer or by Automated Clearing House, Inc. payment as
directed by Administrative Agent, so that (i) within 60 days after the
Effective Date, remittance payments of all Account Debtors owing an average
monthly account balance (based on the prior 6 months) in excess of $100,000 shall
be in compliance with such instructions, and (ii) within 90 days after the
Effective Date,

 

53

 

remittance payments of all other
Account Debtors of Kids Line shall be in compliance with such instructions.

 

(k)                                  Within
180 days after the Effective Date, the Borrower shall have given, to such
portion of its Account Debtors, irrevocable instructions to remit payments with
respect to Accounts Receivable of the Borrower to be made by checks or other
drafts to Lockboxes and to remit all payments to be made by wire transfer or by
Automated Clearing House, Inc. payment as directed by Administrative Agent, so
that remittance payments of Account Debtors owing 50% or more of the Accounts
Receivable of the Borrower shall be in compliance with such instructions.

 

(l)                                     Within
365 days after the Effective Date, the Borrower shall have (i) completed the
giving of irrevocable instructions to all Account Debtors of the Borrower, to
remit all payments with respect to Accounts Receivable of the Borrower to be
made by checks or other drafts to Lockboxes and to remit all payments to be
made by wire transfer or by Automated Clearing House, Inc. payment as directed
by Administrative Agent, and (ii) completed the migration of all such Account
Debtors to such payment regime, thereby enabling the full implementation of the
cash management system described in Section 8.01.

 

(m)                               Within
60 days after the Effective Date, Borrower shall have terminated the Premium
Finance Agreement Disclosure Statement and Security Agreement between Kids Line
and AICCO, Inc. dated November 17, 2004.

 

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

 

Section 6.01                Representations and Warranties.  Each Loan Party hereby represents and
warrants to the Agents and the Lenders:

 

(a)                                  Organization,
Good Standing, Etc.  Each of the Loan
Parties (i) is a corporation, limited liability company or limited partnership
duly organized, validly existing and in good standing under the laws of the
state or jurisdiction of its organization, (ii) has all requisite power and
authority to conduct its business as now conducted and as currently
contemplated and, in the case of the Borrower, to make the borrowings
hereunder, and (iii) is duly qualified to do business and is in good standing
in each jurisdiction in which the character of the properties owned or leased
by it or in which the transaction of its business makes such qualification
necessary.  Each Loan Party has all
requisite power and authority to execute and deliver each Loan Document to
which it is a party, and to consummate the transactions contemplated thereby.  Each of the Borrower’s Subsidiaries which is a
CFC (i) is a corporation, limited liability company, limited partnership or
other entity duly organized, validly existing and in good standing under the
laws of the state or jurisdiction of its organization, and (ii) has all
requisite power and authority to conduct its business as now conducted and as
currently contemplated.

 

54

 

(b)                                 Authorization,
Etc.  The execution, delivery and
performance by each Loan Party of each Loan Document to which it is or will be
a party, (i) have been duly authorized by all necessary action, (ii) do not and
will not contravene its charter or by-laws, its limited liability company or
operating agreement or its certificate of partnership or partnership agreement,
as applicable, or any applicable law or any material contractual restriction
binding on or otherwise affecting it or any of its properties, (iii) do not and
will not result in or require the creation of any Lien (other than pursuant to
any Loan Document) upon or with respect to any of its properties, and (iv) do
not and will not result in any default, noncompliance, suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to its operations or any of its properties.

 

(c)                                  Governmental
Approvals.  Except as duly obtained
prior to the Effective Date, no authorization or approval or other action by,
and no notice to or filing with, any Governmental Authority is required in
connection with the due execution, delivery and performance by any Loan Party
of any Loan Document to which it is or will be a party.

 

(d)                                 Enforceability
of Loan Documents.  This Agreement
is, and each other Loan Document to which any Loan Party is or will be a party,
when delivered hereunder, will be, a legal, valid and binding obligation of
such Person, enforceable against such Person in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws.

 

(e)                                  Subsidiaries.
 Schedule 6.01(e) is a
complete and correct description of the name, jurisdiction of incorporation and
ownership of the outstanding Capital Stock of each Subsidiary of the
Borrower.  All of the issued and
outstanding shares of Capital Stock of such Subsidiaries have been validly
issued and are fully paid and nonassessable, and the holders thereof are not
entitled to any preemptive, first refusal or other similar rights.  Except as indicated on such Schedule, all
such Capital Stock is owned by the Borrower or one or more of its wholly-owned
Subsidiaries, free and clear of all Liens. 
There are no outstanding debt or equity securities of the Borrower or
any of its Subsidiaries and no outstanding obligations of the Borrower or any
of its Subsidiaries convertible into or exchangeable for, or warrants, options
or other rights for the purchase or acquisition from the Borrower or any of its
Subsidiaries, or other obligations of any Subsidiary to issue, directly or
indirectly, any shares of Capital Stock of any Subsidiary of the Borrower.

 

(f)                                    Litigation;
Commercial Tort Claims.  Except as
set forth in Schedule 6.01(f), (i) there is no pending or, to
the best knowledge of any Loan Party, threatened action, suit or proceeding
affecting any Loan Party or any of its Subsidiaries before any court or other
Governmental Authority or any arbitrator that (A) if adversely determined,
could reasonably be expected to result in a Material Adverse Effect,
(B) relates to this Agreement or any other Loan Document or any transaction
contemplated hereby or thereby, or (C) relates to the Acquisition or the
Acquisition documents, or any transaction contemplated thereby, and
(ii) as of the Effective Date, neither any of the Loan Parties nor any of
their respective Subsidiaries holds any commercial tort claims in respect of
which a claim has been filed in a court of law or a written notice by an
attorney has been given to a potential defendant.

 

55

 

(g)                                 Financial
Condition.

 

(i)                                     The
Borrower Financial Statements, copies of which have been delivered to each
Agent and each Lender, fairly present in all material respects the consolidated
financial condition of the Borrower and its Subsidiaries as at the respective
dates thereof and the consolidated results of operations of the Borrower and
its Subsidiaries for the fiscal periods ended on such respective dates, all in
accordance with GAAP, and since December 31, 2003, no event or development
has occurred that has had or could reasonably be expected to result in a
Material Adverse Effect.

 

(ii)                                  The
Kids Line Financial Statements, copies of which have been delivered to each
Agent and each Lender, fairly present in all material respects the consolidated
financial condition of the Kids Line and its Subsidiaries as at the respective
dates thereof and the consolidated results of operations of the Kids Line and
its Subsidiaries for the fiscal periods ended on such respective dates, all in
accordance with GAAP, and since December 31, 2003, no event or development
has occurred that has had or could reasonably be expected to result in a
Material Adverse Effect.

 

(iii)                               The
Borrower has heretofore furnished to each Agent and each Lender
(A) projected quarterly balance sheets, income statements and statements
of cash flows of the Borrower and its
Subsidiaries for the period from January 1, 2005 through December 31,
2005, and (B) projected annual balance sheets, income statements and statements
of cash flows of the Borrower and its
Subsidiaries for the Fiscal Years ending in 2005 through 2009, which projected
financial statements shall be updated from time to time pursuant to Section 7.01(a)(v).  Such projections, as so updated, are believed
by the Borrower at the time furnished to be
reasonable, have been prepared on a reasonable basis and in good faith by the
Borrower, and have been based on assumptions believed by the Borrower to be
reasonable at the time made and upon the best information then reasonably
available to the Borrower, and the Borrower is not aware of any facts or
information that would lead it to believe that such projections, as so updated,
are incorrect or misleading in any material respect.  It is understood and agreed that projections
are subject to uncertainties and contingencies and no assurances can be given
that any projection will be realized.

 

(h)                                 Compliance
with Law, Etc.  No Loan Party nor any
of its Subsidiaries is in violation, in any material respect, of its
organizational documents, any law, rule, regulation, judgment or order of any
Governmental Authority applicable to it or any of its property or assets, or
any material term of any material agreement or instrument (including, without
limitation, any Material Contract) binding on or otherwise affecting it or any
of its properties, and no Default or Event of Default has occurred and is
continuing.

 

(i)                                     ERISA.  Except as set forth on Schedule 6.01(i),
(i) each Employee Plan is in substantial compliance with ERISA and the IRC,
(ii) no Termination Event has occurred nor is reasonably expected to occur
with respect to any Employee Plan, (iii) the most recent annual report
(Form 5500 Series) with respect to each Employee Plan, including any required Schedule B
(Actuarial Information) thereto, copies of which have been filed with the
Internal Revenue Service and delivered to the Agents, is complete and correct
and fairly presents the funding status of such Employee Plan, and since the
date of such report there has been no material adverse change in such funding
status, (iv) copies of each agreement entered into with the PBGC, the U.S.
Department of Labor or the Internal Revenue Service with respect to any

 

56

 

Employee
Plan have been delivered to the Agents, (v) no Employee Plan had an
accumulated or waived funding deficiency or permitted decrease which would
create a deficiency in its funding standard account or has applied for an
extension of any amortization period within the meaning of Section 412 of
the IRC at any time during the previous 60 months, and (vi) no Lien
imposed under the IRC or ERISA exists or is likely to arise on account of any
Employee Plan within the meaning of Section 412 of the IRC.  Except as set forth on Schedule 6.01(i),
no Loan Party or any of its ERISA Affiliates has incurred any withdrawal
liability under ERISA with respect to any Multiemployer Plan, or is aware of
any facts indicating that it or any of its ERISA Affiliates may in the future
incur any such withdrawal liability.  No
Loan Party or any of its ERISA Affiliates nor any fiduciary of any Employee
Plan has (A) engaged in a material nonexempt prohibited transaction described
in Sections 406 of ERISA or 4975 of the IRC, (B) failed to pay any material required
installment or material other payment required under Section 412 of the
IRC on or before the due date for such required installment or payment, (C)
engaged in a transaction within the meaning of Section 4069 of ERISA or
(D) incurred any liability to the PBGC which remains outstanding other than the
payment of premiums, and there are no premium payments which have become due
which are unpaid.  There are no pending
or, to the best knowledge of any Loan Party, threatened claims, actions,
proceedings or lawsuits (other than claims for benefits in the normal course)
asserted or instituted against (1) any Employee Plan or its assets, (2) any
fiduciary with respect to any Employee Plan, or (3) any Loan Party or any of
its ERISA Affiliates with respect to any Employee Plan.  Except as required by Section 4980B of
the Internal Revenue Code, no Loan Party maintains or has any actual or
contingent liability with respect to any employee welfare benefit plan (as
defined in Section 3(1) of ERISA) which provides health or welfare
benefits (through the purchase of insurance or otherwise) for any retired or
former employee of any entity or coverage after a participant’s termination of
employment.

 

(j)                                     Taxes,
Etc.  All material Federal, state,
local and foreign tax returns and other reports required by applicable law to
be filed by any Loan Party or any of its Subsidiaries have been filed, or
extensions have been obtained, and all material taxes, assessments and other
governmental charges imposed upon any Loan Party or any such Subsidiary or any
property of any Loan Party or any such Subsidiary and which have become due and
payable have been paid, except to the extent contested in good faith by proper
proceedings which stay the imposition of any penalty, fine or Lien resulting
from the non-payment thereof and with respect to which adequate reserves have
been set aside for the payment thereof in accordance with GAAP.

 

(k)                                  Regulations
T, U and X.  No Loan Party nor any of
its Subsidiaries is or will be engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation T, U or X), and no proceeds of the Term Loan will be used to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.

 

(l)                                     Nature
of Business.  No Loan Party or any of
its Subsidiaries is engaged in any businesses other than the gift, home decor
and infant products businesses, and other businesses which are reasonably
similar, related or complementary thereto, or are reasonable extensions thereof.

 

57

 

(m)                               Adverse
Agreements, Etc.  No Loan Party or
any of its Subsidiaries is a party to any agreement or instrument, or subject
to any charter, limited liability company agreement, partnership agreement or
other corporate, partnership or limited liability company restriction or any
judgment, order, regulation, ruling or other requirement of a court or other
Governmental Authority, which has, or in the future could reasonably be
expected to result in, a Material Adverse Effect.

 

(n)                                 Permits,
Etc.  Each Loan Party and its
Subsidiaries have, and are in material compliance with, all material permits,
licenses, authorizations, approvals, entitlements and accreditations required
for such Person lawfully to own, lease, manage or operate, or to acquire, each
business currently owned, leased, managed or operated, or to be acquired, by
such Person.  No condition exists or
event has occurred which, in itself or with the giving of notice or lapse of
time or both, would result in the suspension, revocation, impairment, forfeiture
or non-renewal of any material permit, license, authorization, approval,
entitlement or accreditation, and there is no claim that any thereof is not in
full force and effect.

 

(o)                                 Properties.  (i)  Each
Loan Party and its Subsidiaries have good and marketable title to, valid
leasehold interests in, or valid licenses to use, all property and assets
material to its business, free and clear of all Liens, except Permitted
Liens.  All such properties and assets
are in good working order and condition, ordinary wear and tear excepted.

 

(ii)                                  Schedule 6.01(o)
sets forth a complete and accurate list, as of the Effective Date, of the
location, by state and street address, of all real property owned or leased by
each Loan Party and its Subsidiaries.  As
of the Effective Date, each Loan Party and its Subsidiaries has valid leasehold
interests in the Leases described on Schedule 6.01(o) to which it
is a party.  Schedule 6.01(o)
sets forth with respect to each such Lease, the commencement date, termination
date, renewal options (if any) and annual base rents.  Each such Lease is valid and enforceable in
accordance with its terms in all material respects and is in full force and
effect.  No consent or approval of any
landlord or other third party in connection with any such Lease is necessary
for any Loan Party to enter into and execute the Acquisition Documents or the
Loan Documents to which it is a party, except as set forth on Schedule 6.01(o).  To the best knowledge of any Loan Party, no
other party to any such Lease is in default of its obligations thereunder, and
neither any Loan Party nor any of its Subsidiaries (or any other party to any
such Lease) has at any time delivered or received any notice of default which
remains uncured under any such Lease and, as of the Effective Date, no event
has occurred which, with the giving of notice or the passage of time or both,
would constitute a default under any such Lease.

 

(p)                                 Full
Disclosure.  Each Loan Party has
disclosed to the Agents all agreements, instruments and corporate or other
restrictions to which it is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.  None of the
other reports, financial statements, certificates or other information
furnished by or on behalf of any Loan Party and its Subsidiaries to the Agents
in connection with the negotiation of this Agreement or delivered hereunder (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which it
was made, not misleading; provided that, with respect to projected
financial information, each Loan Party represents only that such information
was prepared in

 

58

 

good
faith based upon assumptions believed to be reasonable at the time.  There is no contingent liability or fact that
could reasonably be expected to result in a Material Adverse Effect which has
not been set forth in a footnote included in the Borrower Financial Statements
or a Schedule hereto. It is understood and agreed that projections are
subject to uncertainties and contingencies and no assurances can be given that
any projection will be realized.

 

(q)                                 Operating
Lease Obligations.  On the Effective
Date, none of the Loan Parties nor any of their Subsidiaries has any material Operating
Lease Obligations other than the Operating Lease Obligations set forth on Schedule 6.01(q).

 

(r)                                    Environmental
Matters.  Except as set forth on Schedule 6.01(r),
(i) the operations of each Loan Party and each of its Subsidiaries are in material
compliance with all Environmental Laws; (ii) there has been no Release at any
of the properties owned or operated by any Loan Party, any such Subsidiary or a
predecessor in interest, or at any disposal or treatment facility which
received Hazardous Materials generated by any Loan Party, such Subsidiary or
any predecessor in interest which could reasonably be expected to result in a
Material Adverse Effect; (iii) no Environmental Action has been asserted
against any Loan Party, any such Subsidiary or any predecessor in interest nor
does any Loan Party have knowledge or notice of any threatened or pending
Environmental Action against any Loan Party, any such Subsidiary or any
predecessor in interest which could reasonably be expected to result in a
Material Adverse Effect; (iv) no Environmental Actions have been asserted
against any facilities that may have received Hazardous Materials generated by
any Loan Party, any such Subsidiary or any predecessor in interest which could
reasonably be expected to result in a Material Adverse Effect; (v) no
property now or formerly owned or occupied by a Loan Party or any Subsidiary
thereof has been used as a treatment or disposal site for any Hazardous
Material in a manner which could reasonably be expected to result in a Material
Adverse Effect; (vi) neither any Loan Party nor any of its Subsidiaries
has failed to report to the proper Governmental Authority the occurrence of any
Release which is required to be so reported by any Environmental Laws which
could reasonably be expected to result in a Material Adverse Effect; (vii) each
Loan Party and its Subsidiaries hold all licenses, permits and approvals
required under any Environmental Laws in connection with the operation of the
business carried on by it, except for such licenses, permits and approvals as
to which a Loan Party’s or its Subsidiary’s failure to maintain or comply with
could not reasonably be expected to result in a Material Adverse Effect; and
(viii) neither any Loan Party nor any of its Subsidiaries has received any
notification pursuant to any Environmental Laws that (A) any work, repairs,
construction or Capital Expenditures are required to be made in respect as a
condition of continued compliance with any Environmental Laws, or any license,
permit or approval issued pursuant thereto or (B) any license, permit or approval
referred to above is about to be reviewed, made subject to limitations or
conditions, revoked, withdrawn or terminated, in each case, except as could not
reasonably be expected to result in a Material Adverse Effect.

 

(s)                                  Insurance.  Each Loan Party and each of its Subsidiaries
keep their property adequately insured and maintains (i) insurance to such
extent and against such risks, including fire, as is customary with companies
in the same or similar businesses, (ii) worker’s compensation insurance in the
amount required by applicable law, (iii) public liability insurance, which
shall include product liability insurance, in the amount customary with
companies in the same or similar business against claims for personal injury or
death on properties owned,

 

59

 

occupied
or controlled by it, and (iv) such other insurance as may be required by
law.  Schedule 6.01(s) sets
forth a list of all insurance maintained by each Loan Party on the Effective
Date.

 

(t)                                    Use
of Proceeds.  The proceeds of the
Term Loan shall be used to (a) finance, in part, the Acquisition, (b) pay fees
and expenses related to the Acquisition, and (c) pay fees and expenses in
connection with the transactions contemplated hereby. 

 

(u)                                 Solvency.  After giving effect to the transactions
contemplated by this Agreement and before and after giving effect to the Term
Loan, each Loan Party (other than Inactive Subsidiaries) is, and the Loan
Parties on a consolidated basis are, Solvent.

 

(v)                                 Location
of Bank Accounts.  Schedule 6.01(v)
sets forth a complete and accurate list as of the Effective Date of all
deposit, checking and other bank accounts, all securities and other accounts
maintained with any broker dealer and all other similar accounts maintained by
each Loan Party and each of its Subsidiaries, together with a description
thereof (i.e., the bank or broker dealer at which such deposit or other
account is maintained and the account number and the purpose thereof).

 

(w)                               Intellectual
Property.  Except as set forth on Schedule 6.01(w),
each Loan Party and its Subsidiaries own or license or otherwise have the right
to use all licenses, permits, patents, patent applications, trademarks,
trademark applications, service marks, tradenames, copyrights, copyright
applications, franchises, authorizations, non-governmental licenses and permits
and other intellectual property rights that are necessary for the operation of
their respective business, without infringement upon or conflict with the
rights of any other Person with respect thereto, except for such infringements
and conflicts which, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.  Set forth on Schedule 6.01(w) is
a complete and accurate list as of the Effective Date of all such material
licenses, permits, patents, patent applications, trademarks, trademark
applications, service marks, tradenames, copyrights, copyright applications,
franchises, authorizations, non-governmental licenses and permits and other
intellectual property rights of each Loan Party or its Subsidiaries.  No slogan or other advertising device,
product, process, method, substance, part or other material now employed, or
now contemplated to be employed, by any Loan Party or any of its Subsidiaries
infringes upon or conflicts with any rights owned by any other Person, and no
claim or litigation regarding any of the foregoing is pending or threatened,
except for such infringements and conflicts which could not reasonably be expected
to result in, individually or in the aggregate, a Material Adverse Effect.  To the best knowledge of each Loan Party, no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or proposed, which, individually or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect.

 

(x)                                   Material
Contracts.  Set forth on Schedule 6.01(x)
is a complete and accurate list as of the Effective Date of all Material
Contracts of each Loan Party and its Subsidiaries, showing the parties and
subject matter thereof and amendments and modifications thereto.  Each such Material Contract (i) in all
material respects, is in full force and effect, and is binding upon and
enforceable against each Loan Party or such Subsidiary that is a party thereto
and, to the best knowledge of such Loan Party, all other parties thereto in
accordance with its terms, (ii) has not been otherwise materially amended
or modified, and (iii) is not in material

 

60

 

default
due to the action of any Loan Party or any such Subsidiary or, to the best
knowledge of any Loan Party, any other party thereto.

 

(y)                                 Holding
Company and Investment Company Acts. 
None of the Loan Parties is (i) a “holding company” or a “subsidiary
company” of a “holding company” or an “affiliate” of a “holding company”, as
such terms are defined in the Public Utility Holding Company Act of 1935, as
amended, or (ii) an “investment company” or an “affiliated person” or “promoter”
of, or “principal underwriter” of or for, an “investment company”, as such
terms are defined in the Investment Company Act of 1940, as amended.

 

(z)                                   Employee
and Labor Matters.  Except as set
forth in Schedule 6.01(f), there is (i) no unfair labor practice
complaint pending or, to the best knowledge of any Loan Party, threatened
against any Loan Party or any of its Subsidiaries before any Governmental
Authority and no grievance or arbitration proceeding pending or threatened against
any Loan Party or any of its Subsidiaries which arises out of or under any
collective bargaining agreement, (ii) no strike, labor dispute, slowdown,
stoppage or similar action or grievance pending or, to the best knowledge of
any Loan Party or its Subsidiaries, threatened against any Loan Party or any of
its Subsidiaries or (iii) to the best knowledge of any Loan Party, no union
representation question existing with respect to the employees of any Loan
Party or any of its Subsidiaries and no union organizing activity taking place
with respect to any of the employees of any Loan Party or any of its
Subsidiaries.  No Loan Party or any of
its ERISA Affiliates has incurred any liability or obligation under the Worker
Adjustment and Retraining Notification Act (“WARN”) or similar state
law, which remains unpaid or unsatisfied. 
The hours worked and payments made to employees of any Loan Party or any
of its Subsidiaries have not been in violation of the Fair Labor Standards Act
or any other applicable legal requirements, except to the extent such
violations could not, individually or in the aggregate, reasonably be expected
to result in a Material Adverse Effect. 
All material payments due from any Loan Party or any of its Subsidiaries
on account of wages and employee health and welfare insurance and other
benefits have been paid or accrued as a liability on the books of such Loan
Party, except where the failure to do so could not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect.

 

(aa)                            Customers
and Suppliers.  There exists no
actual or threatened termination, cancellation or limitation of the business
relationship between (i) any Loan Party or any of its Subsidiaries, on the one
hand, and any customer or any group thereof, on the other hand, whose
agreements with any Loan Party or any such Subsidiary are individually or in
the aggregate material to the business or operations of such Loan Party or such
Subsidiary, or (ii) any Loan Party or any of its Subsidiaries, on the one
hand, and any material supplier thereof, on the other hand, in each case which
would reasonably be expected to result in a Material Adverse Effect. 

 

(bb)                          No
Bankruptcy Filing.  Neither any Loan
Party nor any of its Subsidiaries is contemplating either the filing of a
petition by it under any state, federal or foreign bankruptcy or insolvency
laws or the liquidation of all or a major portion of such Loan Party’s or such
Subsidiary’s assets or property, and no Loan Party has any knowledge of any
Person contemplating the filing of any such petition against it.

 

61

 

(cc)                            Separate
Existence.  In all material respects:

 

(i)                                     All
customary formalities regarding the corporate existence of each Loan Party and
each of its Subsidiaries have been at all times since its formation observed.

 

(ii)                                  Each
Loan Party and each of its Subsidiaries have at all times since their
respective formation accurately maintained their financial statements,
accounting records and other organizational documents separate from those of
any Affiliate of such Loan Party or such Subsidiary, as the case may be, and
any other Person.  Neither any Loan Party
nor any of its Subsidiaries has at any time since its formation commingled its
assets with those of any of its Affiliates or any other Person.  Each Loan Party and each of its Subsidiaries
have at all times since their formation accurately maintained its own bank
accounts and separate books of account.

 

(iii)                               Each
Loan Party and each of its Subsidiaries have at all times since their formation
paid its own liabilities from its own separate assets.

 

(iv)                              Each
Loan Party and each of its Subsidiaries have at all times since their formation
identified themselves in all dealings with the public, under its own name and
as a separate and distinct Person. 
Neither any Loan Party nor any of its Subsidiaries has at any time since
its formation identified itself as being a division or a part of any other
Person.

 

(dd)                          Name;
Jurisdiction of Organization; Organizational ID Number; Chief Place of
Business; Chief Executive Office; FEIN. 
Schedule 6.01(dd) sets forth a complete and accurate list as of the
date hereof of (i) the exact legal name of each Loan Party and each of its
Subsidiaries, (ii) the jurisdiction of organization of each Loan Party,
(iii) the organizational identification number of each Loan Party (or
indicates that such Loan Party has no organizational identification number),
(iv) each place of business of each Loan Party and each of its Subsidiaries,
(v) the chief executive office of each Loan Party and each of its
Subsidiaries and (vi) the federal employer identification number of each
Loan Party.

 

(ee)                            Tradenames.  Schedule 6.01(ee) hereto sets
forth a complete and accurate list as of the Effective Date of all tradenames
used by each Loan Party and its Subsidiaries.

 

(ff)                                Locations
of Collateral.  There is no location
at which any Loan Party has any Collateral (except for Inventory in transit)
other than (i) those locations listed on Schedule 6.01(ff) and
(ii) any other locations approved in writing by the Collateral Agent from
time to time.  Schedule 6.01(ff)
hereto contains a true, correct and complete list, as of the Effective Date, of
the legal names and addresses of each warehouse at which Collateral of each
Loan Party is stored.  None of the
receipts received by any Loan Party from any warehouse states that the goods
covered thereby are to be delivered to bearer or to the order of a named Person
or to a named Person and such named Person’s assigns.

 

(gg)                          Security
Interests.  The Security Agreement
creates in favor of the Collateral Agent, for the benefit of the Lenders, a
legal, valid and enforceable security interest in

 

62

 

the
Collateral covered thereby.  Upon the
filing of the financing statements described in Section 5.01(d) and any
other security documents contemplated in the Security Agreement described in Section 5.01(d),
and the execution and delivery Control Agreements specified in Article V
hereof, such security interests in and Liens on the Collateral granted thereby
shall be perfected, first priority security interests (subject to Permitted
Liens), and no further recordings or filings are or will be required in
connection with the creation, perfection or enforcement of such security
interests and Liens.

 

(hh)                          Acquisition
Documents.  The Borrower has
delivered to the Agents a complete and correct copy of (1) the Acquisition
Agreement, including all schedules and exhibits thereto, and (2) the other
Acquisition Documents.  The Acquisition
Agreement, taken together with the other Acquisition Documents, sets forth the
entire agreement and understanding of the parties thereto relating to the
subject matter thereof, and there are no other agreements, arrangements or
understandings, written or oral, relating to the matters covered thereby.  The execution, delivery and performance of
the Acquisition Agreement and the other Acquisition Documents have been duly
authorized by all necessary action (including, without limitation, the
obtaining of any consent of stockholders or other holders of Capital Stock
required by law or by any applicable corporate or other organizational
documents) on the part of each Loan Party or any Subsidiary thereof that is a
party thereto.  No authorization or
approval or other action by, and no notice to filing with or license from, any
Governmental Authority is required to be obtained by any Loan Party or any of
its Subsidiaries other than such as have been obtained on or prior to the
Effective Date.  Each of the Acquisition
Agreement and other Acquisition Documents is the legal, valid and binding
obligation of the Loan Parties and Subsidiaries thereof that are parties
thereto, enforceable against them in accordance with its terms.

 

(ii)                                  CFC
Subsidiaries.  Each Subsidiary of the
Borrower which is neither incorporated nor otherwise organized under the federal
laws or the laws of a state of the United States is a CFC.

 

(jj)                                  Inactive
Subsidiaries.  Each Inactive
Subsidiary (i) has conducted no material operations or business (other than the
winding down of its business or liquidation of assets), (ii) has total assets
of an aggregate fair market value of less than $50,000, or (iii) has no
Indebtedness or other material liabilities (other than the Obligations and
obligations to the Earnout Sellers).

 

(kk)                            Schedules.  All of the information which is required to
be scheduled to this Agreement is set forth on the Schedules attached hereto,
is correct and accurate and does not omit to state any information material
thereto.

 

(ll)                                  Representations
and Warranties in Documents; No Default. 
All representations and warranties set forth in this Agreement and the
other Loan Documents are true and correct in all material respects (except that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof) at the time as of which such representations were made and on the
Effective Date (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such

 

63

 

specified
date).  No Event of Default has occurred
and is continuing and no condition exists which constitutes a Default or an
Event of Default.

 

ARTICLE VII

COVENANTS OF THE LOAN PARTIES

 

Section 7.01                Affirmative
Covenants.  So long as any principal
of or interest on the Term Loan, or any other Obligation (whether or not due,
but other than contingent liabilities not then due and payable), shall remain
unpaid or any Lender shall have any Commitment hereunder, each Loan Party will
and will cause each of its Subsidiaries to:

 

(a)                                  Reporting
Requirements.  Furnish to each Agent
and each Lender:

 

(i)                                     as
soon as available and in any event within 45 days after the end of each fiscal
quarter of the Borrower, consolidated and consolidating balance sheets,
consolidated and consolidating statements of operations and retained earnings
and consolidated and consolidating statements of cash flows of the Borrower and
its Subsidiaries as at the end of such quarter, and for the period commencing
at the end of the immediately preceding Fiscal Year and ending with the end of
such quarter, setting forth in each case in comparative form the figures for
the corresponding date or period of the immediately preceding Fiscal Year, all
in reasonable detail and certified by an Authorized Officer of the Borrower as
fairly presenting, in all material respects, the financial position of the
Borrower and its Subsidiaries as of the end of such quarter and the results of
operations and cash flows of the Borrower and its Subsidiaries for such
quarter, in accordance with GAAP applied in a manner consistent with that of
the most recent audited financial statements of the Borrower and its
Subsidiaries furnished to the Agents and the Lenders, subject to normal
year-end audit adjustments and the absence of footnotes;

 

(ii)                                  as
soon as available, and in any event within 90 days after the end of each Fiscal
Year of the Borrower and its
Subsidiaries, consolidated and consolidating balance sheets, consolidated and
consolidating statements of operations and retained earnings and consolidated
and consolidating statements of cash flows of the Borrower and its Subsidiaries
as at the end of such Fiscal Year, setting forth in each case in comparative
form the corresponding figures for the immediately preceding Fiscal Year, all in
reasonable detail and prepared in accordance with GAAP, and accompanied by a
report and an unqualified opinion, prepared in accordance with generally
accepted auditing standards, of independent certified public accountants of
recognized standing selected by the Borrower and reasonably satisfactory to the
Agents (which opinion shall be without (A) a “going concern” or like
qualification or exception, (B) any qualification or exception as to the
scope of such audit, or (C) any qualification which relates to the
treatment or classification of any item and which, as a condition to the
removal of such qualification, would require an adjustment to such item, the
effect of which would be to cause any noncompliance with the provisions of Section 7.03, together with a written statement
of such accountants (1) to the effect that, in making the examination
necessary for their audit of such financial statements, they have not obtained
any knowledge of the existence of an Event of Default or a Default under Section 7.03
and (2) if such accountants shall have obtained any knowledge of the
existence of an Event of Default or such Default under Section 7.03,
describing the nature thereof;

 

64

 

(iii)                               as
soon as available, and in any event within 30 days after the end of each fiscal
month of the Borrower and its Subsidiaries (other than the end of a fiscal
month which is also the end of a fiscal quarter of the Borrower and its
Subsidiaries), internally prepared consolidated and consolidating balance
sheets, consolidated and consolidating statements of operations and retained
earnings and consolidated and consolidating statements of cash flows as at the
end of such fiscal month, and for the period commencing at the end of the immediately
preceding Fiscal Year and ending with the end of such fiscal month, all in
reasonable detail and certified by an Authorized Officer of the Borrower as
fairly presenting, in all material respects, the financial position of the
Borrower and its Subsidiaries as at the end of
such fiscal month and the results of operations, retained earnings and cash
flows of the Borrower and its Subsidiaries for such fiscal month, in accordance
with GAAP applied in a manner consistent with that of the most recent audited
financial statements furnished to the Agents and the Lenders, subject to normal
year-end audit adjustments and the absence of footnotes, and accompanied by a
written management discussion and analysis of the financial results and
performance for such fiscal month;

 

(iv)                              simultaneously
with the delivery of the financial statements of the Borrower and its
Subsidiaries required by clauses (i), (ii) and (iii) of this Section 7.01(a),
a certificate of an Authorized Officer of the Borrower (A) stating that such
Authorized Officer has reviewed the provisions of this Agreement and the other
Loan Documents and has made or caused to be made under his or her supervision a
review of the condition and operations of the Borrower and
its Subsidiaries during the period covered by such financial statements with a
view to determining whether the Borrower and its Subsidiaries were in
compliance with all of the provisions of this Agreement and such Loan Documents
at the times such compliance is required hereby and thereby, and that such
review has not disclosed, and such Authorized Officer has no knowledge of, the
existence during such period of an Event of Default or Default or, if an Event
of Default or Default existed, describing the nature and period of existence
thereof and the action which the Borrower and its Subsidiaries propose to take
or have taken with respect thereto, (B) attaching a schedule showing the
calculation of the financial covenants specified in Section 7.03,
and (C) attaching a pro forma schedule showing the calculation of the
financial covenants specified in Section 7.03 after giving effect
to the payment of dividends on the common shares of the Borrower’s Capital
Stock as permitted by Section 7.02(s) in the applicable fiscal
period following the period covered by such financial statements;

 

(v)                                 on
or before February 15 of each year, financial projections, supplementing
and superseding the financial projections for the period referred to in Section 6.01(g)(iii)(A),
prepared on a monthly basis and otherwise in form reasonably satisfactory to
the Agents, for the immediately succeeding Fiscal Year for the Borrower and its
Subsidiaries, all such financial projections to be prepared on a reasonable
basis and in good faith, and to be based on assumptions believed by the
Borrower to be reasonable at the time made and from the best information then
available to the Borrower (it being understood that projections are subject to uncertainties
and contingencies and no assurance can be given that any projection will be realized);

 

(vi)                              as
soon as available, and in any event within 30 days after the end of each fiscal
month of the Borrower and its Subsidiaries, (A) a detailed aging report of the
accounts receivable of the Borrower and its Subsidiaries as of the end of such
fiscal month,

 

65

 

together
with a reconciliation and supporting documentation for any reconciling items
noted, (B) a summary report of the inventory of the Borrower and its
Subsidiaries as of the end of such fiscal month, (C) a detailed aging report of
the accounts payable of the Borrower and its Subsidiaries as of the end of such
fiscal month, together with a reconciliation and supporting documentation for
any reconciling items noted, (D) a detailed report of all deposit, checking and
other bank accounts, all securities and other accounts maintained with any
broker dealer and all other similar accounts maintained by each Loan Party and
each of its Subsidiaries, together with a description thereof (i.e., the
bank or broker dealer at which such deposit or other account is maintained and
the account number and the purpose thereof), (E) a detailed report describing
the Cash and Cash Equivalents of the Borrower and its Subsidiaries as of the
end of such fiscal month, segregated by each legal entity and by location of
such Cash and Cash Equivalents, and including in all such reports an indication
of which amounts constitute Unrestricted Cash, Domestic Unrestricted Cash,
Foreign Unrestricted Cash and Qualified Cash, and the Dollar Equivalent Amounts
thereof, (F) a detailed report describing the Hedging Agreements in effect with
respect to the Loan Parties and their Subsidiaries, and the amounts available
to be drawn, and amounts drawn under, letters of credit issued for the account
of the Loan Parties and their Subsidiaries, or under which any Loan Party or
any of their Subsidiaries is otherwise obligated;

 

(vii)                           promptly
after submission to any Governmental Authority, all documents and information
furnished to such Governmental Authority in connection with any investigation
of any Loan Party other than routine inquiries by such Governmental Authority;

 

(viii)                        as
soon as possible, and in any event within 3 Business Days after the occurrence
of an Event of Default or Default or the occurrence of any event or development
that could reasonably be expected to result in a Material Adverse Effect, the
written statement of an Authorized Officer of the Borrower setting forth the
details of such Event of Default or Default or other event or development
having a Material Adverse Effect and the action which the affected Loan Party
proposes to take with respect thereto;

 

(ix)                                (A)
as soon as possible and in any event within 20 days after any Loan Party or any
ERISA Affiliate thereof knows or has reason to know that (1) any Reportable
Event with respect to any Employee Plan has occurred, (2) any other Termination
Event with respect to any Employee Plan has occurred, or (3) an accumulated
funding deficiency has been incurred or an application has been made to the
Secretary of the Treasury for a waiver or modification of the minimum funding
standard (including installment payments) or an extension of any amortization
period under Section 412 of the IRC with respect to an Employee Plan, a statement
of an Authorized Officer of the Borrower setting forth the details of such
occurrence and the action, if any, which such Loan Party or such ERISA
Affiliate proposes to take with respect thereto, (B) promptly and in any event
within 3 days after receipt thereof by any Loan Party or any ERISA Affiliate
thereof from the PBGC, copies of each notice received by any Loan Party or any
ERISA Affiliate thereof of the PBGC’s intention to terminate any Plan or to
have a trustee appointed to administer any Plan, (C) promptly and in any event
within 10 days after the filing thereof with the Internal Revenue Service if
requested by any Agent, copies of each Schedule B (Actuarial Information)
to the annual report (Form 5500 Series) with respect to each Employee Plan and
Multiemployer Plan, (D) promptly and in any event within 10 days after any Loan
Party or any ERISA Affiliate thereof knows or has reason to know that a
required installment within the meaning of Section 412 of the IRC has not
been made when due with

 

66

 

respect
to an Employee Plan, (E) promptly and in any event within 3 days after receipt
thereof by any Loan Party or any ERISA Affiliate thereof from a sponsor of a
Multiemployer Plan or from the PBGC, a copy of each notice received by any Loan
Party or any ERISA Affiliate thereof concerning the imposition or amount of
withdrawal liability under Section 4202 of ERISA or indicating that such
Multiemployer Plan may enter reorganization status under Section 4241 of
ERISA, and (F) promptly and in any event within 10 days after any Loan Party or
any ERISA Affiliate thereof sends notice of a plant closing or mass layoff (as
defined in WARN) to employees, copies of each such notice sent by such Loan
Party or such ERISA Affiliate thereof;

 

(x)                                   promptly
after the commencement thereof but in any event not later than 5 Business Days
after service of process with respect thereto on, or the obtaining of knowledge
thereof by, any Loan Party, notice of each action, suit or proceeding before
any court or other Governmental Authority or other regulatory body or any
arbitrator which, if adversely determined, could reasonably be expected to
result in a Material Adverse Effect;

 

(xi)                                as
soon as possible and in any event within 5 Business Days after execution,
receipt or delivery thereof, copies of any material notices that any Loan Party
executes or receives in connection with any Material Contract, subject to
confidentiality restrictions, if any, as to such disclosure;

 

(xii)                             promptly
after the sending or filing thereof, copies of all statements, reports and
other information any Loan Party or any Subsidiary thereof sends to any holders
of its Indebtedness or its securities (other than the Permitted Holders) or
files with the SEC or any national (domestic or foreign) securities exchange;
provided, however, that Borrower shall not be required to deliver any of the
foregoing which has previously been delivered hereunder;

 

(xiii)                          promptly
upon receipt thereof, copies of all financial reports (including, without
limitation, management letters), if any, submitted to any Loan Party by its
auditors in connection with any annual or interim audit of the books thereof;
and

 

(xiv)                         promptly upon request, such
other information concerning the condition or operations, financial or
otherwise, of any Loan Party as any Agent may from time to time may reasonably
request.

 

(b)                                 Additional
Guaranties and Collateral Security. 
Cause:

 

(i)                                     each
Subsidiary of any Loan Party to execute and deliver to the Collateral Agent promptly
and in any event within 5 Business Days (15 Business Days in the case of a
foreign Subsidiary) after the formation or acquisition thereof (A) a Guaranty
guaranteeing the Obligations, (B) a Security Agreement or a joinder to an existing
Security Agreement, (C) if such Subsidiary has any Subsidiaries, (x)
certificates evidencing all of the Capital Stock of any Person owned by such
Subsidiary, (y) undated stock powers executed in blank with signature
guaranteed, and (z) such opinion of counsel and such approving certificate of
such Subsidiary as the Collateral Agent may reasonably request in respect of
complying with any legend on any such certificate or any other matter relating
to such shares, (D) one or more Mortgages creating on the real property of such
Subsidiary a perfected, first priority Lien on such

 

67

 

real
property, a Title Insurance Policy covering such real property, a current ALTA
survey thereof and a surveyor’s certificate, each in form and substance
satisfactory to the Collateral Agent, together with such other agreements,
instruments and documents as the Collateral Agent may require whether
comparable to the documents required under Section 7.01(o) or
otherwise, and (E) such other agreements, instruments, approvals, legal
opinions or other documents reasonably requested by the Collateral Agent in
order to create, perfect, establish the first priority of or otherwise protect
any Lien purported to be covered by any such Security Agreement or Mortgage, or
otherwise to effect the intent that such Subsidiary shall become bound by all
of the terms, covenants and agreements contained in the Loan Documents and that
all property and assets of such Subsidiary shall become Collateral for the
Obligations; provided, however, that to the extent that the
Borrower can demonstrate to the Collateral Agent’s satisfaction, in its reasonable
discretion, (I) that the execution or delivery of a Guaranty, Security
Agreement or Mortgage by such Subsidiary which is a CFC would result in a
material adverse tax consequence to the Loan Parties, then for so long as such
Subsidiary is a CFC, such Guaranty, Security Agreement or Mortgage will not be
required, or (II) that the pledge of all of the Capital Stock of such
Subsidiary which is a CFC would result in a material adverse tax consequence to
the Loan Parties, then for so long as such Subsidiary is a CFC, the pledge of
Capital Stock of such Subsidiary shall be limited to 65% of the Capital Stock
of such Subsidiary from time to time outstanding; and 

 

(ii)                                  each
owner of the Capital Stock of any such Subsidiary to execute and deliver promptly
and in any event within 5 Business Days after the formation or acquisition of
such Subsidiary a Security Agreement or joinder to an existing Security
Agreement, together with (A) certificates evidencing all of the Capital
Stock of such Subsidiary, (B) undated stock powers or other appropriate
instruments of assignment executed in blank with signature guaranteed,
(C) such opinion of counsel and such approving certificate of such
Subsidiary as the Collateral Agent may reasonably request in respect of
complying with any legend on any such certificate or any other matter relating
to such shares and (D) such other agreements, instruments, approvals,
legal opinions or other documents reasonably requested by the Collateral Agent.

 

(c)                                  Compliance
with Laws, Etc.  Comply, and cause
each of its Subsidiaries to comply, in all material respects with all
applicable laws, rules, regulations and orders (including, without limitation,
all Environmental Laws), such compliance to include, without limitation, (i)
paying before the same become delinquent all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits or
upon any of its properties, and (ii) paying all other lawful claims which
if unpaid might become a Lien or charge upon any of its properties, except, in
each case, to the extent contested in good faith by proper proceedings which stay
the imposition of any penalty, fine or Lien resulting from the non-payment
thereof and with respect to which adequate reserves have been set aside for the
payment thereof in accordance with GAAP.

 

(d)                                 Preservation
of Existence, Etc.  Maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, its
existence, rights and privileges, and become or remain, and cause each of its
Subsidiaries to become or remain, duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or
in which the transaction of its business makes such qualification necessary.

 

68

 

(e)                                  Keeping
of Records and Books of Account. 
Keep, and cause each of its Subsidiaries to keep, adequate records
and books of account, with complete entries made to permit the preparation of
financial statements in accordance with GAAP.

 

(f)                                    Inspection
Rights.  Permit, and cause each of
its Subsidiaries to permit, the agents and representatives of any Agent at any
time and from time to time during normal business hours, at the expense of the
Borrower, to examine and make copies of and abstracts from its records and
books of account, to visit and inspect its properties, to verify leases, notes,
accounts receivable, deposit accounts and its other assets, to conduct audits,
physical counts, valuations, appraisals, Phase I Environmental Site Assessments
(and, if requested by the Collateral Agent based upon the results of any such
Phase I Environmental Site Assessment, a Phase II Environmental Site
Assessment) or examinations and to discuss its affairs, finances and accounts
with any of its directors, officers, managerial employees, independent
accountants or any of its other representatives; provided, however,
that so long as no Default or Event of Default shall have occurred and be
continuing, Agents shall be limited to two on-site visits, inspections or
examinations during each Fiscal Year; provided, further, that so
long as no Default or Event of Default shall have occurred and be continuing,
Phase I and Phase II Environmental Site Assessments shall not be required for
the Facility.

 

(g)                                 Maintenance
of Properties, Etc.  Maintain and
preserve, and cause each of its Subsidiaries to maintain and preserve, all of
its properties which are necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and comply, and cause each of its Subsidiaries to comply, at all times with the
provisions of all leases to which it is a party as lessee or under which it
occupies property, so as to prevent any material loss or forfeiture thereof or
thereunder.

 

(h)                                 Maintenance
of Insurance.  Maintain, and cause
each of its Subsidiaries to maintain, insurance with responsible and reputable
insurance companies or associations (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with respect to its properties (including all real properties leased
or owned by it) and business, in such amounts and covering such risks as is
required by any Governmental Authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated and in any event in amount,
adequacy and scope reasonably satisfactory to the Collateral Agent.  All policies covering the Collateral are to
be made payable to the Collateral Agent for the benefit of the Lenders, as its
interests may appear, in case of loss, under a standard non-contributory “lender”
or “secured party” clause and are to contain such other provisions as the
Collateral Agent may reasonably require to fully protect the Lenders’ interest
in the Collateral and to any payments to be made under such policies.  All certificates of insurance are to be
delivered to the Collateral Agent and the policies are to be premium prepaid to
the extent they have been prior to the Effective Date, with the loss payable
and additional insured endorsement in favor of the Collateral Agent and such
other Persons as the Collateral Agent may designate from time to time, and
shall provide for not less than 30 days prior written notice to the Collateral
Agent of the exercise of any right of cancellation.  If any Loan Party or any of its Subsidiaries
fails to maintain such insurance, the Collateral Agent may arrange for such
insurance after giving written notice to the Borrower, but at the Borrower’s
expense and without any responsibility on the Collateral Agent’s part for
obtaining the insurance, the solvency of the insurance companies,

 

69

 

the
adequacy of the coverage, or the collection of claims.  Upon the occurrence and during the
continuance of an Event of Default, the Collateral Agent shall have the sole
right, in the name of the Lenders, any Loan Party and its Subsidiaries, to file
claims under any insurance policies, to receive, receipt and give acquittance
for any payments that may be payable thereunder, and to execute any and all
endorsements, receipts, releases, assignments, reassignments or other documents
that may be necessary to effect the collection, compromise or settlement of any
claims under any such insurance policies.

 

(i)                                     Obtaining
of Permits, Etc.  Obtain, maintain
and preserve, and cause each of its Subsidiaries to obtain, maintain and
preserve, and take all necessary action to timely renew, all material permits,
licenses, authorizations, approvals, entitlements and accreditations which are
necessary or useful in the proper conduct of its business.

 

(j)                                     Environmental.  (i)  Keep any property either owned
or operated by it or any of its Subsidiaries free of any Environmental Liens;
(ii) comply, and cause each of its Subsidiaries to comply, in all material
respects with Environmental Laws and provide to the Collateral Agent any
documentation of such compliance which the Collateral Agent may reasonably
request; (iii) promptly notify the Agents of any Release of a Hazardous
Material in excess of any reportable quantity from or onto property owned or
operated by it or any of its Subsidiaries and take any Remedial Actions
required under Environmental Law to abate said Release; (iv) promptly
provide the Agents with written notice within 10 days of the receipt of any of
the following:  (A) notice that an
Environmental Lien has been filed against any property of any Loan Party or any
of its Subsidiaries; (B) commencement of any material Environmental Action
or notice that an Environmental Action will be filed against any Loan Party or
any of its Subsidiaries; and (C) notice of a violation, citation or other
administrative order which could reasonably be expected to result in a Material
Adverse Effect and (v) defend, indemnify and hold harmless the Agents and
the Lenders and their transferees, and their respective employees, agents,
officers and directors, from and against any claims, demands, penalties, fines,
liabilities, settlements, damages, costs or expenses (including, without
limitation, attorney and consultant fees, investigation and laboratory fees,
court costs and litigation expenses) arising out of (A) the presence,
disposal, release or threatened release of any Hazardous Materials on any
property at any time owned or occupied by any Loan Party or any of its
Subsidiaries (or its predecessors in interest or title), (B) any personal
injury (including wrongful death) or property damage (real or personal) arising
out of or related to such Hazardous Materials, (C) any investigation, lawsuit
brought or threatened, settlement reached or government order relating to such
Hazardous Materials, (D) any violation of any Environmental Law by a Loan
Party and/or (E) any Environmental Action filed against any Agent or any Lender
relating to a Loan Party or its assets and properties.

 

(k)                                  Further
Assurances.  Take such action and
execute, acknowledge and deliver, and cause each of its Subsidiaries to take
such action and execute, acknowledge and deliver, at its sole cost and expense,
such agreements, instruments or other documents as any Agent may reasonably require
from time to time in order (i) to carry out more effectively the purposes
of this Agreement and the other Loan Documents, (ii) to subject to valid
and perfected first priority Liens (subject to Permitted Liens) any of the
Collateral or any other property of any Loan Party, (iii) to establish and
maintain the validity and effectiveness of any of the Loan Documents and the
validity, perfection and priority of the Liens intended to be created thereby,

 

70

 

and
(iv) to better assure, grant, collaterally assign and confirm unto each
Agent and each Lender the rights now or hereafter intended to be granted to it
under this Agreement or any other Loan Document.  In furtherance of the foregoing, to the
maximum extent permitted by applicable law, each Loan Party (A) authorizes
each Agent to execute any such reasonably required or necessary collateral
assignment agreements, instruments or other documents in such Loan Party’s name
and to file such agreements, instruments or other documents in any appropriate
filing office, (B) authorizes each Agent to file any financing statement
required hereunder or under any other Loan Document, and any continuation
statement or amendment with respect thereto, in any appropriate filing office
without the signature of such Loan Party, and (C) ratifies the filing of
any financing statement, and any continuation statement or amendment with
respect thereto, filed without the signature of such Loan Party prior to the
date hereof.

 

(l)                                     Change
in Collateral; Collateral Records. 
(i)  Give the Collateral Agent not
less than 30 days prior written notice of any change in the location of
any Collateral, other than to (or in-transit between) locations set forth on Schedule 6.01(ff)
and with respect to which the Collateral Agent has filed financing statements
and otherwise fully perfected its Liens thereon, and (ii) advise the
Collateral Agent promptly, in sufficient detail, of any material adverse change
relating to the type, quantity or quality of the Collateral or the Lien granted
thereon.

 

(m)                               Landlord
Waivers; Collateral Access Agreements. 

 

(i)                                     At
any time any Collateral with a book value in excess of $200,000 is located on
any real property of the Borrower or any other Loan Party (whether such real
property is now existing or acquired after the Effective Date) which is not
owned by the Borrower or any other Loan Party, use commercially reasonable
efforts to obtain written subordinations or waivers, in form and substance reasonably
satisfactory to the Collateral Agent, of all present and future Liens to which
the owner or lessor of such premises may be entitled to assert against the
Collateral; and 

 

(ii)                                  Use
commercially reasonable efforts to obtain written access agreements, in form
and substance reasonably satisfactory to the Collateral Agent, providing access
to Collateral located on any premises not owned by the Borrower or any other
Loan Party in order to remove such Collateral from such premises during the
continuance of an Event of Default.

 

(n)                                 Subordination.
Cause all Indebtedness and other obligations now or hereafter owed by it to any
of its Affiliates, to be subordinated in right of payment and security to the
Indebtedness and other Obligations owing to the Agents and the Lenders in
accordance with a subordination agreement in form and substance satisfactory to
the Agents.

 

(o)                                 After
Acquired Real Property.  Upon the
acquisition by it or any of its Domestic Subsidiaries of any After Acquired
Property, promptly (but in any event within 5 Business Days following the date such
acquisition is consummated) so notify the Collateral Agent, setting forth with
specificity a description of the interest acquired, the location of the real
property, any structures or improvements thereon and either an appraisal or
such Loan Party’s good-faith estimate of the current value of such real
property (for purposes of this Section,

 

71

 

the ”Current
Value”).  The Collateral Agent shall
notify such Loan Party whether it intends to require a Mortgage and the other
documents referred to below or in the case of leasehold, a leasehold Mortgage
or landlord’s waiver (pursuant to Section 7.01(m) hereof).  Upon receipt of such notice requesting a
Mortgage, the Person which has acquired such After Acquired Property shall promptly
(but in any event within 25 Business Days following the date of receipt of such
notice) furnish to the Collateral Agent the following, each in form and
substance reasonably satisfactory to the Collateral Agent:  (i) a Mortgage with respect to such real
property and related assets located at the After Acquired Property, each duly
executed by such Person and in recordable form; (ii) evidence of the recording
of the Mortgage referred to in clause (i) above in such office or offices as
may be necessary or, in the opinion of the Collateral Agent, desirable to
create and perfect a valid and enforceable first priority lien on the property
purported to be covered thereby or to otherwise protect the rights of the
Agents and the Lenders thereunder, (iii) a Title Insurance Policy,
(iv) a survey of such real property, certified to the Collateral Agent and
to the issuer of the Title Insurance Policy by a licensed professional surveyor
reasonably satisfactory to the Collateral Agent, (v) Phase I Environmental
Site Assessments with respect to such real property, certified to the
Collateral Agent by a company reasonably satisfactory to the Collateral Agent,
(vi) in the case of a leasehold interest, a certified copy of the lease
between the landlord and such Person with respect to such real property in
which such Person has a leasehold interest, (vii) in the case of a
leasehold interest, if requested by the Collateral Agent, an attornment and
nondisturbance agreement between the landlord (and any fee mortgagee) with
respect to such real property and the Collateral Agent, as to which such Person
shall undertake commercially reasonable efforts to obtain, and (viii) such
other documents or instruments (including guarantees and opinions of counsel)
as the Collateral Agent may reasonably require. 
The Borrower shall pay all fees and expenses, including reasonable
attorneys’ fees and expenses, and all title insurance charges and premiums, in
connection with each Loan Party’s obligations under this Section 7.01(o).

 

(p)                                 Fiscal
Year.  Cause the fiscal year of the
Borrower and its Subsidiaries to end on December 31
of each calendar year unless the Agents consent (which consent shall not be
unreasonably withheld or delayed) to a change in such fiscal year of Borrower and its Subsidiaries (and appropriate related changes to
this Agreement).

 

(q)                                 [Reserved].

 

(r)                                    Repatriation
of Foreign Unrestricted Cash.  Upon
demand therefor by the Collateral Agent (i) at any time after December 31,
2005, but only to the extent that doing so would not reasonably be expected to
result in material adverse tax consequences to the Borrower and its
Subsidiaries, taken as a whole, or (ii) after the occurrence and continuance of
a Default or an Event of Default, cause each of its Subsidiaries which is a CFC
to remit any and all Foreign Unrestricted Cash of such Subsidiaries to the
Borrower which shall at all times thereafter maintain all such Unrestricted Cash
so remitted in deposit accounts (as that term is defined in the Code) of the
Borrower maintained with a branch office of a bank located in the United States
and with respect to each such deposit account a Control Agreement shall then be
in effect, or in securities accounts (as that term is defined in the Code) of
the Borrower maintained with a securities intermediary located within the
United States and with respect to each such securities account a Control
Agreement shall then be in effect, or a combination thereof.

 

72

 

Section 7.02                Negative
Covenants.  So long as any principal
of or interest on the Term Loan, or any other Obligation (whether or not due,
but other than contingent liabilities not then due and payable), shall remain
unpaid, each Loan Party shall not and shall not permit any of its Subsidiaries
to:

 

(a)                                  Liens,
Etc.  Create, incur, assume or suffer
to exist, or permit any of its Subsidiaries to create, incur, assume or suffer
to exist, any Lien upon or with respect to any of its properties, whether now
owned or hereafter acquired; file or suffer to exist under the Uniform
Commercial Code or any similar law or statute of any jurisdiction, a financing
statement (or the equivalent thereof) that names it or any of its Subsidiaries
as debtor; sign or suffer to exist any security agreement authorizing any
secured party thereunder to file such financing statement (or the equivalent
thereof); sell any of its property or assets subject to an understanding or
agreement, contingent or otherwise, to repurchase such property or assets
(including sales of accounts receivable) with recourse to it or any of its
Subsidiaries or assign or otherwise transfer, or permit any of its Subsidiaries
to assign or otherwise transfer, any account or other right to receive income;
other than, as to all of the above, Permitted Liens.

 

(b)                                 Indebtedness.  Create, incur, assume, guarantee or suffer to
exist, or otherwise become or remain liable with respect to, or permit any of its
Subsidiaries to create, incur, assume, guarantee or suffer to exist or
otherwise become or remain liable with respect to, any Indebtedness other than
Permitted Indebtedness.

 

(c)                                  Fundamental
Changes; Dispositions.  Wind-up,
liquidate or dissolve, or merge, consolidate or amalgamate with any Person, or
convey, sell, lease (as a lessor) or sublease (as a sublessor), transfer or
otherwise dispose of, whether in one transaction or a series of related
transactions, all or any part of its business, property or assets, whether now
owned or hereafter acquired (or agree to do any of the foregoing), or purchase
or otherwise acquire, whether in one transaction or a series of related
transactions, all or substantially all of the assets of any Person (or any
division thereof) (or agree to do any of the foregoing), or permit any of its
Subsidiaries to do any of the foregoing; provided, however, that

 

(i)                                     any
wholly-owned Domestic Subsidiary of any Loan Party may be merged into such Loan
Party or another wholly-owned Domestic Subsidiary of such Loan Party, or may
consolidate with another wholly-owned Domestic Subsidiary of such Loan Party,
so long as (A) no other provision of this Agreement would be violated
thereby, (B) such Loan Party gives the Agents at least 30 days prior
written notice of such merger or consolidation, (C) no Default or Event of
Default shall have occurred and be continuing either before or after giving
effect to such transaction, (D) the Lenders’ rights in any Collateral,
including, without limitation, the existence, perfection and priority of any
Lien thereon, are not adversely affected by such merger or consolidation and
(E) the surviving Subsidiary, if any, is not an Inactive Subsidiary and is
joined as a Loan Party hereunder and is a party to a Guaranty and a Security
Agreement and the Capital Stock of which Subsidiary is the subject of a Security
Agreement, in each case, which is in full force and effect on the date of and
immediately after giving effect to such merger or consolidation; 

 

(ii)                                  any
Loan Party and its Subsidiaries may make Permitted Dispositions; and

 

73

 

(iii)                               any
Inactive Subsidiary may be dissolved.

 

(d)                                 Change
in Nature of Business.  Make, or
permit any of its Subsidiaries to make, any change in the nature of its
business as described in Section 6.01(l).

 

(e)                                  Loans,
Advances, Investments, Etc.  Make or
commit or agree to make any loan, advance, guarantee of obligations, other
extension of credit or capital contributions to, or hold or invest in or commit
or agree to hold or invest in, or purchase or otherwise acquire or commit or
agree to purchase or otherwise acquire any shares of the Capital Stock, bonds,
notes, debentures or other securities of, or make or commit or agree to make any
other investment in, any other Person, or purchase or own any futures contract
or otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or permit any
of its Subsidiaries to do any of the foregoing, except for, without duplication:
(i) investments existing on the date hereof, as set forth on Schedule 7.02(e)
hereto, but not any increase in the amount thereof as set forth in such Schedule or
any other modification of the terms thereof, (ii) temporary loans and
advances by the Borrower to a Loan Party that is a Domestic Subsidiary, and by any
Domestic Subsidiary to the Borrower or any other Domestic Subsidiary, made in
the ordinary course of business and not exceeding in the aggregate at any one
time outstanding $50,000, (iii) loans and advances by any Subsidiary of the
Borrower which is a CFC to any other Subsidiary of the Borrower which is a CFC,
made in the ordinary course of business, (iv) loans and advances by any
Subsidiary of the Borrower which is a CFC to Borrower or any Domestic
Subsidiary, (v) Capital Expenditures to the extent permitted by Section 7.02(g),
(vi) investments by the Borrower and its Subsidiaries under Hedging Agreements
that constitute Permitted Indebtedness, (vii) loans and advances by the
Borrower and its Domestic Subsidiaries to their respective employees, directors
or officers in an aggregate principal amount not to exceed $100,000 at any time
outstanding, and (viii) Permitted Investments. 

 

(f)                                    Lease
Obligations.  Create, incur or suffer
to exist, or permit any of its Subsidiaries to create, incur or suffer to
exist, any obligations as lessee (i) for the payment of rent for any real
or personal property in connection with any sale and leaseback transaction, or
(ii) for the payment of rent for any real or personal property under
leases or agreements to lease other than (A) Capitalized Lease Obligations
which would not cause the aggregate amount of all obligations under Capitalized
Leases entered into after the Effective Date owing by all Loan Parties and
their Subsidiaries in any Fiscal Year to exceed 1,000,000, and
(B) Operating Lease Obligations which would not cause the aggregate amount
of all Operating Lease Obligations owing by all Loan Parties and their
Subsidiaries in any Fiscal Year to exceed $7,500,000. 

 

(g)                                 Capital
Expenditures.  Make or commit or
agree to make, or permit any of its Subsidiaries to make or commit or agree to
make, any Capital Expenditure (whether by purchase or Capitalized Lease or
otherwise) that would cause the aggregate amount of all Capital Expenditures
made by the Loan Parties and their Subsidiaries, in any Fiscal Year, to exceed
$4,200,000; provided, however, that if the full amount of Capital
Expenditures available under this Section 7.02(g) is not expended
in any particular Fiscal Year (such amount not expended being a “remainder
amount”), one hundred percent (100%) of such remainder amount shall be
available to be expended as a Capital Expenditure, in the Fiscal Year immediately
following the Fiscal Year in which such remainder amount was created (but in no
event in any succeeding

 

74

 

Fiscal
Year); provided, further, that the remainder amount so carried
over to such following Fiscal Year (the “carryover year”) shall not be
deemed to have been expended in the carryover year until the amounts of Capital
Expenditures available to be expended under this Section 7.02(g)
(without regard to the immediately preceding proviso) in the carryover year,
shall have been expended in full.

 

(h)                                 Restricted Payments.  (i)  Declare or pay
any dividend or other distribution of any kind (including, without
limitation, any redemption, partial redemption, share repurchase or any other
similar transaction), direct or
indirect, on account of any Capital Stock of any Loan Party or any of its
Subsidiaries, now or hereafter outstanding, except for dividends on the common
stock of Borrower expressly permitted by Section 7.02(s), and
except for stock splits of the common stock of Borrower pursuant to which no
cash or other property is distributed to the holders thereof, (ii) make any
repurchase, redemption, retirement, defeasance, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
Capital Stock of any Loan Party or any of its Subsidiaries, now or hereafter
outstanding, (iii) make any payment to retire, or to obtain the surrender of,
any outstanding warrants, options or other rights for the purchase or acquisition
of shares of any class of Capital Stock of the Borrower, now or hereafter
outstanding, (iv) pay any management fees or any other fees or expenses
(including the reimbursement thereof by any Loan Party or any of its
Subsidiaries) pursuant to any management, consulting or other services
agreement to any of the shareholders or other equityholders of any Loan Party
or any of its Subsidiaries or other Affiliates, or to any other Subsidiaries or
Affiliates of any Loan Party, or (v) pay any amounts attributable to Earnout
Consideration; provided, however, that any Subsidiary of the
Borrower may at any time pay dividends and make other distributions to the
Borrower; provided, further, that Borrower may repurchase or
redeem Capital Stock of the Borrower held by employees, officers and directors in
the ordinary course of its business and consistent with past practice.

 

(i)                                     Federal
Reserve Regulations.  Permit the Term
Loan or the proceeds of the Term Loan under this Agreement to be used for any
purpose that would cause the Term Loan to be a margin loan under the provisions
of Regulation T, U or X of the Board.

 

(j)                                     Transactions
with Affiliates.  Enter into, renew,
extend or be a party to, or permit any of its Subsidiaries to enter into,
renew, extend or be a party to, any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease,
transfer or exchange of property or assets of any kind or the rendering of
services of any kind) with any Affiliate, except (i) in the ordinary course
of business in a manner and to an extent consistent with past practice and
necessary or desirable for the prudent operation of its business, for fair
consideration and on terms no less favorable to it or its Subsidiaries than
would be obtainable in a comparable arm’s length transaction with a Person that
is not an Affiliate thereof, (ii) transactions with another Loan Party
(iii) transactions with Affiliates permitted by Section 7.02(e) or
(h), (iv) transactions with officers or directors of the Borrower or its
Subsidiaries providing for the payment of customary and reasonable fees, and indemnification
and reimbursement of expenses, upon customary and reasonable terms, and in each
case pursuant to compensation plans that are (x) in effect on the Effective
Date or (y) approved by the board of directors or other governing body of the
Borrower or such Subsidiary, and (v) employment, non-competition and
confidentiality agreements with employees of the Borrower or its Subsidiaries entered
into in the ordinary course of its business and consistent with past practice.

 

75

 

(k)                                  Limitations
on Dividends and Other Payment Restrictions Affecting Subsidiaries.  Create or otherwise cause, incur, assume,
suffer or permit to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any Subsidiary of any Loan Party
(i) to pay dividends or to make any other distribution on any shares of
Capital Stock of such Subsidiary owned by any Loan Party or any of its
Subsidiaries, (ii) to pay or prepay or to subordinate any Indebtedness
owed to any Loan Party or any of its Subsidiaries, (iii) to make loans or
advances to any Loan Party or any of its Subsidiaries or (iv) to transfer
any of its property or assets to any Loan Party or any of its Subsidiaries, or
permit any of its Subsidiaries to do any of the foregoing; provided, however, that nothing
in any of clauses (i) through (iv) of this Section 7.02(k) shall
prohibit or restrict compliance with:

 

(A)                              this
Agreement and the other Loan Documents;

 

(B)                                any
agreements in effect on the date of this Agreement and described on Schedule 7.02(k);

 

(C)                                any
applicable law, rule or regulation (including, without limitation, applicable
currency control laws and applicable state corporate statutes restricting the
payment of dividends in certain circumstances);

 

(D)                               in
the case of clause (iv), any agreement setting forth customary restrictions on
the subletting, assignment or transfer of any property or asset that is leased
or licensed;

 

(E)                                 in
the case of clause (iv), any agreement, instrument or other document evidencing
a Permitted Lien that restricts, on customary terms, the transfer of any property
or assets subject thereto;

 

(F)                                 customary
restrictions of transfer of any asset pending the sale of such asset; or

 

(G)                                customary
provisions in organizational documents of Borrower’s Subsidiaries which are CFC’s
that restrict the transfer of Capital Stock of such Subsidiaries.

 

(l)                                     Limitation
on Issuance of Capital Stock.  Except
for the issuance and sale of common shares of the Capital Stock of the
Borrower, issue or sell, or enter into any agreement or arrangement for the
issuance and sale of, or permit any of its Subsidiaries to issue or sell or
enter into any agreement or arrangement for the issuance and sale of, any
shares of its Capital Stock, any securities convertible into or exchangeable
for its Capital Stock or any warrants.

 

(m)                               Modifications
of Indebtedness, Organizational Documents and Certain Other Agreements; Etc.  (i) Amend, modify or otherwise change (or
permit the amendment, modification or other change in any manner of) any of the
provisions of any of its or its Subsidiaries’ Indebtedness or of any instrument
or agreement (including, without limitation, any purchase agreement, indenture,
loan agreement or security agreement) relating to any such Indebtedness if such
amendment, modification or change would shorten the final maturity or

 

76

 

average
life to maturity of, or require any payment to be made earlier than the date
originally scheduled on, such Indebtedness, would increase the interest rate
applicable to such Indebtedness, would increase the principal amount of such
Indebtedness or any commitment by the financing source with respect to such
Indebtedness, would change the subordination provisions, if any, of such
Indebtedness, or would otherwise be materially adverse to the Lenders or the
issuer of such Indebtedness in any respect, (ii) except for the
Obligations, make any voluntary or optional payment, prepayment, redemption,
defeasance, sinking fund payment or other acquisition for value of any of its
or its Subsidiaries’ Indebtedness (including, without limitation, by way of
depositing money or securities with the trustee therefor before the date
required for the purpose of paying any portion of such Indebtedness when due),
or refund, refinance, replace or exchange any other Indebtedness for any such
Indebtedness (except to the extent such Indebtedness is otherwise expressly
permitted by subsection (b) of the definition of “Permitted
Indebtedness”), or make any payment, prepayment, redemption, defeasance,
sinking fund payment or repurchase of any outstanding Indebtedness as a result
of any asset sale, change of control, issuance and sale of debt or equity
securities or similar event, or give any notice with respect to any of the
foregoing, (iii) except as permitted by Section 7.02(c),
amend, modify or otherwise change its name, jurisdiction of organization,
organizational identification number or FEIN (provided, that this clause (iii)
shall not apply to any CFC) or (iv) amend, modify or otherwise change its
certificate of incorporation or bylaws (or other similar organizational
documents), including, without limitation, by the filing or modification of any
certificate of designation, or, any agreement or arrangement entered into by
it, with respect to any of its Capital Stock (including any shareholders’
agreement), or enter into any new agreement with respect to any of its Capital
Stock, except any such amendments, modifications or changes or any such new
agreements or arrangements pursuant to this clause (iv) that either
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

 

(n)                                 Investment
Company Act of 1940.  Engage in any
business, enter into any transaction, use any securities or take any other
action or permit any of its Subsidiaries to do any of the foregoing, that would
cause it or any of its Subsidiaries to become subject to the registration
requirements of the Investment Company Act of 1940, as amended, by virtue of
being an “investment company” or a company “controlled” by an “investment
company” not entitled to an exemption within the meaning of such Act.

 

(o)                                 Dividends
and Other Distributions by Certain of Borrower’s Subsidiaries.  To the extent any Cash or Cash Equivalents
shall be distributed from time to time by any of Subsidiary of Borrower which
is a CFC to any Loan Party, fail to hold such Cash or Cash Equivalents in
deposit accounts (as such term is defined in the Code) maintained with a branch
office of a bank located in the United States and with respect to each such
deposit account a Control Agreement shall then be in effect, or in securities
accounts (as such term is defined in the Code) maintained with a securities
intermediary located within the United States and with respect to each such
securities account a Control Agreement shall then be in effect, or
alternatively, so long as no Default or Event of Default shall have occurred
and be continuing, to use the such Cash or Cash Equivalents as working capital
in the ordinary course of such Loan Party’s business.

 

(p)                                 ERISA.  (i) Engage, or permit any ERISA Affiliate to
engage, in any transaction described in Section 4069 of ERISA;
(ii) engage, or permit any ERISA Affiliate

 

77

 

to
engage, in any prohibited transaction described in Section 406 of ERISA or
4975 of the IRC for which a statutory or class exemption is not available or a
private exemption has not previously been obtained from the U.S. Department of
Labor; (iii) adopt or permit any ERISA Affiliate to adopt any employee welfare
benefit plan within the meaning of Section 3(1) of ERISA which provides
benefits to employees after termination of employment other than as required by
Section 601 of ERISA or applicable law; (iv) fail to make any contribution
or payment to any Multiemployer Plan which it or any ERISA Affiliate may be required
to make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto; or (v) fail, or permit any ERISA Affiliate to fail, to pay
any required installment or any other payment required under Section 412
of the IRC on or before the due date for such installment or other payment.

 

(q)                                 Environmental.  Permit the use, handling, generation,
storage, treatment, release or disposal of Hazardous Materials at any property
owned or leased by it or any of its Subsidiaries, except in compliance with
Environmental Laws and so long as such use, handling, generation, storage,
treatment, release or disposal of Hazardous Materials does not result in a
Material Adverse Effect.

 

(r)                                    Certain
Agreements.  Agree to any material
amendment or other material change to or material waiver of any of its rights
under the Acquisition Documents, the Earnout Security Documents, the EDA
Documents, the Backup Letter of Credit Reimbursement Agreement, or any of the Other
Material Contracts; provided, however, Loan Parties may make Non-Materially
Adverse Amendments to the Backup Letter of Credit Reimbursement Agreement or to
any provision of the Acquisition Agreement not relating to the Earnout
Consideration; provided; further, that Loan Parties may make
material amendments, other material changes or material waivers to the Other
Material Contracts which would not be materially adverse to the rights and
interests of the Lenders and Agents without the requirement of prior
notification to the Administrative Agent.

 

(s)                                  Dividends
by the Borrower.  Declare or pay a
dividend with respect to the common shares of the Borrower’s Capital Stock,
except that Borrower may declare and pay such dividend in cash in an aggregate
amount not to exceed $6,250,000 during any fiscal quarter of the Borrower, but
only to the extent that (i) no Default or Event of Default shall have occurred
and be continuing either before or after giving effect to such declaration and
payment, (ii) at the time of declaration of such dividends, the chief financial
officer of Borrower shall have certified in writing to the Administrative Agent
that as of such date and after due investigation and inquiry, such chief
financial officer has no reason to believe that, after giving effect to the
payment of such dividends, Borrower will not be in compliance with any of the
financial covenants set forth in Section 7.03 as of the end of the fiscal
quarter in which such dividends are to be paid (or in the case of the financial
covenant contained in Section 7.03(e), as of the end of each fiscal
month occurring in the fiscal quarter in which such dividends shall be paid),
(iii) with respect to dividends to be paid in the fiscal quarter ending March 31,
2005, the applicable Subsidiaries of the Loan Parties shall have completed
transactions constituting Exempt Foreign Dispositions on or before March 31,
2005, and Borrower shall have received, on or before March 31, 2005, Net
Cash Proceeds therefrom in an aggregate amount of at least $7,000,000, (iv)
with respect to dividends to be paid in the fiscal quarter ending June 30,
2005, Borrower shall have received, prior to the date of declaration of such
dividends, a United States federal
income tax

 

78

 

refund attributable to its Fiscal Year ended December 31,
2004 in cash in an amount of at least $8,000,000, and (v) except with
respect to dividends to be paid in the fiscal quarters ending March 31,
2005 or June 30, 2005, Consolidated EBITDA of the Borrower and its
Subsidiaries for the fiscal quarter immediately preceding the fiscal quarter in
which such dividend is to be paid, equals or exceeds the applicable amount set
forth opposite such immediately preceding fiscal quarter end appearing below:

 

	
  Fiscal Quarter Ending

  	
   

  	
  Fiscal Quarter Minimum

  Consolidated EBITDA

  	
   

  
	
  December 31,
  2004 

  	
   

  	
  Not
  Applicable

  	
   

  
	
  March 31,
  2005 

  	
   

  	
  Not
  Applicable

  	
   

  
	
  June 30,
  2005 

  	
   

  	
  4,700,000

  	
   

  
	
  September 30,
  2005 

  	
   

  	
  21,600,000

  	
   

  
	
  December 31,
  2005 

  	
   

  	
  18,800,000

  	
   

  
	
  March 31,
  2006 

  	
   

  	
  8,900,000

  	
   

  
	
  June 30,
  2006 

  	
   

  	
  8,600,000

  	
   

  
	
  September 30,
  2006 

  	
   

  	
  24,100,000

  	
   

  
	
  December 31,
  2006 

  	
   

  	
  21,000,000

  	
   

  
	
  March 31,
  2007 

  	
   

  	
  11,100,000

  	
   

  
	
  June 30,
  2007 

  	
   

  	
  9,500,000

  	
   

  
	
  September 30,
  2007 and thereafter

  	
   

  	
  28,300,000

  	
   

  

 

provided, further,
notwithstanding the foregoing or any other provision of this Agreement,
Borrower may declare and pay only the December 2004 Dividend in the fiscal
quarter ending December 31, 2004.

 

(t)                                    Inactive
Subsidiaries.  Permit any Inactive
Subsidiary to incur any Indebtedness or other material liabilities, to conduct
any material operations or business, or to own or acquire any material assets
or properties.

 

(u)                                 Certain
Hedging Agreements.  After the 30th
day following the Effective Date, enter into, or permit any of its Subsidiaries
to enter into, any Hedging Agreements with financial institutions in which such
Loan Party or such Subsidiary maintains a Hedging Agreement Counterparty
Deposit Account, and after the first anniversary of the Effective Date, be a
party to, or permit any of its Subsidiaries to be a party to, any Hedging
Agreement with financial institutions in which such Loan Party or such
Subsidiary maintains a Hedging Agreement Counterparty Deposit Account.

 

Section 7.03                Financial
Covenants.  So long as any principal
of or interest on the Term Loan, or any other Obligation (whether or not due,
but other than contingent liabilities not then due and payable), shall remain
unpaid or any Lender shall have any Commitment hereunder, each Loan Party shall
not:

 

(a)                                  Funded
Debt Ratio.  Permit the Funded Debt
Ratio as of the last day of each fiscal quarter set forth below to be greater
than the applicable ratio set forth below:

 

79

 

	
  Fiscal Quarter End

  	
   

  	
  Maximum Funded Debt Ratio

  	
   

  
	
  December 31,
  2004 

  	
   

  	
  4.30:1

  	
   

  
	
  March 31,
  2005 

  	
   

  	
  4.25:1

  	
   

  
	
  June 30,
  2005 

  	
   

  	
  3.60:1

  	
   

  
	
  September 30,
  2005 

  	
   

  	
  3.10:1

  	
   

  
	
  December 31,
  2005 

  	
   

  	
  2.70:1

  	
   

  
	
  March 31,
  2006 

  	
   

  	
  2.25:1

  	
   

  
	
  June 30,
  2006 

  	
   

  	
  2.25:1

  	
   

  
	
  September 30,
  2006 

  	
   

  	
  2.25:1

  	
   

  
	
  December 31,
  2006 

  	
   

  	
  2.25:1

  	
   

  
	
  March 31,
  2007 

  	
   

  	
  2.00:1

  	
   

  
	
  June 30,
  2007 

  	
   

  	
  2.00:1

  	
   

  
	
  September 30,
  2007 and thereafter

  	
   

  	
  2.00:1

  	
   

  

 

(b)                                 Fixed
Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio of the
Borrower and its Subsidiaries as of the last day of each fiscal quarter set
forth below to be less than the applicable ratio set forth below:

 

	
  Fiscal Quarter End

  	
   

  	
  Fixed Charge Coverage Ratio

  	
   

  
	
  December 31,
  2004 

  	
   

  	
  1.10:1

  	
   

  
	
  March 31,
  2005 

  	
   

  	
  1.10:1

  	
   

  
	
  June 30,
  2005 

  	
   

  	
  1.20:1

  	
   

  
	
  September 30,
  2005 

  	
   

  	
  0.90:1

  	
   

  
	
  December 31,
  2005 

  	
   

  	
  1.10:1

  	
   

  
	
  March 31,
  2006 

  	
   

  	
  1.50:1

  	
   

  
	
  June 30,
  2006 

  	
   

  	
  1.50:1

  	
   

  
	
  September 30,
  2006 

  	
   

  	
  1.10:1

  	
   

  
	
  December 31,
  2006 

  	
   

  	
  1.20:1

  	
   

  
	
  March 31,
  2007 

  	
   

  	
  1.60:1

  	
   

  
	
  June 30,
  2007 

  	
   

  	
  1.60:1

  	
   

  
	
  September 30,
  2007 and thereafter

  	
   

  	
  1.20:1

  	
   

  

 

(c)                                  Consolidated
EBITDA.  Permit TTM EBITDA of the
Borrower and its Subsidiaries as of the last day of each fiscal quarter set
forth below to be less than the applicable amount set forth below:

 

	
  Fiscal Quarter End

  	
   

  	
  Fixed Charge Coverage Ratio

  	
   

  
	
  December 31,
  2004 

  	
   

  	
  $

  	
  29,000,000

  	
   

  
	
  March 31,
  2005 

  	
   

  	
  $

  	
  29,000,000

  	
   

  
	
  June 30,
  2005 

  	
   

  	
  $

  	
  34,000,000

  	
   

  
	
  September 30,
  2005 

  	
   

  	
  $

  	
  39,000,000

  	
   

  
	
  December 31,
  2005 

  	
   

  	
  $

  	
  44,000,000

  	
   

  
	
  March 31,
  2006 

  	
   

  	
  $

  	
  46,000,000

  	
   

  
	
  June 30,
  2006 

  	
   

  	
  $

  	
  50,000,000

  	
   

  
	
  September 30,
  2006 

  	
   

  	
  $

  	
  52,000,000

  	
   

  
	
  December 31,
  2006 

  	
   

  	
  $

  	
  52,000,000

  	
   

  
	
  March 31,
  2007 

  	
   

  	
  $

  	
  55,000,000

  	
   

  
	
  June 30,
  2007 

  	
   

  	
  $

  	
  55,000,000

  	
   

  
	
  September 30,
  2007 and thereafter

  	
   

  	
  $

  	
  55,000,000

  	
   

  

 

80

 

(d)                                 Infant
Line EBITDA.  Permit the Infant Line
TTM EBITDA as of the last day of each month set forth below to be less than the
applicable amount set forth below:

 

	
  Month End Occurring on or During

  	
   

  	
  Infant Line EBITDA

  	
   

  
	
  December 31,
  2004 

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
  January 31,
  2005 - March 31, 2005

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
  April 30,
  2005 - June 30, 2005

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
  July 31,
  2005 - September 30, 2005

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
  October 31,
  2005 - December 31, 2005 

  	
   

  	
  $

  	
  27,000,000

  	
   

  
	
  January 31,
  2006 - December 31, 2006

  	
   

  	
  $

  	
  29,000,000

  	
   

  
	
  January 31,
  2007 and thereafter

  	
   

  	
  $

  	
  32,000,000

  	
   

  

 

(e)                                  Minimum
Qualified Cash.  Permit the Dollar
Equivalent Amount of Qualified Cash to be, as of the end of each fiscal month,
less than the applicable amount set forth below opposite the Funded Debt Ratio
most recently reported in the certificate of Authorized Officer of Borrower
required to be delivered pursuant to Section 7.01(a)(iv):

 

	
  Funded Debt Ratio

  	
   

  	
  Minimum Qualified Cash

  	
   

  
	
  Equal to or
  greater than 2.75:1

  	
   

  	
  $

  	
  40,000,000

  	
   

  
	
  Less than
  2.75:1 but equal to or greater than 2.50:1

  	
   

  	
  $

  	
  30,000,000

  	
   

  
	
  Less than
  2.50:1 but equal to or greater than 2.00:1

  	
   

  	
  $

  	
  20,000,000

  	
   

  
	
  Less than
  2.00:1

  	
   

  	
  $

  	
  0

  	
   

  

 

provided, however,
that if the Borrower fails to provide the certificate of Authorized Officer of
the Borrower as required by Section 7.01(a)(iv) containing the
Funded Debt Ratio, on or before the date when due thereunder, the minimum
Dollar Equivalent Amount of Qualified Cash required hereunder shall be
$40,000,000 until the date five Business Days after the appropriate certificate
of Authorized Officer containing the Funded Debt Ratio is actually furnished as
so required.

 

ARTICLE VIII

MANAGEMENT, COLLECTION AND STATUS OF

ACCOUNTS RECEIVABLE AND OTHER COLLATERAL

 

Section 8.01                Collection
of Accounts Receivable; Management of Collateral. 

 

On or
prior to the Effective Date, the Borrower shall assist the Administrative Agent
in (i) establishing, and, during the term of this Agreement, maintaining
one or more lockboxes for itself and the Domestic Subsidiaries in the name of
the Administrative Agent and identified on Schedule 8.01 hereto
(collectively, the “Lockboxes”) with the financial institutions set
forth on Schedule 8.01 hereto or such other financial institutions
selected by the Borrower and reasonably acceptable to the Administrative Agent
(each being referred to as a “Lockbox Bank”), and

 

81

 

entering
into a Control Agreement relating to each Lockbox, and (ii) establishing, and
during the term of this Agreement, maintaining an account (a “Collection
Account” and, collectively, the “Collection Accounts”) in the name
of the Administrative Agent with each Lockbox Bank, and entering into a Control
Agreement with respect to each Collection Account; provided, however,
that no deposit account of the Borrower used exclusively for remitting payroll
to employees shall at any time be subject to a Control Agreement; provided,
further, notwithstanding the foregoing, the Lockboxes for the Accounts
Receivable of the Borrower and Kids Line shall be established within 14 days after
the Effective Date.  The Domestic
Subsidiaries shall immediately and irrevocably instruct their Account Debtors,
and the Borrower and Kids Line shall begin the process of irrevocably instructing
its Account Debtors, with respect to their respective Accounts Receivable, to
remit all payments to be made by checks or other drafts to the Lockboxes and to
remit all payments to be made by wire transfer or by Automated Clearing House,
Inc. payment as directed by the Administrative Agent and shall instruct each
Lockbox Bank to deposit all amounts received in its Lockbox to the Collection
Account at such Lockbox Bank on the day received or, if such day is not a
Business Day, on the next succeeding Business Day.  Until the Administrative Agent has advised
the Borrower to the contrary after the occurrence and during the continuance of
an Event of Default, the Borrower may and will enforce, collect and receive all
amounts owing on the Accounts Receivable of the Borrower and its Subsidiaries
for the Administrative Agent’s benefit and on the Administrative Agent’s
behalf, but at the Borrower’s expense; such privilege shall terminate, at the
election of any Agent, upon the occurrence and during the continuance of an
Event of Default.  All checks, drafts,
notes, money orders, acceptances, cash and other evidences of Indebtedness
received directly by the Borrower or any of Domestic Subsidiaries from any
Account Debtor, as proceeds from Accounts Receivable of the Borrower or any of
its Domestic Subsidiaries, or as proceeds of any other Collateral, shall be
held by the Borrower or such Subsidiary in trust for the Agents and the Lenders
and upon receipt be deposited by the Borrower or such Subsidiary in original
form and no later than the next Business Day after receipt thereof into a
Collection Account.  The Borrower or such
Subsidiary shall not commingle such collections with the Borrower’s or such
Subsidiary’s own funds or the funds of any other Subsidiary or Affiliate of the
Borrower or with the proceeds of any assets not included in the
Collateral.  All funds received in the
Collection Accounts shall, after written election of any Agent upon the
occurrence and continuance of an Event of Default, be sent by wire transfer or
Automated Clearing House, Inc. payment to the Payment Office to reduce the
Obligations in accordance with Section 4.04(b), conditional upon
final payment to the Administrative Agent. 
No checks, drafts or other instruments received by the Administrative
Agent shall constitute final payment to the Administrative Agent unless and
until such checks, drafts or instruments have actually been collected.  

 

(a)                                  After
the occurrence and during the continuance of an Event of Default, the
Collateral Agent may send a notice of assignment and/or notice of the Lenders’
security interest to any and all Account Debtors and, thereafter, the
Collateral Agent shall have the sole right to collect the Accounts Receivable
and payment intangibles of the Borrower and its Subsidiaries (other than any
CFC) and/or take possession of the Collateral and the books and records
relating thereto.  After the occurrence
and during the continuation of an Event of Default, the Borrower and its
Subsidiaries shall not, without prior written consent of the Collateral Agent,
grant any extension of time of payment of any Account Receivable or payment
intangible

 

82

 

in
excess of $500, compromise or settle any such Account Receivable or such payment
intangible for less than the full amount thereof, release, in whole or in part,
any Person or property liable for the payment thereof, or allow any credit or
discount whatsoever thereon.

 

(b)                                 The
Borrower hereby appoints each Agent or its designee on behalf of such Agent as
the Borrower’s attorney-in-fact with power exercisable during the continuance
of an Event of Default to (i) endorse the Borrower’s or any its Subsidiaries’
name upon any notes, acceptances, checks, drafts, money orders or other
evidences of payment relating to the Accounts Receivable or payment intangibles
of the Borrower and its Subsidiaries, (ii) sign the Borrower’s or any of its
Subsidiaries’ name on any invoice or bill of lading relating to any of the
Accounts Receivable or payment intangibles of the Borrower or its Subsidiaries,
drafts against Account Debtors with respect to Accounts Receivable or payment
intangibles of the Borrower or its Subsidiaries, assignments and verifications
of Accounts Receivable or payment intangibles and notices to Account Debtors
with respect to Accounts Receivable or payment intangibles of the Borrower or
its Subsidiaries, (iii) send verification of Accounts Receivable of the
Borrower or its Subsidiaries, and (iv) notify the Postal Service authorities to
change the address for delivery of mail addressed to the Borrower or its
Subsidiaries to such address as such Agent may designate and to do all other
acts and things necessary to carry out this Agreement.  All acts of said attorney or designee are
hereby ratified and approved, and said attorney or designee shall not be liable
for any acts of omission or commission (other than acts of omission or commission
constituting gross negligence or willful misconduct as determined by a final
judgment of a court of competent jurisdiction), or for any error of judgment or
mistake of fact or law; this power being coupled with an interest is
irrevocable until the Term Loan and other Obligations under the Loan Documents
are paid in full and all of the Loan Documents are terminated.

 

(c)                                  Nothing
herein contained shall be construed to constitute any Agent as agent of the
Borrower or any of its Subsidiaries for any purpose whatsoever, and the Agents
shall not be responsible or liable for any shortage, discrepancy, damage, loss
or destruction of any part of the Collateral wherever the same may be located
and regardless of the cause thereof (other than from acts of omission or
commission constituting gross negligence or willful misconduct as determined by
a final judgment of a court of competent jurisdiction).  The Agents shall not, under any circumstance
or in any event whatsoever, have any liability for any error or omission or
delay of any kind occurring in the settlement, collection or payment of any of
the Accounts Receivable of the Borrower or its Subsidiaries or any instrument
received in payment thereof or for any damage resulting therefrom (other than
acts of omission or commission constituting gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction).  The Agents, by anything
herein or in any assignment or otherwise, do not assume any of the obligations
under any contract or agreement assigned to any Agent and shall not be
responsible in any way for the performance by the Borrower or its Subsidiaries
of any of the terms and conditions thereof.

 

(d)                                 If
any Account Receivable of the Borrower or its Subsidiaries includes a charge
for any tax payable to any Governmental Authority, each Agent is hereby
authorized (but in no event obligated) in its discretion to pay the amount
thereof to the proper taxing authority for the Borrower’s account and to charge
the Borrower therefor.  The Borrower
shall notify the Agents if any Account Receivable of the Borrower or its
Subsidiaries includes any taxes due to any such Governmental Authority and, in
the absence of such notice, the Agents

 

83

 

shall
have the right to retain the full proceeds of such Account Receivable and shall
not be liable for any taxes that may be due by reason of the sale and delivery
creating such Account Receivable.

 

(e)                                  Notwithstanding
any other terms set forth in the Loan Documents, the rights and remedies of the
Agents and the Lenders herein provided, and the obligations of the Loan Parties
set forth herein, are cumulative of, may be exercised singly or concurrently
with, and are not exclusive of, any other rights, remedies or obligations set
forth in any other Loan Document or as provided by law.

 

Section 8.02                Accounts
Receivable Documentation.  The
Borrower will at such intervals as the Agents may require, execute and deliver
confirmatory written assignments of the Accounts Receivable to the Agents and furnish
such further schedules and/or information as any such Agent may require
relating to the Accounts Receivable of the Borrower or its Subsidiaries,
including, without limitation, sales invoices or the equivalent, credit memos
issued, remittance advices, reports and copies of deposit slips and copies of
original shipping or delivery receipts for all merchandise sold.  In addition, the Borrower shall notify the
Agents of any non-compliance in respect of the representations, warranties and
covenants contained in Section 8.03.  The items to be provided under this Section 8.02
are to be in form reasonably satisfactory to the Agents and are to be executed
and delivered to the Agents from time to time solely for their convenience in
maintaining records of the Collateral. 
The Borrower’s failure to give any of such items to the Agents shall not
affect, terminate, modify or otherwise limit the Collateral Agent’s Lien on the
Collateral.  Upon the occurrence and
continuance of an Event of Default, Borrower shall not re-date any invoice or
sale or make sales on extended dating beyond that customary in the Borrower’s
industry, and shall not re-bill any Accounts Receivable without promptly
disclosing the same to the Agents and providing the Agents with a copy of such
re-billing, identifying the same as such. 
If the Borrower becomes aware of anything materially detrimental to any
of the Borrower’s customers’ credit, the Borrower will promptly advise the
Agents thereof.

 

Section 8.03                                Status
of Accounts Receivable and Other Collateral.  With respect to Collateral of any Loan Party
at the time the Collateral becomes subject to the Collateral Agent’s Lien, each
Loan Party covenants, represents and warrants: 
(a) such Loan Party shall be the sole owner, free and clear of all Liens
(except for the Liens granted in the favor of the Collateral Agent for the
benefit of the Lenders and Permitted Liens), and shall be fully authorized to
sell, transfer, pledge and/or grant a security interest in each and every item
of said Collateral; (b) such Loan Party shall maintain books and records
pertaining to said Collateral in such detail, form and scope as the Agents
shall reasonably require; (c) such Loan Party will, immediately upon
learning thereof, report to the Agents any material loss or destruction of, or
substantial damage to, any of the Collateral, and any other matters affecting
the value, enforceability or collectability of any of the Collateral; (d) if
any amount payable in excess of $10,000 under or in connection with any
Account Receivable is evidenced by a promissory note or other instrument,
such promissory note or instrument shall be immediately pledged, endorsed,
assigned and delivered to the Collateral Agent for the benefit of the Lenders
as additional Collateral; (e) such Loan Party shall conduct a physical count of
its Inventory at such intervals as any Agent may reasonably request and such
Loan Party shall promptly supply the Agents with a copy of such count
accompanied by a report of the value (based on the lower of cost (on a first in

 

84

 

first
out basis) and market value) of such Inventory; and (f) such Loan Party is not
and shall not be entitled to pledge any Agent’s or any Lender’s credit on any
purchases or for any purpose whatsoever.

 

Section 8.04                                Collateral
Custodian.  Upon the occurrence and
during the continuance of any Event of Default, the Collateral Agent may at any
time and from time to time employ and maintain on the premises of any Loan
Party a custodian selected by the Collateral Agent who shall have full
authority to do all acts necessary to protect the Agents’ and the Lenders’
interests.  Each Loan Party hereby agrees
to, and to cause its Subsidiaries to, cooperate with any such custodian and to
do whatever the Collateral Agent may reasonably request to preserve the
Collateral.  All costs and expenses
incurred by the Collateral Agent by reason of the employment of the custodian
shall be the responsibility of the Borrower and charged to the Loan Account.

 

ARTICLE IX

EVENTS OF DEFAULT

 

Section 9.01                                Events
of Default.  If any of the following
Events of Default shall occur and be continuing:

 

(a)                                  the
Borrower shall fail to pay (i) any principal of the Term Loan when due (whether
by scheduled maturity, required prepayment, acceleration, demand or otherwise),
or (ii) any interest on the Term Loan or any fee, indemnity or other amount
payable under this Agreement or any other Loan Document when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise)
and, solely in the case of this clause (ii), such failure to pay shall
continue for 3 Business Days; 

 

(b)                                 any
representation or warranty made or deemed made by or on behalf of any Loan
Party or by any officer of the foregoing under or in connection with any Loan
Document or under or in connection with any report, certificate, or other
document delivered to any Agent or any Lender pursuant to any Loan Document
shall have been incorrect in any material respect when made or deemed made; 

 

(c)                                  any
Loan Party shall fail to perform or comply with any covenant or agreement
contained in (i) Section 2.09, clauses (a) (with the exception of clause (a)(iii)), (c), (d), (f),
(h), (n), or (r) of Section 7.01,
Section 7.02, Section 7.03 or Article VIII,
or any Loan Party shall fail to perform or comply with any covenant or
agreement contained in the Security Agreement to which it is a party or any
Mortgage to which it is a party, (ii) clauses (a)(iii)  or (b) of Section 7.01 and
such failure shall remain unremedied for 5 Business Days, (iii) clauses (e),
(g), (i), (k), (l), (m) or (o) of Section 7.01 and (in
circumstances described in this clause (iii)) such failure, if capable of being
remedied, shall remain unremedied for 15 Business Days, after the earlier of
the date a senior officer of any Loan Party shall have become aware of such
failure or the date written notice of such default shall have been given by any
Agent or Lender to such Loan Party or (iv) clause (j) of Section 7.01
and (in circumstances described in this clause (iv)) such failure, if capable
of being remedied or contested with or appealed to a Governmental Authority,
shall remain unremedied, uncontested or unappealed for the longer of (A) 5
Business

 

85

 

Days after a senior officer of any Loan Party shall
have become aware of such failure or received written notice of such default,
or (B) such reasonable timeframe, if any, as may be agreed upon in writing by
the applicable Loan Party and Agents so as to allow such Loan Party using good
faith efforts to remedy, contest or appeal such failure;

 

(d)                                 any
Loan Party shall fail to perform or comply with any other term, covenant or
agreement contained in any Loan Document to be performed or observed by it and,
except as set forth in subsections (a), (b) and (c) of this Section 9.01,
such failure, if capable of being remedied, shall remain unremedied for 30 days
after the earlier of the date a senior officer of any Loan Party becomes aware
of such failure and the date written notice of such default shall have been
given by any Agent to such Loan Party;

 

(e)                                  the
Borrower or any of its Subsidiaries shall fail to pay any principal of or any interest
on any of its Indebtedness (excluding the Obligations) in an aggregate
principal amount in excess of $1,000,000, or any premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Indebtedness,
or any other default under any agreement or instrument relating to any such
Indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other than
by a regularly scheduled required prepayment), redeemed, purchased or defeased
or an offer to prepay, redeem, purchase or defease such Indebtedness shall be
required to be made, in each case, prior to the stated maturity thereof;

 

(f)                                    the
Borrower or any of its Subsidiaries (i) shall institute any proceeding or
voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for any such Person or for any substantial
part of its property, (ii) shall be generally not paying its debts as such
debts become due or shall admit in writing its inability to pay its debts
generally, (iii) shall make a general assignment for the benefit of creditors,
or (iv) shall take any action to authorize or effect any of the actions set
forth above in this subsection (f);

 

(g)                                 any
proceeding shall be instituted against the Borrower or any of its Subsidiaries
seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for any
such Person or for any substantial part of its property, and either such
proceeding shall remain undismissed or unstayed for a period of 45 days or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against any such Person or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property) shall occur;

 

86

 

(h)                                 any
provision of any Loan Document shall at any time for any reason (other than
pursuant to the express terms thereof) cease to be valid and binding on or
enforceable against any Loan Party intended to be a party thereto, or the
validity or enforceability thereof shall be contested by any party thereto, or
a proceeding shall be commenced by any Loan Party or any Governmental Authority
having jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or any Loan Party shall deny in writing that it has
any liability or obligation purported to be created under any Loan Document;

 

(i)                                     the
Security Agreement, any Mortgage or any other security document, after delivery
thereof pursuant hereto, shall for any reason fail or cease to create a valid
and perfected and, except to the extent permitted by the terms hereof or
thereof, first priority Lien in favor of the Collateral Agent for the benefit
of the Lenders on any Collateral purported to be covered thereby;

 

(j)                                     any
bank at which any deposit account, blocked account, or lockbox account of any
Loan Party is maintained shall fail to comply with any of the material terms of
any deposit account, blocked account, lockbox account or similar agreement to
which such bank is a party or any securities intermediary, commodity intermediary
or other financial institution at any time in custody, control or possession of
any investment property of any Loan Party shall fail to comply with any of the
terms of any investment property control agreement to which such Person is a
party;

 

(k)                                  one
or more judgments or orders for the payment of money exceeding $1,000,000 in
the aggregate shall be rendered against Borrower or any of its Subsidiaries and
remain unsatisfied, or the Borrower or any of its Subsidiaries shall agree to
the settlement of any one or more pending or threatened actions, suits or
proceedings affecting any Loan Party before any court or other Governmental
Authority or any arbitrator or mediator, providing for the payment of money
exceeding $1,000,000 in the aggregate, and in the case of any such judgment or
order either (i) enforcement proceedings shall have been commenced by any
creditor upon any such judgment or order, or (ii) there shall be a period of 10
consecutive days after entry thereof during which a stay of enforcement of any
such judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; provided, however, that any such judgment, order or
settlement shall not give rise to an Event of Default under this subsection (k)
if and for so long as (A) the amount of such judgment, order, or settlement is
covered by a valid and binding policy of insurance between the defendant and
the insurer covering full payment thereof (subject to customary deductibles)
and (B) such insurer has been notified, and has not denied the claim made for
payment, of the amount of such judgment, order or settlement;

 

(l)                                     the
Borrower or any of its Subsidiaries is enjoined, restrained or in any way
prevented by the order of any court or any Governmental Authority from
conducting all or any material part of its business for more than 15 days;

 

(m)                               any
material damage to, or loss, theft or destruction of, any Collateral, whether
or not insured, or any strike, lockout, labor dispute, embargo, condemnation,
act of God or public enemy, or other casualty which causes, for more than 15
days, the cessation or substantial curtailment of revenue producing activities
at any facility of the Borrower or any

 

87

 

of its
Subsidiaries, if any such event or circumstance could reasonably be expected to
result in a Material Adverse Effect;

 

(n)                                 any
cessation of a substantial part of the business of the Borrower or its
Subsidiaries for a period which materially and adversely affects the ability of
the Borrower or such Subsidiary to continue its business on a profitable basis;

 

(o)                                 the
loss, suspension or revocation of, or failure to renew, any license or permit
now held or hereafter acquired by the Borrower or any of its Subsidiaries, if
such loss, suspension, revocation or failure to renew could reasonably be
expected to result in a Material Adverse Effect;

 

(p)                                 the
indictment of the Borrower or any of its Subsidiaries under any criminal
statute, or the commencement of criminal or civil proceedings against the
Borrower or any of its Subsidiaries, pursuant to which statute or proceedings
the penalties or remedies sought or available include forfeiture to any
Governmental Authority of any material portion of the property of such Person;

 

(q)                                 any
Loan Party or any of its ERISA Affiliates shall have made a complete or partial
withdrawal from a Multiemployer Plan, and, as a result of such complete or
partial withdrawal, any Loan Party or any of its ERISA Affiliates incurs a
withdrawal liability in an annual amount exceeding $250,000; or a Multiemployer
Plan enters reorganization status under Section 4241 of ERISA, and, as a
result thereof any Loan Party’s or any of its ERISA Affiliates’ annual
contribution requirements with respect to such Multiemployer Plan increases in
an annual amount exceeding $250,000;

 

(r)                                    any
Termination Event with respect to any Employee Plan shall have occurred, and,
30 days after notice thereof shall have been given to any Loan Party by any
Agent, (i) such Termination Event (if correctable) shall not have been
corrected, and (ii) the then current value of such Employee Plan’s vested
benefits exceeds the then current value of assets allocable to such benefits in
such Employee Plan by more than $250,000 (or, in the case of a Termination
Event involving liability under Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of
the IRC, the liability is in excess of such amount);

 

(s)                                  the
Borrower or any of its Subsidiaries shall be liable for any Environmental
Liabilities and Costs the payment of which could reasonably be expected to
result in a Material Adverse Effect;

 

(t)                                    a
Change of Control shall have occurred;

 

(u)                                 any
subordination provision in any document or instrument governing any Subordinated
Debt (including, without limitation, the Seller Subordination Agreement), or
any subordination provision contained in the Intercompany Subordination
Agreement or in any guaranty by any Loan Party shall at any time for any reason
cease to be valid and binding or enforceable against the subordinating party,
or the validity or enforceability thereof shall be denied or otherwise
contested in writing by any subordinating party, or a proceeding shall be
commenced by any subordinating party or any Governmental Authority

 

88

 

having
jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof;

 

(v)                                 an
amount at least equal to the Backup Letter of Credit Required Amount shall not
be available to be drawn under the Backup Letter of Credit for any reason
(including, without limitation, the expiration thereof); 

 

(w)                               Andrew
Gatto shall cease to be the chief executive officer of the Borrower (i) for any
reason other than his death, permanent disability or resignation (unless such
cessation shall have resulted from his dismissal by the Board of Directors and
directors constituting 75% or more of the Board of Directors (excluding Andrew
Gatto, and rounded down to the nearest whole number of directors) shall have
approved such dismissal pursuant to a binding resolution of the Board of
Directors) or (ii) due to his death, permanent disability or such resignation,
a successor satisfactory to directors constituting 75% or more of the Board of
Directors (excluding Andrew Gatto and rounded down to the nearest whole number
of directors) shall not assume his responsibilities and position within 90 days
of such cessation (for purposes of this clause (w), a resignation solicited
directly or indirectly by any director of the Board of Directors shall be
deemed a dismissal constituting an Event of Default unless within 5 Business Days
after such resignation, directors constituting 75% or more of the Board of
Directors (excluding Andrew Gatto and rounded down to the nearest whole number
of directors) shall have accepted or otherwise approved of such resignation);

 

(x)                                   without
limiting the generality of clause (e) above, any “Event of Default” under or as
defined in the EDA Standby L/C Reimbursement Agreement;

 

(y)                                 any
drawing is made under the EDA Standby L/C; or

 

(z)                                   an
event or development occurs which results in a Material Adverse Effect;

 

then,
and in any such event, the Collateral Agent may, and shall at the request of
the Required Lenders, by notice to the Borrower, (i) declare all or any portion
of the Term Loan then outstanding to be due and payable, whereupon all or such
portion of the aggregate principal of the Term Loan, all accrued and unpaid
interest thereon, all fees and all other amounts payable under this Agreement
and the other Loan Documents shall become due and payable immediately, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each Loan Party, and (ii) exercise any and all
of its other rights and remedies under applicable law, hereunder and under the
other Loan Documents; provided, however, that upon the occurrence
of any Event of Default described in subsection (f) or (g) of this Section 9.01,
without any notice to any Loan Party or any other Person or any act by any
Agent or any Lender, the Term Loan then outstanding, together with all accrued
and unpaid interest thereon, all fees and all other amounts due under this
Agreement and the other Loan Documents shall become due and payable
automatically and immediately, without presentment, demand, protest or notice
of any kind, all of which are expressly waived by each Loan Party.

 

89

 

ARTICLE X

 

AGENTS

 

Section 10.01          Appointment.  Each Lender (and each assignee of a Lender)
hereby irrevocably appoints and authorizes the Administrative Agent and the
Collateral Agent to perform the duties of each such Agent as set forth in this
Agreement including:  (i) to receive
on behalf of each Lender any payment of principal of or interest on the Term
Loan outstanding hereunder and all other amounts accrued hereunder for the
account of the Lenders and paid to such Agent, and, subject to Section 2.02
of this Agreement, to distribute promptly to each Lender its Pro Rata Share of
all payments so received; (ii) to distribute to each Lender copies of all
material notices and agreements received by such Agent and not required to be
delivered to each Lender pursuant to the terms of this Agreement, provided that
the Agents shall not have any liability to the Lenders for any Agent’s
inadvertent failure to distribute any such notices or agreements to the
Lenders; (iii) to maintain, in accordance with its customary business
practices, ledgers and records reflecting the status of the Obligations, the
Term Loan, and related matters and to maintain, in accordance with its
customary business practices, ledgers and records reflecting the status of the
Collateral and related matters; (iv) to execute or file any and all
financing or similar statements or notices, amendments, renewals, supplements,
documents, instruments, proofs of claim, notices and other written agreements
with respect to this Agreement or any other Loan Document; (v) to make the
Term Loan and Collateral Agent Advances, for such Agent or on behalf of the
applicable Lenders as provided in this Agreement or any other Loan Document;
(vi) to perform, exercise, and enforce any and all other rights and
remedies of the Lenders with respect to the Loan Parties, the Obligations, or
otherwise related to any of same to the extent reasonably incidental to the
exercise by such Agent of the rights and remedies specifically authorized to be
exercised by such Agent by the terms of this Agreement or any other Loan
Document; (vii)  to incur and pay such fees necessary or appropriate for
the performance and fulfillment of its functions and powers pursuant to this
Agreement or any other Loan Document; and (viii) subject to Section 10.03
of this Agreement, to take such action as such Agent deems appropriate on its
behalf to administer the Term Loan and the Loan Documents and to exercise such
other powers delegated to such Agent by the terms hereof or the other Loan
Documents (including, without limitation, the power to give or to refuse to
give notices, waivers, consents, approvals and instructions and the power to
make or to refuse to make determinations and calculations) together with such
powers as are reasonably incidental thereto to carry out the purposes hereof
and thereof.  As to any matters not
expressly provided for by this Agreement and the other Loan Documents
(including, without limitation, enforcement or collection of the Term Loan),
the Agents shall not be required to exercise any discretion or take any action,
but shall be required to act or to refrain from acting (and shall be fully
protected in so acting or refraining from acting) upon the instructions of the
Required Lenders, and such instructions of the Required Lenders shall be
binding upon all Lenders.

 

Section 10.02          Nature
of Duties.  The Agents shall
have no duties or responsibilities except those expressly set forth in this
Agreement or in the other Loan Documents. 
The duties of the Agents shall be mechanical and administrative in
nature.  The Agents shall not have by
reason of this Agreement or any other Loan Document a fiduciary relationship in
respect of any Lender.  Nothing in this
Agreement or any other Loan Document, express or implied, is intended to or
shall be construed to impose upon the Agents any

 

90

 

obligations in
respect of this Agreement or any other Loan Document except as expressly set
forth herein or therein.  Each Lender
shall make its own independent investigation of the financial condition and
affairs of the Loan Parties in connection with the making and the continuance
of the Term Loan hereunder and shall make its own appraisal of the
creditworthiness of the Loan Parties and the value of the Collateral, and the
Agents shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into their possession before the Term Loan
hereunder or at any time or times thereafter, provided that, upon the
reasonable request of a Lender, each Agent shall provide to such Lender any
documents or reports delivered to such Agent by the Loan Parties pursuant to
the terms of this Agreement or any other Loan Document.  If any Agent seeks the consent or approval of
the Required Lenders to the taking or refraining from taking any action
hereunder, such Agent shall send notice thereof to each Lender.  Each Agent shall promptly notify each Lender
any time that the Required Lenders have instructed such Agent to act or refrain
from acting pursuant hereto.

 

Section 10.03          Rights,
Exculpation, Etc.  The Agents and
their directors, officers, agents or employees shall not be liable for any
action taken or omitted to be taken by them under or in connection with this
Agreement or the other Loan Documents, except for their own gross negligence or
willful misconduct as determined by a final judgment of a court of competent
jurisdiction.  Without limiting the
generality of the foregoing, the Agents (i) may treat the payee of the
Term Loan as the owner thereof until the Collateral Agent receives written
notice of the assignment or transfer thereof, pursuant to Section 12.07
hereof, signed by such payee and in form satisfactory to the Collateral Agent;
(ii) may consult with legal counsel (including, without limitation,
counsel to any Agent or counsel to the Loan Parties), independent public
accountants, and other experts selected by any of them and shall not be liable
for any action taken or omitted to be taken in good faith by any of them in
accordance with the advice of such counsel or experts; (iii) make no
warranty or representation to any Lender and shall not be responsible to any
Lender for any statements, certificates, warranties or representations made in
or in connection with this Agreement or the other Loan Documents;
(iv) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Person, the existence
or possible existence of any Default or Event of Default, or to inspect the
Collateral or other property (including, without limitation, the books and
records) of any Person; (v) shall not be responsible to any Lender for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; and (vi) shall not be deemed to
have made any representation or warranty regarding the existence, value or
collectability of the Collateral, the existence, priority or perfection of the
Collateral Agent’s Lien thereon, or any certificate prepared by any Loan Party
in connection therewith, nor shall the Agents be responsible or liable to the
Lenders for any failure to monitor or maintain any portion of the Collateral.
The provisions of this Section 10.03 are subject to, and shall not limit
in any respect, the provisions of Section 12.07.  The Agents shall not be liable for any
apportionment or distribution of payments made in good faith pursuant to Section 4.04,
and if any such apportionment or distribution is subsequently determined to
have been made in error the sole recourse of any Lender to whom payment was due
but not made, shall be to recover from other Lenders any payment in excess of
the amount which they are determined to be entitled.  The Agents may at any time request
instructions from the Lenders with respect to any actions or

 

91

 

approvals which by the terms of this Agreement or of any of the other
Loan Documents the Agents are permitted or required to take or to grant, and if
such instructions are promptly requested, the Agents shall be absolutely
entitled to refrain from taking any action or to withhold any approval under
any of the Loan Documents until they shall have received such instructions from
the Required Lenders.  Without limiting
the foregoing, no Lender shall have any right of action whatsoever against any
Agent as a result of such Agent acting or refraining from acting under this
Agreement or any of the other Loan Documents in accordance with the
instructions of the Required Lenders.

 

Section 10.04          Reliance.  Each Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with respect to all
matters pertaining to this Agreement or any of the other Loan Documents and its
duties hereunder or thereunder, upon advice of counsel selected by it.

 

Section 10.05          Indemnification.  To the extent that any Agent is not
reimbursed and indemnified by any Loan Party, the Lenders will reimburse and
indemnify such Agent from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses,
advances or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against such Agent in any way relating to or
arising out of this Agreement or any of the other Loan Documents or any action
taken or omitted by such Agent under this Agreement or any of the other Loan
Documents, in proportion to each Lender’s Pro Rata Share, including, without
limitation, advances and disbursements made pursuant to Section 10.08;
provided, however, that no Lender shall be liable for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements for which there
has been a final judicial determination that such liability resulted from such
Agent’s gross negligence or willful misconduct. 
The obligations of the Lenders under this Section 10.05
shall survive the payment in full of the Term Loan and the termination of this
Agreement.  

 

Section 10.06          Agents
Individually.  With respect to its
Pro Rata Share of the Total Commitment hereunder and the Term Loan made by it,
each Agent shall have and may exercise the same rights and powers hereunder and
is subject to the same obligations and liabilities as and to the extent set
forth herein for any other Lender.  The
terms “Lenders” or “Required Lenders” or any similar terms shall, unless the
context clearly otherwise indicates, include each Agent in its individual
capacity as a Lender or one of the Required Lenders.  Each Agent and its Affiliates may accept
deposits from, lend money to, and generally engage in any kind of banking,
trust or other business with the Borrower as if it were not acting as an Agent
pursuant hereto without any duty to account to the other Lenders.

 

Section 10.07          Successor
Agent.  (a)  Each
Agent may resign from the performance of all its functions and duties hereunder
and under the other Loan Documents at any time by giving at least 30 Business
Days prior written notice to the Borrower and each Lender.  Such resignation shall take effect upon the
acceptance by a successor Agent of appointment pursuant to clauses (b) and (c)
below or as otherwise provided below.

 

92

 

(b)                                 Upon
any such notice of resignation, the Required Lenders shall appoint a successor
Agent.  Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents.  After any Agent’s resignation
hereunder as an Agent, the provisions of this Article X shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was an
Agent under this Agreement and the other Loan Documents.

 

(c)                                  If
a successor Agent shall not have been so appointed within said thirty (30)
Business Day period, the retiring Agent, with the consent of the other Agent
shall then appoint a successor Agent who shall serve as an Agent until such
time, if any, as the Required Lenders, with the consent of the other Agent,
appoint a successor Agent as provided above.

 

Section 10.08          Collateral Matters.

 

(a)                                  The
Collateral Agent may from time to time make such disbursements and advances (“Collateral
Agent Advances”) which the Collateral Agent, in its sole discretion, deems
necessary or desirable to preserve, protect, prepare for sale or lease or
dispose of the Collateral or any portion thereof, to enhance the likelihood or
maximize the amount of repayment by the Borrower of the Term Loan, and other
Obligations or to pay any other amount chargeable to the Borrower pursuant to
the terms of this Agreement, including, without limitation, costs, fees and
expenses as described in Section 12.04.  The Collateral Agent Advances shall be
repayable on demand and be secured by the Collateral.  The Collateral Agent Advances shall
constitute Obligations hereunder which may be charged to the Loan Account in
accordance with Section 4.02. 
The Collateral Agent shall notify each Lender and the Borrower in
writing of each such Collateral Agent Advance, which notice shall include a
description of the purpose of such Collateral Agent Advance.  Without limitation to its obligations pursuant
to Section 10.05, each Lender agrees that it shall make available
to the Collateral Agent, upon the Collateral Agent’s demand, in Dollars in
immediately available funds, the amount equal to such Lender’s Pro Rata Share
of each such Collateral Agent Advance. 
If such funds are not made available to the Collateral Agent by such
Lender, the Collateral Agent shall be entitled to recover such funds on demand
from such Lender, together with interest thereon for each day from the date
such payment was due until the date such amount is paid to the Collateral
Agent, at the Federal Funds Rate for 3 Business Days and thereafter at the
Reference Rate.

 

(b)                                 The
Lenders hereby irrevocably authorize the Collateral Agent, at its option and in
its discretion, to release any Lien granted to or held by the Collateral Agent
upon any Collateral upon termination of the Total Commitment and payment and
satisfaction of the Term Loan, and all other Obligations which have matured and
which the Collateral Agent has been notified in writing are then due and
payable; or constituting property being sold or disposed of in compliance with
the terms of this Agreement and the other Loan Documents; or constituting
property in which the Loan Parties owned no interest at the time the Lien was granted
or at any time thereafter; or if approved, authorized or ratified in writing by
the Lenders.  Upon request by the
Collateral Agent at any time, the Lenders will confirm in writing the
Collateral Agent’s authority to release particular types or items of Collateral
pursuant to this Section 10.08(b).

 

93

 

(c)                                  Without
in any manner limiting the Collateral Agent’s authority to act without any
specific or further authorization or consent by the Lenders (as set forth in Section 10.08(b)),
each Lender agrees to confirm in writing, upon request by the Collateral Agent,
the authority to release Collateral conferred upon the Collateral Agent under Section 10.08(b).  Upon receipt by the Collateral Agent of
confirmation from the Lenders of its authority to release any particular item
or types of Collateral, and upon prior written request by any Loan Party, the
Collateral Agent shall (and is hereby irrevocably authorized by the Lenders to)
execute such documents as may be necessary to evidence the release of the Liens
granted to the Collateral Agent for the benefit of the Lenders upon such
Collateral; provided, however, that (i) the Collateral Agent
shall not be required to execute any such document on terms which, in the
Collateral Agent’s opinion, would expose the Collateral Agent to liability or
create any obligations or entail any consequence other than the release of such
Liens without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Obligations or any Lien upon (or
obligations of any Loan Party in respect of) all interests in the Collateral
retained by any Loan Party.

 

(d)                                 The
Collateral Agent shall have no obligation whatsoever to any Lender to assure
that the Collateral exists or is owned by the Loan Parties or is cared for,
protected or insured or has been encumbered or that the Lien granted to the
Collateral Agent pursuant to this Agreement or any other Loan Document has been
properly or sufficiently or lawfully created, perfected, protected or enforced
or is entitled to any particular priority, or to exercise at all or in any
particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to the Collateral Agent in this Section 10.08 or in any
other Loan Document, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, the Collateral Agent
may act in any manner it may deem appropriate, in its sole discretion, given
the Collateral Agent’s own interest in the Collateral as one of the Lenders and
that the Collateral Agent shall have no duty or liability whatsoever to any
other Lender, except as otherwise provided herein.

 

Section 10.09          Agency
for Perfection.  Each Lender
hereby appoints each Agent and each other Lender as agent and bailee for the
purpose of perfecting the security interests in and liens upon the Collateral
in assets which, in accordance with Article 9 of the Code, can be
perfected only by possession or control (or where the security interest of a
secured party with possession or control has priority over the security
interest of another secured party) and each Agent and each Lender hereby
acknowledges that it holds possession or control of any such Collateral for the
benefit of the Collateral Agent as secured party.  Should any Lender obtain possession or
control of any such Collateral, such Lender shall notify the Collateral Agent
thereof, and, promptly upon the Collateral Agent’s request therefor shall
deliver possession or control of such Collateral to the Collateral Agent or in
accordance with the Collateral Agent’s instructions.  Each Loan Party by its execution and delivery
of this Agreement hereby consents to the foregoing.

 

94

 

ARTICLE XI

 

GUARANTY

 

Section 11.01          Guaranty.  Each Guarantor hereby unconditionally and
irrevocably guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all Obligations of the Borrower now
or hereafter existing under any Loan Document, whether for principal, interest
(including, without limitation, all interest that accrues after the
commencement of any Insolvency Proceeding irrespective of whether a claim
therefor is allowed in such case or proceeding), fees, expenses or otherwise
(such obligations, to the extent not paid by the Borrower, being the ”Guaranteed
Obligations”), and agrees to pay any and all expenses (including reasonable
counsel fees and expenses) incurred by the Agents or the Lenders (or any of
them) in enforcing any rights under the guaranty set forth in this
Article.  Without limiting the generality
of the foregoing, each Guarantor’s liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by the Borrower
to the Agents or the Lenders under any Loan Document but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Loan Party.

 

Section 11.02          Guaranty
Absolute.  Each Guarantor
guarantees that the Guaranteed Obligations will be paid strictly in accordance
with the terms of the Loan Documents, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such
terms or the rights of the Agents, the Lenders with respect thereto.  The obligations of each Guarantor under this Article are
independent of the Guaranteed Obligations, and a separate action or actions may
be brought and prosecuted against each Guarantor to enforce such obligations,
irrespective of whether any action is brought against any Loan Party or whether
any Loan Party is joined in any such action or actions.  The liability of each Guarantor under this Article shall
be irrevocable, absolute and unconditional irrespective of, and each Guarantor
hereby irrevocably waives any defenses it may now or hereafter have in any way
relating to, any or all of the following:

 

(a)                                  any lack of validity or enforceability of any Loan Document
or any agreement or instrument relating thereto;

 

(b)                                 any
change in the time, manner or place of payment of, or in any other term of, all
or any of the Guaranteed Obligations, or any other amendment or waiver of or
any consent to departure from any Loan Document, including, without limitation,
any increase in the Guaranteed Obligations resulting from the extension of
additional credit to any Loan Party or otherwise;

 

(c)                                  any
taking, exchange, release or non-perfection of any Collateral, or any taking,
release or amendment or waiver of or consent to departure from any other
guaranty, for all or any of the Guaranteed Obligations;

 

(d)                                 any
change, restructuring or termination of the corporate, limited liability
company or partnership structure or existence of any Loan Party; or

 

95

 

(e)                                  any
other circumstance (including, without limitation, any statute of limitations)
or any existence of or reliance on any representation by the Agents, the
Lenders that might otherwise constitute a defense available to, or a discharge
of, any Loan Party or any other guarantor or surety.

 

This Article shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Guaranteed Obligations is rescinded or must otherwise
be returned by the Agents, the Lenders, or any other Person upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise, all as
though such payment had not been made.

 

Section 11.03          Waiver.  Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Article and any requirement that the
Agents, the Lenders exhaust any right or take any
action against any Loan Party or any other Person or any Collateral.  Each Guarantor acknowledges that it will
receive direct and indirect benefits from the financing arrangements
contemplated herein and that the waiver set forth in this Section 11.03
is knowingly made in contemplation of such benefits.  Each Guarantor hereby waives any right to
revoke this Article, and acknowledges that this Article is continuing in
nature and applies to all Guaranteed Obligations, whether existing now or in
the future.

 

Section 11.04          Continuing
Guaranty; Assignments.  This Article is
a continuing guaranty and shall (a) remain in full force and effect until the
later of (i) the cash payment in full of the Guaranteed Obligations (other than
indemnification obligations as to which no claim has been made) and all other
amounts payable under this Article and (ii) the Final Maturity Date, (b)
be binding upon each Guarantor, its successors and assigns and (c) inure to the
benefit of and be enforceable by the Agents and the Lenders and their
successors, pledgees, transferees and assigns. 
Without limiting the generality of the foregoing clause (c), any
Lender may pledge, assign or otherwise transfer all or any portion of its
rights and obligations under this Agreement (including, without limitation, all
or any portion of its Commitment) to any other Person, and such other Person
shall thereupon become vested with all the benefits in respect thereof granted
such Lender herein or otherwise, in each case as provided in Section 12.07.

 

Section 11.05          Subrogation.  No Guarantor will exercise any rights that it
may now or hereafter acquire against any Loan Party or any other guarantor that
arise from the existence, payment, performance or enforcement of such Guarantor’s
obligations under this Article, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and
any right to participate in any claim or remedy of the Agents and the Lenders
against any Loan Party or any other guarantor or any Collateral, whether or not
such claim, remedy or right arises in equity or under contract, statute or
common law, including, without limitation, the right to take or receive from
any Loan Party or any other guarantor, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security solely on
account of such claim, remedy or right, unless and until all of the Guaranteed
Obligations and all other amounts payable under this Article shall have
been paid in full in cash.  If any amount
shall be paid to any Guarantor in violation of the immediately preceding
sentence at any time prior to the payment in full in cash of the Guaranteed
Obligations and all other amounts payable under this Article, such amount shall
be held in trust for the benefit of the Agents and the Lenders and shall
forthwith be paid to the Agents and the Lenders to be credited

 

96

 

and applied to
the Guaranteed Obligations and all other amounts payable under this Article,
whether matured or unmatured, in accordance with the terms of this Agreement,
or to be held as Collateral for any Guaranteed Obligations or other amounts
payable under this Article thereafter arising.  If (i) any Guarantor shall make payment
to the Agents and the Lenders of all or any part of the Guaranteed Obligations,
and (ii) all of the Guaranteed Obligations and all other amounts payable
under this Article shall be paid in full in cash, the Agents and the
Lenders will promptly, at such Guarantor’s request and expense, execute and
deliver to such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation
to such Guarantor of an interest in the Guaranteed Obligations resulting from
such payment by such Guarantor.

 

ARTICLE XII

 

MISCELLANEOUS

 

Section 12.01          Notices,
Etc.  All notices and other
communications provided for hereunder shall be in writing and shall be mailed,
telecopied or delivered, if to any Loan Party, at the following address:

 

Russ Berrie
and Company, Inc.

111 Bauer Drive

Oakland, New Jersey 07436

Attention:  Chief Financial Officer

Telephone:  201-405-7340 

Telecopier:  201 405 7377

 

with a copy to:

 

Kaye Scholer
LLP

425 Park Avenue

New York, New York 10022

Attention: Jeffrey M. Epstein, Esq.

Telephone: 212-836-8248

Telecopier: 212-836-6475

 

if to the Administrative  Agent, to it at the following address:

 

ABLECO
FINANCE LLC

299 Park Avenue, 24th Floor

New York, New York 10171

Attention:  Daniel Wolf

Telephone:  212-891-2121

Telecopier:  212-891-1541

 

in each case, with a copy to:

 

97

 

Michael B. Grenier

11812 San Vicente Boulevard, Suite 300

Los Angeles, California 90049

Telephone:  (310)
903-5010

Telecopier:  (310) 826-9203

 

and in each case with an additional copy
to:

 

PAUL,
HASTINGS, JANOFSKY & WALKER LLP
515 South Flower Street, 25th Floor

Los Angeles, CA 90071

Attention:  John Francis Hilson, Esq.

Telephone:  213-683-6300

Telecopier:  213-996-3300

 

if to the Collateral Agent, to it at the
following address:

 

ABLECO
FINANCE LLC

299 Park Avenue, 24th Floor

New York, New York 10171

Attention:  Daniel Wolf

Telephone:  212-891-2121

Telecopier:  212-891-1541

 

in each case, with a copy to:

 

Michael B. Grenier

11812 San Vicente Boulevard, Suite 300

Los Angeles, California 90049

Telephone:  (310)
903-5010

Telecopier:  (310) 826-9203

 

and in each case with an additional copy
to:

 

PAUL,
HASTINGS, JANOFSKY & WALKER LLP
515 South Flower Street, 25th Floor

Los Angeles, CA 90071

Attention:  John Francis Hilson, Esq.

Telephone:  213-683-6300

Telecopier:  213-996-3300

 

or, as to each
party, at such other address as shall be designated by such party in a written
notice to the other parties complying as to delivery with the terms of this Section 12.01.  All such notices and other communications
shall be effective, (i) if mailed, when received or 3 days after deposited in
the mails, whichever occurs first, (ii) if telecopied, when transmitted and confirmation
received, or (iii) if delivered, upon delivery, except that notices to any
Agent pursuant to Articles II and III shall not be effective until
received by such Agent, as the case may be.

 

98

 

Section 12.02          Amendments,
Etc.  No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by the Borrower, Required Lenders or by
the Collateral Agent with the consent of the Required Lenders, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given, provided, however, that no amendment,
waiver or consent shall (i) reduce the amount of any mandatory prepayment
of the Term Loan, or the principal of, or interest on, the Term Loan payable to
any Lender, reduce the amount of any fee payable for the account of any Lender,
or postpone or extend any date fixed for any payment of principal of, or
interest or fees on, the Term Loan or any other fees or expenses payable to any
Lender, in each case without the written consent of any Lender affected
thereby, (ii) change the percentage of the Total Commitment or of the
aggregate unpaid principal amount of the Term Loan that is required for the
Lenders or any of them to take any action hereunder without the written consent
of all Lenders, (iii) amend the definition of “Required Lenders” or “Pro Rata
Share”, or change the Pro Rata Share that is required to take any action
hereunder without the written consent of all Lenders, (iv) release all or
a substantial portion of the Collateral (except as otherwise provided in this
Agreement and the other Loan Documents), subordinate any Lien granted in favor
of the Collateral Agent for the benefit of the Lenders, or release the Borrower
or any Guarantor without the prior consent of all Lenders, or (vi) amend,
modify or waive Section 4.04 or this Section 12.02 of
this Agreement without the written consent of all Lenders.  Notwithstanding the foregoing, no amendment,
waiver or consent shall, unless in writing and signed by an Agent, affect the
rights or duties of such Agent (but not in its capacity as a Lender) under this
Agreement or the other Loan Documents; provided, further, that Borrower’s
consent shall not be necessary to amend any provision contained in Article X..

 

Section 12.03          No
Waiver; Remedies, Etc.  No failure on
the part of any Agent or any Lender to exercise, and no delay in exercising,
any right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right under any Loan
Document preclude any other or further exercise thereof or the exercise of any
other right.  The rights and remedies of
the Agents and the Lenders provided herein and in the other Loan Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law.  The rights of the
Agents and the Lenders under any Loan Document against any party thereto are
not conditional or contingent on any attempt by the Agents and the Lenders to
exercise any of their rights under any other Loan Document against such party
or against any other Person.

 

Section 12.04          Expenses;
Taxes; Attorneys’ Fees.  The Borrower
will pay on demand, all costs and expenses incurred by or on behalf of each
Agent and WFF (and, in the case of clauses (b) through (m) below, each other Lender),
regardless of whether the transactions contemplated hereby are consummated,
including, without limitation, reasonable fees, costs, client charges and
expenses of counsel for each Agent and WFF (and, in the case of clauses (b)
through (m) below, each other Lender), accounting, due diligence, periodic
field audits, physical counts, valuations, investigations, searches and
filings, monitoring of assets, appraisals of Collateral, title searches and
reviewing environmental assessments, miscellaneous disbursements, examination,
travel, lodging and meals, arising from or relating to:  (a) the negotiation, preparation, execution,
delivery, performance and administration of this Agreement and the other Loan
Documents (including, without limitation, the preparation of any additional

 

99

 

Loan Documents pursuant to Section 7.01(b) or the review of
any of the agreements, instruments and documents referred to in Section 7.01(f)),
(b) any requested amendments, waivers or consents to this Agreement or the
other Loan Documents whether or not such documents become effective or are
given, (c) the preservation and protection of any of the Lenders’ rights
under this Agreement or the other Loan Documents, (d) the defense of any claim
or action asserted or brought against any Agent or any Lender by any Person
that arises from or relates to this Agreement, any other Loan Document, the
Agents’ or the Lenders’ claims against any Loan Party, or any and all matters
in connection therewith, (e) the commencement or defense of, or intervention
in, any court proceeding arising from or related to this Agreement or any other
Loan Document, (f) the filing of any petition, complaint, answer, motion
or other pleading by any Agent or any Lender, or the taking of any action in
respect of the Collateral or other security, in connection with this Agreement
or any other Loan Document, (g) the protection, collection, lease, sale, taking
possession of or liquidation of, any Collateral or other security in connection
with this Agreement or any other Loan Document, (h) any attempt to enforce any
Lien or security interest in any Collateral or other security in connection
with this Agreement or any other Loan Document, (i) any attempt to collect from
any Loan Party, (j) all liabilities and costs arising from or in connection
with the past, present or future operations of any Loan Party involving any
damage to real or personal property or natural resources or harm or injury
alleged to have resulted from any Release of Hazardous Materials on, upon or
into such property, (k) any Environmental Liabilities and Costs incurred in
connection with the investigation, removal, cleanup and/or remediation of any
Hazardous Materials present or arising out of the operations of any facility
owned or operated by any Loan Party, (l) any Environmental Liabilities and
Costs incurred in connection with any Environmental Lien, or (m) the receipt by
any Agent or any Lender of any advice from professionals with respect to any of
the foregoing.  Without limitation of the
foregoing or any other provision of any Loan Document (and without duplication
thereof):  (x) the Borrower agrees to pay
all stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by any Agent or any Lender to be
payable in connection with this Agreement or any other Loan Document, and the
Borrower agrees to save each Agent and each Lender harmless from and against
any and all present or future claims, liabilities or losses with respect to or
resulting from any omission to pay or delay in paying any such taxes, fees or
impositions, (y) the Borrower agrees to pay all broker fees that may become due
in connection with the transactions contemplated by this Agreement and the
other Loan Documents, and (z) if the Borrower fails to perform any covenant or
agreement contained herein or in any other Loan Document, any Agent may itself
perform or cause performance of such covenant or agreement, and the expenses of
such Agent incurred in connection therewith shall be reimbursed on demand by
the Borrower.

 

Section 12.05          Right
of Set-off.

 

(a)                                  Each
of the Lenders agrees that it shall not, without the express written consent of
the Collateral Agent, and that it shall, to the extent it is lawfully entitled
to do so, upon the written request of the Collateral Agent, set off against the
Obligations, any amounts owing by such Lender to Borrower or any deposit
accounts of Borrower now or hereafter maintained with such Lender.  Each of the Lenders further agrees that it
shall not, unless specifically requested to do so in writing by the Collateral
Agent, take or cause to be taken any action, including, the commencement of any
legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce
any security interest in, any of the Collateral.

 

100

 

(b)                                 If,
at any time or times any Lender shall receive (i) by payment, foreclosure,
setoff, or otherwise, any proceeds of Collateral or any payments with respect
to the Obligations, except for any such proceeds or payments received by such
Lender from Administrative Agent pursuant to the terms of this Agreement, or
(ii) payments from Administrative Agent in excess of such Lender’s ratable
portion of all such distributions by Administrative Agent, such Lender promptly
shall (1) turn the same over to Administrative Agent, in kind, and with such
endorsements as may be required to negotiate the same to Administrative Agent,
or in immediately available funds, as applicable, for the account of all of the
Lenders and for application to the Obligations in accordance with the
applicable provisions of this Agreement, or (2) purchase, without recourse or
warranty, an undivided interest and participation in the Obligations owed to the
other Lenders so that such excess payment received shall be applied ratably as
among the Lenders in accordance with their Pro Rata Shares; provided, however,
that to the extent that such excess payment received by the purchasing party is
thereafter recovered from it, those purchases of participations shall be
rescinded in whole or in part, as applicable, and the applicable portion of the
purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.

 

Section 12.06          Severability.  Any provision of this Agreement which 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 portions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

 

Section 12.07          Assignments
and Participations.  (a)  This
Agreement and the other Loan Documents shall be binding upon and inure to the
benefit of each Loan Party and each Agent and each Lender and their respective
successors and assigns; provided, however, that none of the Loan
Parties may assign or transfer any of its rights hereunder or under the Loan
Documents without the prior written consent of each Agent and each Lender and
any such assignment without such prior written consent shall be null and void.

 

(b)                                 Each
Lender may, with the written consent of the Collateral Agent, assign to one or
more other lenders or other entities all or a portion of its rights and
obligations under this Agreement (including, without limitation, the Term Loan
made by it).  The parties to each such
assignment shall execute and deliver to the Collateral Agent, for its
acceptance, an Assignment and Acceptance, together with any promissory note
subject to such assignment and such parties shall deliver to the Collateral
Agent a processing and recordation fee of $5,000 (except the payment of such
fee shall not be required if the assignee is an Affiliate of a Lender or a fund
or account managed by a Lender or an Affiliate of a Lender).  Upon such execution, delivery and acceptance,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least 3 Business Days after the delivery
thereof to the Collateral Agent (or such shorter period as shall be agreed to
by the Collateral Agent and the parties to such assignment), (A) the assignee
thereunder shall become a “Lender” hereunder and, in addition to the rights and
obligations hereunder held by it immediately prior to such effective date, have
the rights and obligations hereunder that have been assigned to it pursuant to
such Assignment and Acceptance and (B) the assigning Lender thereunder shall,
to the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and,

 

101

 

in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender’s rights and obligations under this
Agreement, such Lender shall cease to be a party hereto); provided, however,
that no assignee shall be entitled to receive any greater payment under Section 2.08
than the assignor Lender would have been entitled to receive thereunder.

 

(c)                                  By
executing and delivering an Assignment and Acceptance, the assigning Lender and
the assignee thereunder confirm to and agree with each other and the other
parties hereto as follows: 
(i) other than as provided in such Assignment and Acceptance, the
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or any other Loan Document or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document furnished pursuant hereto;
(ii) the assigning Lender makes no representation or warranty and assumes
no responsibility with respect to the financial condition of any Loan Party or
any of its Subsidiaries or the performance or observance by any Loan Party of
any of its obligations under this Agreement or any other Loan Document
furnished pursuant hereto; (iii) such assignee confirms that it has
received a copy of this Agreement and the other Loan Documents, together with
such other documents and information it has deemed appropriate to make its own
credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon the
assigning Lender, any Agent or any Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Documents; (v) such assignee appoints and authorizes the Agents
to take such action as agents on its behalf and to exercise such powers under
this Agreement and the other Loan Documents as are delegated to the Agents by
the terms hereof and thereof, together with such powers as are reasonably
incidental hereto and thereto; and (vi) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement and the other Loan Documents are required to be
performed by it as a Lender.

 

(d)                                 The
Collateral Agent acting solely for this purpose as a non-fiduciary agent of the
Borrower, shall maintain, or cause to be maintained at the Payment Office, a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register (the ”Register”) for the
recordation of the names and addresses of the Lenders and the Commitments of,
and principal amount of the Term Loan (the ”Registered Loans”)
owing to each Lender from time to time. 
The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agents and the Lenders
may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. 
The Register shall be available for inspection by the Borrower and any
Lender at any reasonable time and from time to time upon reasonable prior
notice.

 

(e)                                  Upon
its receipt of an Assignment and Acceptance executed by an assigning Lender and
an assignee, together with any promissory notes subject to such assignment, the
Collateral Agent shall, if the Collateral Agent consents to such assignment and
if such Assignment and Acceptance has been completed (i) accept such
Assignment and Acceptance and (ii) record the information contained
therein in the Register.

 

102

 

(f)                                    A
Registered Loan (and the registered note, if any, evidencing the same) may be
assigned or sold in whole or in part only by registration of such assignment or
sale on the Register (and each registered note shall expressly so
provide).  Any assignment or sale of all
or part of such Registered Loan (and the registered note, if any, evidencing
the same) may be effected only by registration of such assignment or sale on
the Register, together with the surrender of the registered note, if any,
evidencing the same duly endorsed by (or accompanied by a written instrument of
assignment or sale duly executed by) the holder of such registered note,
whereupon, at the request of the designated assignee(s) or transferee(s), one
or more new registered notes in the same aggregate principal amount shall be
issued to the designated assignee(s) or transferee(s).  Prior to the registration of the assignment
or sale of any Registered Loan (and the registered note, if any, evidencing the
same), the Agents shall treat the Person in whose name such Registered Loan
(and the registered note, if any, evidencing the same) is registered as the
owner thereof for the purpose of receiving all payments thereon and for all
other purposes, notwithstanding notice to the contrary.

 

(g)                                 In
the event that any Lender sells participations in a Registered Loan, such
Lender, acting solely for this purpose as a non-fiduciary agent of the
Borrower, shall maintain a register on which it enters the name of all
participants in the Registered Loans held by it (the ”Participant
Register”).  A Registered Loan (and
the registered note, if any, evidencing the same) may be participated in whole
or in part only by registration of such participation on the Participant
Register (and each registered note shall expressly so provide).  Any sale, assignment, or subparticipation of
any such participation in a Registered Loan (and the participation certificate
or other document, if any, evidencing the same) may be effected only by the
registration of such sale, assignment, or subparticipation on the Participant
Register.

 

(h)                                 Each
Lender may sell participations to one or more banks or other entities in or to
all or a portion of its rights and obligations under this Agreement and the
other Loan Documents (including, without limitation, all or a portion of the
Term Loan made by it); provided, that (i) such Lender’s obligations under this
Agreement (including without limitation, its Commitment hereunder) and the
other Loan Documents shall remain unchanged; (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, and the Borrower, the Agents and the other Lenders 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; and
(iii) a participant shall not be entitled to require such Lender to take or
omit to take any action hereunder except (A) action directly effecting an
extension of the maturity dates or decrease in the principal amount of the Term
Loan, (B) action directly effecting an extension of the due dates or a decrease
in the rate of interest payable on the Term Loan (other than a waiver of the
Post-Default Rate) or the fees payable under this Agreement, or (C) actions
directly effecting a release of all or a substantial portion of the Collateral
or the Borrower or any Guarantor (except as set forth in Section 10.08
of this Agreement or any other Loan Document). 
The Loan Parties agree that each participant shall be entitled to the
benefits of Section 2.08 and Section 4.05 of this
Agreement with respect to its participation in any portion of the Commitment
and the Term Loan as if it was a Lender; provided, however, that no such
participant shall be entitled to receive any greater payment under Section 2.08
than the Lender would have been entitled to receive thereunder.

 

103

 

Section 12.08          Counterparts.  This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement. 
Delivery of an executed counterpart of this Agreement by telefacsimile
shall be equally as effective as delivery of an original executed counterpart
of this Agreement.  Any party delivering
an executed counterpart of this Agreement by telefacsimile also shall deliver
an original executed counterpart of this Agreement but the failure to deliver
an original executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement. 
The foregoing shall apply to each other Loan Document mutatis mutandis.

 

Section 12.09          GOVERNING
LAW.  THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN
DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT) SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.

 

Section 12.10          CONSENT
TO JURISDICTION; SERVICE OF PROCESS AND VENUE.  ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF
THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR OF THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY HEREBY IRREVOCABLY ACCEPTS IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES, AND DOCUMENTS IN ANY SUIT, ACTION,
OR PROCEEDING BROUGHT IN THE UNITED STATES OF AMERICA ARISING OUT OF OR IN
CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS BY THE
MAILING (BY REGISTERED MAIL OR CERTIFIED MAIL, POSTAGE PREPAID) OR DELIVERING
OF A COPY OF SUCH PROCESS TO SUCH LOAN PARTY, C/O THE BORROWER, AT THE BORROWER’S
ADDRESS FOR NOTICES AS SET FORTH IN SECTION 12.01.  THE LOAN PARTIES AGREE THAT A FINAL JUDGMENT
IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY
LAW.  NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE AGENTS AND THE LENDERS TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANY LOAN PARTY IN ANY OTHER JURISDICTION. 
EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH
COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM.  TO THE EXTENT
THAT ANY LOAN PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION
OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR

 

104

 

TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT
TO ITSELF OR ITS PROPERTY, EACH LOAN PARTY HEREBY IRREVOCABLY WAIVES SUCH
IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.

 

Section 12.11          WAIVER OF JURY TRIAL, ETC.  EACH LOAN PARTY, EACH AGENT AND EACH LENDER
HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR
OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION
THEREWITH, OR ARISING FROM ANY FINANCING RELATIONSHIP EXISTING IN CONNECTION
WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION, PROCEEDINGS OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.  EACH LOAN PARTY CERTIFIES THAT NO OFFICER,
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY AGENT OR ANY LENDER HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT ANY AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF
ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO
ENFORCE THE FOREGOING WAIVERS.  EACH LOAN
PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE
AGENTS AND THE LENDERS ENTERING INTO THIS AGREEMENT.

 

Section 12.12          Consent
by the Agents and Lenders. 
Except as otherwise expressly set forth herein to the contrary, if the
consent, approval, satisfaction, determination, judgment, acceptance or similar
action (an “Action”) of any Agent or any Lender shall be permitted or
required pursuant to any provision hereof or any provision of any other
agreement to which any Loan Party is a party and to which any Agent or any
Lender has succeeded thereto, such Action shall be required to be in writing
and may be withheld or denied by such Agent or such Lender, in its sole
discretion, with or without any reason, and without being subject to question
or challenge on the grounds that such Action was not taken in good faith.

 

Section 12.13          No
Party Deemed Drafter.  Each of the
parties hereto agrees that no party hereto shall be deemed to be the drafter of
this Agreement.

 

Section 12.14          Reinstatement;
Certain Payments.  If any
claim is ever made upon any Agent or any Lender for repayment or recovery of
any amount or amounts received by such Agent or such Lender in payment or on
account of any of the Obligations, such Agent or such Lender, as applicable,
shall give prompt notice of such claim to each other Agent and Lender and the
Borrower, and if such Agent or such Lender repays all or part of such amount by
reason of (i) any judgment, decree or order of any court or administrative
body having jurisdiction over such Agent or such Lender or any of its property,
or (ii) any good faith settlement or compromise of any such claim effected
by such Agent or such Lender with any such claimant, then and in such event
each Loan Party agrees that (A) any such judgment, decree, order, settlement or
compromise shall be binding upon it notwithstanding the cancellation of any
Indebtedness hereunder or under the other Loan Documents or the termination of
this Agreement or the other Loan Documents, and (B) it shall be and remain
liable

 

105

 

to such Agent and such Lender hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by such Agent or such Lender.

 

Section 12.15          Indemnification.  In addition to each Loan Party’s other
Obligations under this Agreement, each Loan Party agrees to, jointly and
severally, defend, protect, indemnify and hold harmless each Agent, each Lender
and all of their respective officers, directors, employees, attorneys,
consultants and agents (collectively called the ”Indemnitees”) from
and against any and all losses, damages, liabilities, obligations, penalties,
fees, reasonable costs and expenses (including, without limitation, reasonable
attorneys’ fees, costs and expenses) incurred by such Indemnitees (including
Taxes only to the extent set forth elsewhere in this Agreement and the other
Loan Dcouments), whether prior to or from and after the Effective Date, whether
direct, indirect or consequential, as a result of or arising from or relating
to or in connection with any of the following: 
(i) the negotiation, preparation, execution or performance or
enforcement of this Agreement, any other Loan Document or of any other document
executed in connection with the transactions contemplated by this Agreement,
(ii) any Agent’s or any Lender’s furnishing of funds to the Borrower under
this Agreement or the other Loan Documents, including, without limitation, the
management of any the Term Loan, (iii) any matter relating to the
Acquisition or financing transactions contemplated by this Agreement or the
other Loan Documents or by any document executed in connection with the
transactions contemplated by this Agreement or the other Loan Documents, or
(iv) any claim, litigation, investigation or proceeding relating to any of
the foregoing, whether or not any Indemnitee is a party thereto (collectively,
the “Indemnified Matters”); provided, however, that the
Loan Parties shall not have any obligation to any Indemnitee under this Section 12.15
for any Indemnified Matter caused by the gross negligence or willful misconduct
of such Indemnitee, as determined by a final judgment of a court of competent
jurisdiction.  Such indemnification for
all of the foregoing losses, damages, fees, costs and expenses of the
Indemnitees are chargeable against the Loan Account.  To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 12.15
may be unenforceable because it is violative of any law or public policy, each
Loan Party shall, jointly and severally, contribute the maximum portion which
it is permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees.  This Indemnity shall survive the repayment of
the Obligations and the discharge of the Liens granted under the Loan
Documents.

 

Section 12.16          Records.  The unpaid principal of and interest on the
Term Loan, the interest rate or rates applicable to such unpaid principal and
interest, the duration of such applicability, the Commitment, and the accrued
and unpaid fees payable pursuant to Section 2.06 hereof, including,
without limitation, the Closing Fee and the Loan Servicing Fee shall at all
times be ascertained from the records of the Agents, which shall be conclusive
and binding absent manifest error.

 

Section 12.17          Binding
Effect.  This Agreement shall
become effective when it shall have been executed by each Loan Party, each
Agent and each Lender and thereafter shall be binding upon and inure to the
benefit of each Loan Party, each Agent and each Lender, and their respective
successors and assigns, except that the Loan Parties shall not have the right
to assign their rights hereunder or any interest herein without the prior
written consent of each Lender, and any assignment by any Lender shall be
governed by Section 12.07 hereof.

 

106

 

Section 12.18          Interest.  It is the intention of the parties hereto
that each Agent and each Lender shall conform strictly to usury laws applicable
to it.  Accordingly, if the transactions
contemplated hereby or by any other Loan Document would be usurious as to any
Agent or any Lender under laws applicable to it (including the laws of the
United States of America and the State of New York or any other jurisdiction
whose laws may be mandatorily applicable to such Agent or such Lender
notwithstanding the other provisions of this Agreement), then, in that event,
notwithstanding anything to the contrary in this Agreement or any other Loan
Document or any agreement entered into in connection with or as security for
the Obligations, it is agreed as follows: 
(i) the aggregate of all consideration which constitutes interest under
law applicable to any Agent or any Lender that is contracted for, taken,
reserved, charged or received by such Agent or such Lender under this Agreement
or any other Loan Document or agreements or otherwise in connection with the
Obligations shall under no circumstances exceed the maximum amount allowed by
such applicable law, any excess shall be canceled automatically and if
theretofore paid shall be credited by such Agent or such Lender on the
principal amount of the Obligations (or, to the extent that the principal
amount of the Obligations shall have been or would thereby be paid in full,
refunded by such Agent or such Lender, as applicable, to the Borrower); and
(ii) in the event that the maturity of the Obligations is accelerated by reason
of any Event of Default under this Agreement or otherwise, or in the event of
any required or permitted prepayment, then such consideration that constitutes
interest under law applicable to any Agent or any Lender may never include more
than the maximum amount allowed by such applicable law, and excess interest, if
any, provided for in this Agreement or otherwise shall be canceled
automatically by such Agent or such Lender, as applicable, as of the date of
such acceleration or prepayment and, if theretofore paid, shall be credited by
such Agent or such Lender, as applicable, on the principal amount of the
Obligations (or, to the extent that the principal amount of the Obligations
shall have been or would thereby be paid in full, refunded by such Agent or
such Lender to the Borrower).  All sums
paid or agreed to be paid to any Agent or any Lender for the use, forbearance
or detention of sums due hereunder shall, to the extent permitted by law
applicable to such Agent or such Lender, be amortized, prorated, allocated and
spread throughout the full term of the Term Loan until payment in full so that
the rate or amount of interest on account of the Term Loan hereunder does not
exceed the maximum amount allowed by such applicable law.  If at an time and from time to time (i) the
amount of interest payable to any Agent or any Lender on any date shall be
computed at the Highest Lawful Rate applicable to such Agent or such Lender
pursuant to this Section 12.18 and (ii) in respect of any
subsequent interest computation period the amount of interest otherwise payable
to such Agent or such Lender would be less than the amount of interest payable
to such Agent or such Lender computed at the Highest Lawful Rate applicable to
such Agent or such Lender, then the amount of interest payable to such Agent or
such Lender in respect of such subsequent interest computation period shall
continue to be computed at the Highest Lawful Rate applicable to such Agent or
such Lender until the total amount of interest payable to such Agent or such
Lender shall equal the total amount of interest which would have been payable
to such Agent or such Lender if the total amount of interest had been computed
without giving effect to this Section 12.18.

 

For purposes of this Section 12.18, the term “applicable
law” shall mean that law in effect from time to time and applicable to the loan
transaction between the Borrower, on the one hand, and the Agents and the
Lenders, on the other, that lawfully permits the charging and collection of the
highest permissible, lawful non-usurious rate of interest on such loan
transaction

 

107

 

and this
Agreement, including laws of the State of New York and, to the extent
controlling, laws of the United States of America.

 

The right to accelerate the maturity of the Obligations does not
include the right to accelerate any interest that has not accrued as of the
date of acceleration.

 

Section 12.19          Confidentiality.  Each Agent and each Lender agrees (on behalf
of itself and each of its affiliates, directors, officers, employees and
representatives) to treat as confidential any material non-public information
supplied to it by the Loan Parties pursuant to this Agreement or the other Loan
Documents (and which at the time is not, and does not thereafter become,
publicly available or available to such Person from another source not known to
be subject to a confidentiality obligation to such Person not to disclose such
information), provided that nothing herein shall limit the disclosure of
any such information (i) to the extent required by statute, rule,
regulation or judicial process, (ii) to counsel for any Agent or any
Lender, (iii) to examiners, auditors, accountants or Securitization
Parties, (iv) in connection with any litigation to which any Agent or any
Lender is a party or (v) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first agrees, in writing, to be bound by
confidentiality provisions similar in substance to this Section 12.19.  Each Agent and each Lender agrees that, upon
receipt of a request or identification of the requirement for disclosure
pursuant to clause (iv) hereof, it will make reasonable efforts to keep
the Loan Parties informed of such request or identification; provided
that each Loan Party acknowledges that each Agent and each Lender may make
disclosure as required or requested by any Governmental Authority or
representative thereof and that each Agent and each Lender may be subject to
review by Securitization Parties or other regulatory agencies and may be
required to provide to, or otherwise make available for review by, the
representatives of such parties or agencies any such non-public information.

 

Section 12.20          Section Headings.  Headings and numbers have been set forth
herein for convenience only.  Unless the
contrary is compelled by the context, everything contained in each Section applies
equally to this entire Agreement.

 

Section 12.21          Integration.  This Agreement, together with the other Loan
Documents, reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

 

108

 

IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first above
written.

 

 

	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  RUSS BERRIE AND COMPANY,
  INC.

  
	
   

  	
  a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  PRESIDENT

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  KIDS LINE, LLC

  
	
   

  	
  a Delaware limited
  liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  SASSY, INC.

  
	
   

  	
  an Illinois corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  RUSS BERRIE & CO.
  (WEST), INC.

  
	
   

  	
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  

 

109

 

	
   

  	
  RBCACQ, INC.

  
	
   

  	
  a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  RUSS BERRIE AND COMPANY

  
	
   

  	
  PROPERTIES, INC.

  
	
   

  	
  a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  RUSSPLUS, INC.

  
	
   

  	
  a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  FLUF N’ STUF, INC.

  
	
   

  	
  a Pennsylvania corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  RBTACQ, INC.

  
	
   

  	
  an Ohio corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  RUSS BERRIE AND COMPANY

  
	
   

  	
  INVESTMENTS, INC.

  
	
   

  	
  a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  

 

110

 

	
   

  	
  BOA DONE, INC.

  
	
   

  	
  a West Virginia
  corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  P/F DONE, INC.

  
	
   

  	
  a Pennsylvania corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew Gatto

  	
   

  
	
   

  	
   

  	
  Andrew Gatto

  	
   

  
	
   

  	
   

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  COLLATERAL AGENT,
  ADMINISTRATIVE

  AGENT AND LENDER:

  
	
   

  	
   

  
	
   

  	
  ABLECO FINANCE LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin Genda

  	
   

  
	
   

  	
   

  	
  Kevin Genda

  	
   

  
	
   

  	
   

  	
  Senior Vice President /

  Cheif Credit Officer

  	
   

  
	
   

  	
   

  
	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  ABLECO FINANCE LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin Genda

  	
   

  
	
   

  	
   

  	
  Kevin Genda

  	
   

  
	
   

  	
   

  	
  Senior Vice President /

  Cheif Credit Officer

  	
   

  

 

111

 

FINANCING
AGREEMENT

 

Dated as of December 15,
2004

 

by and among

 

RUSS BERRIE
AND COMPANY, INC.,

 

THE GUARANTORS
DEFINED HEREIN,

 

THE LENDERS
FROM TIME TO TIME PARTY HERETO,

 

ABLECO FINANCE
LLC,

 

as Collateral Agent,

 

and

 

ABLECO FINANCE
LLC,

 

as Administrative Agent

 

 

TABLE OF
CONTENTS

 

	
  ARTICLE I

  	
  DEFINITIONS;
  CERTAIN TERMS

  	
   

  
	
  Section 1.01

  	
  Definitions

  	
   

  
	
  Section 1.02

  	
  Terms Generally

  	
   

  
	
  Section 1.03

  	
  Accounting and Other Terms

  	
   

  
	
  Section 1.04

  	
  Time References

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  THE term LOAN

  	
   

  
	
  Section 2.01

  	
  Commitment

  	
   

  
	
  Section 2.02

  	
  Making the Term Loan

  	
   

  
	
  Section 2.03

  	
  Repayment of
  the Term Loan; Evidence of Debt

  	
   

  
	
  Section 2.04

  	
  Interest

  	
   

  
	
  Section 2.05

  	
  Termination
  of Commitment; Prepayment of the Term Loan

  	
   

  
	
  Section 2.06

  	
  Fees

  	
   

  
	
  Section 2.07

  	
  Securitization

  	
   

  
	
  Section 2.08

  	
  Taxes.

  	
   

  
	
  Section 2.09

  	
  Backup Letter of Credit

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  [INTENTIONALLY OMITTED]

  	
   

  
	
  ARTICLE IV

  	
  FEES, PAYMENTS AND OTHER COMPENSATION

  	
   

  
	
  Section 4.01

  	
  Audit and
  Collateral Monitoring Fees

  	
   

  
	
  Section 4.02

  	
  Payments;
  Computations and Statements

  	
   

  
	
  Section 4.03

  	
  Sharing of Payments, Etc

  	
   

  
	
  Section 4.04

  	
  Apportionment of Payments

  	
   

  
	
  Section 4.05

  	
  Increased Costs and
  Reduced Return

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  CONDITIONS TO LOANS

  	
   

  
	
  Section 5.01

  	
  Conditions Precedent

  	
   

  
	
  Section 5.02

  	
  Conditions
  Precedent to the Term Loan

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  
	
  Section 6.01

  	
  Representations and
  Warranties

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  COVENANTS
  OF THE LOAN PARTIES

  	
   

  
	
  Section 7.01

  	
  Affirmative
  Covenants

  	
   

  
	
  Section 7.02

  	
  Negative
  Covenants

  	
   

  
	
  Section 7.03

  	
  Financial
  Covenants

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  MANAGEMENT, COLLECTION AND STATUS

  	
   

  
	
  Section 8.01

  	
  Collection of Accounts Receivable;
  Management of Collateral

  	
   

  
	
  Section 8.02

  	
  Accounts Receivable Documentation

  	
   

  
	
  Section 8.03

  	
  Status of Accounts Receivable and
  Other Collateral

  	
   

  
	
  Section 8.04

  	
  Collateral Custodian

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  EVENTS OF DEFAULT

  	
   

  
	
  Section 9.01

  	
  Events of Default

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE X

  	
  AGENTS

  	
   

  
	
  Section 10.01

  	
  Appointment

  	
   

  

 

i

 

	
  Section 10.02

  	
  Nature of Duties

  	
   

  
	
  Section 10.03

  	
  Rights, Exculpation, Etc

  	
   

  
	
  Section 10.04

  	
  Reliance

  	
   

  
	
  Section 10.05

  	
  Indemnification

  	
   

  
	
  Section 10.06

  	
  Agents Individually

  	
   

  
	
  Section 10.07

  	
  Successor Agent

  	
   

  
	
  Section 10.08

  	
  Collateral Matters

  	
   

  
	
  Section 10.09

  	
  Agency for Perfection

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI

  	
  GUARANTY

  	
   

  
	
  Section 11.01

  	
  Guaranty

  	
   

  
	
  Section 11.02

  	
  Guaranty Absolute

  	
   

  
	
  Section 11.03

  	
  Waiver

  	
   

  
	
  Section 11.04

  	
  Continuing Guaranty; Assignments

  	
   

  
	
  Section 11.05

  	
  Subrogation

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII

  	
  MISCELLANEOUS

  	
   

  
	
  Section 12.01

  	
  Notices, Etc

  	
   

  
	
  Section 12.02

  	
  Amendments, Etc

  	
   

  
	
  Section 12.03

  	
  No Waiver; Remedies, Etc

  	
   

  
	
  Section 12.04

  	
  Expenses; Taxes; Attorneys’ Fees

  	
   

  
	
  Section 12.05

  	
  Right of Set-off

  	
   

  
	
  Section 12.06

  	
  Severability

  	
   

  
	
  Section 12.07

  	
  Assignments and Participations

  	
   

  
	
  Section 12.08

  	
  Counterparts

  	
   

  
	
  Section 12.09

  	
  GOVERNING LAW

  	
   

  
	
  Section 12.10

  	
  CONSENT TO JURISDICTION; SERVICE OF
  PROCESS AND VENUE

  	
   

  
	
  Section 12.11

  	
  WAIVER OF JURY TRIAL, ETC

  	
   

  
	
  Section 12.12

  	
  Consent by the Agents and Lenders

  	
   

  
	
  Section 12.13

  	
  No Party Deemed Drafter

  	
   

  
	
  Section 12.14

  	
  Reinstatement; Certain Payments

  	
   

  
	
  Section 12.15

  	
  Indemnification

  	
   

  
	
  Section 12.16

  	
  Records

  	
   

  
	
  Section 12.17

  	
  Binding Effect

  	
   

  
	
  Section 12.18

  	
  Interest

  	
   

  
	
  Section 12.19

  	
  Confidentiality

  	
   

  
	
  Section 12.20

  	
  Section Headings

  	
   

  
	
  Section 12.21

  	
  Integration

  	
   

  

 

ii

 

SCHEDULES AND EXHIBITS

 

	
  Schedule C-1

  	
  Consolidated EBITDA for 2004

  	
   

  
	
  Schedule T-1

  	
  Lenders and Lenders’ Commitments

  	
   

  
	
  Schedule 6.01(e)

  	
  Subsidiaries

  	
   

  
	
  Schedule 6.01(f)

  	
  Litigation; Commercial Tort Claims

  	
   

  
	
  Schedule 6.01(i)

  	
  ERISA

  	
   

  
	
  Schedule 6.01(o)

  	
  Real Property

  	
   

  
	
  Schedule 6.01(q)

  	
  Operating Leases

  	
   

  
	
  Schedule 6.01(r)

  	
  Environmental Matters

  	
   

  
	
  Schedule 6.01(s)

  	
  Insurance

  	
   

  
	
  Schedule 6.01(v)

  	
  Bank Accounts

  	
   

  
	
  Schedule 6.01(w)

  	
  Intellectual Property

  	
   

  
	
  Schedule 6.01(x)

  	
  Material Contracts

  	
   

  
	
  Schedule 6.01(dd)

  	
  Name; Jurisdiction of Organization; Organizational ID Number; Chief
  Place of Business; Chief Executive Office; FEIN

  	
   

  
	
  Schedule 6.01(ee)

  	
  Tradenames

  	
   

  
	
  Schedule 6.01(ff)

  	
  Collateral Locations

  	
   

  
	
  Schedule 7.02(a)

  	
  Existing Liens

  	
   

  
	
  Schedule 7.02(b)

  	
  Existing Indebtedness

  	
   

  
	
  Schedule 7.02(e)

  	
  Existing Investments

  	
   

  
	
  Schedule 7.02(k)

  	
  Limitations on Dividends and Other Payment Restrictions

  	
   

  
	
  Schedule 8.01

  	
  Lockbox Banks and Lockbox Accounts

  	
   

  
	
  Exhibit A-1

  	
  Form of Assignment and Acceptance

  	
   

  
	
  Exhibit G-1

  	
  Form of Guaranty

  	
   

  
	
  Exhibit I-1

  	
  Form of Intercompany Subordination Agreement

  	
   

  
	
  Exhibit L-1

  	
  Form of LIBOR Notice

  	
   

  
	
  Exhibit S-1

  	
  Form of Security Agreement

  	
   

  
	
  Exhibit SS-1

  	
  Form of Seller Subordination Agreement

  	
   

  
	
  Exhibit 5.01(d)(xvi)

  	
  Form of Opinion of Counsel

  	
   

  

 

3Exhibit 4.3

 

Execution
Version

 

SECURITY
AGREEMENT

 

This SECURITY AGREEMENT (this “Agreement”) is
made this 15th day of December, 2004, among Grantors listed on the signature
pages hereof and those additional entities that hereafter become parties hereto
by executing the form of Supplement attached hereto as Annex 1
(collectively, jointly and severally, “Grantors” and each individually, “Grantor”),
and ABLECO FINANCE LLC, a Delaware limited liability company (“Ableco”),
in its capacity as collateral agent for the below-defined Lender Group
(together with its successors and assigns, “Collateral Agent”).

 

W I T N E S S E T H:

 

WHEREAS,
pursuant to that certain Financing Agreement of even date herewith (as amended,
restated, supplemented or otherwise modified from time to time, including all
schedules thereto, the “Financing Agreement”) among Russ Berrie and
Company, Inc., a New Jersey corporation, as borrower (“Borrower”), each
subsidiary of the Borrower listed as a “Guarantor” on the signature pages
thereto, the lenders party thereto (“Lenders”), and Ableco, as
administrative agent for the Lender Group (in such capacity, together with its
successors and assigns, if any, in such capacity, “Administrative Agent”;
and together with Collateral Agent, each an “Agent” and collectively, “Agents”),
the Lender Group is willing to make certain financial accommodations available
to Borrower pursuant to the terms and conditions thereof, and

 

WHEREAS,
Collateral Agent has agreed to act as collateral agent for the benefit of the
Lender Group in connection with the transactions contemplated by this
Agreement, and

 

WHEREAS,
in order to induce the Lender Group to enter into the Financing Agreement and
the other Loan Documents and to induce the Lender Group to make financial accommodations
to Borrower as provided for in the Financing Agreement, Grantors have agreed to
grant a continuing security interest in and to the Collateral in order to
secure the prompt and complete payment, observance and performance of, among
other things, (a) the obligations of such Grantor arising from this Agreement,
the Financing Agreement, and the other Loan Documents, (b) all Obligations of
Grantor, and (c) all Obligations of Borrower (including, without limitation,
any interest, fees or expenses that accrue after the filing of an Insolvency
Proceeding, regardless of whether allowed or allowable in whole or in part as a
claim in any Insolvency Proceeding), plus reasonable attorneys fees and
expenses if the obligations represented thereunder are collected by law,
through an attorney-at-law, or under advice therefrom (clauses (a) and (b)
being hereinafter referred to as the “Secured Obligations”), by the
granting of the security interests contemplated by this Agreement, and

 

NOW,
THEREFORE, for and in consideration of the recitals made above and other good
and valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:

 

1.                                       Defined Terms. All capitalized terms used herein
(including, without limitation, in the preamble and recitals hereof) without
definition shall have the meanings ascribed thereto in the Financing Agreement.  In addition to those terms defined elsewhere
in this Agreement, as used in this Agreement, the following terms shall have
the following meanings:

 

 

(a)                                  “Account”
means an account (as that term is defined in the Code).

 

(b)                                 “Code”
means the New York Uniform Commercial Code, as in effect from time to time;
provided, however, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, priority, or remedies with
respect to Collateral Agent’s Lien on any Collateral is governed by the Uniform
Commercial Code as enacted and in effect in a jurisdiction other than the State
of New York, the term “Code” shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes of the provisions
thereof relating to such attachment, perfection, priority, or remedies.

 

(c)                                  “Control
Agreement” means a control agreement, in form and substance satisfactory to
Collateral Agent, executed and delivered by each relevant Grantor, Collateral
Agent, and the applicable securities intermediary (with respect to a Securities
Account) or bank (with respect to a Deposit Account)

 

(d)                                 “Copyrights”
means copyrights and copyright registrations, including, without limitation,
the copyright registrations and recordings thereof and all applications in
connection therewith listed on Schedule 1 attached hereto and made
a part hereof, and (i) all reissues, continuations, extensions or renewals
thereof, (ii) all income, royalties, damages and payments now and hereafter due
and/or payable under and with respect thereto, including, without limitation,
payments under all licenses entered into in connection therewith and damages
and payments for past or future infringements or dilutions thereof, (iii) the
right to sue for past, present and future infringements and dilutions thereof,
(iv) the goodwill of each such Grantor’s business symbolized by the foregoing
and connected therewith, and (v) all of each such Grantor’s rights
corresponding thereto throughout the world.

 

(e)                                  “Copyright
Security Agreement” means each Copyright Security Agreement among Grantors,
or any of them, and Collateral Agent, for the benefit of the Lender Group in
substantially the form of Exhibit A attached hereto, pursuant to which
Grantors have granted to Collateral Agent, for the benefit of the Lender Group,
a security interest in all their respective Copyrights.

 

(f)                                    “Deposit
Accounts” means a deposit account (as that term is defined in the Code).

 

(g)                                 “Effective
Date” means the date of the making of the Term Loan.

 

(h)                                 “Equipment”
means equipment (as that term is defined in the Code).

 

(i)                                     “Equity
Interests” means all shares, units, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company, or equivalent entity or
other Person, whether voting or nonvoting, including general partner
partnership interests, limited partner partnership interests, limited liability
company membership interests, common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act); in each case
whether constituting “general intangibles” or “investment property” or
otherwise under (and as defined in) the Code.

 

(j)                                     “Intellectual
Property” means any and all Intellectual Property Licenses, Patents,
Copyrights, Trademarks, the goodwill associated with such Trademarks, trade
secrets and customer lists.

 

(k)                                  “Intellectual
Property Licenses” means rights under or interest in any patent, trademark,
copyright or other intellectual property, including software license agreements
with any other party, whether the applicable Grantor is a licensee or licensor
under any such license agreement, including, without limitation, the license
agreements listed on Schedule 2 attached hereto and made a part
hereof, and the right to use the foregoing in connection with the enforcement
of the Lender Group’s rights under the Loan Documents, including, without
limitation, the right to prepare for sale and sell any and all Inventory and
Equipment now or hereafter owned by any such Grantor and now or hereafter
covered by such licenses.

 

2

 

(l)                                     “Inventory”
means inventory (as that term is defined in the Code).

 

(m)                               “Investment
Related Property” means (i) investment property (as that term is defined in
the Code), and (ii) all of the following regardless of whether classified as
investment property under the Code:  all
Pledged Interests, Pledged Operating Agreements, and Pledged Partnership
Agreements.

 

(n)                                 “Lender
Group” means, individually and collectively, each of the Lenders and each
of the Agents.

 

(o)                                 “Lender
Group Expenses” means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by a Grantor or its Subsidiaries under
any of the Loan Documents that are paid, advanced, or incurred by the Lender
Group, (b) up to the amount of any limitation in this Agreement and the other
Loan Documents, fees or charges paid or incurred by the Agents in connection
with the Lender Group’s transactions with Grantors or their Subsidiaries,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor vehicles),
filing, recording, publication, appraisal (including periodic collateral
appraisals or business valuations to the extent of the fees and charges (and up
to the amount of any limitation) contained in the Financing Agreement, real
estate surveys, real estate title policies and endorsements, and environmental
audits, (c) costs and expenses incurred by the Agents in the disbursement of
funds to Grantors or other members of the Lender Group (by wire transfer or
otherwise), (d) charges paid or incurred by the Agents resulting from the
dishonor of checks, (e) reasonable costs and expenses paid or incurred by the
Lender Group to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Agent related to any inspections or
audits to the extent of the fees and charges (and up to the amount of any
limitation) contained in the Financing Agreement, (g) reasonable costs and
expenses of third party claims or any other suit paid or incurred by the Lender
Group in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or the Lender Group’s
relationship with any Grantor or any Subsidiary of a Grantor, (h) each Agent’s
and each Lender’s reasonable costs and expenses (including attorneys fees)
incurred in advising, structuring, drafting, reviewing, administering,
syndicating, or amending the Loan Documents, and (i) each Agent’s and each
Lender’s reasonable costs and expenses (including attorneys, accountants,
consultants, and other advisors fees and expenses) incurred in terminating,
enforcing (including attorneys, accountants, consultants, and other advisors
fees and expenses incurred in connection with a “workout,” a “restructuring,”
or an Insolvency Proceeding concerning any Grantor or any Subsidiary of a
Grantor or in exercising rights or remedies under the Loan Documents), or
defending the Loan Documents, irrespective of whether suit is brought, or in
taking any Remedial Action concerning the Collateral, except to the extent that
any of the foregoing results from the gross negligence or willful misconduct of
the Collateral Agent or any of the Lenders.

 

(p)                                 “Patents”
means patents and patent applications, including, without limitation, the
patents and patent applications listed on Schedule 3 attached
hereto and made a part hereof, and (i) all renewals thereof, (ii) all income,
royalties, damages and payments now and hereafter due and/or payable under and
with respect thereto, including, without limitation, payments under all
licenses entered into in connection therewith and damages and payments for past
or future infringements or dilutions thereof, (iii) the right to sue for past,
present and future infringements and dilutions thereof, and (iv) all of each
Grantor’s rights corresponding thereto throughout the world.

 

(q)                                 “Patent
Security Agreement” means each Patent Security Agreement among Grantors, or
any of them, and Collateral Agent, for the benefit of the Lender Group, in
substantially the form of Exhibit B attached hereto, pursuant to which
Grantors have granted to Collateral Agent, for the benefit of the Lender Group,
a security interest in all their respective Patents.

 

3

 

(r)                                    “Permitted
Discretion” means a determination made in the exercise of reasonable (from
the perspective of a secured asset-based lender) business judgment.

 

(s)                                  “Pledged
Companies” means, each Person listed on Schedule 4 hereto as a “Pledged
Company”, together with each other Person, all or a portion of whose Equity Interests are acquired or otherwise owned by a
Grantor after the Effective Date.

 

(t)                                    “Pledged
Interests” means all of each Grantor’s right, title and interest in and to
all of the Equity Interests now or hereafter owned by such Grantor, regardless
of class or designation, including, without limitation, in each of the Pledged
Companies, and all substitutions therefor and replacements thereof, all
proceeds thereof and all rights relating thereto, including, without
limitation, any certificates representing the Equity Interests, the right to
request after the occurrence and during the continuation of an Event of Default
that such Equity Interests be registered in the name of Collateral Agent or any
of its nominees, the right to receive any certificates representing any of the Equity
Interests and the right to require that such certificates be delivered to Collateral
Agent together with undated powers or assignments of investment securities with
respect thereto, duly endorsed in blank by such Grantor, all warrants, options,
share appreciation rights and other rights, contractual or otherwise, in
respect thereof and of all dividends, distributions of income, profits, surplus,
or other compensation by way of income or liquidating distributions, in cash or
in kind, and cash, instruments, and other property from time to time received,
receivable, or otherwise distributed in respect of or in addition to, in
substitution of, on account of, or in exchange for any or all of the foregoing;
provided, however, that Pledged Interests shall not include more than 65% of
the issued and outstanding Equity Interests in any direct or indirect
Subsidiary of such Grantor which is not incorporated under the laws of any
state of the United States of America or the District of Columbia.

 

(u)                                 “Pledged
Interests Addendum” means a Pledged Interests Addendum substantially in the
form of Exhibit C to this Agreement.

 

(v)                                 “Pledged
Operating Agreements” means all of each Grantor’s rights, powers, and
remedies under the limited liability company operating agreements of each of the
Pledged Companies that is a limited liability company.

 

(w)                               “Pledged
Partnership Agreements” means all of each Grantor’s rights, powers, and
remedies under the partnership agreements of each of the Pledged Companies that
is a partnership.

 

(x)                                   “Real
Property” means any estates or interests in real property now owned or
hereafter acquired by Grantors or any Domestic Subsidiary of any Grantor and
the improvements thereto.

 

(y)                                 “Records”
means information that is inscribed on a tangible medium or which is stored in
an electronic or other medium and is retrievable in perceivable form.

 

(z)                                   “Securities
Account” means a securities account (as that term is defined in the Code).

 

(aa)                            “Trademarks”
means trademarks, trade names, registered trademarks, trademark applications,
service marks, registered service marks and service mark applications,
including, without limitation, the trade names, registered trademarks,
trademark applications, registered service marks and service mark applications
listed on Schedule 5 attached hereto and made a part hereof, and
(i) all renewals thereof, (ii) all income, royalties, damages and payments now
and hereafter due and/or payable under and with respect thereto, including,
without limitation, payments under all licenses entered into in connection
therewith and damages and payments for past or future infringements or
dilutions thereof, (iii) the right to sue for past, present and future
infringements and dilutions thereof, (iv) the goodwill of each Grantor’s
business symbolized by the foregoing and connected therewith, and (v) all of
each Grantor’s rights corresponding thereto throughout the world.

 

4

 

(bb)                          “Trademark
Security Agreement” means each Trademark Security Agreement among Grantors,
or any of them, and Collateral Agent, for the benefit of the Lender Group, in
substantially the form of Exhibit D attached hereto, pursuant to which
Grantors have granted to Collateral Agent, for the benefit of the Lender Group,
a security interest in all their respective Trademarks.

 

(cc)                            “URL”
means “uniform resource locator,” an internet web address.

 

If any
term used herein is defined by reference to its definition in the Code, and
such term is defined in Article 9 of the Code and in another Article of
the Code, then the Article 9 definition of such term should control for
all purposes hereunder.

 

2.                                       Grant of Security.  Each
Grantor hereby unconditionally grants, collaterally assigns and pledges to Collateral
Agent, for the benefit of the Lender Group, a continuing security interest in
all personal property of such Grantor whether now owned or hereafter acquired
or arising and wherever located (hereinafter referred to as the “Security
Interest”), including, without limitation, such Grantor’s right, title, and
interest in and to the following, whether now owned or hereafter acquired or
arising and wherever located (the “Collateral”):

 

(a)                                  all of such
Grantor’s Accounts;

 

(b)                                 all of such
Grantor’s books and records (including all of its Records indicating,
summarizing, or evidencing its assets (including the Collateral) or
liabilities, all of its Records relating to its business operations or financial
condition, and all of its goods or General Intangibles related to such
information) (“Books”);

 

(c)                                  all of such
Grantor’s chattel paper (as that term is defined in the Code) and, in any
event, including, without limitation, tangible chattel paper and electronic
chattel paper (“Chattel Paper”);

 

(d)                                 all of such
Grantor’s interest with respect to any Deposit Account;

 

(e)                                  all of such
Grantor’s Equipment and fixtures;

 

(f)                                    All of such
Grantor’s general intangibles (as that term is defined in the Code) and, in any
event, including, without limitation, payment intangibles, contract rights,
rights to payment, rights arising under common law, statutes, or regulations,
choses or things in action, goodwill (including the goodwill associated with
any Trademark, Patent, or Copyright), Patents, Trademarks, Copyrights, URLs and
domain names, industrial designs, other industrial or Intellectual Property or
rights therein or applications therefor, whether under license or otherwise,
programs, programming materials, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing agreements,
including Intellectual Property Licenses, infringement claims, computer
programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, pension plan refunds, pension plan refund
claims, insurance premium rebates, tax refunds, and tax refund claims,
uncertificated securities, and any other personal property other than
Commercial Tort Claims, money, Accounts, Chattel Paper, Deposit Accounts, goods
(as such term is defined in the Code), Investment Related Property, Negotiable
Collateral, and oil, gas, or other minerals before extraction (“General
Intangibles”);

 

(g)                                 all of such
Grantor’s Inventory;

 

(h)                                 all of such
Grantor’s Investment Related Property;

 

(i)                                     all of such
Grantor’s letters of credit, letter-of-credit rights, instruments, promissory
notes, drafts, and documents (as such terms may be defined in the Code) (“Negotiable
Collateral”);

 

5

 

(j)                                     all of such
Grantor’s rights in respect of supporting obligations (as such term is defined
in the Code), including letters of credit and guaranties issued in support of
Accounts, Chattel Paper, documents, General Intangibles, instruments, or
Investment Related Property (“Supporting Obligations”);

 

(k)                                  all of such
Grantor’s interest with respect to any commercial tort claims (as that term is
defined in the Code), including, without limitation those commercial tort
claims listed on Schedule 6 attached hereto (“Commercial Tort
Claims”);

 

(l)                                     all of such
Grantor’s money, Cash Equivalents, or other assets of each such Grantor that
now or hereafter come into the possession, custody, or control of Collateral
Agent or any other member of the Lender Group; and

 

(m)                               all of the
proceeds and products, whether tangible or intangible, of any of the foregoing,
including proceeds of insurance or commercial tort claims covering or relating
to any or all of the foregoing, and any and all Accounts, Books, Chattel Paper,
Deposit Accounts, Equipment, General Intangibles, Inventory, Investment Related
Property, Negotiable Collateral, Supporting Obligations, Commercial Tort Claims,
money, or other tangible or intangible property resulting from the sale, lease,
license, exchange, collection, or other disposition of any of the foregoing,
the proceeds of any award in condemnation with respect to any of the property
of Grantors, any rebates or refunds, whether for taxes or otherwise, and all
proceeds of any such proceeds, or any portion thereof or interest therein, and
the proceeds thereof, and all proceeds of any loss of, damage to, or
destruction of the above, whether insured or not insured, and, to the extent
not otherwise included, any indemnity, warranty, or guaranty payable by reason
of loss or damage to, or otherwise with respect to any of the foregoing
Collateral (the “Proceeds”). 
Without limiting the generality of the foregoing, the term “Proceeds”
includes whatever is receivable or received when Investment Related Property or
proceeds are sold, exchanged, collected, or otherwise disposed of, whether such
disposition is voluntary or involuntary, and includes, without limitation,
proceeds of any indemnity or guaranty payable to any Grantor or Collateral
Agent from time to time with respect to any of the Investment Related Property.

 

Anything contained in this Agreement to the contrary
notwithstanding, the term “Collateral” shall not include any rights or
interests in any contract, permit, license, charter or license agreement
covering personal property that are now or hereafter held by any Grantor in the
event that:  (i) as a result of the
grant of a security interest therein, such Grantor’s rights in or with respect
to such asset would be forfeited or such Grantor would be deemed to have
breached or defaulted under the applicable agreement that governs such asset
pursuant to restrictions contained in the applicable agreement or implied in
such agreement by applicable law; and (ii) any such restriction is
effective and enforceable under applicable law (including, without limitation,
Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code of any
relevant jurisdiction), provided, however, that in no event shall the foregoing
be construed to exclude from the security interest created by this
Agreement:  (X) any and all proceeds of
such assets, or (Y) such assets at any time that the restrictions in the
agreement are no longer effective and enforceable or at any time that the
consent of the other party to the agreement is obtained to the grant of a
security interest in and to such asset in favor of Collateral Agent.

 

3.                                       Security for Obligations.  This
Agreement and the Security Interest created hereby secures the payment and
performance of all the Secured Obligations, whether now existing or arising
hereafter.  Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by Grantors, or any
of them, to any Agent, the Lender Group, or any of them, but for the fact that
they are unenforceable or not allowable due to the existence of an Insolvency
Proceeding involving any Grantor.

 

4.                                       Grantors Remain Liable. 
Anything herein to the contrary notwithstanding, (a) each of the
Grantors shall remain liable under the contracts and agreements included in the
Collateral, including, without limitation, the Pledged Operating Agreements and
the Pledged Partnership Agreements, to perform all of the duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by Collateral Agent or any other member of the
Lender Group of any of the rights hereunder shall not

 

6

 

release any Grantor from any of its duties or
obligations under such contracts and agreements included in the Collateral, and
(c) none of the members of the Lender Group shall have any obligation or
liability under such contracts and agreements included in the Collateral by
reason of this Agreement, nor shall any of the members of the Lender Group be
obligated to perform any of the obligations or duties of any Grantors
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.  Until an Event of
Default shall occur and be continuing, except as otherwise provided in this
Agreement, the Financing Agreement, or the other Loan Documents, Grantors shall
have the right to possession and enjoyment of the Collateral for the purpose of
conducting the ordinary course of their respective businesses, subject to and
upon the terms hereof and of the Financing Agreement and the other Loan
Documents.  Without limiting the
generality of the foregoing, it is the intention of the parties hereto that
record and beneficial ownership of the Pledged Interests, including, without
limitation, all voting, consensual, and dividend rights, shall remain in the
applicable Grantor until the occurrence of an Event of Default and until Collateral
Agent shall notify in writing the applicable Grantor of Collateral Agent’s
exercise of voting, consensual, and/or dividend rights with respect to the
Pledged Interests pursuant to Section 15 hereof.

 

5.                                       Representations and Warranties.  Each
Grantor hereby represents and warrants as follows:

 

(a)                                  The exact legal
name of each of the Grantors is set forth on the signature pages of this
Agreement or a written notice provided to Collateral Agent pursuant to Section 7.02
(c) of the Financing Agreement.

 

(b)                                 Schedule 7 attached
hereto sets forth all Real Property owned in fee by Grantors as of the Effective
Date.

 

(c)                                  As of the Effective
Date, no Grantor has any interest in, or title to, any Copyrights, Intellectual
Property Licenses, Patents, or Trademarks except as set forth on Schedules
1, 2, 3 and 5, respectively, attached hereto.  This Agreement is effective to create a valid
and continuing Lien on such Copyrights, Intellectual Property Licenses, Patents
and Trademarks and, upon filing of the Copyright Security Agreement with the
United States Copyright Office and filing of the Patent Security Agreement and
the Trademark Security Agreement with the United State Patent and Trademark
Office, and the filing of appropriate financing statements in the jurisdictions
listed on Schedule 8 hereto and payment of all fees, all action
necessary or desirable to protect and perfect the Security Interest in and to on
each Grantor’s Patents, Trademarks, or Copyrights has been taken and such
perfected Security Interests are enforceable as such as against any and all
creditors of and purchasers from any Grantor. 
No Grantor has any interest in any Copyright that is necessary or
economically desirable in connection with the operation of the Borrower’s
business, or that generates any revenue in excess of $100,000, except for those
Copyrights identified on Schedule 1 attached hereto which have been
registered with the United States Copyright Office.

 

(d)                                 This Agreement
creates a valid security interest in the Collateral of each of Grantors, to the
extent a security interest therein can be created under the Code, securing the
payment of the Secured Obligations. 
Except to the extent a security interest in the Collateral cannot be
perfected by the filing of a financing statement under the Code, all filings
and other actions necessary or desirable to perfect and protect such security
interest have been duly taken or will have been taken upon the filing of
financing statements listing each applicable Grantor, as a debtor, and Collateral
Agent, as secured party, in the jurisdictions listed next to such Grantor’s
name on Schedule 8 attached hereto. 
Upon the making of such filings and payment of all fees, Collateral
Agent shall have a first priority perfected security interest in the Collateral
of each Grantor to the extent such security interest (subject to Permitted
Liens) can be perfected by the filing of a financing statement.

 

(e)                                  Except for the Security
Interest created hereby, each Grantor is and will at all times be the sole
holder of record and the legal and beneficial owner, free and clear of all
Liens other than Permitted Liens, of the Pledged Interests indicated on Schedule 4
as being owned by such Grantor and, when acquired by such Grantor, any Pledged
Interests acquired after the Effective Date; (ii) all of the Pledged Interests
are duly

 

7

 

authorized, validly issued, fully paid and
nonassessable and the Pledged Interests constitute or will constitute the
percentage of the issued and outstanding Equity Interests of the Pledged
Companies of such Grantor identified on Schedule 4 hereto as
supplemented or modified by any Pledged Interests Addendum or any Supplement to
this Agreement; (ii) such Grantor has the right and requisite authority to
pledge, the Investment Related Property pledged by such Grantor to Collateral
Agent as provided herein; (iii) all actions necessary or desirable to perfect,
establish the first priority of, or otherwise protect, Collateral Agent’s Liens
in the Investment Related Collateral, and the proceeds thereof, have been duly
taken, (A) upon the execution and delivery of this Agreement; (B) upon the
taking of possession by Collateral Agent of any certificates constituting the
Pledged Interests, to the extent such Pledged Interests are represented by
certificates, together with undated powers endorsed in blank by the applicable
Grantor; (C) upon the filing of financing statements in the applicable
jurisdiction set forth on Schedule 8 attached hereto for such
Grantor with respect to the Pledged Interests of such Grantor that are not
represented by certificates, and (D) with respect to any Securities Accounts,
upon the delivery of Control Agreements with respect thereto; and (iv) each
Grantor has delivered to and deposited with Collateral Agent (or, with respect
to any Pledged Interests created after the Effective Date, will deliver and
deposit in accordance with Sections 6(a) and 8 hereof) all
certificates representing the Pledged Interests owned by such Grantor to the
extent such Pledged Interests are represented by certificates, and undated
powers endorsed in blank with respect to such certificates.

 

(f)                                    No consent,
approval, authorization, or other order or other action by, and no notice to or
filing with, any Governmental Authority or any other Person is required (i) for
the grant of a Security Interest by such Grantor in and to the Collateral
pursuant to this Agreement or for the execution, delivery, or performance of
this Agreement by such Grantor, or (ii) for the exercise by Collateral Agent of
the voting or other rights provided for in this Agreement with respect to the
Investment Related Property or the remedies in respect of the Collateral
pursuant to this Agreement, except as may be required in connection with such
disposition of Investment Related Property by laws affecting the offering and
sale of securities generally.

 

6.                                       Covenants.  Each Grantor, jointly and
severally, covenants and agrees with Collateral Agent and the Lender Group that
from and after the date of this Agreement and until the date of termination of
this Agreement in accordance with Section 22 hereof:

 

(a)                                  Possession of
Collateral.  In the
event that any Collateral, including proceeds, is evidenced by or consists of
Negotiable Collateral, Investment Related Property, or Chattel Paper, and if
and to the extent that perfection or priority of Collateral Agent’s Security
Interest is dependent on or enhanced by possession, the applicable Grantor, within
10 Business Days of the written request of Collateral Agent and in accordance
with Section 8 hereof, shall execute such other documents as shall
be requested by Collateral Agent or, if applicable, endorse and deliver
physical possession of such Negotiable Collateral, Investment Related Property,
or Chattel Paper to Collateral Agent, together with such undated powers
endorsed in blank as shall be requested by Collateral Agent, provided, that,
notwithstanding anything contained in this Agreement to the contrary, the
Borrower shall not be required to deliver any of the promissory notes made by
certain employees of the Borrower in favor of the Borrower, existing on the
date hereof, which notes have an aggregate outstanding principal balance of
less than $25,000;

 

(b)                                 Chattel Paper.

 

(i)                                                   Each Grantor
shall take all steps reasonably necessary to grant Collateral Agent control of
all electronic Chattel Paper in accordance with the Code and all “transferable
records” as that term is defined in Section 16 of the Uniform Electronic
Transaction Act and Section 201 of the federal Electronic Signatures in
Global and National Commerce Act as in effect in any relevant jurisdiction;

 

(ii)                                                If any Grantor
retains possession of any Chattel Paper or instruments (which retention of
possession shall be subject to the extent permitted hereby and by the Financing
Agreement), promptly upon the written request of Collateral Agent, such Chattel
Paper and instruments shall be marked with the following

 

8

 

legend: “This writing
and the obligations evidenced or secured hereby are subject to the Security
Interest of Ableco Finance LLC, as Collateral Agent for the benefit of the
Lender Group;

 

(c)                                  Control
Agreements.

 

(i)                                                   Except to the extent
otherwise permitted by the Financing Agreement, each Grantor shall obtain an
authenticated Control Agreement, from each bank holding a Deposit Account for
such Grantor;

 

(ii)                                                Except to the
extent otherwise permitted by the Financing Agreement, each Grantor shall
obtain authenticated Control Agreements, from each issuer of uncertificated
securities, securities intermediary, or commodities intermediary issuing or
holding any financial assets or commodities to or for any Grantor;

 

(d)                                 Letter of
Credit Rights.  Each
Grantor that is or becomes the beneficiary of a letter of credit shall promptly
(and in any event within 5 Business Days after becoming a beneficiary), notify Collateral
Agent thereof and, upon the written request by Collateral Agent, enter into a
tri-party agreement with Collateral Agent and the issuer and/or confirming bank
with respect to letter-of-credit rights (as that term is defined in the Code)
assigning such letter-of-credit rights to Collateral Agent and directing all
payments thereunder to Collateral Agent’s account, which assignment shall be
consented to by such issuer or confirming bank, all in form and substance
satisfactory to Collateral Agent;

 

(e)                                  Commercial Tort
Claims.  Each Grantor shall promptly
(and in any event within 5 Business Days of receipt thereof), notify Collateral
Agent in writing upon incurring or otherwise obtaining a Commercial Tort Claim
after the date hereof against any third party and, upon the written request of Collateral
Agent, promptly amend Schedule 6 to this Agreement, authorize the
filing of additional or amendments to existing financing statements and do such
other acts or things deemed necessary or desirable by Collateral Agent to give Collateral
Agent a first priority, perfected security interest in any such Commercial Tort
Claim;

 

(f)                                    Government
Contracts.  Promptly,
upon written request by Collateral Agent, each Grantor shall execute any
instruments or take any steps reasonably required by Collateral Agent in order to
comply with the Assignment of Claims Act or other applicable law;

 

(g)                                 Intellectual
Property.

 

(i)                                                   Upon the
written request of Collateral Agent, in order to facilitate filings with the
United States Patent and Trademark Office and the United States Copyright
Office, each Grantor shall execute and deliver to Collateral Agent one or more
Copyright Security Agreements, Trademark Security Agreements, and/or Patent
Security Agreements to evidence Collateral Agent’s Lien on such Grantor’s
Patents, Trademarks, and/or Copyrights, and the General Intangibles of such
Grantor relating thereto or represented thereby;

 

(ii)                                                Each Grantor
shall have the duty, to the extent necessary or economically desirable in the
operation of such Grantor’s business, as determined by such Grantor’s
reasonable judgment, (A) to promptly sue for infringement, misappropriation, or
dilution and to recover any and all damages for such infringement,
misappropriation, or dilution, (B) to prosecute diligently any trademark
application or service mark application that is part of the Trademarks pending
as of the date hereof or hereafter until the termination of this Agreement, (C)
to prosecute diligently any patent application that is part of the Patents
pending as of the date hereof or hereafter until the termination of this Agreement,
and (D) to take all reasonable and necessary action to preserve and maintain
all of such Grantor’s Trademarks, Patents, Copyrights, Intellectual Property
Licenses, and its rights therein, including the filing of applications for
renewal, affidavits of use, affidavits of noncontestability and opposition and
interference and cancellation proceedings. 
Each Grantor shall promptly file an application with the United States
Copyright Office for any Copyright that has not been registered with the United
States Copyright Office if such Copyright is necessary or economically
desirable in connection with the operation of such Grantor’s

 

9

 

business or generates
annual revenue in excess of $100,000.  Any
expenses incurred in connection with the foregoing shall be borne by the
appropriate Grantor.  Each Grantor
further agrees not to abandon any Trademark, Patent, Copyright, or Intellectual
Property License that is necessary or economically desirable in the operation of
such Grantor’s business, as determined by such Grantor’s reasonable judgment,
without the prior written consent of Collateral Agent, which consent shall not
be unreasonably withheld or denied;

 

(iii)                                             Grantors
acknowledge and agree that the Lender Group shall have no duties with respect
to the Trademarks, Patents, Copyrights, or Intellectual Property Licenses.  Without limiting the generality of this Section 6(g),
Grantors acknowledge and agree that no member of the Lender Group shall be
under any obligation to take any steps necessary to preserve rights in the
Trademarks, Patents, Copyrights, or Intellectual Property Licenses against any
other Person, but the Collateral Agent may do so at its option from and after
the occurrence and during the continuance of an Event of Default, and all
expenses incurred in connection therewith (including, without limitation,
reasonable fees and expenses of attorneys and other professionals) shall be for
the sole account of Borrower and shall be chargeable to the Loan Account;

 

(iv)                                            In no event
shall any Grantor, either itself or through any agent, employee, licensee, or
designee, (A) file an application for the registration of any Patent or Trademark
with the United States Patent and Trademark Office or any similar office or
agency unless it gives Collateral Agent prompt written notice thereof; or (B)
file an application for the registration of any Copyright with the United
States Copyright Office or any similar office or agency without giving
Collateral Agent written notice concurrently therewith.  Promptly upon any such filing, each Grantor
shall comply with Section 6(g)(i) hereof;

 

(h)                                 Investment
Related Property.

 

(i)                                                   If any Grantor
shall receive or become entitled to receive any Pledged Interests after the Effective
Date, it shall promptly (and in any event within 5 Business Days of receipt
thereof) deliver to Collateral Agent a duly executed Pledged Interests Addendum
identifying such Pledged Interests;

 

(ii)                                                All sums of
money and property paid or distributed in respect of the Investment Related
Property which are received by any Grantor shall be held by the Grantors in
trust for the benefit of Collateral Agent segregated from such Grantor’s other
property, and such Grantor shall deliver it forthwith to Collateral Agent’s in
the exact form received;

 

(iii)                                             Each Grantor
shall promptly deliver to Collateral Agent a copy of each material notice or
other communication received by it in respect of any Pledged Interests;

 

(iv)                                            No Grantor shall
make or consent to any amendment or other modification or waiver with respect
to any Pledged Interests, Pledged Operating Agreement, or Pledged Partnership
Agreement, or enter into any agreement or permit to exist any restriction with
respect to any Pledged Interests other than pursuant to the Loan Documents;

 

(v)                                               Each Grantor
agrees that it will cooperate with Collateral Agent in obtaining all necessary
approvals and making all necessary filings under federal, state, local, or
foreign law in connection with the Security Interest on the Investment Related
Property or any sale or transfer thereof;

 

(vi)                                            As to all
limited liability company or partnership interests, issued under any Pledged
Operating Agreement or Pledged Partnership Agreement, all limited liability
company or partnership interests, issued each Grantor hereby represents,
warrants and covenants that the Pledged Interests issued pursuant to such
agreement (A) are not and shall not be dealt in or traded on securities
exchanges or in securities markets, (B) do not and will not constitute
investment company securities, and (C) are not and will not be held by
such Pledgor in a securities account.  In
addition, none of the Pledged Operating Agreements, the Pledged Partnership
Agreements, or any other agreements governing any of the Pledged Interests issued
under any Pledged Operating 

 

10

 

Agreement or Pledged Partnership Agreement, provide
or shall provide that such Pledged Interests are securities governed by Article 8
of the Uniform Commercial Code as in effect in any relevant jurisdiction;

 

(i)                                     Real Property;
Fixtures.  Each Grantor
covenants and agrees that upon the acquisition of any fee interest in Real
Property it will promptly (and in any event within 5 Business Days of
acquisition) notify Collateral Agent of the acquisition of such Real Property
and will grant to Collateral Agent, for the benefit of the Lender Group, a
first priority Mortgage (subject to Permitted Liens) on each fee interest in
Real Property now or hereafter owned by such Grantor and shall deliver such
other documentation and opinions, in form and substance satisfactory to Collateral
Agent, in connection with the grant of such Mortgage as Collateral Agent shall
request in its Permitted Discretion, including, without limitation, title
insurance policies, financing statements, fixture filings and environmental
audits and such Grantor shall pay all recording costs, intangible taxes and
other fees and costs (including reasonable attorneys fees and expenses)
incurred in connection therewith.  Each
Grantor acknowledges and agrees that, to the extent permitted by applicable
law, all of the Collateral shall remain personal property regardless of the
manner of its attachment or affixation to real property;

 

(j)                                     Transfers and
Other Liens.  Grantors
shall not (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral, except
expressly permitted by the Financing Agreement or the other Loan Documents, or
(ii) create or permit to exist any Lien upon or with respect to any of the
Collateral of any of Grantors, except for Permitted Liens.  The inclusion of Proceeds in the Collateral
shall not be deemed to constitute Collateral Agent’s consent to any sale or
other disposition of any of the Collateral except as expressly permitted in
this Agreement or the other Loan Documents; and

 

(k)                                  Other Actions
as to Any and All Collateral.  Each Grantor shall promptly (and in any event
within 5 Business Days of acquiring or obtaining such Collateral) notify Collateral
Agent in writing upon acquiring or otherwise obtaining any Collateral after the
date hereof consisting of Trademarks, Patents, Copyrights, Intellectual
Property Licenses, Investment Related Property, Chattel Paper (electronic,
tangible or otherwise), documents (as defined in the Code), or instruments (as
defined in the Code) and, upon the written request of Collateral Agent and in
accordance with Section 8 hereof, promptly execute such other
documents, or if applicable, deliver such Chattel Paper, other documents or
certificates evidencing any Investment Related Property in accordance with Section 6
hereof and do such other acts or things deemed necessary or desirable by Collateral
Agent to protect Collateral Agent’s Security Interest therein.

 

7.                                       Relation to Other Security Documents.  The
provisions of this Agreement shall be read and construed with the other Loan
Documents referred to below in the manner so indicated.

 

(a)                                  Financing
Agreement. In the event of any conflict between any provision
in this Agreement and a provision in the Financing Agreement, such provision of
the Financing Agreement shall control.

 

(b)                                 Patent,
Trademark, Copyright Security Agreements.  The provisions of the Copyright Security
Agreements, Trademark Security Agreements, and Patent Security Agreements are
supplemental to the provisions of this Agreement, and nothing contained in the
Copyright Security Agreements, Trademark Security Agreements, or the Patent
Security Agreements shall limit any of the rights or remedies of Collateral
Agent hereunder.

 

11

 

8.                                       Further Assurances.

 

(a)                                  Each Grantor
agrees that from time to time, at its own expense, such Grantor will promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or that Collateral Agent may reasonably request,
in order to perfect and protect any Security Interest granted or purported to
be granted hereby or to enable Collateral Agent to exercise and enforce its
rights and remedies hereunder with respect to any of the Collateral.

 

(b)                                 Each Grantor
authorizes the filing of such financing or continuation statements, or
amendments thereto, and such Grantor will execute and deliver to Collateral
Agent such other instruments or notices, as may be necessary or as Collateral
Agent may reasonably request, in order to perfect and preserve the Security
Interest granted or purported to be granted hereby.

 

(c)                                  Each Grantor
authorizes Collateral Agent to file, transmit, or communicate, as applicable,
financing statements and amendments describing the Collateral as “all personal
property of debtor” or “all assets of debtor” or words of similar effect, in
order to perfect Collateral Agent’s security interest in the Collateral without
such Grantor’s signature.  Each Grantor
also hereby ratifies its authorization for Collateral Agent to have filed in
any jurisdiction any financing statements filed prior to the date hereof in
connection with this Agreement or any of the other Loan Documents.

 

(d)                                 Each Grantor
acknowledges that it is not authorized to file any financing statement or
amendment or termination statement with respect to any financing statement
filed in connection with this Agreement without the prior written consent of Collateral
Agent, subject to such Grantor’s rights under Section 9-509(d)(2) of the
Code.

 

9.                                       Collateral Agent’s Right to Perform Contracts.  Upon
the occurrence and during the continuance of an Event of Default, Collateral Agent
(or its designee) may proceed to perform any and all of the obligations of any
Grantor contained in any contract, lease, or other agreement and exercise any
and all rights of any Grantor therein contained as fully as such Grantor itself
could.

 

10.                                 Collateral Agent Appointed Attorney-in-Fact.  Each
Grantor hereby irrevocably appoints Collateral Agent its attorney-in-fact, with
full authority in the place and stead of such Grantor and in the name of such
Grantor or otherwise, at such time as an Event of Default has occurred and is
continuing under the Financing Agreement, to take any action and to execute any
instrument which Collateral Agent may reasonably deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:

 

(a)                                  to ask, demand,
collect, sue for, recover, compromise, receive and give acquittance and
receipts for moneys due and to become due under or in connection with the
Accounts or any other Collateral of such Grantor;

 

(b)                                 to receive and
open all mail addressed to such Grantor and to notify postal authorities to
change the address for the delivery of mail to such Grantor to that of Collateral
Agent;

 

(c)                                  to receive,
indorse, and collect any drafts or other instruments, documents, Negotiable
Collateral or Chattel Paper;

 

(d)                                 to file any
claims or take any action or institute any proceedings which Collateral Agent
may deem necessary or desirable for the collection of any of the Collateral of
such Grantor or otherwise to enforce the rights of Collateral Agent with
respect to any of the Collateral;

 

(e)                                  to repair, alter,
or supply goods, if any, necessary to fulfill in whole or in part the purchase
order of any Person obligated to such Grantor in respect of any Account of such
Grantor;

 

12

 

(f)                                    to use any
labels, Patents, Trademarks, trade names, URLs, domain names, industrial
designs, Copyrights, advertising matter or other industrial or intellectual
property rights, in advertising for sale and selling Inventory and other
Collateral and to collect any amounts due under Accounts, contracts or
Negotiable Collateral of such Grantor; and

 

(g)                                 Collateral
Agent on behalf of the Lender Group shall have the right, but shall not be
obligated, to bring suit in its own name to enforce the Trademarks, Patents,
Copyrights and Intellectual Property Licenses and, if Collateral Agent shall
commence any such suit, the appropriate Grantor shall, at the request of Collateral
Agent, do any and all lawful acts and execute any and all proper documents
reasonably required by Collateral Agent in aid of such enforcement.

 

To the extent permitted by law, each Grantor hereby
ratifies all that such attorney-in-fact shall lawfully do or cause to be done
by virtue hereof.  This power of attorney
is coupled with an interest and shall be irrevocable until this Agreement is
terminated.

 

11.                                 Collateral Agent May Perform.  If
any of Grantors fails to perform any agreement contained herein, Collateral
Agent may itself perform, or cause performance of, such agreement, and the
reasonable expenses of Collateral Agent incurred in connection therewith shall
be payable, jointly and severally, by Grantors.

 

12.                                 Collateral Agent’s Duties.  The
powers conferred on Collateral Agent hereunder are solely to protect Collateral
Agent’s interest in the Collateral, for the benefit of the Lender Group and
shall not impose any duty upon Collateral Agent to exercise any such
powers.  Except for the safe custody of
any Collateral in its actual possession and the accounting for moneys actually
received by it hereunder, Collateral Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral.  Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any Collateral in
its actual possession if such Collateral is accorded treatment substantially
equal to that which Collateral Agent accords its own property.

 

13.                                 Collection of Accounts, General Intangibles
and Negotiable Collateral.  At any time upon the occurrence and during
the continuation of an Event of Default, Collateral Agent or Collateral Agent’s
designee may (a) notify Account Debtors of any Grantor that the Accounts,
General Intangibles, Chattel Paper or Negotiable Collateral have been assigned
to Collateral Agent, for the benefit of the Lender Group, or that Collateral
Agent has a security interest therein, and (b) collect the Accounts, General
Intangibles and Negotiable Collateral directly, and any collection costs and
expenses shall constitute part of such Grantor’s Secured Obligations under the Loan
Documents.

 

14.                                 Disposition of Pledged Interests by Collateral
Agent.  None of the Pledged Interests existing as of
the date of this Agreement are, and none of the Pledged Interests hereafter
acquired on the date of acquisition thereof will be, registered or qualified
under the various federal or state securities laws of the United States and
disposition thereof after an Event of Default has occurred and is continuing
may be restricted to one or more private (instead of public) sales in view of
the lack of such registration.  Each
Grantor understands that in connection with such disposition, Collateral Agent
may approach only a restricted number of potential purchasers and further
understands that a sale under such circumstances may yield a lower price for
the Pledged Interests than if the Pledged Interests were registered and
qualified pursuant to federal and state securities laws and sold on the open
market.  Each Grantor, therefore, agrees
that:  (a) if Collateral Agent shall,
pursuant to the terms of this Agreement, sell or cause the Pledged Interests or
any portion thereof to be sold at a private sale, Collateral Agent shall have
the right to rely upon the advice and opinion of any nationally recognized
brokerage or investment firm (but shall not be obligated to seek such advice
and the failure to do so shall not be considered in determining the commercial
reasonableness of such action) as to the best manner in which to offer the
Pledged Interest for sale and as to the best price reasonably obtainable at the
private sale thereof; and (b) such reliance shall be conclusive evidence that Collateral
Agent has handled the disposition in a commercially reasonable manner.

 

13

 

15.                                 Voting Rights.

 

(a)                                  Upon the
occurrence and during the continuation of an Event of Default, (i) Collateral
Agent may, at its option, and with 5 Business Days prior written notice to any
Grantor, and in addition to all rights and remedies available to Collateral
Agent under any other agreement, at law, in equity, or otherwise, exercise all
voting rights, and all other ownership or consensual rights in respect of the
Pledged Interests owned by such Grantor, but under no circumstances is Collateral
Agent obligated by the terms of this Agreement to exercise such rights, and
(ii) if Collateral Agent duly exercises its right to vote any of such Pledged
Interests, each Grantor hereby appoints Collateral Agent, such Grantor’s true
and lawful attorney-in-fact and IRREVOCABLE PROXY to vote such Pledged
Interests in any manner Collateral Agent deems advisable for or against all
matters submitted or which may be submitted to a vote of shareholders, partners
or members, as the case may be.  The
power-of-attorney granted hereby is coupled with an interest and shall be
irrevocable.

 

(b)                                 For so long as
any Grantor shall have the right to vote the Pledged Interests owned by it,
such Grantor covenants and agrees that it will not, without the prior written
consent of Collateral Agent, vote or take any consensual action with respect to
such Pledged Interests which would materially adversely affect the rights of Collateral
Agent and the other members of the Lender Group or the value of the Pledged
Interests.

 

16.                                 Remedies.  Upon the occurrence and during
the continuance of an Event of Default:

 

(a)                                  Collateral
Agent may exercise in respect of the Collateral, in addition to other rights
and remedies provided for herein, in the other Loan Documents, or otherwise
available to it, all the rights and remedies of a secured party on default
under the Code or any other applicable law. 
Without limiting the generality of the foregoing, each Grantor expressly
agrees that, in any such event, Collateral Agent without demand of performance
or other demand, advertisement or notice of any kind (except a notice specified
below of time and place of public or private sale) to or upon any of Grantors
or any other Person (all and each of which demands, advertisements and notices
are hereby expressly waived to the maximum extent permitted by the Code or any
other applicable law), may take immediate possession of all or any portion of the
Collateral and (i) require Grantors to, and each Grantor hereby agrees that it
will at its own expense and upon request of Collateral Agent forthwith,
assemble all or part of the Collateral as directed by Collateral Agent and make
it available to Collateral Agent at one or more locations where such Grantor
regularly maintains Inventory, and (ii) without notice except as specified
below, sell the Collateral or any part thereof in one or more parcels at public
or private sale, at any of Collateral Agent’s offices or elsewhere, for cash,
on credit, and upon such other terms as Collateral Agent may deem commercially
reasonable.  Each Grantor agrees that, to
the extent notice of sale shall be required by law, at least 10 days written notice
to any of Grantors of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification
and specifically such notice shall constitute a reasonable “authenticated
notification of disposition” within the meaning of Section 9-611 of the
Code.  Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given.  Collateral Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.

 

(b)                                 Collateral
Agent is hereby granted a license or other right to use, without liability for
royalties or any other charge, each Grantor’s labels, Patents, Copyrights,
rights of use of any name, trade secrets, trade names, Trademarks, service
marks and advertising matter, URLs, domain names, industrial designs, other
industrial or intellectual property or any property of a similar nature, whether
owned by any of Grantors or with respect to which any of Grantors have rights
under license, sublicense, or other agreements, as it pertains to the
Collateral, in preparing for sale, advertising for sale and selling any
Collateral, and each Grantor’s rights under all licenses and all franchise
agreements shall inure to the benefit of Collateral Agent.

 

14

 

(c)                                  Any cash held
by Collateral Agent as Collateral and all cash proceeds received by Collateral
Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral shall be applied
against the Secured Obligations in the order set forth in the Financing
Agreement.   In the event the proceeds of
Collateral are insufficient to satisfy all of the Secured Obligations in full,
each Grantor shall remain jointly and severally liable for any such deficiency.

 

(d)                                 Each Grantor
hereby acknowledges that the Secured Obligations arose out of a commercial
transaction, and agrees that if an Event of Default shall occur and is
continuing Collateral Agent shall have the right to an immediate writ of
possession without notice of a hearing.  Collateral
Agent shall have the right to the appointment of a receiver for the properties
and assets of each of Grantors, and each Grantor hereby consents to such rights
and such appointment and hereby waives any objection such Grantors may have
thereto or the right to have a bond or other security posted by Collateral
Agent.

 

17.                                 Remedies Cumulative.  Each
right, power, and remedy of Collateral Agent as provided for in this Agreement
or in the other Loan Documents or now or hereafter existing at law or in equity
or by statute or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power, or remedy provided for in this Agreement
or in the other Loan Documents or now or hereafter existing at law or in equity
or by statute or otherwise, and the exercise or beginning of the exercise by Collateral
Agent, of any one or more of such rights, powers, or remedies shall not
preclude the simultaneous or later exercise by Collateral Agent of any or all
such other rights, powers, or remedies.

 

18.                                 Marshaling. Collateral Agent shall not be required to marshal any present or future
collateral security (including but not limited to the Collateral) for, or other
assurances of payment of, the Secured Obligations or any of them or to resort
to such collateral security or other assurances of payment in any particular
order, and all of its rights and remedies hereunder and in respect of such
collateral security and other assurances of payment shall be cumulative and in
addition to all other rights and remedies, however existing or arising.  To the extent that it lawfully may, each
Grantor hereby agrees that it will not invoke any law relating to the
marshaling of collateral which might cause delay in or impede the enforcement
of Collateral Agent’s rights and remedies under this Agreement or under any
other instrument creating or evidencing any of the Secured Obligations or under
which any of the Secured Obligations is outstanding or by which any of the
Secured Obligations is secured or payment thereof is otherwise assured, and, to
the extent that it lawfully may, each Grantor hereby irrevocably waives the
benefits of all such laws.

 

19.                                 Indemnity and Expenses.

 

(a)                                  Each Grantor
agrees to indemnify Collateral Agent and the other members of the Lender Group
from and against all claims, lawsuits and liabilities (including reasonable
attorneys fees) growing out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement) or any other Loan Document
to which such Grantor is a party, except claims, losses or liabilities
resulting from the gross negligence or willful misconduct of the party seeking
indemnification as determined by a final non-appealable order of a court of
competent jurisdiction.  This provision
shall survive the termination of this Agreement and the Financing Agreement and
the repayment of the Secured Obligations.

 

(b)                                 Grantors,
jointly and severally, shall, upon demand, pay to Collateral Agent (or Administrative
Agent, may charge to the Loan Account) all the Lender Group Expenses which Collateral
Agent may incur in connection with (i) the administration of this Agreement,
(ii) the custody, preservation, use or operation of, or, upon the occurrence
and during the continuance of an Event of Default, the sale of, collection
from, or other realization upon, any of the Collateral in accordance with this
Agreement and the other Loan Documents, (iii) the exercise or enforcement of
any of the rights of Collateral Agent hereunder or (iv) the failure by any of
Grantors to perform or observe any of the provisions hereof.

 

20.                                 Merger, Amendments; Etc.  THIS WRITTEN
AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES

 

15

 

AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE
PARTIES.  No waiver of any provision of
this Agreement, and no consent to any departure by any of Grantors herefrom,
shall in any event be effective unless the same shall be in writing and signed
by Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.  No amendment of any provision of this
Agreement shall be effective unless the same shall be in writing and signed by Collateral
Agent and each of Grantors to which such amendment applies.

 

21.                                 Addresses for Notices.  All
notices and other communications provided for hereunder shall be given in the
form and manner and delivered to Collateral Agent at its address specified in
the Financing Agreement, and to any of the Grantors at their respective
addresses specified in the Financing Agreement, as applicable, or, as to any
party, at such other address as shall be designated by such party in a written
notice to the other party.

 

22.                                 Continuing Security Interest: Assignments
under Financing Agreement.  This Agreement shall create a continuing
security interest in the Collateral and shall (a) remain in full force and
effect until the Obligations have been paid in full in cash in accordance with
the provisions of the Financing Agreement, (b) be binding upon each of
Grantors, and their respective successors and assigns, and (c) inure to the
benefit of, and be enforceable by, Collateral Agent, and its successors, transferees
and assigns.  Without limiting the
generality of the foregoing clause (c), any of the Lenders may, in accordance
with the provisions of the Financing Agreement, assign or otherwise transfer
all or any portion of its rights and obligations under the Financing Agreement
to any other Person, and such other Person shall thereupon become vested with
all the benefits in respect thereof granted to such the Lender herein or
otherwise.  Upon payment in full in cash
of the Obligations in accordance with the provisions of the Financing Agreement,
the Security Interest granted hereby shall terminate and this Agreement all
rights to the Collateral shall revert to Grantors or any other Person entitled
thereto.  At such time, Collateral Agent
will authorize the filing of appropriate termination statements and/or releases
to terminate such Security Interests immediately and deliver any Collateral in
its possession to the applicable Grantor. 
No transfer or renewal, extension, assignment, or termination of this
Agreement or of the Financing Agreement, any other Loan Document, or any other
instrument or document executed and delivered by any Grantor to Collateral
Agent nor any additional loans made by any the Lender to Borrower, nor the
taking of further security, nor the retaking or re-delivery of the Collateral
to Grantors, or any of them, by Collateral Agent, nor any other act of the
Lender Group, or any of them, shall release any of Grantors from any
obligation, except a release or discharge executed in writing by Collateral
Agent in accordance with the provisions of the Financing Agreement.  Collateral Agent shall not by any act, delay,
omission or otherwise, be deemed to have waived any of its rights or remedies
hereunder, unless such waiver is in writing and signed by Collateral Agent and
then only to the extent therein set forth. 
A waiver by Collateral Agent of any right or remedy on any occasion
shall not be construed as a bar to the exercise of any such right or remedy
which Collateral Agent would otherwise have had on any other occasion.

 

23.                                 Governing Law.

 

(a)                                  THE VALIDITY OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE
CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE
RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING
HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER,
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.

 

(b)                                 THE PARTIES
AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED

 

16

 

AND LITIGATED ONLY IN THE STATE COURTS AND,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE COUNTY
OF NEW YORK, STATE OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT
SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
COLLATERAL AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE COLLATERAL AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE
FOUND.  BORROWER AND EACH MEMBER OF THE
LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH
MAY HAVE TO ASSERT THE DOCTRINE OF FORUM  NON  CONVENIENS OR
TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH
THIS SECTION 23(b).

 

(c)                                  BORROWER, EACH
OTHER GRANTOR, AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. 
BORROWER, EACH OTHER GRANTOR AND EACH MEMBER OF THE LENDER GROUP
REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY
WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

24.                                 New Subsidiaries. 
Pursuant to Section 7.01(b) of the Financing Agreement and
subject to the exclusions contained therein, any new direct or indirect Subsidiary
(whether by acquisition or creation) of Borrower is required to enter into this
Agreement by executing and delivering in favor of Collateral Agent an
instrument in the form of Annex 1 attached hereto.  Upon the execution and delivery of Annex 1
by such new Subsidiary, such Subsidiary shall become a Grantor hereunder with
the same force and effect as if originally named as a Grantor herein.  The execution and delivery of any instrument
adding an additional Grantor as a party to this Agreement shall not require the
consent of any other Grantor hereunder. 
The rights and obligations of each Grantor hereunder shall remain in
full force and effect notwithstanding the addition of any new Grantor
hereunder.

 

25.                                 Collateral Agent.  Each
reference herein to any right granted to, benefit conferred upon or power
exercisable by the “Collateral Agent” shall be a reference to Collateral Agent,
for the benefit of the Lender Group.

 

26.                                 Miscellaneous.

 

(a)                                  This Agreement
may be executed in any number of counterparts and by different parties on
separate counterparts, each of which, when executed and delivered, shall be
deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. 
Delivery of an executed counterpart of this Agreement by telefacsimile
or other electronic method of transmission shall be equally as effective as
delivery of an original executed counterpart of this Agreement.  Any party delivering an executed counterpart of
this Agreement by telefacsimile or other electronic method of transmission also
shall deliver an original executed counterpart of this Agreement but the
failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.  The foregoing shall apply to each other Loan
Document mutatis mutandis.

 

(b)                                 Any provision
of this Agreement which is prohibited or unenforceable shall be ineffective to
the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.

 

17

 

(c)                                  Headings used
in this Agreement are for convenience only and shall not be used in connection
with the interpretation of any provision hereof.

 

(d)                                 The pronouns
used herein shall include, when appropriate, either gender
and both singular and plural, and the grammatical construction of
sentences shall conform thereto.

 

18

 

IN WITNESS WHEREOF, the undersigned parties hereto
have executed this Agreement by and through their duly authorized officers, as
of the day and year first above written.

 

 

	
  GRANTORS:

  	
  RUSS BERRIE AND COMPANY, INC.,

  a New Jersey corporation

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Andrew Gatto

  
	
   

  	
   

  	
  Andrew
  Gatto

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  KIDS LINE, LLC,

  a Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SASSY, INC.,

  an Illinois
  corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RUSS BERRIE & CO. (WEST), INC.,

  a California corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
				

 

 

	
   

  	
  RBCACQ, INC.,

  a California corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RUSS BERRIE AND COMPANY PROPERTIES,  INC.,

  a New Jersey
  corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RUSSPLUS, INC.,

  a New Jersey
  corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  FLUF N’STUF, INC.,

  a Pennsylvania corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  

 

2

 

	
   

  	
  RBTACQ, INC.,

  an Ohio corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RUSS BERRIE AND COMPANY

  INVESTMENTS, INC.,

  a New Jersey
  corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BOA DONE, INC.,

  a West Virginia
  corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  P/F DONE, INC.,

  a
  Pennsylvania corporation

  
	
   

  	
   

  
	
   

  	
  /s/
  Andrew Gatto

  
	
   

  	
  Andrew Gatto

  
	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  COLLATERAL AGENT:

  	
  ABLECO FINANCE LLC,

  as
  Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Kevin Genda

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Kevin Genda

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President /

  Cheif Credit Officer

  
				

 

3

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