AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY

Exhibit 10.1

AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY

dated as of

February 15, 2008

among

HAMPSHIRE GROUP, LIMITED,

as Borrower,

HAMPSHIRE GROUP, LIMITED,
HAMPSHIRE DESIGNERS, INC.,
ITEM-EYES, INC.,
SB CORPORATION
and
SHANE HUNTER, INC.
as Letter of Credit Account Parties,

HAMPSHIRE DESIGNERS, INC.,
ITEM-EYES, INC.,
and
SHANE HUNTER, INC.
as Guarantors,

and

HSBC BANK USA, NATIONAL ASSOCIATION,
JPMORGAN CHASE BANK, N.A.,
ISRAEL DISCOUNT BANK OF NEW YORK,
WACHOVIA BANK, NATIONAL ASSOCIATION,
BANK LEUMI USA,
and
SOVEREIGN BANK
as Banks,

and

HSBC BANK USA, NATIONAL ASSOCIATION,

as Agent

TABLE OF CONTENTS

		Page
ARTICLE I DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION			2
Section 1.01 Definitions			2
Section 1.02 Accounting Terms			23
Section 1.03 Computation of Time Periods			23
Section 1.04 Rules of Construction			23
ARTICLE II REVOLVING CREDIT LOANS			23
Section 2.01 Revolving Credit			23
Section 2.02 Term Loan Conversion			25
Section 2.03 Notice and Manner of Borrowing			26
Section 2.04 Conversions and Continuation			26
Section 2.05 Non-Receipt of Funds by Agent			27
Section 2.06 Interest			27
Section 2.07 Notes			28
Section 2.08 Optional and Mandatory Prepayments			28
Section 2.09 Method of Payment			30
Section 2.10 Use of Proceeds			30
Section 2.11 Minimum Amounts			31
Section 2.12 Establishment of Loan Account; Collection of Accounts			31
Section 2.13 Closing Fee			31
Section 2.14 Commitment Fee			31
ARTICLE III LETTERS OF CREDIT			31
Section 3.01 Trade Letters of Credit; Cash Collateral for Letters of Credit Expiring After Termination Date			31
Section 3.02 Reimbursement Obligation			32
Section 3.03 Payment of Commissions, Expenses and Interest			33
Section 3.04 Proper Drawing; Letter of Credit Issuing Bank’s Honoring			33
Section 3.05 Standby Letters of Credit			33
Section 3.06 Amendment; Change; Modification; No Waiver			34
Section 3.07 U.C.P. and I.S.P.; Agreements and Acknowledgments; Indemnification			34
Section 3.08 Licenses; Insurance; Regulations			36
Section 3.09 Airway and Steamship Guaranties			36
Section 3.10 Additional Security			36
Section 3.11 Continuing Rights and Obligations			36
Section 3.12 Instructions; No Liability			37
Section 3.13 Steamship Guaranty			37
Section 3.14 Letter of Credit Application and Agreement			37
Section 3.15 Existing Letters of Credit; Use of Term “Letter of Credit Issuing Bank”			38
Section 3.16 Borrower’s Obligations Under Letters of Credit			38
ARTICLE IV PARTICIPATION			38
Section 4.01 Participating Banks’ Pro Rata Shares			38
Section 4.02 Sale and Purchase of Participation			38

		Page
Section 4.03 Participation in Fees and Collateral; Relationship			39
Section 4.04 Procedures			39
Section 4.05 Collections and Remittances			39
Section 4.06 Sharing of Setoffs and Collections			40
Section 4.07 Indemnification; Costs and Expense			40
Section 4.08 Administration; Standard of Care			41
Section 4.09 Independent Investigation by the Participating Banks			42
Section 4.10 Participating Banks’ Ownership of Interests in the Participation; Repurchases by the Letter of Credit Issuing Banks			42
ARTICLE V GUARANTY			43
Section 5.01 Guaranty			43
Section 5.02 Guarantor’s Guaranty Obligations Unconditional			43
Section 5.03 Waivers			44
Section 5.04 Subrogation			44
Section 5.05 Limitation of Liability			44
ARTICLE VI CONDITIONS PRECEDENT			45
Section 6.01 Conditions Precedent to Use of a Credit Facility on and after the Restatement Date			45
Section 6.02 Conditions Precedent to All Credit Facilities			46
Section 6.03 Deemed Representation			47
ARTICLE VII REPRESENTATIONS AND WARRANTIES			47
Section 7.01 Incorporation			47
Section 7.02 Corporate Power and Authority; No Conflicts			47
Section 7.03 Legally Enforceable Agreements			48
Section 7.04 Litigation			48
Section 7.05 Financial Statements			48
Section 7.06 Ownership and Liens			48
Section 7.07 Taxes			49
Section 7.08 ERISA			49
Section 7.09 Subsidiaries; Ownership of Guarantors; Investments			49
Section 7.10 Operation of Business			49
Section 7.11 No Default on Outstanding Judgments or Orders			49
Section 7.12 No Defaults on Other Agreements			50
Section 7.13 Labor Disputes and Acts of God			50
Section 7.14 Governmental Regulation			50
Section 7.15 Partnerships			50
Section 7.16 Environmental Protection			50
Section 7.17 Solvency			50
Section 7.18 Properties; Priority of Liens			50
Section 7.19 No Burdensome Restrictions			51
Section 7.20 Federal Regulations			51
Section 7.21 Deposit and Securities Accounts			51
Section 7.22 Disclosure			51
Section 7.23 Security Interests			51
Section 7.24 Patriot Act			52

		Page
ARTICLE VIII AFFIRMATIVE COVENANTS			52
Section 8.01 Maintenance of Existence			52
Section 8.02 Conduct of Business			52
Section 8.03 Maintenance of Properties			52
Section 8.04 Maintenance of Records			52
Section 8.05 Maintenance of Insurance			52
Section 8.06 Compliance with Laws			52
Section 8.07 Right of Inspection			53
Section 8.08 Reporting Requirements			53
Section 8.09 Compliance With Environmental Laws			56
Section 8.10 Contractual Obligations			56
Section 8.11 Inactive Subsidiaries			56
ARTICLE IX NEGATIVE COVENANTS			56
Section 9.01 Debt			56
Section 9.02 Guaranties			57
Section 9.03 Liens			57
Section 9.04 Sale of Assets			59
Section 9.05 Transactions with Affiliates			59
Section 9.06 Investments; Acquisitions			60
Section 9.07 Mergers			61
Section 9.08 Leases			61
Section 9.09 Dividends			61
Section 9.10 Restricted Payments			61
Section 9.11 Fiscal Year			62
Section 9.12 Changes, Amendments or Modifications			62
Section 9.13 Nature of Business			62
Section 9.14 Double Negative Pledge			62
Section 9.15 Factoring Agreements			62
Section 9.16 Deposit and Securities Accounts			62
ARTICLE X FINANCIAL COVENANTS			63
Section 10.01 Consolidated Tangible Net Worth			63
Section 10.02 Consolidated Fixed Charge Coverage Ratio			63
Section 10.03 Consolidated Leverage Ratio			63
Section 10.04 Consolidated Capital Expenditures			63
Section 10.05 Revolving Credit Loan Coverage			64
ARTICLE XI EVENTS OF DEFAULT			64
Section 11.01 Events of Default			64
Section 11.02 Remedies			66
ARTICLE XII THE AGENT AND COLLATERAL MONITOR			66
Section 12.01 Appointment, Powers and Immunities of Agent			66
Section 12.02 Reliance by Agent			67
Section 12.03 Defaults			67
Section 12.04 Rights of Agent as a Bank			68
Section 12.05 Indemnification of Agent			68
Section 12.06 Documents			68

		Page
Section 12.07 Non-Reliance on Agent and Other Banks			68
Section 12.08 Failure of Agent to Act			69
Section 12.09 Resignation or Removal of Agent			69
Section 12.10 Amendments Concerning Agency Function			69
Section 12.11 Liability of Agent			69
Section 12.12 Transfer of Agency Function			70
Section 12.13 Withholding Taxes			70
Section 12.14 Collateral Monitor			70
ARTICLE XIII YIELD PROTECTION			71
Section 13.01 Additional Costs			71
Section 13.02 Illegality			72
Section 13.03 Certain Compensation			72
Section 13.04 Substitution of Banks			73
ARTICLE XIV MISCELLANEOUS			73
Section 14.01 Amendments and Waivers			73
Section 14.02 Usury			74
Section 14.03 Expenses; Indemnification			74
Section 14.04 Assignment; Participation; Additional Bank			74
Section 14.05 Notices			77
Section 14.06 Setoff; Sharing			77
Section 14.07 Jurisdiction; Immunities			77
Section 14.08 Governing Law			78
Section 14.09 Counterparts			78
Section 14.10 Exhibits and Schedules			78
Section 14.11 Table of Contents; Headings			78
Section 14.12 Severability			78
Section 14.13 Integration; Conflicts			78
Section 14.14 Jury Trial Waiver			78
Section 14.15 HSBC			78
Section 14.16 USA PATRIOT Act Notice			79
Section 14.17 Amendment and Restatement			79

EXHIBITS AND SCHEDULES

Exhibits

Exhibit A		Form of Pledge Agreement
Exhibit B		Form of Security Agreement
Exhibit C		Form of Trademark Security Agreement
Exhibit D		Form of Borrowing Notice
Exhibit E		Form of Borrowing Base Certificate
Exhibit F		Form of Revolving Credit Note
Exhibit G		Form of Term Note
Exhibit H		Form of Assignment and Acceptance
Exhibit I		Form of Reaffirmation Agreement

Schedules

Schedule 1.01(a)		Eligible Inventory Locations
Schedule 1.01(b)		Eligible Trade Letter of Credit Locations
Schedule 1.01(c)		Existing Letters of Credit
Schedule 7.04		Litigation
Schedule 7.06		Trademarks
Schedule 7.09		Direct and Indirect Subsidiaries; Inactive Subsidiaries; Ownership of Guarantors, Investments
Schedule 7.13		Labor Disputes and Acts of God
Schedule 7.21		Deposit and Securities Accounts
Schedule 9.03		Permitted Liens

AMENDED AND RESTATED CREDIT AGREEMENT AND GUARANTY dated as of February 15, 2008, among HAMPSHIRE GROUP, LIMITED, (“Borrower”), HAMPSHIRE DESIGNERS, INC., (“Designers”), ITEM-EYES, INC. (“Item-Eyes”), SB CORPORATION (“SB”) and SHANE HUNTER, INC. (“Shane Hunter”), HSBC BANK USA, NATIONAL ASSOCIATION, (“HSBC”), JPMORGAN CHASE BANK, N.A. (“Chase”), ISRAEL DISCOUNT BANK OF NEW YORK (“IDB”), WACHOVIA BANK, NATIONAL ASSOCIATION (“Wachovia”), BANK LEUMI USA (“Bank Leumi”), and SOVEREIGN BANK (“Sovereign”, and together with HSBC, Chase, IDB, Wachovia, Bank Leumi, individually a “Bank” and collectively the “Banks”), HSBC as Letter of Credit Issuing Bank for all Letters of Credit, and HSBC, as Agent for the Banks (in such capacity, together with any successors in such capacity, the “Agent”).

RECITALS:

(1) The Borrower, the Guarantors, HSBC, Chase, IDB, Wachovia, Sovereign (as assignee of Bank of America, N.A. (“BofA”)) and Bank Leumi (as assignee of The CIT Group/Commercial Services, Inc. (“CIT”)) and the Agent have entered into a Credit Agreement and Guaranty dated as of August 15, 2003, as amended by Amendment No. 1 dated as of December 29, 2004, by Amendment No. 2 dated as of November 10, 2005, by Amendment No. 3 and Waiver dated as of August 8, 2006, by Waiver dated as of October 13, 2006, by Amendment No. 4 and Waiver dated as of December 29, 2006, by Amendment No. 5 and Waiver dated as of March 30, 2007, by Amendment No. 6 dated as of July 11, 2007, by Waiver dated as of July 25, 2007, by Waiver dated as of August 31, 2007, by Amendment No. 7 dated as of September 17, 2007, by Consent and Waiver to Credit Agreement and Amendment to Security Agreement, dated as of November 1, 2007, by Amendment No. 8 dated as of December 13, 2007, and by Waiver dated as of January 7, 2008 (as amended, the “Existing Agreement”).

(2) Each Bank shall be deemed, upon the Restatement Date (as defined below), to have exchanged its Revolving Credit Commitment, its Trade Letter of Credit Commitment and its Standby Letter of Credit Commitment (as each such term is defined in the Existing Agreement) for the Revolving Credit Commitment, the Trade Letter of Credit Commitment and the Standby Letter of Credit Commitment (as each such term is defined below), respectively, in an amount equal to its Pro Rata Share (as defined below). !

(3) The Borrower, the Guarantors, the Banks and the Agent wish to amend the Existing Agreement to make certain changes in the terms of the Existing Agreement, acknowledge and admit Bank Leumi and Sovereign as the Banks, release and remove CIT and BofA as Banks, and to restate the Existing Agreement in its entirety.

(4) The parties hereto intend that (a) the Obligations (as defined in the Existing Agreement) that remain unpaid and outstanding as of the Restatement Date shall continue to exist under this Agreement on the terms set forth herein, (b) any letter of credit outstanding under the Existing Agreement as of the Restatement Date shall be Letters of Credit under and as defined in this Agreement and(c) the Collateral (as defined in the Existing Agreement), other than Excluded Collateral (as defined below) shall continue to secure the Obligations (as defined below).

(5) Following such restatement, this Agreement will set forth the definitive terms and conditions of the agreement of the Borrower, the Guarantors, the Banks and the Agent regarding the matters covered by this Agreement as of the date the Existing Agreement is restated (the “Restatement Date”), and the Existing Agreement will continue to govern such terms prior to such date.

NOW, THEREFORE, in consideration for the foregoing agreements and for other good and valuable consideration whose receipt and sufficiency are acknowledged, the Borrower, the Guarantors, the Banks and the Agent hereby agree as follows:

ARTICLE I

DEFINITIONS, ACCOUNTING TERMS AND RULES OF CONSTRUCTION

Section 1.01 Definitions. As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa):

“Accounts” means all of the accounts receivable as defined in the Master Security Agreement and the Guarantor Security Agreements.

“Affiliate” means, as to any Person, any other Person: (a) which directly or indirectly controls, or is controlled by, or is under common control with such Person; (b) which directly or indirectly beneficially owns or holds five percent (5%) or more of any class of voting stock of the such Person; or (c) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by such Person. The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise.

“Agent” means HSBC, when acting in its capacity as Agent under any of the Loan Documents, and any successor thereto.

“Agent’s Office” means the address of HSBC as set forth on the signature page of this Agreement, or such other address as HSBC may designate by written notice to Borrower, the Guarantors and the Banks.

“Agreement” means this Amended and Restated Credit Agreement and Guaranty.

“Airway Guaranty” has the meaning set forth in Section 3.09 hereof.

“Applicable Margin” means (a) with respect to a Revolving Eurodollar Loan, one and twenty five hundredths percent (1.25%), and (b) with respect to the Term Loan, one and seventy five hundredths percent (1.75%).

“Applicable Percentage” means the percentage set forth in the column entitled “Applicable Percentage” in the definition of Permitted Investments.

“Application” means the application by a Letter of Credit Party for a Letter of Credit.

“Assignment and Acceptance” means an Assignment and Acceptance substantially in the form of Exhibit H hereto.

“Assignment of Proceeds Agreement” means an Assignment of Factored Credit Balance and Proceeds Agreement or other similar agreement, in form and substance reasonably satisfactory to Agent, duly executed by Borrower and the Restricted Subsidiaries and any Factor and a Consent and Acknowledgment thereto duly executed by such Factor.

“Augmenting Bank” has the meaning set forth in Section 2.01(b)(ii) hereof.

“Authorized Person” means any duly authorized officer or employee, or combination thereof of Borrower.

“Availability for Revolving Credit Loans” means the lesser of (a) the Revolving Credit Commitment minus the sum of: (i) the outstanding aggregate principal amount of the Term Loan, if any, and (ii) the Letter of Credit Obligations and (b) the Borrowing Base minus the Letter of Credit Obligations.

“Availability Reserves” shall mean, as of any date of determination, such reserves in amounts as Agent may from time to time establish and revise in good faith in accordance with customary credit practices in the commercial finance industry reducing the amount of Revolving Credit Loans and Letters of Credit which would otherwise be available to the Borrower under the lending formula(s) provided for herein: (a) to reflect events, conditions, contingencies or risks which, as determined in good faith by Agent in accordance with its customary credit practices, do or could reasonably be expected to adversely affect either (i) the Collateral or its value, (ii) the assets or business of the Borrower or any Restricted Subsidiary of the Borrower or (iii) the security interests and other rights of Agent in the Collateral (including the enforceability, perfection and priority thereof) or (b) to reflect Agent’s good faith belief that any collateral report or financial information furnished to it or any Bank by or on behalf of the Borrower or any Subsidiary of the Borrower, is or may have been incomplete, inaccurate or misleading in any material respect or (c) in respect of any state of facts which Agent determines in good faith constitutes an Event of Default or may, with notice or the passage of time or both, constitute an Event of Default. The amount of any Availability Reserve established by Agent shall have a reasonable relationship to the event, condition or other matter which is the basis for such reserve as determined by Agent in good faith.

“Bank” or “Banks” has the meaning set forth in the preamble to this Agreement.

“Bank Equity” has the meaning set forth in Section 9.06 hereof.

“Bank Parties” means Agent, each of the Banks and each of the Letter of Credit Issuing Banks.

“Banking Day” means any day on which commercial banks are not authorized or required to close in London, England, New York City, New York, Greenville, South Carolina or Anderson, South Carolina.

“Blocked Person Annex” has the meaning set forth in Section 7.24 hereof.

“Board of Governors” means the Board of Governors of the Federal Reserve System or any successor.

“Book Value” shall mean, as to any inventory in respect of which such amount is to be determined, the lower of (a) the cost (as reflected in the general ledgers of Designers, Item-Eyes, Shane Hunter or, with the approval of Agent, any other existing or future Subsidiary of the Borrower), as applicable or (b) market value (both cost and market value being determined in accordance with GAAP calculated on a first in first out basis).

“Borrower Pledge Agreement” means the Pledge Agreement dated August 15, 2003 executed by Borrower in favor of Agent for the ratable benefit of the Bank Parties, as amended by the First Amendment dated as of December 6, 2006, as amended and reaffirmed by the Borrower pursuant to the Reaffirmation Agreement.

“Borrower Trademark Security Agreement” means the Collateral Assignment and Trademark Collateral Assignment and Security Agreement dated August 15, 2003 executed by Borrower in favor of Agent for the ratable benefit of the Bank Parties, as amended by the First Amendment dated as of December 6, 2006 and by the Consent and Waiver to Credit Agreement and Amendment to Security Agreement dated as of November 1, 2007, and as amended and reaffirmed by the Borrower pursuant to the Reaffirmation Agreement.

“Borrowing Base” shall mean, at any time, an amount equal to the lesser of

(a) the aggregate amount of the Revolving Credit Commitment minus the outstanding aggregate principal amount of the Term Loan; or

(b) the sum of (without duplication):

(i) the Applicable Percentage of Cash Collateral ( provided , however , that notwithstanding any other provision of this Agreement, the value of such Cash Collateral shall be the value of Cash Collateral as of the date of the Borrowing Base Certificate in which such Borrowing Base calculation appears), plus

(ii) eighty-five percent (85%) of the Net Amount of Eligible Accounts, plus

(iii) fifty percent (50%) of Net Amount of Eligible Inventory, plus

(iv) fifty percent (50%) of the aggregate undrawn amount of all outstanding Eligible Trade Letters of Credit, plus

(v) fifty percent (50%) of the amount of Eligible In-Transit Inventory, plus

(vi) the Supplemental Amount, less

(vii) Availability Reserves.

“Borrowing Base Certificate” means the certificate substantially in the form of Exhibit E hereto.

“Borrowing Notice” has the meaning set forth in Section 2.03 hereof.

“Capital Lease” means any lease which has been or should be capitalized on the books of the lessee in accordance with GAAP.

“Cash Collateral” means cash and Cash Equivalents, and any interest or other income earned thereon, that is delivered to Agent as Collateral for the Obligations and held in the Cash Collateral Account.

“Cash Collateral Account” means a savings, checking, time deposit or securities account at HSBC (or HSBC Brokerage (USA) Inc. or HSBC acting in a brokerage capacity), which account shall be subject to Agent’s Lien for the benefit of the Banks.

“Cash Equivalents” means the first 16 types of investments set forth in the definition of “Permitted Investments”.

“Change of Control” means any “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) shall have become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of Voting Shares entitled to exercise more than 51% of the total power of all outstanding Voting Shares of the Borrower (including any Voting Shares which are not then outstanding of which such person or group is deemed the beneficial owner). For purposes of this definition, the term “ Voting Shares” shall mean all outstanding shares of any class or classes (however designated) of capital stock of the Borrower entitled to vote generally in the election of members of the Board of Directors thereof.

“Code” means the Internal Revenue Code of 1986.

“Collateral” means any and all personal property subject to a Lien granted by any of the Security Documents and this Agreement, but in no event shall Collateral include Excluded Collateral (as defined in the Security Documents).

“Collateral Monitor” means HSBC, when acting in its capacity as Collateral Monitor under any of the Loan Documents, and any successor thereto.

“Commitment Increase Amount” has the meaning set forth in Section 2.01(b)(i) hereof.

“Consolidated Amortization” means the amortization or write-off of impaired value adjustments of the intangible assets of Borrower and the Restricted Subsidiaries, on a consolidated basis, all as determined in accordance with GAAP.

“Consolidated Capital Expenditures” means the Dollar amount of gross expenditures (including the principal portion of payments under Capital Leases, net of any sublease income) made for real property, fixed assets, property, plant and equipment, and all renewals, improvements and replacements thereto (including, but not limited to, maintenance and repairs thereof but only to the extent required to be capitalized in accordance with GAAP) incurred or paid by Borrower and the Restricted Subsidiaries. Notwithstanding anything to the contrary in the foregoing, such expenditures made for non-real estate Capital Leases in an amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) per Fiscal Year shall be excluded.

“Consolidated Debt” shall mean, at any date of determination, the aggregate amount of all funded debt of the Borrower and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP.

“Consolidated Depreciation” means depreciation of Borrower and its Restricted Subsidiaries, on a consolidated basis, all as determined in accordance with GAAP.

“Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization” means, for any period, Consolidated Net Income, plus Consolidated Interest Expense, plus Consolidated Taxes, plus Consolidated Depreciation, plus Consolidated Amortization, all for such period.

“Consolidated Fixed Charge Ratio” means a ratio of: (i) (a) Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization for such period, less (b) Consolidated Capital Expenditures made by the Borrower or any Restricted Subsidiary during such period, less (c) Consolidated Taxes paid during such period, to (ii) the sum of (a) Consolidated Interest Expense for such period, plus (b) Consolidated Principal Amortization for such period.

“Consolidated Interest Expense” means, for any period, all interest paid or required to be paid by Borrower and its Restricted Subsidiaries on all of their respective Debt, including the Obligations, during such period.

“Consolidated Leverage Ratio” means, at any date of determination, the ratio of (a) Consolidated Debt as of such date to (b) Consolidated Earnings Before Interest, Taxes, Depreciation and Amortization for the Test Period in respect of such date.

“Consolidated Net Income” means, for any period, the net income of Borrower and its Restricted Subsidiaries, on a consolidated basis, all as determined in accordance with GAAP.

“Consolidated Principal Amortization” means scheduled consolidated principal payments of all funded debt of Borrower and the Restricted Subsidiaries.

“Consolidated Tangible Net Worth” means the sum of (a) Consolidated Total Tangible Assets less (b) Consolidated Total Liabilities.

“Consolidated Taxes” means, for any period, the income and franchise taxes of Borrower and its Restricted Subsidiaries, on a consolidated basis, all as determined in accordance with GAAP.

“Consolidated Total Liabilities” means total liabilities and all mandatorily redeemable preferred stock of Borrower and its Restricted Subsidiaries, on a consolidated basis, all as determined in accordance with GAAP.

“Consolidated Total Tangible Assets” means the total assets of Borrower and its Restricted Subsidiaries, on a consolidated basis, minus all intangible assets (other than deferred taxes), including, but not limited to, non-compete contracts, employment contracts, deferred or prepaid transactions cost, capitalized research and development cost, capitalized interest, debt discount and expenses, goodwill, patents, trademarks, copyrights, franchises, licenses and other intangible assets, all as determined in accordance with GAAP.

“Contractual Obligations” means as to any Person, any provision of any security issued by such Person or of any agreement, instrument or undertaking to which such Person is a party or by which it or any of its property is bound.

“Control Agreement” means any Deposit Account Control Agreement and/or Securities Account Control Agreement among the Borrower, the Deposit Bank party thereto and the Agent, in form and substance reasonably satisfactory to the Agent.

“Conversion Date” shall have the meaning set forth in Section 2.02(a) hereof.

“Credit Facilities” means, collectively, the Revolving Credit Loans, the Term Loan (if any) and the Letters of Credit.

“Debt” means: (a) indebtedness or liability for borrowed money, or for the deferred purchase price of property or services (including trade obligations); (b) the principal portion of obligations as lessee under Capital Leases; (c) obligations under letters of credit issued for the account of any Person; (d) all obligations arising under bankers’ or trade acceptance facilities of any Person; (e) all guarantees, endorsements (other than for collection or deposit in the ordinary course of business), and other contingent obligations to purchase any of the items included in this definition, to provide funds for payment, to supply funds to invest in any Person, or otherwise to assure a creditor against loss; and (f) all obligations secured by any Lien on property owned by such Person, whether or not the obligations have been assumed. For purposes of the foregoing, the amount of any Debt described in clause (e) shall be equal to the lesser of (A) the amount of the primary obligation in respect to which such guaranty is issued and (B) the maximum liability amount under the terms of such guaranty.

“Declined Share” has the meaning set forth in Section 2.01(b)(ii) hereof.

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

“Default Rate” means, at any time, a rate of interest equal to 2% per annum plus the highest rate that would then be applicable to Prime Rate Loans; provided, that, if the Default Rate is implemented and the applicable Obligation is a Revolving Credit Loan or the Term Loan, Default Rate shall mean, with respect to an amount of any such Loan not paid when due, a rate per annum equal to two percent (2%) above the Interest Rate then in effect thereon.

“Deposit Account” has the meaning given to such term in the Uniform Commercial Code.

“Deposit Bank” means such Bank or Person maintaining any of the Borrower’s Deposit Accounts or Securities Accounts.

“Designers” means Hampshire Designers, Inc., a Delaware corporation.

“Designers Pledge Agreement” means the Pledge Agreement dated August 15, 2003 executed by Designers in favor of Agent for the ratable benefit of the Bank Parties, as amended and reaffirmed by Designers pursuant to the Reaffirmation Agreement.

“Designers Trademark Security Agreement” means the Trademark Collateral Assignment and Security Agreement dated August 15, 2003 executed by Designers in favor of Agent for the ratable benefit of the Bank Parties, as amended and reaffirmed by Designers pursuant to the Reaffirmation Agreement.

“Dollars” and the sign “$” mean lawful money of the United States of America.

“Eligible Accounts” shall mean (a) the trade accounts receivable created in the ordinary course of business by Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, which (i) are subject to a valid, first priority, fully perfected security interest in favor of Agent for the ratable benefit of the Bank Parties and which conform to the representations and warranties contained herein and in the Loan Documents, and (ii) at all times shall continue to be acceptable to Agent based on the criteria set forth below, as revised from time to time by the Agent in good faith (the “Non-Factored Accounts”), and, (b) the Factored Accounts, but only to the extent a Factor has the credit risk with respect to such Factored Accounts pursuant to the applicable Factoring Agreement with such Factor, and provided, further, that such Factored Accounts remain subject to an Assignment of Proceeds Agreement and the Factor has otherwise agreed to the terms set forth in Section 9.03(e)(iii) hereof.

In general, the Non-Factored Accounts may, as determined by Agent in good faith, be deemed eligible if:

(a) delivery of the merchandise has been completed;

(b) no return, rejection or repossession has occurred;

(c) the merchandise has been accepted by the account debtor without dispute, setoff, defense or counterclaim;

(d) such trade account receivable is unconditionally payable in Dollars within 90 days of the invoice date and is not evidenced by a promissory note, chattel paper or any other instrument or document, Notwithstanding the prior sentence, a trade account receivable payable more than 90 days but less than 150 days from the invoice date may be eligible (the “Over 90 Receivables”) provided that, (i) such receivable is due from Ross Stores, Inc., TJX Companies Inc., Burlington Coat Factory Investment Holdings, Marshalls of MA Inc., Kohl’s Corporation and Mercury Beach-Maid Inc. or such other customer approved by Agent, (ii) such receivable is scheduled in sufficient detail to the Borrowing Base Certificate which includes such receivable, and (iii) such receivable is not more than 15 days past due;

(e) except as otherwise provided pursuant to subclause “(d)” above with respect to the Over 90 Receivables, no more than 60 days has elapsed from the invoice due date and no more than 120 days has elapsed from the invoice date;

(f) the account debtor is not an Affiliate of the Borrower or any Restricted Subsidiary;

(g) such trade account receivable does not constitute an obligation of the United States or any other Governmental Authority;

(h) the chief executive office of the account debtor with respect thereto is located in the continental United States, unless the Receivable is supported by a letter of credit or other similar obligation reasonably satisfactory to Agent or Agent has received evidence that credit insurance with respect to such Account has been assigned to Agent and names Agent as loss payee;

(i) the account debtor with respect thereto is not also a supplier or a creditor of the Borrower or any Restricted Subsidiary, unless such supplier or creditor has executed a no offset letter reasonably satisfactory to Agent (but the portion of the Non-Factored Accounts of such account debtor in excess of the amount at any time and from time to time owed by such Subsidiary of Borrower to such account debtor or claimed to be owed may be deemed an Eligible Account);

(j) not more than 50% of the aggregate amount of all trade account receivables from an account debtor with respect thereto remain unpaid more than 60 days past the invoice due date or 120 days past the invoice date;

(k) the account debtor is not insolvent, subject to a bankruptcy, reorganization, receivership, insolvency arrangement or any similar proceeding; and

(l) no facts, events or occurrences exist that would impair the validity, enforceability or collectibility of such trade account receivable or reduce the amount payable, or delay payment thereunder, all as determined in the good faith by Agent (provided, that, as to facts, events or occurrences that reduce the amount payable under such receivable the amount payable thereunder as so reduced, may be deemed an Eligible Account).

The aggregate amount of all Eligible Accounts of Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, shall be reduced by any reserves deemed necessary by Agent in good faith, including a reserve in an amount which would represent the historical or anticipated ratio of dilution (i.e. returns, discounts, claims, credits, and allowances) to collections to the extent that such amounts are not already included in the Availability Reserves.

“Eligible Bank” means (i) any of the Banks, or (ii) a commercial bank organized under the laws of the United States of America or any State thereof which has a Bank Equity of not less than Two Hundred Fifty Million Dollars ($250,000,000).

“Eligible Inventory” shall mean inventory or Eligible Prior Season Inventory of Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, comprised solely of uncut fabric, yarn and finished goods located in the United States which meets all of the following specifications:

(a) the inventory is owned by Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, free and clear of any existing Lien (other than warehouseman’s and landlord’s liens as long as a reasonably satisfactory waiver has been entered into with Agent), other than the liens and security interests in favor of Agent under the Loan Documents, it is not held on consignment and may be lawfully sold and it continues to be in full conformity with any representations and warranties made under the Loan Documents by the Borrower and its Restricted Subsidiaries to Agent with respect thereto;

(b) Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, has the right to assignment thereof and the power to grant liens thereon and security interests with respect thereto;

(c) the inventory arose or was acquired in the ordinary course of business of Designers, Item-Eyes, Shane Hunter or, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, as applicable and does not represent returned, second quality or damaged goods;

(d) the inventory is readily marketable for sale by Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower;

(e) the inventory is located at one of the addresses for locations of Collateral set forth on Schedule 1.01(a) and with respect to which inventory Agent, for the ratable benefit of the Bank Parties, has been granted and has perfected a valid, first priority security interest therein;

(f) the inventory is not goods to be returned to a supplier of the Borrower or any Restricted Subsidiary, or, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower;

(g) the inventory is not samples;

(h) if the inventory is sold under a licensed trademark, with respect to each Required Licensor, Agent shall have entered into a licensor waiver letter, in form and substance satisfactory to Agent, with such Required Licensor with respect to the rights of Agent to use the trademark to sell or otherwise dispose of such inventory;

(i) the inventory is not obsolete, slow-moving or unmerchantable and is and at all times shall continue to be acceptable to Agent in all respects as determined by Agent in good faith; and

(j) the inventory, other than Eligible In-Transit Inventory, is not located in a warehouse or on leased premises unless Agent has entered into a warehouseman’s waiver or landlord’s waiver, as the case may be, on terms reasonably satisfactory to Agent.

“Eligible In-Transit Inventory” shall mean “in transit” fabric, yarn or finished goods inventory of Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, shipped under an Eligible Trade Letter of Credit, the amount of which is equal to the face amount of the related Eligible Trade Letter of Credit, provided that such inventory (a) has been paid for by the Borrower and has not otherwise been included in Eligible Inventory or under an Eligible Trade Letter of Credit, and (b) such inventory would otherwise qualify as Eligible Inventory and is otherwise satisfactory in all respects as determined by Agent in good faith.

“Eligible Prior Season Inventory” shall mean Prior Season Inventory which Agent determines, in good faith, to be eligible inventory. In general, Prior Season Inventory may be deemed Eligible Prior Season Inventory if (a) it is subject to a confirmed purchase order, (b) the cost of such inventory is an amount in the general ledger of Designers, Item-Eyes, Shane Hunter or such other existing or future Subsidiary of the Borrower approved by Agent and the Required Banks, as the case may be, which will produce, when such inventory is sold, a gross profit margin which is satisfactory to Agent, and (c) such inventory would otherwise qualify as Eligible Inventory and is otherwise satisfactory in all respects to Agent in good faith.

“Eligible Trade Letter of Credit” shall mean a commercial letter of credit issued by Agent for the account of the Borrower covering fabric, yarn or finished goods inventory of Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, for which (a) the documents of title have been or will be consigned to Agent, (b) the underlying goods have been or will be insured to the satisfaction of Agent, and (c) the underlying goods have been or will be shipped to an eligible location in the United States set forth on Schedule 1.01(b) .

“Environmental Discharge” means any discharge or release by Borrower or any Restricted Subsidiaries of any Hazardous Materials in violation of any applicable Environmental Law.

“Environmental Law” means any Law relating to pollution of the environment, including Laws relating to noise or to emissions, discharges, releases or threatened releases of Hazardous Materials into the workplace, the community or the environment, or otherwise relating to the generation, manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.

“Environmental Notice” means any complaint, order, citation, letter, inquiry, notice or other written communication from any Governmental Authority (a) affecting or relating to Borrower’s or any Restricted Subsidiaries’ violation of any Environmental Law in connection with any activity or operations at any time conducted by Borrower or such Restricted Subsidiary, (b) relating to the unpermitted occurrence or Presence of or exposure to or possible or threatened or alleged occurrence or presence of or exposure to Environmental Discharges or Hazardous Materials at any of Borrower’s or any Restricted Subsidiary’s locations or facilities, including, without limitation: (i) the existence of any contamination or possible or threatened contamination at any such location or facility and (ii) remediation of any Environmental Discharge or Hazardous Materials at any such location or facility or any part thereof; and (c) any violation or alleged violation of any relevant Environmental Law.

“ERISA” means the Employee Retirement Income Security Act of 1974, including any rules and regulation promulgated thereunder.

“ERISA Affiliate” means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as Borrower or any Guarantor or is under common control (within the meaning of Section 414(c) of the Code) with Borrower or such Guarantor; provided however , that for purposes of provisions herein concerning minimum funding obligations (imposed under Section 412 of the Code or Section 302 of ERISA), the term “ERISA Affiliate” shall also include any entity required to be aggregated with Borrower or any Guarantor under Section 414(m) or 414(o) of the Code.

“Eurodollar Base Rate” means with respect to any Interest Period for a Eurodollar Loan, the arithmetic mean, as calculated by Agent, of the respective rates per annum (rounded upwards, if necessary, to the nearest 1/16 of 1 %) quoted at approximately 11:00 A.M. London time by the principal London branch of Agent two (2) Banking Days prior to the first day of such Interest Period for the offering to leading banks in the London interbank market of Dollar deposits in immediately available funds, for a period, and in an amount, comparable to the Interest Period and principal amount of the Eurodollar Loan which shall be made by Agent and outstanding during such Interest Period.

“Eurodollar Loan” means a Loan that bears interest at a rate based on the Eurodollar Base Rate.

“Eurodollar Rate” means, for any Eurodollar Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary to the nearest 1/100 of 1%) determined by Agent to be equal to the quotient of (a) the Eurodollar Base Rate for such Loan for such Interest Period, divided by (b) one minus the Reserve Requirement for such Loan for such Interest Period.

“Event of Default” has the meaning set forth in Section 11.01 hereof .

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

“Excluded Accounts” means all Deposit Accounts specifically and exclusively used as zero balance accounts or used for security deposits, payroll, payroll taxes, deferred compensation and other employee wage and benefit payments to or for the benefit of the Borrower’s or any of its Subsidiaries’ employees, and the accounts listed on Part II of Schedule 7.21 .

“Excluded Collateral” shall have the meaning ascribed to such term in the Master Security Agreement.

“Existing Agreement” has the meaning set forth in Recitals hereof.

“Existing Letters of Credit” means letters of credit issued pursuant to the Existing Agreement and set forth on Schedule 1.01(c) attached hereto.

“Factor” shall have the meaning set forth in Section 9.03(e) hereof.

“Factored Accounts” shall mean the trade accounts receivable of Designers, Item-Eyes, Shane Hunter and, with the approval of the Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, created in the ordinary course of business which have been purchased and/or assigned to the Factor under a Factoring Agreement, which may include trade accounts receivable for which the Factor has no credit risk.

“Factoring Agreement” means any factoring agreement by and between Borrower and/or any Restricted Subsidiary and a Factor.

“Federal Funds Rate” means, for any day, the rate per annum (rounded, if necessary, to the next greater 1/100 of 1%) equal to the rate per annum at which the Agent is offered overnight Federal funds by a Federal funds broker selected by the Agent at or about 2:00 p.m., New York time, on such day, provided that if such day is not a Banking Day, the Federal Funds Rate for such day shall be such rate at which the Agent is offered overnight Federal funds by such Federal funds broker at or about 2:00 p.m., New York time, on the next preceding Banking Day.

“Field Examination” has the meaning set forth in Section 8.07 hereof.

“Fiscal Month” means each of the twelve (12) monthly periods of Borrower’s Fiscal Year.

“Fiscal Month End Date” means the last day of any Fiscal Month of each Fiscal Year.

“Fiscal Quarter” means each of the four (4) quarterly periods of Borrower’s Fiscal Year.

“Fiscal Year” means each calendar year ending December 31.

“Foreign Lender” means any Bank that is organized under the laws of a jurisdiction other than that in which Borrower is located. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“GAAP” means generally accepted accounting principles in the United States of America from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in Section 7.05 hereof.

“Glamourette” means Glamourette Fashion Mills, Inc., a Delaware corporation.

“Good Faith Contest” means the contest of an item if: (a) the item is diligently contested in good faith by appropriate proceedings timely instituted; (b) adequate reserves are established in accordance with GAAP; (c) during the period of such contest, the enforcement of any contested item is effectively stayed; and (d) the failure to pay or comply with the contested item during the period of the Good Faith Contest is not likely to result in a Material Adverse Change.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guarantor” and “Guarantors” means (i) with respect to all Obligations other than the Letter of Credit Obligations, Designers, Item-Eyes and Shane Hunter and any present or future Restricted Subsidiaries that are organized under the laws of any state or territory of the United States that are not Inactive Subsidiaries subject to Section 8.11 hereof, and (ii) with respect to all Letter of Credit Obligations, Borrower, Designers, Item-Eyes and Shane Hunter and any present or future Restricted Subsidiaries that are organized under the laws of any state or territory of the United States that are not Inactive Subsidiaries subject to Section 8.11 hereof; provided , however , that MC Inc. shall be deemed not to be a Guarantor.

“Guarantor Security Agreements” means any Security Agreements executed by any of Designers, Item-Eyes and Shane Hunter to secure the Guaranty Obligations.

“Guaranty” means, collectively, all of the guarantees provided by the Guarantors pursuant to Section 5.01 hereof.

“Guaranty Obligations” has the meaning set forth in Section 5.01 hereof.

“Hazardous Materials” means any pollutant, effluents, emissions, contaminants, toxic or hazardous wastes or substances, as any of those terms are defined from time to time in or for the purposes of any applicable Environmental Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls, and any petroleum or hydrocarbon-based products or derivatives.

“HSBC” means HSBC Bank USA, National Association and its successors and assigns and any Person acting as agent or nominee for HSBC Bank USA, National Association and any corporation the stock of which is owned or controlled directly or indirectly by, or is under common control with, HSBC Bank USA, National Association and/or HSBC Holdings plc.

“Inactive Subsidiary” means any Subsidiary of the Borrower that has (a) revenues in the relevant Fiscal Year that do not exceed Two Hundred Fifty Thousand Dollars ($250,000) or (b) assets that do not exceed Two Hundred Fifty Thousand Dollars ($250,000). (As of the Restatement Date, Glamourette, MCHK, MC Apparel and SB are the Inactive Subsidiaries.)

“Increasing Bank” has the meaning set forth in Section 2.01(b)(i) hereof.

“Instructions” means oral or written instructions or instructions transmitted by teleprocess given on behalf of Borrower by one or more Authorized Persons.

“Instrument” means with respect to any Letter of Credit or Steamship Guaranty, Airway Guaranty, any draft, receipt, acceptance, teletransmission, including, but not limited to, telex or cable, or other written demand for payment under such Letter of Credit.

“Interest Period” means, with respect to any Eurodollar Loan, a period of one, two, three or six months, such period commencing on the date such Loan is made, converted from another type of Loan or renewed, as Borrower may select in accordance with Section 2.03 hereof, provided that , each such Interest Period, which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month), shall end on the last Banking Day of the appropriate calendar month; provided , further , that ,

(a) If any Interest Period would otherwise end on a day which is not a Banking Day, that Interest Period shall be extended to the next succeeding Banking Day unless such Interest Period is with respect to a Eurodollar Loan and the result of such extension would be to extend such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Banking Day.

(b) No Interest Period with respect to a Revolving Credit Loan shall extend beyond the Revolving Credit Termination Date.

(c) No Interest Period with respect to the Term Loan shall extend beyond the Term Loan Maturity Date.

“Interest Rate” means either (a) with respect to a Prime Rate Loan, the Prime Rate minus one percent (1%) or (b) with respect to a Eurodollar Loan, the Eurodollar Rate plus the Applicable Margin.

“Interest Rate Contracts” means interest rate swap agreements, interest rate cap agreements, interest rate collar agreements, interest rate insurance and other agreements or arrangements designed to provide protection against fluctuation in interest rates, in each case, in form and substance reasonably satisfactory to the Agent.

“International Standby Practices” means the “International Standby Practices (ISP98),” as promulgated by the Institute of International Banking Law & Practice, Inc., approved by the International Chamber of Commerce (“ICC”) Commission on Banking Technique and Practice, and issued by the ICC as Publication No. 590, or any successor code of standby letter of credit practices among banks adopted by the Bank as a standby letter of credit issuer in the ordinary course of its business and in effect at the time of reference.

“Inventory” shall have the meaning set forth in the Master Security Agreement and the Security Agreements that have been executed by the Guarantors.

“Investigation Expenses” means expenses arising out of or resulting from the investigation by the Audit Committee of the Borrower’s Board of Directors and related matters, including, without limitation, costs related to the restatement of the Borrower’s financial statements, the assessment and remediation of certain tax exposures, investigations by the Securities and Exchange Commission and the United States Attorney’s office, certain stockholder derivative suits, Nasdaq Global Market listing related costs, and arbitration and other legal fees.

“Item-Eyes” means Item-Eyes, Inc., a Delaware corporation.

“Item-Eyes Trademark Security Agreement” means the Trademark Collateral Assignment and Security Agreement dated August 15, 2003 executed Item-Eyes by in favor of Agent for the ratable benefit of the Bank Parties, as amended and reaffirmed by Item-Eyes pursuant to the Reaffirmation Agreement.

“Law” means any applicable federal, state or local statute, law, rule, regulation, ordinance, order, code, policy or rule of common law, now or hereafter in effect, and any applicable judicial or administrative interpretation thereof by a Governmental Authority or otherwise, including any judicial or administrative order, consent decree or judgment.

“Letters of Credit” means Trade Letters of Credit and the Standby Letters of Credit.

“Letter of Credit Account Parties” means the Borrower, Designers, Item-Eyes, SB, Shane Hunter and all other Restricted Subsidiaries.

“Letter of Credit Fee” means the Trade Letter of Credit Fee and the Standby Letter of Credit Fee.

“Letter of Credit Issuing Bank” means HSBC with respect to all Letters of Credit.

“Letter of Credit Obligations” means at any time an amount equal to the sum of (a) the aggregate amount of Trade Letter of Credit Obligations, (b) the aggregate amount of Standby Letter of Credit Obligations and (c) any Letter of Credit Fee due and payable.

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

“Loan” means an extension of credit by the Banks to the Borrower under Article II in the form of a Revolving Credit Loan or the Term Loan.

“Loan Account” shall have the meaning set forth in Section 2.12(a) hereof.

“Loan Document(s)” means this Agreement, the Notes, the Letters of Credit, the Security Documents and any and all documents executed in connection with the Letters of Credit.

“Master Security Agreement” means the Security Agreement executed by Borrower and each Guarantor in favor of Agent for the ratable benefit of the Banks.

“Material Adverse Change” means either (a) a material adverse change in the status of the business, assets, liabilities, results of operations, condition (financial or otherwise) or property or prospects of Borrower and its Restricted Subsidiaries, taken as a whole, or (b) any event or occurrence of whatever nature which is likely to have a material adverse effect on Borrower’s ability to perform its obligations under the Loan Documents to which it is a party.

“MC Inc.” means Marisa Christina, Incorporated, a Delaware corporation.

“MC Apparel” means Marisa Christina Apparel, Inc., a Delaware corporation.

“MCHK” means C.M. Marisa Christina (H.K.), Limited, a Hong Kong [company].

“Monthly Date(s)” means the first Banking Day of each calendar month occurring on or after the Restatement Date.

“Multiemployer Plan” means a Plan defined as such in Section 3(37) of ERISA.

“Net Amount of Eligible Accounts” shall mean and include at any time, without duplication, as determined by the Collateral Monitor in its reasonable discretion, the gross amount of Eligible Accounts at such time less (a) sales, excise or similar taxes and (b) returns, discounts, claims, credits, allowances, of any nature at any time issued, owing, granted, outstanding, available or claimed; provided, that such amounts have not already otherwise been deducted.

“Net Amount of Eligible Inventory” shall mean, at any time, the aggregate Book Value of Eligible Inventory, as determined by the Collateral Monitor in its reasonable discretion.

“Net Availability” shall mean, at any date, (a) the Availability for Revolving Credit Loans less (b) the aggregate principal amount of all outstanding Revolving Credit Loans.

“Non-Consenting Bank” has the meaning set forth in Section 14.04(h) hereof.

“Note(s)” means the Revolving Credit Notes and the Term Notes.

“Obligations” shall mean any and all Revolving Credit Loans, Letter of Credit Obligations, the Term Loan and all other indebtedness, liabilities and obligations of every kind, nature and description owing by Borrower, a Letter of Credit Account Party or Guarantors to each Bank Party, the Banks and/or their Affiliates, arising out of or in connection with the Notes, the Letters of Credit, including Airway Guaranty or Steamship Guaranty, this Agreement, the other Loan Documents and any and all Interest Rate Contracts (but solely to the extent a Bank is a counter-party to such Interest Rate Contract), including without limitation for principal, interest, charges, fees, expenses, reimbursement obligations and foreign exchange obligations, however evidenced, whether as principal, surety, endorser, guarantor or otherwise, arising under this Agreement, whether now existing or hereafter arising, whether arising before, during or after the Revolving Credit Termination Date or after the commencement of any case with respect to Borrower, any Letter of Credit Account Party or any Guarantor under the Bankruptcy Code or any similar statute, whether direct or indirect, absolute or contingent, joint or several, due or not due, primary or secondary, liquidated or unliquidated, secured or unsecured, original, renewed or extended and whether arising directly or howsoever acquired by the Banks including from any other entity outright, conditionally or as collateral security, by assignment, merger with any other entity, participations or interests of the Banks in the obligations of Borrower, Letter of Credit Account Parties or Guarantors to others, assumption, operation of law, subrogation or otherwise and shall also include all amounts chargeable to Borrower, any Letter of Credit Account Party or any Guarantor under this Agreement or in connection with any of the foregoing, provided however , that indebtedness and obligations due to any of the Banks in connection with transactions between Borrower or any Guarantor and any such Bank separate from this Agreement, excluding those in connection with Interest Rate Contracts, shall not be deemed “Obligations”.

“Optional Prepayment” has the meaning set forth in Section 2.08(b) hereof.

“Outstanding Credit Facilities” means at any time an amount equal to the sum of (a) the aggregate principal amount of all outstanding Revolving Credit Loans plus (b) the aggregate principal amount of the outstanding Term Loan, if any, plus (b) the Letter of Credit Obligations.

“Participating Banks” means each Bank other than HSBC.

“Participation” has the meaning set forth in Section 4.01 hereof.

“Patriot Act” has the meaning set forth in Section 14.16 hereof.

“PBGC” means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA.

“PCAOB” means the Public Company Accounting Oversight Board and any entity succeeding to any or all of its functions under the Sarbanes-Oxley Act of 2002, as amended.

“Pension Plan” means any Plan subject to Title IV of ERISA.

“Permitted Investments” means any of the following:

Maximum

Minimum

Applicable

Investment Type

Maturity

Rating

Percentage

Cash

N/A

N/A

100

%

T Bills

6 months

N/A

100

%

T Notes

1 year

N/A

100

%

US Government Agency Bills, Notes and Bonds

1 year

N/A

100

%

Commercial Paper

9 months

A2/P2

95

%

Asset Backed Commercial Paper

9 months

A2/P2

95

%

Bankers Acceptances

6 months

N/A

95

%

Repurchase Agreements

1 month

N/A

95

%

Domestic Certificate of Deposit

1 year

N/A

95

%

Euro Certificate of Deposit

1 year

N/A

95

%

Medium Term Notes

1 year

AAA

95

%

Prime Rate Demand Notes

3 months

AAA

95

%

Corporate Bonds

1 year

AAA

95

%

Municipal Notes/ Bonds

1 year

AAA

95

%

Tax Exempt or Taxable Money Market Funds

N/A

AAA

95

%

Auction Rate Securities

1 year

AAA

95

%

Stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Borrower.

N/A

N/A

0

%

“Permitted Liens” has the meaning set forth in Section 9.03 hereof.

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

“Plan” means any plan, agreement, arrangement or commitment which is an employee benefit plan, as defined in Section 3(3) of ERISA, maintained by Borrower, any Guarantor or any ERISA Affiliate or with respect to which Borrower, any Guarantor or any ERISA Affiliate at any relevant time has any liability or obligation to contribute.

“Pledge Agreement” means a Pledge Agreement substantially in the form of Exhibit A hereto, to be delivered by Borrower and certain Guarantors under the terms of this Agreement.

“Presence” when used in connection with any Environmental Discharge or Hazardous Materials, means and includes presence, generation, manufacture, installation, treatment, use, storage, handling, repair, encapsulation, disposal, transportation, spill, discharge and release.

“Prime Rate” means that rate of interest from time to time announced by HSBC at its Principal Office as its prime commercial lending rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer. The interest rate for Prime Rate Loans shall change when and as the Prime Rate changes and which changes in the rate of interest resulting from changes in the Prime Rate shall take effect immediately without notice or demand of any kind.

“Prime Rate Loan” means any Revolving Credit Loan when and to the extent the Interest Rate therefor is based on the Prime Rate.

“Principal Office” means the principal office of HSBC, presently located at 452 Fifth Avenue, New York, New York 10018.

“Prior Season Inventory” shall mean finished goods inventory of Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, which was manufactured for sale in a shipping season prior to the current shipping season, as the case may be, of Designers, Item-Eyes, Shane Hunter or such other existing or future Subsidiary of the Borrower which has been approved by Agent and the Required Banks (for purposes of this definition, the term “shipping season” means the period of time in which Inventory of Designers, Item-Eyes, Shane Hunter and, with the approval of Agent and the Required Banks, any other existing or future Subsidiary of the Borrower, is shipped for sale, such period to be determined in a manner consistent with such Persons’ past business practices).

“Pro Rata Share” means (a) with respect to each Bank’s Revolving Credit Commitment, a fraction, the numerator of which is such Bank’s portion of the Revolving Credit Commitment and the denominator of which is the total of all the Bank’s Revolving Credit Commitments; (b) with respect to each payment on the Revolving Credit Loans, a fraction, the numerator of which is the outstanding principal amount of all such Revolving Credit Loans owed to such Bank, and the denominator of which is the outstanding principal amount of all such Revolving Credit Loans owed to all Banks; and (c) with respect to Letters of Credit, the percentages set forth in Section 4.01 hereof.

As of the date of this Agreement, the amount of each Bank’s Revolving Credit Commitment and its Pro Rata Share of such Revolving Credit Commitment is as follows:

Bank		Commitment				Pro Rata Share
HSBC		$	31,000,000				24.8	%
Chase		$	27,000,000				21.6	%
IDB		$	22,500,000				18.0	%
Wachovia		$	22,500,000				18.0	%
Bank Leumi		$	11,000,000				8.8	%
Sovereign		$	11,000,000				8.8	%

“Prohibited Transaction” means any transaction prohibited under Section 406 of ERISA or Section 4975 of the Code.

“Quarterly Date” means the last Banking Day of each March, June, September, and December.

“Reaffirmation Agreement” means the Reaffirmation Agreement and Amendment executed by the Borrower and the Guarantors in favor of the Agent for the ratable benefit of the Bank Parties, substantially in the form of Exhibit I hereto.

“Regulatory Change” means, with respect to any Bank, any change after the date of this Agreement in the United States federal, state, municipal or foreign laws or regulations (including without limitation Regulation D) or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks including any of the Banks of or under any United States federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or in the regulations thereunder except for any such event for which the 30-day notice requirement is waived.

“Required Banks” means at any time the Banks holding fifty one percent (51 %) of the aggregate Revolving Credit Commitment. In calculating the Revolving Credit Commitment of each Bank for purposes of this definition of “Required Banks”, each Bank (other than HSBC) shall be deemed to have a portion of the Trade Letter of Credit Commitment or the Standby Letter of Credit Commitment, as the case may be, equal to that Bank’s Pro Rata Share of the Trade Letter of Credit Commitment or the Standby Letter of Credit Commitment, as the case may be, and HSBC shall be deemed to have a portion of such Trade Letter of Credit Commitment or Standby Letter of Credit Commitment equal to one hundred percent (100%) minus the sum of the Pro Rata Shares of the other Banks.

“Required Licensor” means, with respect to inventory of the Borrower or a Restricted Subsidiary that is sold under a licensed trademark, each licensor that has licensed such trademark to the Borrower and/or the Restricted Subsidiaries to the extent that the gross revenues received or to be received by the Borrower and/or the Restricted Subsidiaries with respect to the sale of inventory subject to such licensed trademark equals or is in excess of Five Million Dollars ($5,000,000) for any twelve month period (taking into account sales as well as unfilled orders). The Required Licensors as of the Restatement Date are Geoffrey Beene, Inc. (as to the “Geoffrey Beene” licensed trademark) and Levi Strauss & Co. (as to the “Dockers” and “Dockers Premium” licensed trademarks).

“Reserve Requirement” means, for any Eurodollar Loan for any Interest Period therefor, the rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding One Billion Dollars ($1,000,000,000) against in the case of Eurodollar Loans, “Eurocurrency Liabilities” (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (a) any category of liabilities which includes deposits by reference to which the Eurodollar Base Rate is to be determined as provided in the definition of “Eurodollar Base Rate” in this Section 1.01 hereof or (b) any category of extensions of credit or other assets which include Eurodollar Loans. Agent will use its best efforts to promptly notify Borrower of any change of such Reserve Requirement.

“Restatement Date” has the meaning set forth in Recitals hereof.

“Restricted Payment” means (i) any guaranties other than those guaranties permitted by Section 9.02 hereof, and/or (ii) any repurchase of any shares of the Borrower.

“Restricted Subsidiaries” means, individually and collectively, Designers, Glamourette, Item-Eyes, SB, Shane Hunter, MC Inc., MC Apparel, MCHK and any existing and future Subsidiaries of Borrower, together with their respective successors and assigns.

“Revolving Credit Commitment” means the commitment of the Banks to lend, pursuant to their Pro Rata Share, One Hundred Twenty Five Million Dollars ($125,000,000) to Borrower pursuant to the terms of this Agreement as such commitment may be (x) increased in accordance with Section 2.01(b) hereof or (y) reduced in accordance with Section 2.08 hereof.

“Revolving Credit Loan(s)” has the meaning set forth in Section 2.01 hereof.

“Revolving Credit Note(s)” has the meaning set forth in Section 2.07(a) hereof.

“Revolving Credit Termination Date” means April 30, 2013.

“Revolving Eurodollar Loan” shall mean a Revolving Credit Loan when and to the extent the Interest Rate therefor is determined on the basis of the definition “Eurodollar Base Rate.”

“SB” means SB Corporation, a Delaware corporation.

“Securities Account” has the meaning given to such term in the Uniform Commercial Code.

“Security Agreement” means a Security Agreement substantially in the form of Exhibit B hereto.

“Security Documents” means the Master Security Agreement, the Borrower Pledge Agreement, the Designers Pledge Agreement, the Borrower Trademark Security Agreement, the Designers Trademark Security Agreement, the Item-Eyes Trademark Security Agreement, Shane Hunter Trademark Security Agreement and each other Security Agreement, Pledge Agreement and Trademark Security Agreement, to the extent executed, separately or jointly, by any party obligated in connection with the Obligations.

“Shane Hunter” means Shane Hunter, Inc., a Delaware corporation.

“Shane Hunter Trademark Security Agreement” means the Trademark Collateral Assignment and Security Agreement dated as of even date herewith executed by Shane Hunter in favor of Agent for the ratable benefit of the Bank Parties.

“Solvent” means, when used with respect to any Person, that (a) the fair value of the property of such Person, on a going concern basis, is greater than the total amount of liabilities (including, without limitation, contingent liabilities) of such Person, (b) the present fair saleable value of the assets of such Person, on a going concern basis, is not less than the amount that will be required to pay the probable liabilities of such Person on its debts as they become absolute and matured, (c) 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 (d) 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 after giving due consideration to the prevailing practice in the industry in which such Person is engaged. Contingent liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Standby Letter of Credit” means a Standby Letter of Credit issued by HSBC for the account of Borrower.

“Standby Letter of Credit Commitment” shall have the meaning set forth in Section 3.05 hereof.

“Standby Letter of Credit Fee” has the meaning set forth in Section 3.05 hereof.

“Standby Letter of Credit Obligations” means at any time an amount equal to the sum of (a) the aggregate unused face amount of all outstanding Standby Letters of Credit, plus any variance allowed under the terms of the Standby Letter of Credits, (b) the aggregate amount of all unreimbursed obligations on Standby Letters of Credit and (c) the aggregate amount of all outstanding overdrafts created to satisfy any of the foregoing obligations.

“Steamship Guaranty” has the meaning set forth in Section 3.09 hereof.

“Subsidiary” means, as to any Person, a corporation of which shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.

“Supplemental Amount” shall mean an amount, if any, determined pursuant to Section 8.08(i) hereof.

“Term Eurodollar Loan” shall mean a Term Loan when and to the extent the Interest Rate therefor is determined on the basis of the definition “Eurodollar Base Rate.”

“Term Loan” shall have the meaning set forth in Section 2.02(a) hereof.

“Term Loan Maturity Date” shall mean the date which is the earlier of (x) the fifth anniversary of the Conversion Date and (y) the Revolving Credit Termination Date.

“Term Loan Principal Amount” shall have the meaning set forth in Section 2.02(a) hereof.

“Term Notes” shall have the meaning set forth in Section 2.07(b) hereof.

“Test Period” shall mean, at any date of determination, the four most recently ended consecutive Fiscal Quarters of Borrower (in each case taken as one accounting period) for which financial statements have been or are required to be delivered pursuant to Section 8.08 hereof.

“Trade Letter of Credit” has the meaning set forth in Section 3.01 hereof.

“Trade Letter of Credit Commitment” shall have the meaning set forth in Section 3.01 hereof.

“Trade Letter of Credit Fee” has the meaning set forth in Section 3.03 hereof.

“Trade Letter of Credit Obligations” means at any time an amount equal to the sum of (a) the aggregate unused face amount of all outstanding Trade Letters of Credit, plus any variance allowed under the terms of the Trade Letter of Credits, (b) the aggregate amount of all unreimbursed obligations on Trade Letters of Credit, (c) the aggregate amount of all outstanding overdrafts created to satisfy any of the foregoing obligations and (d) the aggregate amount of all Airway Guaranties and Steamship Guaranties.

“Trademark Security Agreement” means a Trademark Collateral Assignment and Security Agreement, substantially in the form of Exhibit C hereto.

“Uniform Customs and Practices” means, with regard to each Letter of Credit, the Uniform Customs and Practices for Documentary Letters of Credit (2007 Revisions), International Chamber of Commerce Publication No. 600, and any subsequent revision thereof adhered to by HSBC on the date such Letter of Credit is issued.

Section 1.02 Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP, and all financial data required to be delivered hereunder shall be prepared in accordance with GAAP.

Section 1.03 Computation of Time Periods . Except as otherwise provided herein, in this Agreement, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and words “to” and “until” each means “to but excluding”.

Section 1.04 Rules of Construction . When used in this Agreement: (a) “or” is not exclusive; (b) a reference to a law includes any amendment or modification to such law and any statutory amendments and recodifications; (c) a reference to a Person includes its permitted successors and permitted assigns; and (d) a reference to an agreement, instrument or document shall include such agreement, instrument or document as the same may be amended, modified or supplemented from time to time in accordance with its terms and as permitted by the Loan Documents.

ARTICLE II

REVOLVING CREDIT LOANS

Section 2.01 Revolving Credit.

(a) Subject to the terms and conditions of this Agreement, each of the Banks severally agrees to make loans (the “Revolving Credit Loans”) according to each such Bank’s Pro Rata Share of the Revolving Credit Commitment, to Borrower from time to time during the period from the Restatement Date up to but not including the Revolving Credit Termination Date, provided that the aggregate principal amount of all Revolving Credit Loans outstanding at any time does not exceed the Availability for Revolving Credit Loans. Each Revolving Credit Loan which shall not utilize the Availability for Revolving Credit Loans in full shall be in the minimum amount set forth in Section 2.11 hereof. Subject to the terms hereof, the Borrower may borrow, make an Optional Prepayment pursuant to Section 2.08 hereof, and reborrow under this Section 2.01 hereof.

(b) Provided that no Default or Event of Default is then occurring or would be caused thereby, and provided that the aggregate principal amount of all Revolving Credit Loans outstanding at any time does not exceed the Availability for Revolving Credit Loans, at any time prior to the Revolving Credit Termination Date, the Borrower may request from time to time in writing to the Agent that the Revolving Credit Commitment be increased, by an amount not less than Five Million Dollars ($5,000,000) or a higher integral multiple of Five Million Dollars ($5,000,000), to an amount, in any event, not to exceed One Hundred Fifty Million Dollars ($150,000,000), according to the following procedures:

(i) The Borrower shall offer the existing Banks the opportunity to participate in any such increased amount of the Revolving Credit Commitment (such increased amount being referred to as the “Commitment Increase Amount”) in accordance with each Bank’s Pro Rata Share (each participating Bank being referred to as an “Increasing Bank”). The existing Banks shall be under no obligation to participate in any such Commitment Increase Amount and any agreement by any Bank to so participate will be in the sole discretion of such Bank.

(ii) If any Bank declines to, or within fifteen (15) days of the delivery of such offer by the Borrower does not, commit in writing to its Pro Rata Share of any such Commitment Increase Amount (such declined portion of the Commitment Increase Amount being referred to as a “Declined Share”), then the Agent may join a new Person (or Persons) to this Agreement (each such Person, an “Augmenting Bank”), who shall be acceptable to the Borrower, or permit an existing Bank which has already agreed to commit to its Pro Rata Share of any such Commitment Increase Amount, to commit to the Declined Share. If a new Person (or Persons) commits to the Declined Share, it (or they) shall join this Agreement pursuant to a bank joinder and assumption agreement in form and substance reasonably satisfactory to the Agent, setting forth the Revolving Credit Commitment of such new Bank (or Banks), pursuant to which such new Bank (or Banks) will become party hereto as of the effective date thereof.

(iii) On the effective date of any increase in the Revolving Credit Commitment as contemplated herein (A) each Increasing Bank and Augmenting Bank shall make available to the Agent, for the benefit of the other Banks, such amounts in immediately available funds as the Agent shall determine as being required in order to cause, after giving effect to such increase and the use of such amounts to make payments to such other Banks, each Bank’s portion of the outstanding Revolving Credit Loans of all the Banks to equal its Pro Rata Share of such outstanding Revolving Credit Loans (after giving effect to the increase in the Revolving Credit Commitment occasioned by the addition of the Increasing Bank(s) or Augmenting Bank(s), or both, as the case may be) and (ii) the Borrower shall be deemed to have repaid and reborrowed all outstanding Revolving Credit Loans as of the date of any increase in the Revolving Credit Commitment (with such reborrowing to consist of Revolving Credit Loans subject to the same interest rate options provided herein, with related Interest Periods if applicable, specified in a notice delivered by the Borrower in accordance with the requirements of Section 2.03 ). Upon the request of the Agent, the Borrower shall execute and deliver to the Agent for the benefit of the Banks any and all Notes and other documents, instruments, and agreements necessary or advisable in the reasonable judgment of the Agent to evidence or document the increase in the Revolving Credit Commitment, including any amendments hereto, and each of the Banks and each of the Borrower and the Guarantors hereby provides its consent hereto and thereto and each Bank hereby authorizes the Agent, and each of the Borrower and the Guarantors hereby authorizes the Borrower, to execute any such documents, instruments, and agreements consistent with the terms of this Section 2.01 on its behalf without the necessity of any further consent of any Bank or any of the Borrower and the Guarantors.

(iv) On the effective date of any increase in the Revolving Credit Commitment as contemplated herein, each Increasing Bank and Augmenting Bank shall irrevocably and unconditionally purchase, and each other Bank shall sell, a Participation and an interest in each outstanding Letter of Credit, any amounts drawn thereunder and in the obligations of the Letter of Credit Account Parties in respect of each such Letter of Credit under this Agreement and the Letter of Credit as the Agent shall determine as being required in order to cause, after giving effect to such increase, each Bank’s Participation and portion of each outstanding Letter of Credit to equal its Pro Rata Share of such outstanding Letter of Credit (after giving effect to the increase in the Revolving Credit Commitment occasioned by the addition of the Increasing Bank(s) or Augmenting Bank(s), or both, as the case may be).

(c) The failure of any Bank to make any requested Revolving Credit Loan to be made by it on the date specified for such Revolving Credit Loan shall not relieve any other Bank of its obligation (if any) to make such Revolving Credit Loan on such date, but no Bank shall be responsible for the failure by any other Bank to make such Revolving Credit Loans.

Section 2.02 Term Loan Conversion.

(a) Upon the terms and subject to the conditions hereinafter set forth, each of the Banks severally agrees to permit the Borrower to elect a one-time conversion of a portion of the Revolving Credit Commitment in the aggregate principal amount of up to Twenty Five Million Dollars ($25,000,000) (the “Term Loan Principal Amount”) into a term loan (the “Term Loan”)and to borrow the Term Loan Principal Amount and/or convert outstanding Revolving Credit Loans in an aggregate principal amount not to exceed the Term Loan Principal Amount into a Term Loan at any time prior to the first anniversary of the Restatement Date (the date of such conversion and/or borrowing, the “Conversion Date”), in accordance with such Bank’s Pro Rata Share of Revolving Credit Commitment, provided that (i) no Default or Event of Default then exists, (ii) the Banks shall have received payment of any interest due on the then outstanding Revolving Credit Loans, if any are to be converted hereunder, and (iii) the Banks shall have received the Term Notes, duly executed by the Borrower, in accordance with Section 2.07(b) . Upon any such conversion, the term of the then outstanding Revolving Credit Loans, if any, that have been converted shall be deemed to have been extended and the payment terms thereof modified, as provided herein. Any Term Loan shall not be deemed to be new indebtedness hereunder.

(b) During the term of the Term Loan, amounts repaid or prepaid in respect of such Term Loan may not be reborrowed as a Term Loan, but such amounts may be reborrowed as a Revolving Credit Loan under the Revolving Credit Commitment in accordance with the terms and conditions set forth herein with respect to the Revolving Credit Loans.

Section 2.03 Notice and Manner of Borrowing. Borrower shall give Agent telephonic notice, to be followed by written or telegraphic or facsimile notice in the form of Exhibit D hereto (irrevocable and effective upon receipt) of any Loan, such notice to indicate, in the case of a Revolving Credit Loan, whether such Loan shall be a Prime Rate Loan or a Revolving Eurodollar Loan. Each of the foregoing notices (a “Borrowing Notice”) must specify the date and the amount of such Loan to the Agent and the Agent will promptly notify each Bank of receipt by the Agent of a Borrowing Notice and of the contents thereof. In the case of a Eurodollar Loan, the Borrowing Notice shall be received not later than three (3) Banking Days prior to such Eurodollar Loan and shall specify the Interest Period selected, In the case of a Prime Rate Loan, the Borrowing Notice shall be received not later than noon (New York time) on the date of such proposed Prime Rate Loan. Not later than 1:00 P.M. (New York time) on the date of a Loan, each Bank will cause to be transmitted to the Agent, to an account designated by the Agent, in immediately available funds, such Bank’s Pro Rata Share of such Loan. After the Agent’s receipt of such funds, not later than 3:00 P.M. (New York time) on the date of a Loan, and upon fulfillment of the applicable conditions set forth in Article VI , the Agent will make such Loan available to Borrower in immediately available funds by crediting the amount thereof to the accounts as designated by Borrower to Agent.

Section 2.04 Conversions and Continuation.

(a) The Borrower shall have the right to convert one type of Revolving Credit Loan into another type of Revolving Credit Loan at any time or from time to time; provided that : (i) the Borrower shall give the Agent at least three (3) Banking Days notice of the conversion of a Prime Rate Loan into a Revolving Eurodollar Loan and (ii) Revolving Eurodollar Loans may be prepaid or converted only on the last day of an Interest Period for such Revolving Eurodollar Loan.

(b) Borrower may, as long as no Default or Event of Default shall have occurred and be continuing, elect to continue any Eurodollar Loan at any time prior to the expiration of the applicable Interest Period; provided that the Borrower shall give the Agent at least three (3) Banking Days notice of the continuation of such Eurodollar Loan.

(c) If the Borrower shall have failed to timely continue pursuant to Section 2.04(b) hereof a Eurodollar Loan, then, upon the expiration of the Interest Period applicable to such Eurodollar Loan, the Borrower shall be deemed to have elected to continue such Eurodollar Loan as a Eurodollar Loan with a one-month Interest Period; provided that no Default or Event of Default of the type described in Section 11.01(a) and (e) hereof then exists.

(d) After the occurrence of and during the continuation of a Default or an Event of Default of the type described in Section 11.01(a) or (e) hereof, the Borrower may not elect (i) to have a Loan be made as a Revolving Eurodollar Loan, (ii) to have a Revolving Credit Loan converted to a Revolving Eurodollar Loan, or (iii) to have a Eurodollar Loan continued as a Eurodollar Loan, after the expiration of any applicable Interest Period.

(e) Upon receipt of a notice of conversion pursuant to Section 2.04(a) hereof or a notice of continuation pursuant to Section 2.04(b) hereof, the Agent will promptly notify each Bank thereof, or, if no timely notice is provided by the Borrower, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made according to each Bank’s applicable Pro Rata Share of the outstanding principal amounts of the Revolving Credit Loans or the Term Eurodollar Loans with respect to which the notice was given.

Section 2.05 Non-Receipt of Funds by Agent. Unless the Agent shall have received notice from a Bank, prior to the date on which such Bank is to provide funds to the Agent for a Loan to be made by such Bank, that such Bank will not make available to the Agent such funds, the Agent may assume that such Bank has made such funds available to Agent on the date of such Loan in accordance with Section 2.03 hereof and the Agent, in its sole discretion, may, but shall not be obligated to, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. If and to the extent such Bank shall not have made such funds available to the Agent, such Bank agrees to repay the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrower until the date such amount is repaid to the Agent, for three (3) Banking Days, at the Federal Funds Rate and thereafter, at the Prime Rate. If such Bank shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Bank’s Loan for purposes of this Agreement. If such Bank does not pay such corresponding amount forthwith upon Agent’s demand therefor, the Agent shall promptly notify Borrower, and Borrower shall immediately pay such corresponding amount to the Agent with the interest thereon, for each day from the date such amount is made available to Borrower until the date such amount is repaid to the Agent, at the rate of interest applicable at the time to such proposed Loan. Unless the Agent shall have received notice from Borrower prior to the date on which any payment is due to any Bank hereunder that Borrower will not make such payment in full, the Agent may assume that Borrower has made such payment in full to the Agent on such date and the Agent, in its sole discretion, may, but shall not be obligated to, in reliance upon such assumption, cause to be distributed to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent Borrower shall not have so made such payment in full to the Agent, each Bank shall repay to the Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Agent, for three (3) Banking Days, at the Federal Funds Rate and thereafter at the Prime Rate.

Section 2.06 Interest. Borrower shall pay interest to the Agent, for the account of the applicable Bank, on the outstanding and unpaid principal amount of the Loans at a rate per annum equal to the Interest Rate. Any principal or interest amount not paid when due (at maturity, by acceleration or otherwise) shall bear interest thereafter, payable on demand, at the Default Rate.

The interest rate on each Prime Rate Loan shall change when the Prime Rate changes. Interest on each Loan shall not exceed the maximum amount permitted under applicable Law and shall be calculated on the basis of a year of three hundred sixty (360) days for the actual number of days elapsed.

Accrued interest shall be due and payable (a) in the case of a Prime Rate Loan (i) in arrears on each Monthly Date, commencing with the first such date after such Prime Rate Loan, and (ii) upon each payment or prepayment of principal on such Prime Rate Loan and (b) in the case of a Eurodollar Loan, at the end of each Interest Period and, in the case of a Eurodollar Loan with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period, and (c) in the case of a prepayment that reduces the Revolving Credit Commitment in accordance with Section 2.08 hereof, upon each such prepayment.

Section 2.07 Notes.

(a) All Revolving Credit Loans made by each Bank under this Agreement shall be evidenced by, and repaid with interest in accordance with, a single promissory note of Borrower in substantially the form of Exhibit F duly completed, in the principal amount equal to such Bank’s Pro Rata Share of the total Revolving Credit Commitment, dated the date such bank becomes a Bank, payable to such Bank and maturing as to principal on the Revolving Credit Termination Date (the “Revolving Credit Notes”). Each Bank is hereby authorized by Borrower to endorse on the schedule attached to the Revolving Credit Note held by it the amount of each Revolving Credit Loan, and the payment amount of each principal payment received by such Bank on account of the Revolving Credit Loans, which endorsement shall, in the absence of manifest error, be conclusive as to the outstanding balance of the Revolving Credit Loans made by such Bank; provided however , that the failure to make such notation with respect to any Revolving Credit Loan or payment shall not limit or otherwise affect the obligations of Borrower under this Agreement or the Revolving Credit Note held by such Bank. Each Bank agrees that prior to any assignment of the Revolving Credit Note, it will endorse the schedule attached to its Revolving Credit Note.

(b) Upon the Conversion Date, the Term Loan shall be evidenced by a single promissory note of Borrower in substantially the form of Exhibit G duly completed, in the principal amount equal to such Bank’s Pro Rata Share of the total Term Loan Principal Amount, dated the Conversion Date, payable to such Bank and maturing as to principal on the Term Loan Maturity Date (the “Term Notes”). The Term Loan shall be payable as to principal monthly on the last day of each month following the Conversion Date, in consecutive equal monthly installments until the Term Loan Maturity Date when the entire remaining principal balance shall be due and payable. Each such installment prior to the Term Loan Maturity Date shall be in an amount equal to 1/60th of the original principal amount of the Term Loan. The Term Loan shall bear interest at the Interest Rate, and such interest shall be payable in accordance with Section 2.06 hereof, including, without limitation, on the Term Loan Maturity Date.

Section 2.08 Optional and Mandatory Prepayments.

(a) Borrower may prepay without premium or penalty a Prime Rate Loan, in whole or in part, with accrued interest to the date of such prepayment on the amount prepaid, provided that , each partial prepayment shall be in a principal amount of not less than One Hundred Thousand Dollars ($100,000) (each such payment, a “Prime Rate Optional Prepayment”).

(b) Borrower may prepay without premium or penalty but subject to the provisions of Section 13.03 hereof a Eurodollar Loan, in whole or in part, with accrued interest to the date of such prepayment on the amount paid, provided that , each partial prepayment shall be in a principal amount of not less than One Million Five Hundred Thousand Dollars ($1,500,000) (each such payment, a “Eurodollar Optional Prepayment”, and together with each Prime Rate Optional Prepayment, collectively, an “Optional Prepayment”).

(c) During the term of this Agreement, Borrower shall make mandatory prepayments (i) in an amount equal to the net proceeds received in any Fiscal Year in excess of Fifteen Million Dollars ($15,000,000) in the aggregate, from the sale (other than a sale in the ordinary course of business) of all or any part of the assets of the Borrower or any Restricted Subsidiary; (ii) in an amount equal to the net proceeds received by Borrower or any Restricted Subsidiary from the sale or issuance of any debt instrument, and (iii) in an amount equal to the net proceeds received by Borrower or any Restricted Subsidiary under any insurance policy, to the extent that, in the case of property and casualty insurance, such proceeds are not used by Borrower or such Restricted Subsidiary to repair or replace the property which was the subject of such insurance claim, with a reasonable period of time but in no event later than six (6) months from the date such proceeds are received by the Borrower or such Subsidiary, unless Borrower or such Subsidiary has taken action to effect such repair or replacement, as determined by the Agent in good faith, or unless otherwise agreed to by the Agent. With respect to prepayments received by the Agent for the ratable benefit of Banks under this Section 2.08(c) , such prepayments shall be applied first, to the then outstanding Revolving Credit Loans, second, to the repayment of the Term Loan if it remains outstanding, and third, at the discretion of Agent, to be held as Cash Collateral to secure Letter of Credit Obligations.

(d) To the extent that, at any given time, (i) the Outstanding Credit Facilities exceed the then effective Revolving Credit Commitment, or (ii) the Outstanding Credit Facilities minus amounts outstanding under the Term Loan, if any, exceed the sum of the Availability for Revolving Credit Loans plus the Letter of Credit Obligations, or (iii) the Revolving Credit Loans exceed the Availability for Revolving Credit Loans, or (iv) the Obligations exceed any of the other borrowing limitations set forth in this Agreement, in each case the Borrower shall immediately pay to the Agent for the ratable benefit of the Banks a mandatory prepayment of the Revolving Credit Loans in an amount equal to such excess and/or Borrower shall immediately provide Cash Collateral for the Letter of Credit Obligations to the extent required to eliminate such excess. Any Cash Collateral deposited with the Agent for the ratable benefit of the Banks in accordance with the terms of this Section 2.08 shall be credited, for purposes of the calculation of Availability for Revolving Credit Loans under Section 2.01 hereof, against the outstanding Letter of Credit Obligations subject to Section 2.08(e) hereof.

(e) In the event Eurodollar Loans are outstanding at the time of any mandatory prepayment under this Section 2.08 hereof, such mandatory prepayment shall be applied first to reduce any Prime Rate Loans outstanding to zero. Any remaining mandatory prepayment amount shall be deemed to be Cash Collateral and shall be deposited by Agent in a segregated account to be applied to the Eurodollar Loans. The Cash Collateral in such segregated account shall represent a reduction of the Eurodollar Loans then outstanding and such amount shall be credited against Revolving Credit Loans for purposes of calculating Availability for Revolving Credit Loans. Agent shall hold such amounts in such segregated account and use it to pay the Eurodollar Loans as such loans mature. If the amounts in the segregated account are sufficient to pay (at maturity) the then outstanding Eurodollar Loans, any remaining mandatory prepayment shall then be applied to Letter of Credit Obligations in accordance with Section 2.08(d) hereof.

(f) Borrower may, without premium or penalty, reduce the Revolving Credit Commitment to an amount not less than the sum of the aggregate unpaid principal amount of all Revolving Credit Loans, the Term Loan and the Letter of Credit Obligations then outstanding. Each such reduction (i) shall be in an amount which is an integral multiple of One Million Dollars ($1,000,000), (ii) shall be made providing not less than ten (10) Banking Days written notice to Agent, which notice shall state the amount of the payment to be made and shall conform to the amount of the Revolving Credit Commitment after giving effect to such payment, (iii) shall reduce, on a permanent basis, the Revolving Credit Commitment by an amount equal to the amount of such reduction, and (iv) shall be irrevocable. Except as otherwise provided in Section 2.01(b) hereof, once reduced the Revolving Credit Commitment may not be increased. Borrower may reduce the Revolving Credit Commitment to Zero Dollars ($0) provided the Revolving Credit Termination Date occurs simultaneously therewith.

(g) Any prepayments of the Term Loan pursuant hereto shall be applied to reduce scheduled principal payments required under Section 2.07(b) hereof, on a pro-rata basis among the scheduled principal payments remaining to be made.

Section 2.09 Method of Payment. Borrower shall make each payment under this Agreement and under the Notes, without setoff or counterclaim, not later than 2:00 p.m. (New York time) on the date when due in Dollars to the Agent at the Agent’s Office in immediately available funds and if received after 2:00 p.m. New York time, then such payment shall be credited the next Banking Day. The Agent will promptly thereafter cause to be distributed to each Bank (a) such Bank’s Pro Rata Share of the payments of principal and interest in like funds, and (b) fees or sums payable to such Bank in accordance with the terms of this Agreement, including, but not limited to, amounts due in accordance with Article XIII .

Borrower hereby authorizes the Agent to charge, from time to time, against any account it maintains with the Agent or any Bank, any such amount so due to the Agent and/or the Banks and the Agent agrees to provide a written notice of such charge to the Borrower within a reasonable period after such charge.

Except to the extent provided in this Agreement, whenever any payment to be made under this Agreement or under the Notes shall be stated to be due on any day other than a Banking Day, such payment shall be made on the next succeeding Banking Day, and such extension of time shall, in such case, be included in the computation of the payment of interest and other fees, as the case may be.

Section 2.10 Use of Proceeds. On and after the date hereof, the proceeds of the Revolving Credit Loans and the Term Loan will be used by Borrower to provide working capital for Borrower and its Restricted Subsidiaries. The Trade Letters of Credit will be used for importation and purchasing of inventory by Borrower and its Restricted Subsidiaries.

Borrower will not, directly or indirectly, use any part of such proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors or to extend credit to any Person for the purpose of purchasing or carrying any such margin stock.

Section 2.11 Minimum Amounts. Each Prime Rate Loan shall be in an amount at least equal to One Hundred Thousand ($100,000) Dollars and each Eurodollar Loan shall be in an amount at least equal to One Million Five Hundred Thousand ($1,500,000) Dollars.

Section 2.12 Establishment of Loan Account; Collection of Accounts.

(a) Agent shall maintain a loan account (the “Loan Account”) on its books in which shall be recorded the Loans and other Obligations and the Collateral, all payments made by or on behalf of Borrower and all other appropriate debits and credits as provided in this Agreement, including fees, charges, costs, expenses and interest. All entries in the Loan Account shall be made in accordance with Agent’s customary practices as in effect from time to time. The records of Agent shall be conclusive and binding, in the absence of manifest error.

(b) Upon and during the continuance of any Event of Default, all proceeds of Collateral shall be deposited by Borrower and Restricted Subsidiaries into lockbox accounts with or under the control of Agent (for the ratable benefit of the Bank Parties).

Section 2.13 Closing Fee. Borrower shall pay to Agent, for the ratable benefit of Banks, a closing fee in the amount of One Hundred Thousand Dollars ($100,000), which fee shall be fully earned and payable as of the date hereof.

Section 2.14 Commitment Fee. If, for any Agreement Quarter (as defined below) during the term of this Agreement, the average daily unpaid balance of the Revolving Credit Loans plus Letter of Credit Obligations for Borrower for each day of such quarter does not equal the Revolving Credit Commitment less the outstanding principal amount of the Term Loan, if any, then Borrower shall pay to Agent, for the ratable benefit of Banks, a fee at a rate equal to one eighth of one percent (.125%) per annum on the amount by which the Revolving Credit Commitment less the outstanding principal amount of the Term Loan, if any, exceeds such aggregate average daily unpaid balance of the Revolving Credit Loans plus Letter of Credit Obligations for Borrower. Such fee shall be payable by Borrower to Agent in arrears on the last day of each calendar quarter, shall be fully earned as of the date of payment and shall not be subject to refund, rebate or proration for any reason whatsoever. For the purposes of this Section 2.14 only, the term “Agreement Quarter” shall mean each calendar quarter of each calendar year.

ARTICLE III

LETTERS OF CREDIT

Section 3.01 Trade Letters of Credit; Cash Collateral for Letters of Credit Expiring After Termination Date. Letter of Credit Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue trade letters of credit payable at sight with a maturity date of up to one hundred eighty (180) days from the date of issuance (such Letters of Credit issued by Letter of Credit Issuing Bank after the Restatement Date, and all the Existing Letters of Credit are collectively referred to herein as the “Trade Letters of Credit”) for the account of a Letter of Credit Account Party, during the period from the Restatement Date to five (5) Banking Days prior to the Revolving Credit Termination Date; provided that , at no time will the outstanding Trade Letter of Credit Obligations exceed the lesser of (a) the Revolving Credit Commitment less outstanding Revolving Credit Loans, the outstanding principal

amount of the Term Loan and Letter of Credit Obligations (other than Trade Letter of Credit Obligations) or (b) the Borrowing Base less outstanding Revolving Credit Loans and Letter of Credit Obligations (other than Trade Letter of Credit Obligations) (the “Trade Letter of Credit Commitment”); provided further that, Letter of Credit Issuing Bank will not be required to issue a Trade Letter of Credit with a maturity (expiration) date of more than 90 days after the Revolving Credit Termination Date and, with respect to all Letters of Credit with a maturity (expiration) date after the Revolving Credit Termination Date, all of such outstanding Trade Letters of Credit Obligations and/or Standby Letters of Credit Obligations, as of five (5) Banking Days prior to the Revolving Credit Termination Date, shall be secured by Cash Collateral at one hundred and five percent (105%) of the face amount thereof.

Title documents shall be consigned to Agent at Agent’s request; provided that with respect to any Existing Letters of Credit for delivery of goods from outside of the United States into the United States, within five (5) Banking Days of the Restatement Date, at Agent’s request Borrower shall apply for amendments to such Letters of Credit to provide that all title documents related to such goods shall be consigned to Agent.

Section 3.02 Reimbursement Obligation. With respect to each Letter of Credit, the Letter of Credit Account Party for which such Letter of Credit has been issued will pay Letter of Credit Issuing Bank, within one (1) Banking Day of demand at Letter of Credit Issuing Bank’s Principal Office, in immediately available funds, the amount required to reimburse Letter of Credit Issuing Bank in respect of Letter of Credit Issuing Bank’s payment of each Instrument applicable and/or relating to such Letter of Credit. Such reimbursement shall be made with interest from the date of Letter of Credit Issuing Bank’s payment of such Instrument to the date of reimbursement (i) in the event that such reimbursement is made within one (1) Banking Day of such demand, such interest shall be at the rate applicable to such Letter of Credit, and (ii) in the event that such reimbursement is made after one (1) Banking Day of such demand, such interest shall be at the Default Rate. If the Instrument is in foreign currency, such reimbursement shall be in Dollars at Letter of Credit Issuing Bank’s selling rate for cable transfers to the place of payment of the Instrument current on the date of payment or of Letter of Credit Issuing Bank’s settlement of its obligation, as Letter of Credit Issuing Bank may require. If, for any cause, on the date of payment or settlement, as the case may be, there is no selling rate or other rate of exchange generally current in New York for effecting such transfers, each applicable Letter of Credit Account Party will pay Letter of Credit Issuing Bank on demand an amount in Dollars equivalent to Letter of Credit Issuing Bank’s actual cost of settlement of its obligation however or whenever Letter of Credit Issuing Bank shall make such settlement, with interest at the Prime Rate for Revolving Credit Loans from the date of settlement to the date of payment. Each Letter of Credit Account Party will comply with all governmental exchange regulations now or hereafter applicable to each Letter of Credit or Instrument or payments related thereto and will pay Letter of Credit Issuing Bank, on demand, in Dollars, such amount as Letter of Credit Issuing Bank may be or may have been required to expend on account of such regulations. HSBC may debit, or direct any other Bank to debit, any account or accounts maintained by any other Letter of Credit Account Party with any office of HSBC or any other Bank or any of their respective Subsidiaries or Affiliates (now or in the future) and apply the proceeds to the payment of any and all amounts owed by any Letter of Credit Account Party to Letter of Credit Issuing Bank hereunder, and such Bank, Subsidiary or Affiliate shall be authorized to act in accordance herewith and shall treat this authorization as irrevocable, and HSBC agrees to provide a written notice of such debit to the Borrower within a reasonable period after such debit.

Section 3.03 Payment of Commissions, Expenses and Interest. Each Letter of Credit Account Party will pay interest where chargeable, including reasonable fees and charges of counsel, or reasonable costs allocated by Letter of Credit Issuing Bank’s internal legal department in connection with the enforcement of this Agreement or any Letter of Credit. Unless otherwise agreed:

(a) interest payable under this Article III on amounts not paid when due shall be at the lesser of (i) the maximum rate permissible under applicable Law and (ii) the Default Rate; and

(b) each Letter of Credit Account Party shall pay to Letter of Credit Issuing Bank on demand such amounts as Letter of Credit Issuing Bank, in its sole discretion, determines are necessary to compensate it for any cost attributable to its issuing or having outstanding such Letter of Credit resulting from the application of any Law or regulation applicable to Letter of Credit Issuing Bank regarding any reserve, assessment, capital adequacy or similar requirements relating to letters of credit or the reimbursement agreements with respect thereto or to similar liabilities or assets of Letter of Credit Issuing Bank whether existing at the time of issuance of the Letter of Credit or adopted thereafter including, but not limited to, fees and amounts payable with respect to amendments to and increases of a Letter of Credit. Each Letter of Credit Account Party acknowledges that there may be various methods of allocating costs to the Letter of Credit and agrees that Letter of Credit Issuing Bank’s allocation for purposes of determining the costs referred to above shall be conclusive and binding upon each Letter of Credit Account Party provided such allocation is made in good faith.

In addition to other expenses to be paid by the Letter of Credit Account Parties with respect to a Letter of Credit (all of which shall be for the Letter of Credit Issuing Bank’s own account), each Letter of Credit Account Party shall pay to Agent, for the ratable benefit of the Banks, under a Trade Letter of Credit issued for its account a fee for each draw in the amount of fifteen hundredths of one percent (.15%) of the amount drawn under such Trade Letter of Credit (collectively the “Trade Letter of Credit Fee). All such fees shall be due and payable at the time of drawing.

Section 3.04 Proper Drawing; Letter of Credit Issuing Bank’s Honoring. Letter of Credit Issuing Bank m