FIFTH AMENDED AND RESTATED CREDIT AGREEMENT

Exhibit 10.1

FIFTH AMENDED AND RESTATED

CREDIT AGREEMENT

Dated as of December 29, 2006

among

WILSONS LEATHER HOLDINGS INC.

as Borrower,

THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,

as Lenders

GENERAL ELECTRIC CAPITAL CORPORATION,

as Agent, Lender, Term Lender and Swing Line Lender

GE CAPITAL MARKETS, INC.

as Lead Arranger

and

WELLS FARGO RETAIL FINANCE, LLC

as Lender and Syndication Agent

TABLE OF CONTENTS

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iii

INDEX OF EXHIBITS AND SCHEDULES

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     This FIFTH AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement"), dated as of December 29, 2006 among WILSONS LEATHER HOLDINGS INC., a Minnesota corporation ("Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, "GE Capital"), for itself, as Lender, as Term Lender, as Swing Line Lender and as Agent for Lenders, WELLS FARGO RETAIL FINANCE, LLC, as syndication agent and as Lender and the other Lenders signatory hereto from time to time.

RECITALS

     WHEREAS, Borrower and Agent, certain of the Lenders signatory hereto, and the Credit Parties, are parties to a Credit Agreement dated as of May 25, 1996 (the "Initial Credit Agreement"), which was amended and restated by that certain Amended and Restated Credit Agreement dated as of May 24, 1999, by that certain Second Amended and Restated Credit Agreement dated as of October 31, 2000, by that certain Third Amended and Restated Credit Agreement dated as of June 19, 2001 and subsequently by that certain Fourth Amended and Restated Credit Agreement dated as of April 23, 2002 (as amended or otherwise modified prior to the date hereof, the "Prior Credit Agreement"), pursuant to which the Agent and the other Lenders party thereto provided to Borrower a Revolving Loan Commitment in the amount of $125,000,000 and;

     WHEREAS, pursuant to the Prior Credit Agreement Borrower has outstanding certain Loans, Letters of Credit and Eligible Trade L/Cs (the "Prior Loans");

     WHEREAS, Borrower desires that the terms governing the outstanding Prior Loans be amended and restated in accordance herewith;

     WHEREAS, Borrower and Lenders agree to continue to provide Borrower with Revolving Loan Commitments in the amount of $115,000,000 upon the terms and conditions set forth herein;

     WHEREAS, Borrower desires that Lenders extend the Commitment Termination Date until June 30, 2010, and Lenders are willing to extend the Commitment Termination Date upon the terms and conditions set forth herein;

     WHEREAS, Borrower desires that Term Lender continue to provide the prior term loan facility, the original principal amount of which equaled Twenty Five Million Dollars ($25,000,000) and the principal amount of which equals Twenty Million Dollars ($20,000,000) on the Closing Date (the "Term Loan B") and Term Lender is willing to continue to provide Borrower with Term Loan B upon the terms and conditions set forth herein;

     WHEREAS, to secure the Obligations, Borrower granted to Agent, for the benefit of Agent and Lenders, a security interest in and lien upon all of its existing and after-acquired personal property other than Equipment and Fixtures as set forth in the Amended and Restated Security Agreement. In addition, Borrower further secured the Obligations (including, without limitation, the repayment of the Term Loan B and the Revolving Loan) by granting to Agent, for the benefit of Agent and Lenders, a first priority perfected lien upon all of the Equipment of each Credit Party (and the Proceeds thereof), as set forth in the Amended and Restated Security Agreement; and

     WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in Schedule A . All Schedules, Disclosure Schedules, Exhibits and other attachments (collectively, " Appendices ") hereto, or expressly identified to this Agreement, are incorporated herein by reference, and taken together, shall constitute but a single agreement. These Recitals shall be construed as part of this Agreement.

     NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows:

      1. AMOUNT AND TERMS OF CREDIT

     1.1 Credit Facilities .

     (a)  Revolving Credit Facility .

          (i) Subject to the terms and conditions hereof, each Lender agrees to make available from time to time until the Commitment Termination Date its Pro Rata Share of advances (each, a " Revolving Credit Advance "). The obligations of each Lender hereunder shall be several and not joint. The aggregate amount of Revolving Credit Advances outstanding shall not exceed at any time the lesser of (A) the Maximum Amount less the sum of 100% of the Letter of Credit Obligations, 100% of the Eligible Trade L/C Obligations and 100% of the Swing Line Loan outstanding and (B) the Borrowing Base, less the sum of 100% of the Letter of Credit Obligations, 100% of the Eligible Trade L/C Obligations and 100% of the Swing Line Loan outstanding at such time (such amount, " Borrowing Availability "). Furthermore, the Pro Rata Share of the Revolving Loan of any Lender shall not at any time exceed its separate Revolving Loan Commitment. Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this Section 1.1(a) . Each Revolving Credit Advance shall be made on notice by Borrower to the representative of the Agent identified on Schedule 1.1 at the address specified thereon. Those notices must be given no later than (1) Noon (Chicago time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan, or (2) 10:00 a.m. (Chicago time) on the date which is two (2) Business Days prior to the proposed Revolving Credit Advance, in the case of a LIBOR Loan. Each such notice (a " Notice of Revolving Credit Advance ") must be substantially in the form of Exhibit 1.1(a)(i) , and must specify the requested date, the amount and type of the requested Revolving Credit Advance, and such other information as may be required by Agent and must be given in writing (by telecopy or overnight courier) or by telephone confirmed immediately in writing. Revolving Credit Advances in the form of Index Rate Loans must be in a minimum amount of $100,000 and multiples of $10,000 in excess of such amount; minimum advances and integral multiples for LIBOR Loans are set forth in Section 1.5(e) . In the case of a Revolving Credit Advance that is not to be funded by a Swing Line Advance, Agent shall promptly notify each Lender of the Notice of Revolving Credit Advance. Notwithstanding the foregoing, any Revolving Credit Advance to Borrower which is to be used solely to repay the Swing Line Loan to Borrower may be in the aggregate principal amount of the Swing Line Loan even if less than the foregoing minimums. If Borrower desires to have the Revolving Loan bear interest by reference to a LIBOR Rate, it must comply with Section 1.5(e) .

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          (ii) Borrower shall execute and deliver to each Lender a promissory note to evidence the Revolving Loan and all Revolving Loan Notes outstanding under the Prior Credit Agreement shall thereupon cease to be of any force or effect. Each note shall be in the principal amount of the Revolving Loan Commitment of the applicable Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each a " Revolving Note " and, collectively, the " Revolving Notes "). The Revolving Notes shall represent the obligation of Borrower to pay the amount of the Revolving Loan Commitment or, if less, the applicable Lender’s Pro Rata Share of the aggregate unpaid principal amount of all Revolving Credit Advances made by the applicable Lender to Borrower together with interest thereon as prescribed in Section 1.5 . The entire unpaid balance of the Revolving Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds in Dollars on the Commitment Termination Date.

          (iii) In its discretion the Agent may (but shall have absolutely no obligation to) make Revolving Credit Advances to Borrower on behalf of the Lenders in amounts which cause the outstanding principal balance of the aggregate Revolving Credit Advances to exceed Borrowing Availability (any such excess Revolving Credit Advances are herein referred to collectively as " Overadvances "), and no such event or occurrence shall cause or constitute a waiver by Agent or Lenders of any Default or Event of Default that may result therefrom or of their right to refuse to make any further Overadvances, Revolving Credit Advances or Swing Line Advances or incur any Letter of Credit Obligations or Eligible Trade L/C Obligations at any time that an Overadvance exists or would result therefrom. In addition, Overadvances may be made even if the conditions to lending set forth in Section 2 have not been met. The authority of the Agent to make Overadvances is limited to an aggregate amount not to exceed an amount equal to three (3%) percent of the Revolving Loan Commitment of all Lenders at the time such Overadvance is to be made, shall not cause the sum of the Revolving Loan plus the Swing Line Loan to exceed the Maximum Amount, and may be revoked prospectively by a written notice to Agent signed by Lenders holding fifty-one percent (51%) or more of the Revolving Loan Commitments. The aggregate principal balance of all Overadvances shall bear interest at the Default Rate then applicable to Index Rate Loans. Each Overadvance shall be payable by Borrower as and when specified by Agent at the time that such Overadvance is made or, if not so specified by Agent, shall be payable on demand.

     (b)  Term Loan B .

          (i) Subject to the terms and conditions hereof, the Term Lender agrees to continue to provide a term loan (the " Term Loan B ") which was previously made under the Prior Credit Agreement to Borrower in the original principal amount of the Term Loan B Commitment. The Term Loan B shall be evidenced by a promissory note substantially in the form of Exhibit 1.1(b)(i) (the " Term B Note ") and Borrower shall execute and deliver the Term B Note to the Term Lender on the Closing Date, and thereupon all Term B Notes outstanding under the Prior Credit Agreement shall deemed to be replaced by such new notes. The Term B Note shall represent the obligation of Borrower to pay the amount of the Term Loan B, together with interest thereon as prescribed in Section 1.5 .

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          (ii) The aggregate outstanding principal balance of the Term Loan B shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full. No payment with respect to the Term Loan B may be reborrowed.

          (iii) Each payment of principal and each payment of interest with respect to the Term Loan B shall be paid to Agent for the benefit of the Term Lender.

     (c)  Swing Line Facility .

          (i) Subject to the terms and conditions hereof, the Swing Line Lender agrees to make available from time to time until the Commitment Termination Date advances (each, a " Swing Line Advance "); provided that, except as set forth in Section 2.3 , no Swing Line Advance may be made after the occurrence and during the continuance of an Event of Default unless such Swing Line Advance is approved by Requisite Lenders. The aggregate amount of Swing Line Advances outstanding shall not exceed the lesser of (A) the Swing Line Commitment and (B) the Borrowing Base less the sum of the outstanding balance of the Revolving Credit Advances, 100% of outstanding Letter of Credit Obligations and 100% of outstanding Eligible Trade L/C Obligations (" Swing Line Availability "). Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this Section 1.1(c) . In order to minimize fluctuations in the Revolving Loan balance, it is intended that the Swing Line Loan shall be the first Loan borrowed and the first Loan repaid. Each Swing Line Advance shall be made on notice by Borrower to the representative of the Agent identified on Schedule 1.1 at the address specified thereon. Those notices must be given no later than Noon (Chicago time) on the Business Day of the proposed Swing Line Advance. Each such notice (a " Notice of Swing Line Advance ") must be substantially in the form of Exhibit 1.1(c)(i) , and must specify the requested date, the amount of the requested Swing Line Advance, and such other information as may be required by Agent or the Swing Line Lender and must be given in writing (by telecopy or overnight courier) or by telephone confirmed immediately in writing.

          (ii) Borrower shall execute and deliver to the Swing Line Lender a promissory note to evidence the Swing Line Loan, and thereupon the Swing Line Note outstanding under the Prior Credit Agreement shall deemed to be replaced by such new note. Such note shall be in the principal amount of the Swing Line Commitment of the Swing Line Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(c)(ii) (the " Swing Line Note "). The Swing Line Note shall represent the obligation of Borrower to pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances made to Borrower together with interest thereon as prescribed in Section 1.5 . The entire unpaid balance of the Swing Line Loan and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full.

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          (iii) Refunding of Swing Line Loans . The Swing Line Lender, at any time and from time to time in its sole and absolute discretion, but not less frequently than once weekly, shall on behalf of Borrower (and Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request by telephone or telecopy each Lender (including the Swing Line Lender) to make a Revolving Credit Advance to Borrower (which initially shall be an Index Rate Loan, but may be converted to a LIBOR Loan) in an amount equal to such Lender’s Pro Rata Share of the principal amount of the Swing Line Loan (the " Refunded Swing Line Loan ") outstanding on the date such notice is given. Unless any of the events described in Sections 8.1(h) or 8.l(i) shall have occurred (in which event the procedures of Section 1.1(c)(iv) shall apply) and regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender, prior to 1:00 p.m. (Chicago time), in immediately available funds on the Business Day that such notice is given. The proceeds of such Revolving Credit Advances shall be immediately applied to repay the Refunded Swing Line Loan.

          (iv) Participation in Swing Line Loans . If, prior to refunding a Swing Line Loan with a Revolving Credit Advance pursuant to Section 1.1(c)(iii) , one of the events described in Sections 8.1 (h) or 8.1(i) shall have occurred with respect to Borrower, then, subject to the provisions of Section 1.1(c)(v) below, each Lender will, on the date such Revolving Credit Advance was to have been made to Borrower, purchase from the Swing Line Lender an undivided participation interest in the Swing Line Loan in an amount equal to its Pro Rata Share of such Swing Line Loan. Upon request, each Lender will promptly transfer to the Swing Line Lender, in immediately available funds, the amount of its participation and upon receipt thereof the Swing Line Lender will deliver to such Lender a Swing Line Loan participation certificate, in form and substance reasonably satisfactory to Agent, dated the date of receipt of such funds and in such amount.

          (v) Lenders’ Obligations Unconditional . Each Revolving Lender’s obligation to make Revolving Credit Advances in accordance with Section 1.1(c)(iii) and to purchase participating interests in accordance with Section 1.1(c)(iv) shall be absolute and unconditional and shall not be affected by any of the following circumstances: (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement on the date upon which such participating interest is to be purchased or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any Revolving Lender does not make available to the Swing Line Lender the amount required pursuant to Section 1.1(c)(iii) or 1.1(c)(iv) , as the case may be, the Swing Line Lender shall be entitled to recover such amount on demand from such Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the federal funds rate for the first two Business Days and at the Index Rate thereafter.

     (d)  Reliance on Notices . Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Conversion/Continuation, Notice of Swing Line Advance or similar notice believed by Agent to be genuine. Agent may assume that each Person executing and delivering such a notice was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary.

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     1.2 Letters of Credit . Subject to and in accordance with the terms and conditions contained herein and in Schedule B , Borrower shall have the right to request, and the Lenders agree to incur, Eligible Trade L/C Obligations and Letter of Credit Obligations in respect of Borrower. The aggregate Letter of Credit Obligations and Eligible Trade L/C Obligations outstanding at any time shall not exceed as of any date of determination, the lesser of (A) $75,000,000 and (B) $115,000,000 less the then outstanding Revolving Credit Advances and Swing Line Loan. In addition, the sum of 100% of the Letter of Credit Obligations and 100% of outstanding Eligible Trade L/C Obligations shall not exceed the Borrowing Base, less the then outstanding Revolving Credit Advances and Swing Line Loan. The determination of availability described in the preceding two sentences is herein referred to as "L/C Availability.

     1.3 Prepayment .

     (a) Subject to Section 1.1(a)(iii) , if at any time Borrowing Availability or L/C Availability is less than zero, Borrower shall immediately repay the aggregate outstanding Revolving Credit Advances and Swing Line Advances (in such order as shall minimize the aggregate of LIBOR breakage costs and the interest costs on the Revolving Loan and/or Swing Line Loan that remains outstanding) to the extent required to eliminate such deficit. If any deficit remains after repayment in full of the aggregate outstanding Revolving Credit Advances and Swing Line Advances, Borrower shall provide cash collateral for the Letter of Credit Obligations and Eligible Trade L/C Obligations in the manner set forth in Schedule B to the extent required to eliminate such deficit.

     (b) If Ultimate Parent issues Stock, no later than the Business Day following the date of receipt of the proceeds thereof, Borrower shall prepay the Loans (other than Term Loan B) in an amount equal to such proceeds, net of underwriting discounts and commissions and other reasonable costs paid to non-Affiliates in connection therewith. Any such prepayment of Loans (other than Term Loan B) shall be applied in accordance with clause (e) below.

     (c) Borrower may at any time on at least five (5) days’ (fifteen (15) days’ in the case of prepayment in full of the Loans) prior written notice to Agent voluntarily prepay all or part of the Revolving Loan and/or the Swing Line Loan and permanently reduce or terminate the Revolving Loan Commitment or the Swing Line Commitment, as applicable; provided that (a) any such prepayments or reductions shall be in a minimum amount of $5,000,000 and integral multiples of $250,000 in excess of such amount, (b) such voluntary prepayments or reductions may be made or effected no more frequently than once per year following the Closing Date, (c) any partial reduction of the Revolving Loan Commitment shall result in a ratable reduction in the Swing Line Commitment, and (d) any partial reduction of the Revolving Loan Commitment to $100,000,000 or less shall result in a ratable reduction in the L/C Sublimit. Any such voluntary prepayment and any such reduction or termination of the Revolving Loan Commitment must be accompanied by the payment of any LIBOR funding breakage costs in accordance with Section 1.13(b) . Upon any such prepayment in full and termination in full of the Revolving Loan Commitment and the Swing Line Commitment, Borrower’s right to request Revolving Credit Advances, request that Letter of Credit Obligations or Eligible Trade L/C Obligations be incurred on its behalf, or request Swing Line Advances shall simultaneously be permanently terminated.

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     (d) In the event of the receipt by any Credit Party of proceeds of any sale or other disposition of all or any portion of the Term Collateral (or the receipt of insurance or condemnation proceeds relating to such Term Collateral which have not been applied to replacement or reconstruction as provided in Section 5.4(c) ) then, at the option of the Term Lender, the amount equal to the net proceeds of such sale or disposition (i) shall be applied to prepayment of Term Loan B or the other Loans, in such order of application as the Term Lender shall determine, or (ii) shall be released to Borrower. The Term Lender shall exercise its option to direct application of such proceeds by notice to Borrower no later than the later of (x) the date that the applicable proceeds are received by a Credit Party or (y) thirty (30) days after the Term Lender receives written notice of the event giving rise to such option, and Borrower shall make any prepayment required hereby within two Business Days after receipt of such notice.

     (e) Any prepayments made by Borrower pursuant to clause (b) above or pursuant to Section 5.4(c) (unless otherwise set forth in this Section 1.3 ) shall be applied in the following order of priority, in each instance until all Obligations having a higher priority have been paid in full: first , to accrued Fees and expenses reimbursable hereunder; second , to accrued interest on the Swing Line Loan; third , to the principal balance of the Swing Line Loan; fourth , to the accrued interest on the Index Rate Loans; fifth , to the principal balance of the Index Rate Loans; sixth to accrued interest on the LIBOR Rate Loans; seventh to the principal balance of the LIBOR Rate Loans; and eighth , if L/C Availability is less than zero, to any Letter of Credit Obligations and Eligible Trade L/C Obligations of Borrower to provide cash collateral therefor in the manner set forth in Schedule B , until all such Letter of Credit Obligations and Eligible Trade L/C Obligations have been cash collateralized to the extent so required. If an Event of Default shall have occurred and be continuing, the remainder of any such prepayments shall be applied to outstanding Obligations in such order as Agent may deem appropriate, including the cash collateralization of Letter of Credit Obligations and Eligible Trade L/C Obligations. Otherwise the remainder of such prepayments shall be returned to Borrower. Neither the Revolving Loan Commitment nor the Swing Line Commitment shall be permanently reduced by the amount of any prepayments applied to the Revolving Loan or the Swing Line Loan pursuant to the foregoing.

     1.4 Use of Proceeds . Borrower shall utilize the proceeds of the Revolving Credit Advances, the Term Loan B and the Swing Line Advances solely for the financing of Borrower’s ordinary working capital needs, including Capital Expenditures (but excluding in any event (a) the making of any Restricted Payment not specifically permitted by Section 6.14 and (b) with respect to proceeds of Revolving Loans, the making of any payments of the principal of Term Loan B).

     1.5 Interest .

     (a) Borrower shall pay interest to Agent, for the ratable benefit of Lenders, in arrears on each applicable Interest Payment Date, at the following rates: (i) with respect to the Revolving Credit Advances bearing interest at the Index Rate, at a per annum rate equal to the Index Rate plus the Applicable Index Margin, or at the election of Borrower, at a per annum rate equal to the applicable LIBOR Rate plus the Applicable LIBOR Margin, based on the aggregate Revolving Credit Advances outstanding from time to time; (ii) with respect to the Term Loan B, the LIBOR Rate plus four percent (4%) per annum; and (iii) with respect to the Swing Line Loan at a per annum rate equal to the LIBOR Rate plus the Applicable Swing Line Margin.

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     (b) If any payment on any Loan becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.

     (c) All computations of interest with respect to LIBOR Loans and the Swing Line Loan shall be made by Agent on the basis of a three hundred sixty (360) day year, for the actual number of days occurring in the period for which such interest is payable. All computations of interest with respect to Index Rate Loans, shall be made by Agent on the basis of a three hundred sixty-five (365) day year for the actual number of days elapsed. The Index Rate shall be determined each day based upon the Index Rate as in effect each day. Each determination by Agent of an interest rate hereunder shall be conclusive, absent manifest error.

     (d) So long as any Event of Default shall have occurred and be continuing, and at the election of Agent (or upon the written request of Requisite Lenders) after written notice from Agent to Borrower, the interest rates applicable to the Revolving Loan, the Term Loan B, the Swing Line Loan and the Letter of Credit Fees shall be increased by two percentage points (2%) per annum above the rate of interest or the rate of such Fees otherwise applicable hereunder (" Default Rate "), and all outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations. If such notice is issued, interest and Letter of Credit Fees at the Default Rate shall accrue from the initial date of such Event of Default for so long as that Event of Default shall continue and shall be payable upon demand.

     (e) So long as no Default or Event of Default shall have occurred and be continuing, Borrower shall have the option to (i) request that any Revolving Credit Advance (other than an Overadvance) be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Revolving Credit Advances (including a Refunded Swing Line Loan) from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if such conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue all or any portion of any LIBOR Loan as a LIBOR Loan upon the expiration of the applicable LIBOR Period and the succeeding LIBOR Period of that continued Loan shall commence on the last day of the LIBOR Period of the Loan to be continued. Any Loan to be made or continued as, or converted into, a LIBOR Loan must be in a minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of such amount. Any such election must be made by 10:00 a.m. (Chicago time) on the second (2nd) Business Day prior to (1) the date of any proposed Advance which is to bear interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as such, or (3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in such election. If no election is received with respect to a LIBOR Loan by 10:00 a.m. (Chicago time) on the second (2nd) Business Day prior to the end of the LIBOR Period with respect thereto (or if a Default or an Event of Default shall have occurred and be continuing), that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period. Borrower must make such election by notice to Agent in writing, by telecopy or overnight courier. In the case of any conversion or continuation, such election must be made pursuant to a written notice (a " Notice of Conversion/Continuation ") in the form of Exhibit 1.5(e) . Borrower shall not be entitled to request or continue any Revolving Loan as, or convert any Revolving Loan into, a LIBOR Loan unless at the time of such request, conversion or continuation, the aggregate outstanding principal balance of the Revolving Credit Advances plus the amount of the Swing Line Advances equals or exceeds $5,000,000. Not more than ten (10) LIBOR Loans shall be outstanding at any time.

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     (f) Notwithstanding anything to the contrary set forth in this Section 1.5 , if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the " Maximum Lawful Rate "), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided , however , that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Agent, on behalf of Lenders, is equal to the total interest which would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, the interest rate payable hereunder shall be the rate(s) of interest provided in Sections 1.5(a) through (e) above, unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply. In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount which such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made. If, notwithstanding the provisions of this Section 1.5(f) , a court of competent jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.11 and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order.

     1.6 Applicable Margins . The Applicable Swing Line Margin, Applicable Index Margin, Applicable LIBOR Margin, Applicable Documentary L/C Margin and Applicable Standby L/C Margin will be 1.75%, 0.50%, 1.75%, 0.875% and 1.75% per annum, respectively.

     The Applicable Margins shall be adjusted (up or down) prospectively on a quarterly basis as determined based upon the percentage of the Borrowing Availability Utilizer during the immediately preceding Fiscal Quarter, commencing with the Fiscal Quarter ending on or about the last day of July, 2007. All adjustments in the Applicable Margins thereafter shall be implemented quarterly on a prospective basis at any time there is a need for an adjustment (the determination as to whether an adjustment is necessary to be made by Agent in good faith). Adjustments in Applicable Margins will be determined by reference to the following grids:

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     If any Default or an Event of Default has occurred and is continuing at the time any reduction in the Applicable Margins is to be implemented, that reduction shall be deferred until the first day of the first calendar month following the date on which all Defaults or Events of Default are waived or cured.

     1.7 [Intentionally Deleted] .

     1.8 Cash Management Systems . Borrower will maintain its existing cash management systems as described on Schedule E (the " Cash Management Systems ").

     1.9 Fees .

     (a) Borrower shall pay to GE Capital, individually, the Fees specified in the GE Capital Fee Letter at the times specified for payment therein and on the Closing Date Borrower shall pay to Agent, for the ratable benefit of the Lenders, a closing fee in an amount equal to $135,000 (which closing fee shall be deemed fully earned on the Closing Date and shall be non-refundable when paid).

     (b) As additional compensation for the Lenders having Revolving Loan Commitments, Borrower agrees to pay to Agent, for the ratable benefit of such Lenders, in arrears, on the first Business Day of each month prior to the Commitment Termination Date and on the Commitment Termination Date, a fee for Borrower’s non-use of funds (the " Non-Use Fee ") in an amount equal to 0.25% per annum (calculated on the basis of a 360 day year for actual days elapsed) of the difference between (x) the Maximum Amount (as it may be reduced from time to time) and (y) the average for the period of the daily closing balances of the Revolving Loan and the Swing Line Loan outstanding during the period for which the Non-Use Fee is due.

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     (c) If Borrower pays after acceleration or reduces or terminates the Revolving Loan Commitment, whether voluntarily or involuntarily and whether before or after acceleration of the Obligations, or if any of the Commitments are otherwise terminated, Borrower shall pay as liquidated damages and compensation for the costs of being prepared to make funds available hereunder to the Agent, for the ratable benefit of the Lenders based upon their Revolving Loan Commitments, an amount equal to 1% multiplied by the amount of the reduction of the Revolving Loan Commitment. Notwithstanding the foregoing, no prepayment fee shall be payable by Borrower upon a mandatory prepayment made pursuant to Sections 1.3(a), 1.3(b), 1.3(d) or 1.16(c) ; provided that in the case of prepayments made pursuant to Sections 1.3(b) and 1.3(d) , the transaction giving rise to the applicable prepayment is expressly permitted under Section 6 .

     1.10 Receipt of Payments . Payments in the form of immediately available funds received in Agent’s Collection Account before 2:00 p.m. (Chicago time) on any Business Day will be applied against the Obligations on that day. Payments received after 2:00 p.m. (Chicago time) on any Business Day shall be deemed to have been received on the next Business Day.

     1.11 Application and Allocation of Payments .

     (a) Borrower hereby irrevocably waives as to all payments from and after the Commitment Termination Date, the right to direct the application of such payments received from or on behalf of Borrower, and Borrower hereby irrevocably agrees that Agent shall have the continuing exclusive right to apply any and all such payments against the Obligations as Agent may deem advisable notwithstanding any previous entry by Agent in the Loan Account or any other books and records. Subject to Section 8.2 , in the absence of a specific determination by Agent with respect thereto after the Commitment Termination Date and in all other instances (except as otherwise expressly provided herein), payments shall be applied in the following order of priority, in each instance until all Obligations having a higher priority have been paid in full: (1) to Fees and Agent’s expenses reimbursable hereunder; (2) to accrued interest on the Swing Line Loan; (3) to the outstanding principal balance of the Swing Line Loan; (4) to accrued interest on the Revolving Loans that are Index Rate Loans; (5) to the principal balance of the Revolving Loans that are Index Rate Loans; (6) to accrued interest on the Revolving Loans that are LIBOR Rate Loans; (7) to the principal balance of the Revolving Loans that are LIBOR Rate Loans; (8) if the Commitment Termination Date has occurred or if L/C Availability is less than zero, to cash collateralize Letter of Credit Obligations and Eligible Trade L/C Obligations in the manner described in Schedule B , (9) to interest on the Term Loan B, (10) to the principal of the Term Loan B and (11) to all other Obligations then due and payable including expenses of Lenders reimbursable under Section 11.3 .

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     (b) Agent is authorized to, and at its sole election may, charge to the Swing Line Loan to the extent such charge would not cause the Swing Line Loan balance to exceed the Swing Line Commitment and then to the Revolving Loan balance on behalf of Borrower and cause to be paid all Fees, expenses, Charges, costs (including insurance premiums in accordance with Section 5.4(a) ) and interest owing by Borrower under this Agreement or any of the other Loan Documents if and to the extent Borrower fails to promptly pay any such amounts within three (3) Business Days after the date on which such payment is due, even if such charges would cause the Revolving Loan to exceed Borrowing Availability. At Agent’s option and to the extent permitted by law, any charges so made shall constitute part of the Swing Line Loan or Revolving Loan hereunder.

     (c) If a Default or an Event of Default has occurred and is continuing, in addition to any other right or remedy, and without implying any obligation to continue to make Loans and Advances, Agent may in its sole and absolute discretion, impose a Reserve against Borrowing Availability for interest, Fees and expenses due and payable or which will become due and payable hereunder on the next respective payment dates therefor.

     (d) Subject to Section 1.11(a) above, if Borrower pays less than all of the interest due hereunder on any Interest Payment Date, Agent shall apply such partial payment ratably to all interest then due hereunder.

     1.12 Loan Account and Accounting . Agent shall maintain a loan account (the " Loan Account ") on its books to record: (a) all Advances and the Term Loan B (b) all payments made by Borrower, and (c) all other debits and credits as provided in this Agreement with respect to the Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Agent’s customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Agent’s most recent printout or other written statement, shall be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect Borrower’s duty to pay the Obligations. Agent shall render to Borrower a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loan Account. Unless Borrower notifies Agent in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) days after the date thereof, each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive upon Borrower in all respects as to all matters reflected therein. Only those items expressly objected to in such notice shall be deemed to be disputed by Borrower.

     1.13 Indemnity .

     (a) Borrower shall indemnify and hold harmless each of Agent, Lenders and their respective Affiliates, and each such Person’s respective officers, directors, employees, attorneys, agents and representatives (each, an " Indemnified Person "), from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including attorneys’ fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) which may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities and Costs and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents; provided , that Borrower shall not be liable for any

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indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results solely from that Indemnified Person’s gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

     (b) To induce Lenders to provide the LIBOR Rate option on the terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period (whether that repayment is made pursuant to any provision of this Agreement or any other Loan Document or is the result of acceleration, by operation of law or otherwise); (ii) Borrower shall default in payment when due of the principal amount of or interest on any LIBOR Loan; (iii) Borrower shall default in making any borrowing of, conversion into or continuation of LIBOR Loans after Borrower has given notice requesting the same in accordance herewith; or (iv) Borrower shall fail to make any prepayment of a LIBOR Loan after Borrower has given a notice thereof in accordance herewith, Borrower shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing. Such indemnification shall include, without limitation, any loss (including, without limitation, loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained. For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a maturity comparable to the relevant Interest Period; provided , however , that each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection. This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder. As promptly as practicable under the circumstances, each Lender shall provide Borrower and Agent with its written calculation of all amounts payable pursuant to this Section 1.13(b) , and such calculation shall be binding on the parties hereto unless Borrower shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in detail. All amounts payable pursuant to this Section 1.13(b) shall be made payable to Agent for the benefit of the requesting Lender and shall then be funded by Agent to such Lender.

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     1.14 Access .

     (a) Borrower shall, and in accordance with the Guaranties, shall cause each other Credit Party who is a signatory thereto to, during normal business hours, from time to time upon one (1) Business Day’s prior notice as frequently as Agent reasonably determines to be appropriate: (a) provide Agent and any of its officers, employees and agents access to its properties, facilities, advisors and employees (including officers) of each Credit Party and to the Collateral, (b) permit Agent, and any of its officers, employees and agents, to inspect, audit and make extracts from any Credit Party’s books and records, and (c) permit Agent, and its officers, employees and agents, to inspect, review and evaluate the Accounts, Inventory and other Collateral of any Credit Party; provided , that Borrower shall only be obligated to reimburse Agent pursuant to clause (b) below for (x) Collateral audits performed not more than two times in each year so long as the percentage of the Borrowing Availability Utilizer during the immediately preceding Fiscal Quarter is equal to, or greater than, 20% or (y) Collateral audits performed not more than four times in each year so long as the percentage of the Borrowing Availability Utilizer during the immediately preceding Fiscal Quarter is less than 20%, in each case in the absence of an Event of Default (and, unless an Event of Default has occurred and is continuing, Agent shall use good faith efforts to provide at least five (5) Business Days’ notice of such audit, which notice shall include a summary of the procedures to be followed in such audit). If a Default or Event of Default shall have occurred and be continuing, Borrower, Ultimate Parent, First Intermediate Parent, Second Intermediate Parent and Third Intermediate Parent shall provide such access at all times and without advance notice. Borrower, Ultimate Parent, First Intermediate Parent, Second Intermediate Parent and Third Intermediate Parent shall make available to Agent and its counsel, as quickly as is possible under the circumstances, originals or copies of all books and records which Agent may request. Borrower, Ultimate Parent, First Intermediate Parent, Second Intermediate Parent and Third Intermediate Parent shall deliver any document or instrument necessary for Agent, as it may from time to time request, to obtain records from any service bureau or other Person which maintains records for the Credit Parties. Borrower, Ultimate Parent, First Intermediate Parent, Second Intermediate Parent and Third Intermediate Parent shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by Borrower, Ultimate Parent, First Intermediate Parent, Second Intermediate Parent and Third Intermediate Parent.

     (b) Borrower shall pay Agent a Fee of $900 per day per individual (plus all out-of-pocket costs and expenses) in connection with Agent’s field examinations permitted under Section 1.14(a) above and Section 4(c) of the Amended and Restated Security Agreement, including the cost of verifying Eligible In-Transit Inventory in the possession of Approved Shippers (and no additional costs for such field examinations shall be payable pursuant to Section 11.3 ).

     1.15 Taxes .

     (a) Any and all payments by Borrower hereunder or under the Notes shall be made, in accordance with this Section 1.15 , free and clear of and without deduction for any and all present or future Taxes. Except as provided in Section 1.16(d) , if Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Notes, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 1.15 ) Agent or Lenders, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof.

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     (b) Borrower shall indemnify and, within ten (10) days of demand therefor, pay, Agent and each Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.15 ) paid by Agent or such Lender, as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted.

     1.16 Capital Adequacy: Increased Costs: Illegality .

     (a) If any Lender shall have determined that the adoption after the date hereof of any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by any Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law) from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender and thereby reducing the rate of return on such Lender’s capital as a consequence of its obligations hereunder, then Borrower shall from time to time upon demand by such Lender (with a copy of such demand to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to Borrower and to Agent shall, absent manifest error, be final, conclusive and binding for all purposes.

     (b) If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loan, then Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to Agent), pay to Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower and to Agent by such Lender, shall be conclusive and binding on Borrower for all purposes, absent manifest error. Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, the affected Lender shall, to the extent not inconsistent with such Lender’s internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 1.16(b) .

     (c) Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another branch or office of that Lender without, in that Lender’s opinion, adversely affecting it or its Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR Loans owing by Borrower to such Lender, together with interest accrued thereon (but without LIBOR breakage costs), unless Borrower, within five (5) Business Days after the delivery of such notice and demand, converts all such Loans into a Loan bearing interest based on the Index Rate (which conversion shall be without LIBOR breakage costs).

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     (d)  Foreign Lenders . Each Lender organized under the laws of a jurisdiction outside the United States (a " Foreign Lender ") as to which payments to be made under this Agreement or under the Notes are exempt from United States withholding tax under an applicable statute or tax treaty shall provide to Borrower and Agent a properly completed and executed IRS Form 4224 or Form 1001 or other applicable form, certificate or document prescribed by the IRS or the United States certifying as to such Foreign Lender’s entitlement to such exemption (a " Certificate of Exemption "). Prior to becoming a Lender under this Agreement and within fifteen (15) days after a reasonable written request of Agent or Borrower from time to time thereafter, each Foreign Lender that becomes a Lender under this Agreement shall provide a Certificate of Exemption to Borrower and Agent. No Person may become a Lender hereunder if such Person is unable to deliver a Certificate of Exemption. If a Foreign Lender does not provide a Certificate of Exemption to Agent and Borrower within the time periods set forth above, Borrower shall withhold taxes from payments to such Foreign Lender at the applicable statutory rate and Borrower shall not be required to pay any additional amounts as a result of such withholding; provided, that all such withholding shall cease upon delivery by such Foreign Lender of a Certificate of Exemption to Agent and Borrower.

     (e)  Replacement of Lender in Respect of Increased Costs . Within fifteen (15) days after receipt by Borrower of written notice and demand from any Lender or a participant that has purchased a participation from such Lender (an " Affected Lender ") for payment of taxes, additional amounts or increased costs as provided in Section 1.15 or Section 1.16(a) or (b) , Borrower may, at its option, notify Agent and such Affected Lender of its intention to replace the Affected Lender as follows: So long as no Default or Event of Default shall have occurred and be continuing, Borrower, with the consent of Agent, may obtain, at Borrower’s expense, a replacement Lender (" Replacement Lender ") for the Affected Lender, which Replacement Lender must be reasonably satisfactory to Agent. If Borrower obtains a Replacement Lender within ninety (90) days following notice of its intention to do so, the Affected Lender must sell and assign its Loans and Revolving Loan Commitments to such Replacement Lender provided that Borrower reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment.

     Notwithstanding the foregoing, Borrower shall not have the right to obtain a Replacement Lender, if the Affected Lender rescinds its demand for increased costs or additional amounts within fifteen (15) days following its receipt of Borrower’s notice of intention to replace such Affected Lender. Furthermore, if Borrower gives a notice of intention to replace and does not so replace such Affected Lender within ninety (90) days thereafter, Borrower’s rights under this Section 1.16(e) shall terminate and Borrower shall promptly pay all increased costs or additional amounts demanded by such Affected Lender pursuant to Sections 1.15 , 1.16(a) and (b) .

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     1.17 Single Loan . All Loans to Borrower and all of the other Obligations of Borrower arising under this Agreement and the other Loan Documents shall constitute one general obligation of Borrower and Guarantors secured, until the Termination Date, by all of the Collateral.

     1.18 Effect On Prior Loans; Prior Credit Agreement . The Borrower ratifies and confirms that the obligations of the Borrower under the Prior Credit Agreement immediately prior to the effectiveness of this Agreement shall constitute obligations under this Agreement and the Borrower agrees and acknowledges that it does not have any defense or set off against any or all of such obligations. The Prior Loans and Liens securing payment thereof shall in all respects be continuing, and this Agreement shall not be deemed to evidence or result in a novation or repayment and reborrowing of the Prior Loans. This Agreement shall supersede the Prior Credit Agreement. From and after the Closing Date, this Agreement shall govern the terms of the Prior Loans. To the extent not replaced by Loan Documents dated as of the Closing Date, Loan Documents executed in connection with the Prior Credit Agreement or the Initial Credit Agreement (other than any such Loan Document that is specifically terminated by the parties thereto) shall continue to be effective, and all references in those prior Loan Documents to the "Credit Agreement" shall be deemed to refer to this Agreement without further amendment thereof.

     1.19 Eligible Inventory-Apparel . " Eligible Inventory-Apparel " shall mean all of the Inventory- Apparel owned by the Borrower (including, without duplication, Eligible In-Transit Inventory that shall, merely upon delivery to Borrower, otherwise satisfy all applicable criteria (other than as set forth in clauses (b) and (c) of this Section 1.19) required for an item to constitute Eligible Inventory-Apparel) and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent, except any Inventory-Apparel to which any of the exclusionary criteria set forth below applies. Agent shall have the right to establish, modify, or eliminate Reserves against Eligible Inventory-Apparel from time to time in its reasonable credit judgment. In addition, Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Inventory-Apparel in its reasonable credit judgment, subject to the approval of Requisite Lenders in the case of adjustments or new criteria or changes in advance rates or the elimination of Reserves which have the effect of making more credit available. Eligible Inventory-Apparel shall not include any Inventory-Apparel of Borrower that:

     (a) is not owned by Borrower free and clear of all Liens and rights of any other Person (including the rights of a purchaser that has made progress payments and the rights of a surety that has issued a bond to assure Borrower’s performance with respect to that Inventory), except the Liens in favor of Agent, on behalf of itself and Lenders;

     (b) (i) is not located on domestic premises owned, leased or rented by Borrower or a Store Guarantor set forth in Disclosure Schedule (3.2) or (ii) is stored at a leased location other than a Store located in the United States, unless Agent has given its prior consent thereto and unless (x) a reasonably satisfactory landlord waiver has been delivered to Agent, or (y) Reserves satisfactory to Agent have been established with respect thereto, (iii) is stored with a bailee or warehouseman unless a reasonably satisfactory, acknowledged bailee letter has been received by Agent or Reserves reasonably satisfactory to Agent have been established with respect thereto, (iv) is located at an owned location subject to a mortgage in favor of a lender other than Agent, unless a reasonably satisfactory mortgagee waiver has been delivered to Agent, or(v) is located at any site (other than a Seasonal Store) if the aggregate book value of Inventory-Apparel at any such location is less than $50,000 (in each case unless it is Eligible In-Transit Inventory-Retail);

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     (c) is placed on consignment with any Person that is not a Store Guarantor or is in transit, except for Inventory-Apparel in transit between domestic locations of Credit Parties as to which Agent’s Liens have been perfected at origin and destination;

     (d) is covered by a negotiable document of title, unless such document has been delivered to Agent with all necessary endorsements, free and clear of all Liens except those in favor of Agent and Lenders;

     (e) is excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale;

     (f) consists of display items or packing or shipping materials, manufacturing supplies, work-in-process Inventory-Apparel or replacement parts;

     (g) is not of a type held for sale in the ordinary course of Borrower’s business (including repair, promotional, sample, discontinued, closeout, special order and layaway items);

     (h) is not subject to a first priority lien in favor of Agent on behalf of itself and Lenders subject to Permitted Encumbrances;

     (i) breaches any of the representations or warranties pertaining to Inventory-Apparel set forth in the Loan Documents;

     (j) consists of Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available;

     (k) is not covered by casualty insurance reasonably acceptable to Agent;

     (l) is subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party for the sale or disposition of that Inventory-Apparel (which consent has not been obtained) or the payment of any monies to any third party upon such sale or other disposition (to the extent of such monies); or

     (m) is otherwise unacceptable to Agent in its reasonable credit judgment.

It being understood and agreed that Eligible Inventory-Apparel shall not include Eligible Inventory-Wholesale.

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     1.20 Eligible Inventory-Wholesale . " Eligible Inventory-Wholesale " shall mean all of the Inventory-Wholesale owned by the Borrower or the Wholesale Subsidiary (including, without duplication, Eligible In-Transit Inventory that shall, merely upon delivery to Borrower or Wholesale Subsidiary, otherwise satisfy all applicable criteria (other than as set forth in clauses (b) and (c) of this Section 1.20 ) required for an item to constitute Eligible Inventory-Wholesale) and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent, except any Inventory-Wholesale to which any of the exclusionary criteria set forth below applies. Agent shall have the right to establish, modify, or eliminate Reserves against Eligible Inventory-Wholesale from time to time in its reasonable credit judgment. In addition, Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Inventory-Wholesale in its reasonable credit judgment, subject to the approval of Requisite Lenders in the case of adjustments or new criteria or changes in advance rates or the elimination of Reserves which have the effect of making more credit available. Eligible Inventory-Wholesale shall not include any Inventory-Wholesale of Borrower or Wholesale Subsidiary that:

     (a) is not owned by Borrower or Wholesale Subsidiary free and clear of all Liens and rights of any other Person (including the rights of a purchaser that has made progress payments and the rights of a surety that has issued a bond to assure Borrower or Wholesale Subsidiary’s performance with respect to that Inventory-Wholesale), except the Liens in favor of Agent, on behalf of itself and Lenders;

     (b) (i) is not located on domestic premises owned, leased or rented by Wholesale Subsidiary or Borrower set forth in Disclosure Schedule (3.2) or is not located on other domestic premises set forth in Disclosure Schedule (3.2) – Inventory-Wholesale or (ii) is stored at a leased location, unless Agent has given its prior consent thereto and unless (x) a reasonably satisfactory landlord waiver has been delivered to Agent, or (y) Reserves satisfactory to Agent have been established with respect thereto, (iii) is stored with a bailee or warehouseman unless a reasonably satisfactory, acknowledged bailee letter has been received by Agent or Reserves reasonably satisfactory to Agent have been established with respect thereto, (iv) is located at an owned location subject to a mortgage in favor of a lender other than Agent, unless a reasonably satisfactory mortgagee waiver has been delivered to Agent or (v) is located at any site if the aggregate book value of Inventory-Wholesale at any such location is less than $50,000 (in each case unless it is Eligible In-Transit Inventory-Wholesale).

     (c) is placed on consignment with any Person or is in transit, except for Inventory-Wholesale in transit between domestic locations of Credit Parties to which Agent’s Liens have been perfected at origin and destination;

     (d) is covered by a negotiable document of title, unless such document has been delivered to Agent with all necessary endorsements, free and clear of all Liens except those in favor of Agent and Lenders;

     (e) is excess, obsolete, unsalable, shopworn, seconds, damaged or unfit for sale;

     (f) consists of display items or packing or shipping materials, manufacturing supplies, work-in-process Inventory-Wholesale or replacement parts;

     (g) is not of a type held for sale in the ordinary course of Borrower’s or Wholesale Subsidiary’s business (including repair, promotional, sample, discontinued, closeout, special order and layaway items);

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     (h) is not subject to a first priority lien in favor of Agent on behalf of itself and Lenders subject to Permitted Encumbrances;

     (i) breaches any of the representations or warranties pertaining to Inventory-Wholesale set forth in the Loan Documents;

     (j) consists of Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available;

     (k) is not covered by casualty insurance reasonably acceptable to Agent;

     (l) is subject to any licensing, patent, royalty, trademark, trade name or copyright agreements with any third parties which would require any consent of any third party for the sale or disposition of that Inventory-Wholesale (which consent has not been obtained) or the payment of any monies to any third party upon such sale or other disposition (to the extent of such monies); or

     (m) is otherwise unacceptable to Agent in its reasonable credit judgment.

     1.21 Eligible In-Transit Inventory . " Eligible In-Transit Inventory-Retail " shall mean all of the In-Transit Inventory owned by the Borrower and reflected on Borrower’s monthly general ledger as In-Transit Inventory-Retail and reflected in the most recent Borrowing Base Certificate as part of Eligible Inventory-Apparel and delivered by Borrower to Agent, except any In-Transit Inventory-Retail to which any of the exclusionary criteria set forth below applies. " Eligible In-Transit Inventory-Wholesale " shall mean all of the In-Transit Inventory owned by the Borrower or the Wholesale Subsidiary and reflected on Borrower’s or Wholesale Subsidiary’s monthly general ledger as In-Transit Inventory-Wholesale and reflected in the most recent Borrowing Base Certificate as part of Eligible Inventory-Wholesale and delivered by Borrower to Agent, except any In-Transit Inventory-Wholesale to which any of the exclusionary criteria set forth below applies. Eligible In-Transit Inventory-Retail and Eligible In-Transit Inventory-Wholesale shall not include any finished goods:

     (a) that are not in the possession of an Approved Shipper under contract with Borrower or Wholesale Subsidiary and in which Borrower or Wholesale Subsidiary has good title;

     (b) as to which Agent for the benefit of Lenders does not have a first priority security interest through constructive possession by means of a bailee agreement with an Approved Shipper;

     (c) which have not been accepted by Borrower or Wholesale Subsidiary (F.O.B. shipping point) as conforming goods or as to which the L/C Issuer has not received an inspection certificate signed by Borrower’s or Wholesale Subsidiary’s agent or employee;

     (d) which are not fully insured against loss under insurance naming Agent as loss payee for the benefit of Lenders;

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     (e) as to which the purchase price has not been paid by a draw under a corresponding Eligible Trade L/C or otherwise; and

     (f) as to which Borrower or Wholesale Subsidiary has not been named as consignee on bills of lading or other Documents.

     1.22 Eligible Accounts . For the purposes of this Agreement " Eligible Accounts-Retail " shall mean and include all Accounts reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent as Eligible Accounts-Retail consisting of credit card receivables owing by American Express or credit card issuers with respect to VISA, Discover, Master Card and other nationally recognized credit cards, subject to Reserves for set-offs imposed by Agent in its reasonable credit judgment. For the purposes of this Agreement " Eligible Accounts-Wholesale " shall mean and include all Accounts owned by Borrower or Wholesale Subsidiary and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent as Eligible Accounts-Wholesale, except any Account to which any of the exclusionary criteria set forth below applies. Agent shall have the right to establish, modify, or eliminate Reserves against Eligible Accounts-Wholesale from time to time in its reasonable credit judgment. In addition, Agent reserves the right, at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Accounts-Wholesale in its reasonable credit judgment, subject to the approval of Requisite Lenders in the case of adjustments or new criteria or changes in advance rates or the elimination of Reserves which have the effect of making more credit available. Eligible Accounts-Wholesale shall not include any Account of Borrower or Wholesale Subsidiary:

     (a) that does not arise from the sale of goods or the performance of services by Borrower or Wholesale Subsidiary in the ordinary course of its business;

     (b) (i) upon which Borrower’s or Wholesale Subsidiary’s right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or (ii) as to which Borrower or Wholesale Subsidiary is not able to bring suit or otherwise enforce its remedies against the Account Debtor through judicial process, or (iii) if the Account represents a progress billing consisting of an invoice for goods sold or used or services rendered pursuant to a contract under which the Account Debtor’s obligation to pay that invoice is subject to Borrower’s or Wholesale Subsidiary ‘s completion of further performance under such contract or is subject to the equitable lien of a surety bond issuer;

     (c) to the extent that any defense, counterclaim, setoff or dispute is asserted as to such Account;

     (d) that is not a true and correct statement of bona fide indebtedness incurred in the amount of the Account for merchandise sold to or services rendered and accepted by the applicable Account Debtor;

     (e) with respect to which an invoice, reasonably acceptable to Agent in form and substance, has not been sent to the applicable Account Debtor;

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     (f) that (i) is not owned by Borrower or Wholesale Subsidiary, (ii) is not subject to a first priority perfected Lien in favor of Agent on behalf of itself and Lenders, or (iii) is subject to any other Lien (other than Permitted Encumbrances set forth in clause (a) of definition of " Permitted Encumbrances ");

     (g) that arises from a sale to any director, officer, other employee or Affiliate of any Credit Party, or to any entity that has any common officer with any Credit Party;

     (h) that is the obligation of an Account Debtor that is the United States government or a political subdivision thereof, or any state, county or municipality or department, agency or instrumentality thereof unless Agent, in its sole discretion, has agreed to the contrary in writing and Wholesale Subsidiary, if necessary or desirable, has complied with respect to such obligation with the Federal Assignment of Claims Act of 1940, or any applicable state, county or municipal law restricting the assignment thereof with respect to such obligation.

     (i) that is the obligation of an Account Debtor located in a foreign country other than Canada unless payment thereof is assured by a letter of credit assigned and delivered to Agent, satisfactory to Agent in its reasonable credit judgment as to form, amount and issuer;

     (j) to the extent Borrower, Wholesale Subsidiary or any Subsidiary thereof is liable for goods sold or services rendered by the applicable Account Debtor to Borrower, Wholesale Subsidiary or any Subsidiary thereof but only to the extent of the potential offset;

     (k) that arises with respect to goods that are delivered on a bill-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor is or may be conditional;

     (l) that is not paid within the earlier of: sixty (60) days following its due date or ninety (90) days following its original invoice date;

     (m) the Account Debtor obligated upon which Account suspends business, makes a general assignment for the benefit of creditors or fails to pay its debts generally as they come due;

     (n) a petition is filed by or against any Account Debtor obligated upon which Account under any bankruptcy law or any other federal, state or foreign (including any provincial) receivership, insolvency relief or other law or laws for the relief of debtors;

     (o) that is the obligation of an Account Debtor if fifty percent (50%) or more of the Dollar amount of all Accounts owing by that Account Debtor are ineligible under the other criteria set forth in clauses (l), (m) or (n) of this Section 1.22;

     (p) as to which any of the representations or warranties in the Loan Documents are untrue;

     (q) to the extent such Account is evidenced by a judgment, Instrument or Chattel Paper;

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     (r) to the extent such Account exceeds any credit limit established by Agent, in its reasonable credit judgment, following prior notice of such limit by Agent to Borrower; or

     (s) that is payable in any currency other than Dollars.

     1.23 Eligible Trade L/Cs . For the purposes of this Agreement " Eligible Trade L/Cs-Retail " shall mean and include all documentary letters of credit issued by an L/C Issuer for the account of Borrower for payment of the purchase price of finished goods inventory which will be Eligible In-Transit Inventory-Retail upon presentation of a draft under that documentary letter of credit, subject to the further conditions contained in Section 6.18 of this Agreement and subject to Reserves for set-offs imposed by Agent in its reasonable credit judgment. For the purposes of this Agreement " Eligible Trade L/Cs-Wholesale " shall mean and include all documentary letters of credit issued by an L/C Issuer for the account of Borrower or Wholesale Subsidiary for payment of the purchase price of finished goods inventory which will be Eligible In-Transit Inventory-Wholesale upon presentation of a draft under that documentary letter of credit, subject to the further conditions contained in Section 6.18 of this Agreement and subject to Reserves for set-offs imposed by Agent in its reasonable credit judgment.

      2. CONDITIONS PRECEDENT

     2.1 Conditions to Term Loan B, Initial Eligible Trade L/C Obligations or Letter of Credit Obligations . No Lender shall be obligated to maintain or incur Term Loan B, any Eligible Trade L/C Obligations or Letter of Credit Obligations on the Closing Date, or to take, fulfill, or perform any other action hereunder, until the following conditions have been satisfied, in Agent’s sole discretion, or waived in writing by Agent and those Lenders present at the closing on the Closing Date:

     (a)  Credit Agreement: Loan Documents . This Agreement or counterparts hereof shall have been duly executed by, and delivered to, Borrower, Agent and Lenders; and Agent shall have received such documents, instruments, agreements and legal opinions as Agent shall request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including all those listed in the Schedule of Documents attached hereto as Schedule F , each in form and substance satisfactory to Agent.

     (b)  Governmental Approvals . Agent shall have received (i) satisfactory evidence that the Credit Parties have obtained all required consents and approvals of all Persons including, but not limited to, all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents or (ii) an officer’s certificate in form and substance satisfactory to Agent affirming that no such consents or approvals are required.

     (c)  Payment of Fees . Borrower shall have paid or reimbursed Agent for all fees, costs and expenses of closing to the extent statements therefor are presented at closing (including fees of consultants and special loan counsel to Agent presented as of the Closing Date).

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     (d)  Compliance with Laws . Each Credit Party shall be in compliance in all material respects with all applicable foreign, federal, state and local laws and regulations, including those specifically referenced in Section 5.5 .

     (e)  Leases . Evidence supporting the fact that the Distribution Center lease is in full force and effect and has a remaining term of not less than six (6) months past the Termination Date, except as set forth on Disclosure Schedule 2.1(e) .

     (f)  Consignment Agreement . As of the Closing Date, the Consignment Agreement shall be in full force and effect and shall have been executed by all Store Guarantors.

     (g)  Financial Statements . Agent shall have received Ultimate Parent’s unaudited financial statements for the Fiscal Month ending in October of 2006.

     2.2 Further Conditions to Initial Revolving Credit Advances . No Lender shall be obligated to make any Initial Revolving Credit Advance until the following conditions have been satisfied, in Agent’s sole discretion, or waived in writing by Agent and Revolving Lenders:

     (a)  Other Conditions . The conditions set forth in Section 2.1 shall have been satisfied.

     (b)  Appraisals . Agent shall have received appraisals, which were prepared by an appraiser retained by Borrower and acceptable to Agent, and completed a Collateral audit, each in form and substance satisfactory to Agent and Requisite Lenders, reflecting asset values of Borrower’s assets at levels acceptable to Agent and Requisite Lenders.

     2.3 Further Conditions to Each Loan . It shall be a further condition to the initial and each subsequent Advance and to the incurrence of the initial and any subsequent Letter of Credit Obligations or Eligible Trade L/C Obligations that the following statements shall be true on the date of each such Advance or incurrence, as the case may be:

     (a) All of each Credit Party’s representations and warranties contained herein or in any of the other Loan Documents shall be true and correct in all material respects as though made on and as of such date, except to the extent that any such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted or expressly contemplated by this Agreement.

     (b) No Event of Default shall have occurred and be continuing or would result from the making of any Advance (or the incurrence of any Letter of Credit Obligations or Eligible Trade L/C Obligations) or, if an Event of Default shall have occurred and be continuing or would result from the making of any Advance (or the incurrence of any Letter of Credit Obligations or Eligible Trade L/C Obligations), Lenders having 60% or more of the Commitments shall not have determined by affirmative vote to cease making further Advances or incurring additional Letter of Credit Obligations or Eligible Trade L/C Obligations as a result of such Event of Default.

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     (c) After giving effect to any Revolving Credit Advance or Swing Line Advance, Borrowing Availability shall be greater than zero. After giving effect to the incurrence of any Letter of Credit Obligations or Eligible Trade L/C Obligations, L/C Availability shall be greater than zero.

     (d) No event or circumstance having a Material Adverse Effect shall have occurred since the date hereof as reasonably determined by the Requisite Lenders and Agent or, if such a Material Adverse Effect shall have occurred, Requisite Lenders shall not have determined by affirmative vote to cease making Advances, or incurring additional Letter of Credit Obligations and Eligible Trade L/C Obligations as a result of the fact that such event or circumstance has occurred.

The request and acceptance by Borrower of the proceeds of any Loan or the incurrence of any Letter of Credit Obligations or Eligible Trade L/C Obligations shall be deemed to constitute, as of the date of such request or acceptance, (i) a representation and warranty by Borrower that the conditions in this Section 2.3 have been satisfied and (ii) a reaffirmation by Borrower of the granting and continuance of Agent’s Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents. With respect to clauses (b) and (d) above, if an Event of Default or event or circumstance having a Material Adverse Effect has occurred, Agent shall call for a vote of Lenders with respect thereto within two (2) Business Days following the date on which Agent learns of the occurrence thereof.

      3. REPRESENTATIONS AND WARRANTIES

     To induce Lenders to make the Loans and to incur Letter of Credit Obligations and Eligible Trade L/C Obligations, the Loan Parties, jointly and severally, make the following representations and warranties to Agent and each Lender, each and all of which shall survive the execution and delivery of this Agreement.

     3.1 Corporate Existence; Compliance with Law . Each Credit Party (a) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation; (b) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification except where the failure to so qualify would not have a Material Adverse Effect; (c) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now, heretofore and proposed to be conducted; (d) has all material licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (e) is in compliance with its charter and by-laws; and (f) is in compliance with all applicable provisions of law to the extent required by Section 5.5 .

     3.2 Executive Offices; FEIN . As of the Closing Date, the current location of each Credit Party’s chief executive office and principal place of business is set forth in Disclosure Schedule 3.2 . In addition, the Disclosure Schedule 3.2 lists the federal employer identification number of each Credit Party.

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     3.3 Corporate Power, Authorization, Enforceable Obligations . The execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party and the creation of Liens provided for therein: (a) are within such Person’s corporate power; (b) have been duly authorized by all necessary or proper corporate and shareholder action; (c) do not contravene any provision of such Person’s charter or bylaws; (d) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate any performance required by, any indenture, mortgage, or deed of trust, or any material lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (f) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(b) , all of which will have been duly obtained, made or complied with prior to the Closing Date. On or prior to the Closing Date, each of the Loan Documents shall have been duly executed and delivered by each Credit Party thereto and each such Loan Document shall then constitute a legal, valid and binding obligation of such Credit Party enforceable against it in accordance with its terms.

     3.4 Financial Statements and Projections . Except for the Projections, all Financial Statements concerning Ultimate Parent and its Subsidiaries which have been delivered to Agent have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as disclosed therein and except, with respect to unaudited Financial Statements, for the absence of footnotes and normal year-end audit adjustments) and present fairly in all material respects the financial condition of the Persons covered thereby as at the dates thereof and the results of their operations for the periods then ended. The Projections delivered to Agent and Lenders on or prior to the date hereof have been prepared by Ultimate Parent in light of the past operations of its Subsidiaries’ businesses, but including future payments of known contingent liabilities, and reflect projections for the Fiscal Year ending in January 2007. The Projections are based upon estimates and assumptions stated therein, all of which, as of the Closing Date, Ultimate Parent believes to be reasonable and fair in light of current conditions and current facts known to Ultimate Parent and, as of the Closing Date, reflect Ultimate Parent’s good faith and reasonable estimates of the future financial performance of Ultimate Parent and its Subsidiaries and of the other information projected therein for the period set forth therein.

     3.5 Material Adverse Effect . Between the last day of the Fiscal Year ending in January, 2006 and the date hereof (a) no Credit Party has incurred any obligations, contingent or non-contingent liabilities, liabilities for Charges, long-term leases or unusual forward or long-term commitments which, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (b) no contract, lease or other agreement or instrument has been entered into by any Credit Party or has become binding upon any Credit Party’s assets and no law or regulation applicable to any Credit Party has been adopted which has had or could reasonably be expected to have a Material Adverse Effect, (c) no Credit Party is in default and to the best of the Credit Parties’ knowledge no third party is in default under any material contract, lease or other agreement or instrument, which alone or in the aggregate could reasonably be expected to have a Material Adverse Effect and (d) other than as set forth in Schedule 3.5 hereto, there have been no changes in the Credit Party’s business or financial condition, the industry in which the Credit Parties operate or the Collateral, which alone or in the aggregate could reasonably be expected to have a Material Adverse Effect.

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     3.6 Ownership of Property; Liens . Disclosure Schedule 3.6 sets forth all real estate (the " Real Estate ") owned or leased by any Credit Party as of the Closing Date. Each Credit Party has good and marketable title to, or valid leasehold interests in, all of its personal properties and assets. As of the Closing Date, none of the properties and assets of any Credit Party are subject to any Liens, except Permitted Encumbrances. As of the Closing Date, no portion of any of the Real Estate has suffered any material damage by fire or other casualty loss that has not heretofore been repaired and restored in all material respects to its original condition or otherwise remedied. As of the Closing Date, except as set forth in Disclosure Schedule 3.6 , all material permits required to have been issued or appropriate to enable the Real Estate to be lawfully occupied and used for all of the purposes for which it is currently occupied and used have been lawfully issued and are in full force and effect.

     3.7 Labor Matters . As of the Closing Date: (a) no strikes or other material labor disputes against any Credit Party are pending or, to any Credit Party’s knowledge, threatened; (b) hours worked by and payment made to employees of each Credit Party in all material respects comply with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matter; (c) all material payments due from any Credit Party for employee health and welfare insurance have been paid or accrued as a liability on the books of such Credit Party; (d) except as set forth in Disclosure Schedule 3.7 , no Credit Party is a party to or bound by any collective bargaining agreement; (e) except as set forth in Disclosure Schedule 3. 7, there is no organizing activity involving any Credit Party pending or, to any Credit Party’s knowledge, threatened by any labor union or group of employees; (f) there are no representation proceedings pending or, to any Credit Party’s knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Credit Party has made a pending demand for recognition; and (g) except as set forth in Disclosure Schedule 3.7 , there are no complaints or charges against any Credit Party pending or threatened to be filed with any Governmental Authority or arbitrator relating to the employment or termination of employment by any Credit Party of any employee, other than routine, non-material claims by individual employees or former employees.

     3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness . Except as set forth in Disclosure Schedule 3.8 , as of the Closing Date no Credit Party has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. Disclosure Schedule 3.8 sets forth the corporate organizational chart as of the Closing Date for Ultimate Parent and its Subsidiaries. Except as set forth on Disclosure Schedule 3.8 , as of the Closing Date Ultimate Parent owns, directly or indirectly, all of the outstanding capital stock of each of its Subsidiaries.

     3.9 Government Regulation . No Credit Party is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940 as amended. No Credit Party is subject to regulation under the Federal Power Act or any other federal or state statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The making of the Loans by Lenders to Borrower, the incurrence of the Letter of Credit Obligations and the Eligible Trade L/C Obligations on behalf of Borrower, the application of the proceeds thereof and repayment thereof will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission.

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     3.10 Margin Regulations . No Credit Party is engaged, nor will it engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin security" as such terms are defined in Regulation U of the Board of Governors of the Federal Reserve System (the " Federal Reserve Board ") as now and from time to time hereafter in effect (such securities being referred to herein as " Margin Stock "). No Credit Party owns any Margin Stock, and none of the proceeds of the Loans or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any Margin Stock or for any other purpose which might cause any of the Loans or other extensions of credit under this Agreement to be considered a "purpose credit" within the meaning of Regulation T, U or X of the Federal Reserve Board. No Credit Party will take or permit to be taken any action which might cause any Loan Document to violate any regulation of the Federal Reserve Board.

     3.11 Taxes . All material tax returns, reports and statements, including, but not limited to, information returns, required by any Governmental Authority to be filed by any Credit Party have been filed with the appropriate Governmental Authority and all material Charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid), excluding Charges or other amounts being contested in accordance with Section 5.2(b) . Proper and accurate amounts have been withheld by each Credit Party from its respective employees for all periods in full and complete compliance with all applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities. Disclosure Schedule 3.11 sets forth, as of the Closing Date, those taxable years for which any Credit Party’s tax returns are currently being audited by the IRS or any other applicable Governmental Authority and any assessments or threatened assessments in connection with such audits or otherwise currently outstanding. Except as described on Disclosure Schedule 3.11 , as of the Closing Date, no Credit Party has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. None of the Credit Parties and their respective predecessors are liable for any Charges: (a) under any agreement (including, without limitation, any tax sharing agreements) or (b) to the best of each Credit Party’s knowledge, as a transferee. As of the Closing Date, no Credit Party has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect.

     3.12 ERISA .

     (a)  Disclosure Schedule 3.12 lists and separately identifies all Title IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans in effect as of the Closing Date. Each Plan is in compliance in all material respects with the applicable provisions of ERISA and the IRC, including the filing of reports required under the IRC or ERISA. No Credit Party or ERISA Affiliate has failed to make any material contribution or pay any material amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any Plan subject to such sections. No Credit Party or ERISA Affiliate has engaged in a prohibited transaction, as defined in Section 4975 of the IRC, in connection with any Plan, which would subject any Credit Party to a material tax on prohibited transactions imposed by Section 4975 of the IRC.

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     (b) Except as set forth in Disclosure Schedule 3.12 , as of the Closing Date: (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no material ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Credit Party, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any plan or any person as fiduciary or sponsor of any Plan; and (iv) no Credit party or ERISA Affiliate has incurred or reasonably expects to incur any material liability as a result of a complete or partial withdrawal from a Multiemployer Plan.

     3.13 No Litigation . No action, claim or proceeding is now pending or, to the knowledge of any Credit Party, threatened against any Credit Party, before any court, board, commission, agency or instrumentality of any federal, state, local or foreign government or of any agency or subdivision thereof, or before any arbitrator or panel of arbitrators (collectively, " Litigation "), (a) which challenges any Credit Party’s right or power to enter into or perform any of its obligations under the Loan Documents to which it is a party, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) which is reasonably likely to be determined adversely to any Credit Party and which, if so determined, would have a Material Adverse Effect. Except as set forth on Disclosure Schedule 3.13 , as of the Closing Date there is no Litigation pending or threatened which seeks damages in excess of $500,000 or injunctive relief.

     3.14 Brokers . No broker or finder acting on behalf of any Credit Party brought about the obtaining, making or closing of the Loans. No Credit Party has any obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.

     3.15 Intellectual Property . Except as set forth on Disclosure Schedule 3.13 , as of the Closing Date, each Credit Party owns or has rights to use all Intellectual Property necessary to continue to conduct its business as now or heretofore conducted by it or proposed to be conducted by it, and each material Patent, Trademark, Copyright and License for which, as of the Closing Date, a U.S. registration has been obtained or for which an application to register in the U.S. has been filed is listed, together with application or registration numbers, as applicable, in Disclosure Schedule 3.15 hereto. Except as set forth on Disclosure Schedule 3.13 , each Credit Party conducts and will continue to conduct its business and affairs without infringement of or interference with, in any material respect, any Intellectual Property of any other Person.

     3.16 Full Disclosure . No information contained in this Agreement, any of the other Loan Documents, any Projections, Financial Statements or Collateral Reports or other reports from time to time delivered hereunder or any written statement furnished by any Material Credit Party with respect to any Credit Party to Agent or any Lender pursuant to the terms of this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Liens granted to Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents will at all times be fully perfected first priority Liens in and to the Collateral described therein, subject only to Permitted Encumbrances with respect to the Collateral.

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     3.17 Hazardous Materials .

     (a) Except as set forth in Disclosure Schedule 3.17 , as of the Closing Date, the Real Estate is free of contamination from any Hazardous Material in such form and quantity so as to create any material unpaid liability for any of the Loan Parties. In addition, Disclosure Schedule 3.17 discloses material environmental liabilities of any Credit Party existing as of the Closing Date (i) that could result in Environmental Liabilities and Costs, or (ii) associated with the Real Estate. No Credit Party has caused or suffered to occur any Release with respect to any Hazardous Material at, under, above or upon any of its Real Estate. No Credit Party is involved in operations that are likely to result in the imposition of any Lien on its assets or any material liability under any Environmental Law, and no Credit Party has permitted any tenant or occupant of such premises to engage in any such operations.

     (b) Each Credit Party hereby acknowledges and agrees that Agent (i) is not now, and has not ever been, in control of any of the Real Estate or any Credit Party’s affairs, and (ii) does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Credit Party’s conduct with respect to the ownership, operation or management of any of its Real Estate.

     3.18 Insurance . Disclosure Schedule 3.18 lists all insurance policies of any nature maintained, as of the Closing Date, for current occurrences by each Credit Party, as well as a summary of the terms of each such policy.

     3.19 Deposit and Disbursement Accounts . Disclosure Schedule 3.19 lists all banks and other financial institutions at which any Credit Party maintains deposits and/or other accounts as of the Closing Date, including any Disbursement Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number.

     3.20 Government Contracts . Except as set forth in Disclosure Schedule 3.20 , as of the Closing Date, no Credit Party is a party to any contract or agreement with the federal government and no Credit Party’s Accounts are subject to the Federal Assignment of Claims Act (31 U.S.C. Section 3727).

     3.21 Landlords and Trade Relations . As of the Closing Date, there exists no actual or threatened termination or cancellation of, or any material adverse modification or change in the business relationship of any Credit Party with any supplier material to its operations.

     3.22 Agreements and Other Documents . Each Credit Party has provided to Agent or its counsel, on behalf of Lenders, accurate and complete copies (or summaries) of all of the following agreements or documents to which it is subject as of the Closing Date and each of which are listed on Disclosure Schedule 3.22 : (a) instruments or documents evidencing Indebtedness of such Credit Party and any security interest granted by such Credit Party with respect thereto; and (b) instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of each Credit Party (other than Ultimate Parent).

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     3.23 Solvency . Both before and after giving effect to (a) the Revolving Loan, Eligible Trade L/C Obligations and Letter of Credit Obligations, including the Prior Loans outstanding, (b) the disbursement of the proceeds of such Loan pursuant to the instructions of Borrower, (c) the payment and accrual of all transaction costs in connection with the foregoing, each Material Credit Party is Solvent.

      4. FINANCIAL STATEMENTS AND INFORMATION

     4.1 Reports and Notices .

     (a) Borrower hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver or cause to be delivered to Agent and/or Lenders, as required, Financial Statements, notices, Projections and other information at the times, to the Persons and in the manner set forth in Schedule G .

     (b) Borrower hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver or cause to be delivered to Agent and/or Lenders, as required, the various Collateral Reports (including, without limitation, Borrowing Base Certificates in the form of Exhibit 4.1(b) at the times, to the Persons and in the manner set forth in Schedule H .

     4.2 Communication with Accountants . Ultimate Parent authorizes Agent, so long as an Event of Default has occurred and is continuing, to communicate directly with its independent certified public accountants and authorizes and shall instruct those accountants and advisors to disclose and make available to Agent any and all Financial Statements and other supporting financial documents, schedules and information relating to any Credit Party (including, without limitation, copies of any issued management letters) with respect to the business, financial condition and other affairs of any Credit Party.

      5. AFFIRMATIVE COVENANTS

     Each Loan Party jointly and severally agrees that it shall and shall cause all Credit Parties from and after the date hereof and until the Termination Date to do the following:

     5.1 Maintenance of Existence and Conduct of Business . Each Credit Party shall: (a) do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its rights and franchises (except for mergers, sales, dispositions and other transactions permitted in Section 6 hereof and liquidations of Store Guarantors that are not Material Credit Parties following such dispositions and transactions); (b) continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; (c) except as permitted in Section 6.8 hereof, at all times maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, and keep the same in good repair, working order and condition (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and (d) transact business only in such corporate and trade names as are set forth in Disclosure Schedule 5.1 and as otherwise disclosed to Agent in accordance with the Loan Documents.

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     5.2 Payment of Obligations .

     (a) Subject to Section 5.2(b) , each Credit Party shall pay and discharge or cause to be paid and discharged promptly all Charges payable by it, including (A) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding with respect to its employees, and (B) lawful claims for storage and shipping charges payable to Approved Shippers.

     (b) Each Credit Party may in good faith contest, by appropriate proceedings, the validity or amount of any Charges or claims described in Section 5.2(a) ; provided , that (i) the imposition of such Charge does not otherwise constitute an Event of Default under Section 8.1 hereof, (ii) adequate reserves with respect to such contest are maintained on the books of such Credit Party, in accordance with GAAP, (iii) such contest is maintained and prosecuted continuously and with diligence, (iv) none of the Collateral becomes subject to forfeiture or loss as a result of such contest, (v) no Lien shall be filed or imposed to secure payment of such Charges or claims which would, with the passage of time or otherwise, have priority over Agent’s Liens with respect to the Collateral, (vi) such Credit Party shall promptly pay or discharge such contested Charges or claims and all additional charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to such Credit Party or the conditions set forth in this Section 5.2(b) are no longer met, and (vii) Agent has not advised Borrower in writing that Agent reasonably believes that nonpayment or nondischarge thereof could have or result in a Material Adverse Effect.

     5.3 Books and Records . Each Credit Party shall keep adequate books and records with respect to its business activities in which proper entries, reflecting all financial transactions, are made in accordance with GAAP and on a basis consistent with the Financial Statements delivered to Agent.

     5.4 Insurance: Damage to or Destruction of Collateral .

     (a) The Credit Parties shall, at their sole cost and expense, maintain the policies of insurance described on Disclosure Schedule 3.18 or substantially equivalent coverage with reputable insurers. If Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay all premiums relating thereto, Agent may at any time or times thereafter obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Agent deems reasonably advisable. Agent shall have no obligation to obtain insurance for any Credit Party or pay any premiums therefor. By doing so, Agent shall not be deemed to have waived any Default or Event of Default arising from any Credit Party’s failure to maintain such insurance or pay any premiums therefor. All sums so disbursed, including attorneys’ fees, court costs and other charges related thereto, shall be payable on demand by Borrower to Agent and shall be additional Obligations hereunder secured by the Collateral. Borrower must provide Agent fifteen (15) days prior written notice of any non-renewal, cancellation or amendment of the insurance policies required above.

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     (b)  Intentionally Omitted .

     (c) Borrower shall deliver or cause to be delivered to Agent, in form and substance satisfactory to Agent, endorsements to (i) all "All Risk" and business interruption insurance naming Agent, on behalf of itself and Lenders, as loss payee, and (ii) all general liability and other liability policies naming Agent, on behalf of itself and Lenders, as additional insured. Each Loan Party irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent) as its true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claim under such "All Risk" policies of insurance, endorsing the name of each such Credit Party on any check or other item of payment for the proceeds of such "All Risk" policies of insurance and for making all determinations and decisions with respect to such "All Risk" policies of insurance; provided that so long as no Event of Default shall have occurred and be continuing, Borrower shall have the right to direct any such settlements and adjustments. The Credit Parties that are signatories hereto shall promptly notify Agent of any loss, damage, or destruction to the Collateral in the amount of $1,000,000 or more, whether or not covered by insurance. If an Event of Default shall have occurred and be continuing, Agent is hereby authorized to collect all insurance proceeds relating to the Collateral. After deducting from such proceeds the expenses, if any, incurred by Agent or any Credit Party in the collection or handling thereof, Agent may, at its option, apply all net proceeds to the reduction of the Obligations in accordance with Section 1.3(e) , or permit or require Borrower to use such money, or any part thereof, to replace the Collateral in a diligent and expeditious manner. Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds would not reasonably be expected to have a Material Adverse Effect and such insurance proceeds do not exceed $1,000,000 in the aggregate, Agent shall permit Borrower to replace the Collateral so long as no Event of Default shall have occurred and be continuing at the time of any requested release of funds; provided that , if Borrower shall not have completed the replacement of the Collateral within 270 days of such casualty, Agent may apply such insurance proceeds to the Obligations in accordance with Section 1.3(d) or Section 1.3(e) , as applicable. Except as otherwise provided in this Section, all insurance proceeds which are to be made available to Borrower to replace the Collateral shall first be applied by Agent in accordance with Section 1.3(e) (which application in accordance with Section 1.3(e) shall not result in a permanent reduction of the Revolving Loan Commitments), and any excess shall be released to Borrower. Upon any application in accordance with Section 1.3(e) , Agent shall establish a Reserve against the Borrowing Base in an amount equal to the amount of such proceeds so applied. Thereafter, such funds shall be made available to Borrower to provide funds to replace the Collateral as follows: (i) Borrower shall request a Swing Line Advance or Revolving Credit Advance be made to Borrower in the amount requested to be released; (ii) so long as the conditions set forth in Section 2.3 have been met, Agent shall make such Swing Line Advance or Revolving Credit Advance; and (iii) the Reserve established with respect to such insurance proceeds shall be reduced by the amount of such Swing Line Advance or Revolving Credit Advance.

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     5.5 Compliance With Laws . Each Credit Party shall comply with all federal, state and local laws and regulations applicable to it, including those relating to ERISA, customs import and export laws and labor matters and Environmental Laws, except to the extent that the failure to so comply would not have a Material Adverse Effect.

     5.6 Employee Plans . Each Credit Party shall promptly notify Agent of (a) any violation of ERISA or the IRC with respect to any Plan which results in a material increase in any Credit Party’s obligations with respect thereto; (b) the occurrence or likely occurrence of an ERISA Event resulting in a material increase in Borrower’s fixed liabilities under ERISA; (c) the filing for a funding waiver under Section 412 of the IRC with respect to any Plan; (d) the occurrence of an "accumulated funding deficiency" under Section 412 of the IRC with respect to any Plan; (e) a material increase in the Unfunded Pension Liability of any Title IV Plan or a material increase in the aggregate Unfunded Pension Liability of all Title IV Plans, but only taking into account Title IV Plans with Unfunded Pension Liability at the time of reference; and (f) a material increase in any Credit Party’s obligations under any Retiree Welfare Plan. For purposes of clauses (e) and (f) above and Sections 6.9(d) and (e) , a "material increase" shall mean the lesser of (i) 50% or (ii) $500,000, in each case measured from the Closing Date. In addition, the Credit Parties shall promptly furnish to the Agent copies of the annual form 5500 filed for each Title IV Plan.

     5.7 Environmental Matters . Each Credit Party shall (a) notify Agent promptly after such Credit Party becomes aware of any Release upon or at any Real Estate which is reasonably likely to result in Environmental Liabilities and Costs in excess of $200,000, and (b) promptly forward to Agent a copy of any order, notice, permit, application or any communication or report received by such Credit Party in connection with any such Release, its compliance with Environmental Laws and Environmental Permits or any other matter relating to the Environmental Laws that may affect such premises or such Credit Party, in each case whether or not the Environmental Protection Agency, any other federal agency or any state, local or foreign environmental agency has taken or threatened any action in connection with any such Release or other matter. So long as any Event of Default shall have occurred and be continuing, Borrower shall permit Agent or its representatives to have access to all premises owned or occupied by it for the purpose of conducting such environmental audits and testing as Agent reasonably deems appropriate, including Phase II environmental testing. Borrower shall reimburse Agent for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder.

     5.8 Landlords’ Agreements and Bailee Letters . Borrower shall obtain a landlord’s agreement, or bailee letter, from Bermans with respect to the Distribution Center located in Brooklyn Park, Minnesota and from each other lessor of a warehouse or bailee in possession of collateral property or with respect to any other warehouse where Collateral is located. After the Closing Date, no warehouse space shall be leased or acquired by any Credit Party, unless and until a landlord agreement or bailee letter, as appropriate, shall first have been obtained with respect to such location. Although the Credit Parties are not required to obtain landlord waivers as to Store locations, (i) if an Event of Default has occurred and is continuing, Agent may impose a Reserve against Borrowing Availability equal to one month’s rent as to all Store locations and (ii) if any Store Guarantor shall default in the payment of rent under its Store Lease, Agent may impose a Reserve against Borrowing Availability in the amount of those defaulted rent obligations (which may exceed one month’s rent). All such landlord and bailee letters shall be in form and substance satisfactory to Agent. Each Credit Party shall timely and fully pay and perform its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located.

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     5.9 Ownership of Inventory . Borrower shall purchase directly from suppliers and pay for all Inventory from time to time held for sale by all Store Guarantors. Borrower shall own all Inventory held for sale by each Store Guarantor. The Loan Parties shall not and shall not cause or permit any Store Guarantor to execute any agreement or take any action inconsistent with the foregoing.

     5.10 Additional Pledges . The Credit Parties signatory hereto shall pledge or cause to be pledged to Agent for the benefit of Lenders the Stock of all Store Guarantors created or acquired after the Closing Date.

      6. NEGATIVE COVENANTS

     The Loan Parties jointly and severally covenant and agree that without the prior written consent of Agent and the Requisite Lenders, which may be granted in their sole and exclusive discretion, from and after the date hereof until the Termination Date they shall not, and shall not cause or permit the other Credit Parties to do the following :

     6.1 Mergers, Subsidiaries, Etc . No Credit Party shall directly or indirectly, by operation of law or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate with, acquire all or substantially all of the assets or capital stock of, or otherwise combine with or acquire, any Person, except (i) Bermans may be merged with and into Borrower or another Loan Party, (ii) one or more Store Guarantors may be merged with any other Store Guarantor or any Loan Party so long as such Loan Party is the survivor in any merger involving a Loan Party; (iii) cash and financial assets may be transferred among the Loan Parties so long as no Event of Default has occurred and is continuing; (iv) the Stock or fixed assets, Trademarks and Trademark Licenses of Store Guarantors may be transferred to other Store Guarantors or to any Loan Party; (v) the Credit Parties may form new wholly-owned domestic Subsidiaries (other than the Wholesale Subsidiary as defined below); provided that (x) the aggregate initial cash investment in each such new domestic Subsidiary in the form of equity shall not exceed $500,000 and (y) the Credit Parties and each such new domestic Subsidiary shall execute and deliver to Agent forms of the Loan Documents executed by or with respect to the Loan Parties as of the Closing Date; (vi) the Credit Parties may form Joint Ventures to own, lease or operate one or more Stores in one or more domestic airports, as long as the investments therein are permitted pursuant to Section 6.2(c)(vi) and (vii) a Credit Party may form a new Subsidiary which is, directly or indirectly, wholly-owned by Ultimate Parent to carry out the New Wholesale Business (" Wholesale Subsidiary "); provided that (x) the investment in such Wholesale Subsidiary in the form of equity and/or loans from Credit Parties shall not exceed $5,000,000 in the aggregate at any time outstanding and (y) promptly after the formation of such Wholesale Subsidiary (1) such Wholesale Subsidiary shall become a Loan Party under the Credit Agreement, guaranty the Obligations and grant to Agent, for the benefit of Agent and Lenders, a security interest in all or substantially all of the assets of such Wholesale Subsidiary to secure the Obligations, (2) the applicable Credit Party shall pledge to Agent, for the benefit of Agent and Lenders, all of the Stock of such Wholesale Subsidiary to secure the Obligations, and (3) Borrower and Wholesale Subsidiary shall deliver such other agreements, documents, opinions, certificates and/or instruments as Agent reasonably request in connection with the foregoing (the documentation for such guaranty, security and pledge shall be substantially similar to the applicable Loan Documents previously executed with such modifications as are reasonably requested by Agent).

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     6.2 Investments; Loans and Advances . No Credit Party shall make any investment in, or make or accrue loans or advances of money to, any Person, through the direct or indirect lending of money, holding of securities or otherwise, except that (a) any Loan Party may, so long as no Default or Event of Default has occurred and is continuing, make investments in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and having an investment rating of A-2 or P-2 or better from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc., (iii) time deposits, demand deposits and certificates of deposit, maturing no more than one year from the date of creation thereof, issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $300,000,000 and having a senior secured rating of "A" or better by a nationally recognized rating agency (an " A Bank "), (iv) time deposits, maturing no more than 30 days from the date of creation thereof with an A Bank; (v) overnight repurchase obligations issued by an A Bank; (b) any Loan Party may, so long as no Default or Event of Default has occurred and is continuing and no Revolving Credit Advances are outstanding, make investments in (i) asset-backed securities and taxable or tax-exempt municipal bonds, in each case rated "AAA" or better by Standard & Poor’s Corporation and maturing in six months or less and (ii) corporate bonds maturing in six months or less and rated "A" or better by Standard & Poor’s Corporation; and (c) each Credit Party may (i) maintain its existing investments in its Subsidiaries as of the Closing Date, (ii) make unlimited investments in Borrower, (iii) make investments in new Subsidiaries as permitted under Section 6.1 hereof, (iv) upon prior written notice to Agent, maintain equity investments in Store Guarantors necessary to maintain them as Solvent in an aggregate amount not to exceed $1,000,000, (v) make intercompany loans as permitted under Section 6.3 hereof, (vi) make and permit to exist investments described in Section 6.1(vi) as long as (A) at the time such investment is made no Event of Default shall have occurred and be continuing or would result after giving effect thereto and Borrower shall have excess Borrowing Availability of at least $10,000,000 after giving effect thereto and (B) the aggregate amount of all such investments (1) existing on the Closing Date does not exceed $1,000,000 and (2) made after the Closing Date does not exceed $2,000,000, and (vii) make other investments not exceeding $1,000,000 in the aggregate at any time outstanding.

     6.3 Indebtedness . No Credit Party shall create, incur, assume or permit to exist any Indebtedness, except (a) Indebtedness secured by Permitted Encumbrances, (b) the Loans and the other Obligations, (c) reimbursement obligations owed by Borrower to the L/C Issuer with respect to Letters of Credit and Eligible Trade L/Cs, (d) deferred taxes, (e) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, (f) existing Indebtedness set forth in Disclosure Schedule 6.3 and refinancings thereof or amendments or modifications thereto on

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terms and conditions no less favorable to any Credit Party, Agent or any Lender, as determined by Agent, than the terms of the Indebtedness being refinanced, amended or modified, (g) intercompany loans among the Loan Parties for operating expenses incurred in the ordinary course of business, (h) loans by any Loan Party in the ordinary course of business, to Store Guarantors and loans by Store Guarantors to any Loan Party in the ordinary course of business to the extent permitted by Sections 6.1 and 6.2 hereof, (i) intercompany loans to Foreign Subsidiaries or Joint Ventures not to exceed $2,000,000 in the aggregate; provided that at the time any such intercompany loan is made to a Foreign Subsidiary or Joint Venture no Event of Default shall have occurred and be continuing or would result after giving effect thereto and Borrower shall have Borrowing Availability of at least $5,000,000 after giving effect thereto, (j) an unsecured $100,000 customs bond line from Barclays Bank for the Foreign Subsidiaries and (k) obligations under interest rate swaps on an unsecured basis. No Credit Party shall directly or indirectly voluntarily prepay, repurchase or redeem any Indebtedness other than the Obligations. Notwithstanding anything to the contrary contained herein, Ultimate Parent shall be entitled to incur unsecured Indebtedness in an aggregate outstanding amount not to exceed $25,000,000 as long as such Indebtedness is (a) subordinated to the Obligations on terms, and pursuant to documentation, satisfactory to Agent or (b) (i) matures within ninety one (91) days of the date it is first incurred or issued and (ii) not guaranteed by any Person and not entitled to any credit support of any nature.

     6.4 Employee Loans and Affiliate Transactions

     (a) No Credit Party shall enter into or be a party to any transaction with any Affiliate thereof (other than another Credit Party) except in the ordinary course of and pursuant to the reasonable requirements of such Credit Party’s business and upon fair and reasonable terms that are no less favorable to such Credit Party than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate of such Credit Party, except (i) intercompany loans permitted in clauses (g) and (h) of Section 6.3 and (ii) the Consignment Agreement. In addition, if any such transaction or series of related transactions involves payments in excess of $1,000,000 in the aggregate, the terms of these transactions must be disclosed in advance to Agent (which disclosure may be in the form of a request for issuance of an Eligible Trade L/C). All such transactions existing as of the date hereof are described on Disclosure Schedule 6.4(a) .

     (b) No Credit Party shall enter into any lending or borrowing transaction with any employee of any Credit Party, except loans to their respective employees on an arm’s length basis in the ordinary course of business consistent with past practices for travel expenses, relocation costs and similar purposes up to a maximum of $200,000 to any employee and up to a maximum of $1,000,000 in the aggregate at any one time outstanding.

     6.5 Capital Structure and Business . No Credit Party shall make any changes in any of its business objectives, purposes or operations which could in any way adversely affect the repayment of the Loans or any of the other Obligations or could have or result in a Material Adverse Effect. No Credit Party other than Ultimate Parent shall (i) make any change in or to its capital structure as described on Disclosure Schedule 3.8 (including a change in capital structure effected through the issuance of any shares of Stock, warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock), or (ii) amend its charter or bylaws in a manner which would adversely affect the Agent or Lenders or Borrower’s, First Intermediate Parent’s or Store Guarantors’ duty or ability to repay the Obligations; provided, however, that nothing herein shall prohibit a merger or consolidation otherwise permitted by Section 6.1 hereof.

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     6.6 Guaranteed Indebtedness . No Credit Party shall incur any Guaranteed Indebtedness except (a) by endorsement of instruments or items of payment for deposit to the general account of any Credit Party, (b) for Guaranteed Indebtedness incurred for the benefit of any other Credit Party consisting of payments under the Store leases or if the primary obligation is otherwise expressly permitted by this Agreement and (c) the Barclays customs bond for the Foreign Subsidiaries described in Section 6.3(j).

     6.7 Liens . No Credit Party shall create, incur, assume or permit to exist any Lien on or with respect to its Accounts or any of its other properties or assets (whether now owned or hereafter acquired) except for Permitted Encumbrances and those existing Liens set forth on Schedule 6.7 . In addition, no Credit Party shall become a party to any agreement, note, indenture or instrument, or take any other action, which would prohibit the creation of a Lien on any of its properties or other assets in favor of Agent, on behalf of itself and Lenders, as additional collateral for the Obligations, except operating leases, Capital Leases, purchase money obligations, or Licenses which prohibit Liens upon the assets that are subject thereto.

     6.8 Sale of Stock and Assets . No Credit Party shall sell, transfer, convey, assign or otherwise dispose of any of its properties or other assets, including the capital Stock of any of its Subsidiaries, or any of their Accounts, other than as permitted under Section 6.1 and (a) the sale of Inventory in the ordinary course of business, (b) the sale, transfer, conveyance or other disposition by a Credit Party of Equipment, Fixtures or Real Estate that are obsolete or no longer used or useful in such Credit Party’s business and having a value not exceeding $500,000 in any single transaction or $1,000,000 in the aggregate in any Fiscal Year, (c) the sale of other Equipment and Fixtures having a value not exceeding $500,000 in any single transaction or $1,000,000 in the aggregate in any Fiscal Year and (d) the sale of all of the stock or substantially all of the assets of one or more Subsidiaries or Joint Ventures in an arms’-length transaction in an amount not to exceed $2,000,000 in the aggregate (and in connection with such sale, such Subsidiary or Subsidiaries shall be released from all obligations hereunder and under the other Loan Documents to which it is subject). No Credit Party, other than Ultimate Parent, shall sell or issue any of its capital Stock (other than directors’ qualifying shares) to any Person other than a Credit Party.

     6.9 ERISA . No Credit Party shall cause or permit (a) the occurrence of an ERISA Event which results, or could reasonably be expected to result, in a distress termination of a Title IV Plan under Section 4041 of ERISA, an involuntary termination of a Title IV Plan by the PBGC under Section 4042 of ERISA, a Lien on any property of a Credit Party or ERISA Affiliate or a liability in excess of $500,000 being assessed against any Credit Party or ERISA Affiliate; (b) any Title IV Plan to incur an "accumulated funding deficiency" under Section 412 of the IRC in excess of $500,000, regardless of any waiver; (c) any Credit Party or ERISA Affiliate to apply for a material funding waiver under Section 412(d) of the IRC; (d) a material increase in the aggregate Unfunded Pension Liability of all Title IV Plans, but only taking into account Title IV Plans with Unfunded Pension Liability at the time of reference; or (e) a material increase in any Credit Party’s obligations under any Retiree Welfare Plan.

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     6.10 [Intentionally Omitted.]

     6.11 Hazardous Materials . No Credit Party shall cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would violate in any material respect, or form the basis for any material Environmental Liabilities under any Environmental Laws or Environmental Permits or would otherwise materially and adversely impact the value or marketability of any of the Real Estate or any of the Collateral.

     6.12 Sale-Leasebacks . No Credit Party shall engage in any sale-leaseback, synthetic lease or similar transaction, involving any of its assets.

     6.13 Cancellation of Indebtedness . No Credit Party shall cancel any claim or debt owing to it, except for reasonable consideration negotiated on an arm’s-length basis or in the ordinary course of its business consistent with past practices.

     6.14 Restricted Payments . No Credit Party shall make any Restricted Payment, except (a) asset or Stock transfers permitted under Section 6.1 ; (b) intercompany loans permitted under Section 6.3 ; (c) restricted payments consisting of cash dividends paid to any Store Guarantor or to First Intermediate Parent, Second Intermediate Parent, Third Intermediate Parent or Ultimate Parent and (d) redemptions or repurchases of fractional shares not to exceed $100,000 per year.

     6.15 Change of Corporate Name or Location; Change of Fiscal Year . No Credit Party shall (a) change its name as it appears in official filings in the state of its incorporation or other organization, (b) change its chief executive office, principal place of business, corporate offices or warehouses or Collateral locations, or the location of its records concerning the Collateral, (c) change the type of entity that it is or its jurisdiction of organization, (d) change its organization identification number, if any, issued by its state of incorporation or other organization, or (e) merge with any other Credit Party in any case without at least twenty (20) days prior written notice to Agent and completion by the Credit Parties of any action reasonably requested by Agent in connection therewith, including, without limitation, to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, and provided that any such new location shall be in the continental United States. Without limiting the foregoing, no Credit Party shall change its name, identity or corporate structure in any manner which might make any financing or continuation statement filed in connection herewith seriously misleading as such term is defined in and/or used in the Code or any other then applicable provision of the Code except upon prior written notice to Agent and Lenders and completion by the Credit Parties of any action reasonably requested by Agent in connection therewith, including, without limitation, any action necessary to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral.

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     6.16 No Impairment of Upstreaming . No Credit Party shall directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) which could directly or indirectly restrict, prohibit or require the consent of any Person with respect to the payment of dividends or distributions or the making of intercompany loans by a Subsidiary of First Intermediate Parent (other than a Subsidiary which is not wholly owned and which is not a Credit Party) to any other Subsidiary of First Intermediate Parent.

     6.17 [Intentionally Deleted].

     6.18 Eligible Trade L/Cs . Borrower shall not request any documentary letter of credit for the purchase of finished goods unless each of the following documents are required as conditions to any draw thereon, unless Agent shall otherwise consent, and such deliveries must constitute conditions to drawing for a documentary letter of credit to constitute an Eligible Trade L/C:

          (i) the original Eligible Trade L/C, if only one draw is permitted thereunder or if multiple draws are permitted and the subject draw is the final draw thereunder;

          (ii) all drafts and pre-approved forms of certificates executed by Borrower’s supplier, certifying that it has met the conditions for a draw under the Eligible Trade L/C;

          (iii) an inspection certificate substantially in the form attached hereto as Schedule 6.18 , executed by Borrower’s employee or agent at the point of origin of the finished goods;

          (iv) a commercial invoice with respect to the purchase order(s) against which such finished goods are being delivered and a packaging list with respect to such goods;

          (v) a non-negotiable ocean bill of lading, freight forwarders cargo receipt, a house bill of lading or a copy of an airway bill of lading (a " Document of Title ") issued by an Approved Shipper with respect to the finished goods being shipped and providing for the delivery thereof to Borrower; and

          (vi) a certificate of origin.

     6.19 Non-Core Businesses . The Loan Parties shall not permit (x) the aggregate revenue attributable to all Non-Core Businesses or (y) the EBITDA attributable to all Non-Core Businesses, to exceed 10% of Ultimate Parent’s consolidated revenue or EBITDA, respectively, for any twelve fiscal month period.

      7. TERM

     7.1 Termination . The financing arrangements contemplated hereby shall be in effect until the Commitment Termination Date, and the Loans and all other Obligations shall be automatically due and payable in full on such date.

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     7.2 Survival of Obligations Upon Termination of Financing Arrangements . Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the obligations, duties and liabilities of Borrower or the rights of Agent and Lenders relating to any unpaid portion of the Loans or any other Obligations, due or not due, liquidated, contingent or unliquidated or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Commitment Termination Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon any Credit Party, and all rights of Agent and each Lender, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date.

      8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES

     8.1 Events of Default . The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an " Event of Default " hereunder:

     (a) (i) Borrower shall fail to make any payment of principal of, or interest on, or Fees owing in respect of, the Loans, when due and payable, or (ii) Borrower shall fail to pay or reimburse Agent or Lenders for any expense reimbursable hereunder or under any other Loan Document or any other Obligations within ten (10) days following Agent’s demand for such reimbursement or payment thereof.

     (b) Any Credit Party shall fail or neglect to perform, keep or observe any of the provisions of Sections 1.4 , 1.8 , 5.4 ,or 6 , or any of the provisions set forth in Schedule E , respectively.

     (c) Borrower shall fail or neglect to perform, keep or preserve any of the provisions of Section 4 or any provisions set forth in Schedules G or H , respectively, and the same shall remain unremedied for ten (10) days or more.

     (d) Any Credit Party shall fail or neglect to perform, keep or observe any other provision of this Agreement or of any of the other Loan Documents (other than any provision embodied in or covered by any other clause of this Section 8.1 ) and the same shall remain unremedied for twenty (20) days or more following notice to such Credit Party.

     (e) A default or breach shall occur under any other agreement, document or instrument to which any Credit Party is a party which is not cured within any applicable grace period, and such default or breach (i) involves the failure to make any payment when due in respect of any Indebtedness (other than the Obligations) of any Credit Party in excess of $2,000,000 in the aggregate, or (ii) causes, or such permits any holder of such Indebtedness or a trustee to cause, Indebtedness or a portion thereof in excess of $2,000,000 in the aggregate to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, regardless of whether such right is exercised, by such holder or trustee.

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     (f) Any representation or warranty herein or in any Loan Document or in any written statement, report, financial statement or certificate made or delivered to Agent or any Lender by any Credit Party shall be untrue or incorrect in any material respect as of the date when made or deemed made.

     (g) Assets of any Credit Party with a fair market value of $1,000,000 or more shall be attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of any Credit Party and such condition continues for thirty (30) days or more.

     (h) A case or proceeding shall have been commenced against any Material Credit Party a decree or order in respect of any Material Credit Party (i) under Title 11 of the United States Code, as now constituted or hereafter amended or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for any Material Credit Party or any substantial part of any such Person’s assets, or (iii) ordering the winding-up or liquidation of the affairs of any Material Credit Party, and such case or proceeding shall remain undismissed or unstayed for sixty (60) days or more or such court shall enter a decree or order granting the relief sought in such case or proceeding.

     (i) Any Material Credit Party shall (i) file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of any Material Credit Party or of any substantial part of any such Person’s assets, (iii) make an assignment for the benefit of creditors, or (iv) take any corporate action in furtherance of any of the foregoing.

     (j) A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate at any time outstanding shall be rendered against any Credit Party and the same shall not, within thirty (30) days after the entry thereof, have been discharged or execution thereof stayed or bonded pending appeal, or shall not have been discharged prior to the expiration of any such stay.

     (k) Any provision of any Loan Document shall for any reason cease to be valid, binding and enforceable in accordance with its terms (or any Credit Party shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms), or any security interest created under any Loan Document shall cease to be a valid and perfected first priority security interest or Lien (except as otherwise permitted herein or therein) in any of the Collateral purported to be covered thereby other than as a result of Agent’s failure to take any action within its control.

    &n