NOTE PURCHASE AGREEMENT $30,000,000 AGGREGATE PRINCIPAL AMOUNT OF SENIOR SECURED TERM B NOTES DUE JANUARY 6, 2011

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EXHIBIT 10.2

EXECUTION COPY

NOTE PURCHASE AGREEMENT

BY AND AMONG

ROCKY SHOES & BOOTS, INC.

AND THE OTHER LOAN PARTIES IDENTIFIED ON

THE SIGNATURE PAGES HERETO,

AMERICAN CAPITAL FINANCIAL SERVICES, INC.,

AS AGENT,

AND

THE PURCHASERS IDENTIFIED ON

ANNEX A HERETO

January 6, 2005

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NOTE PURCHASE AGREEMENT

$30,000,000 AGGREGATE PRINCIPAL AMOUNT OF SENIOR SECURED TERM B

NOTES DUE JANUARY 6, 2011

THIS NOTE PURCHASE AGREEMENT (this "AGREEMENT"), dated as of January

6, 2005, is by and among ROCKY SHOES & BOOTS, Inc., an Ohio corporation,

("PARENT") and the other parties identified on the signature pages hereto as

"Loan Parties" (each a "Loan Party" and, together with Parent, the "LOAN

PARTIES"), the note purchasers that are now and hereafter at any time parties

hereto and are listed in Annex A (or any amendment or supplement thereto)

attached hereto (each a "PURCHASER" and collectively, the "PURCHASERS"), and

AMERICAN CAPITAL FINANCIAL SERVICES, INC., a Delaware corporation ("ACFS"), as

administrative and collateral agent for the Purchasers (in such capacity

"AGENT"). Capitalized terms used and not defined elsewhere in this Agreement are

defined in Article 1 hereof.

RECITALS

A. The Loan Parties have proposed selling Senior Secured Term B Notes to the

Purchasers designated on Annex A in the aggregate amount of $30,000,000 for the

purpose of partially financing the acquisition of all of the equity interests of

EJ Footwear LLC, a Delaware limited liability company, Georgia Boot LLC, a

Delaware limited liability company, HM Lehigh Safety Shoe Co. LLC, a Delaware

limited liability company, and their respective subsidiaries (collectively EJ

FOOTWEAR") by Parent (the "ACQUISITION").

B. The Loan Parties also propose to enter into a revolving credit facility with

and to obtain term loans from the Lenders (as defined herein) in the aggregate

amount of $118,000,000.

NOW, THEREFORE, the parties hereto, in consideration of the promises

and their mutual covenants and agreements herein set forth and intending to be

legally bound hereby, covenant and agree as follows:

ARTICLE 1

DEFINITIONS

1.1 CERTAIN DEFINITIONS. In addition to other words and terms

defined elsewhere in this Agreement, the following words and terms shall have

the meanings set forth below:

"ACAS" shall mean American Capital Strategies, Ltd., a Delaware

corporation.

"ACFS" shall have the meaning assigned to such term in the preamble

hereto.

"ACQUISITION" shall have the meaning assigned to such term in the

recitals hereto.

"ACQUISITION-RELATED EXPENSES" shall mean the sum of the aggregate

amount of fees, expenses, financing costs and other expenses incurred in

connection with the Transactions, to the extent paid substantially

contemporaneously with, or on or about the Closing Date.

"AFFILIATE" shall mean, with respect to any Person, any other Person

that is directly or indirectly controlling, controlled by or under common

control with such Person or entity or any

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of its Subsidiaries, and the term "control" (including the terms "CONTROLLED BY"

and "UNDER COMMON CONTROL WITH") means having, directly or indirectly, the power

to direct or cause the direction of the management and policies of a Person,

whether through ownership of voting securities, by contract or otherwise.

Without limiting the foregoing, the ownership of ten percent (10%) or more of

the voting securities of a Person shall be deemed to constitute control and

notwithstanding anything to the contrary herein, neither the Purchasers nor any

of their respective Affiliates shall be deemed to be Affiliates of the Loan

Parties by virtue of the transactions contemplated in this Agreement.

"AGENT" shall have the meaning assigned to such term in the preamble

hereto and shall include any successor agent provided for hereunder.

"AGREEMENT" shall mean this Note Purchase Agreement, as the same may

be amended, restated, supplemented or otherwise modified from time to time.

"BANKRUPTCY CODE" shall mean Title 11, United States Code.

"BUSINESS" shall mean the principal business of the Loan Parties as

set forth in Section 5.1(b) herein and as such shall continue to be conducted

following the purchase and sale of the Senior Term Notes.

"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or

other day on which banking institutions in Maryland and New York are authorized

or required by law to close.

"BY-LAWS" shall mean, with respect to any Person, the by-laws,

partnership agreement, operating agreement, limited liability company agreement

or analogous instrument governing the operations of the Loan Parties, as

applicable, including all amendments and supplements thereto.

"CAPITAL EXPENDITURES" shall mean, for any period of determination,

the sum of capital expenditures and payments under Capitalized Leases of the

Loan Parties for such period determined and consolidated in accordance with

GAAP.

"CAPITALIZATION SCHEDULE" shall have the meaning assigned to such

term in Section 5.1(d)

"CAPITALIZED LEASES" shall mean, with respect to any Person, leases

of (or other agreements conveying the right to use) any property (whether real,

personal or mixed) by such Person as lessee that, in accordance with GAAP,

either would be required to be classified and accounted for as capital leases on

a balance sheet of such Person or would otherwise be disclosed as such in a note

to such balance sheet.

"CASH FLOW PREPAYMENT" shall have the meaning assigned to such term

in Section 3.5(b) hereof.

"CERCLA" shall mean the Comprehensive Environmental Response,

Compensation and Liability Act (42 U.S.C. Section 9604, et seq.), as amended,

and rules, regulations, and standards promulgated thereunder.

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"CHANGE OF CONTROL" shall mean the occurrence of any of the

following:

(a) any transaction or series of related transactions resulting in

the sale or issuance of securities or any rights to securities of Parent by

Parent representing in the aggregate more than fifty percent (50%) of its issued

and outstanding securities entitled to vote for the election of directors of

Parent, or any transaction or series of related transactions resulting in the

sale, transfer, assignment or other conveyance or disposition of any securities

or any rights to securities of Parent by any holder or holders thereof

representing in the aggregate more than fifty percent (50%) of the issued and

outstanding securities entitled to vote for the election of directors of Parent;

(b) a merger, consolidation, reorganization, recapitalization or

share exchange (whether or not Parent is the surviving and continuing

corporation) in which the stockholders of Parent immediately prior to such

transaction own, as a result of such transaction, less than fifty percent (50%)

of the securities entitled to vote for the election of directors of the

resulting corporation or less than fifty percent (50%) of the capital stock of

the resulting corporation;

(c) a sale, transfer or other disposition of all or substantially

all of the assets of Parent and its Subsidiaries, on a consolidated basis; and

(d) any sale or issuance or series of sales or issuances of the

Common Stock or any other voting security (or security convertible into,

exchangeable for, or exercisable for any other voting security) of Parent within

a twelve (12) month period that results in a transfer of more than fifty percent

(50%) of the issued and outstanding shares of voting stock of Parent or a

transfer of more than fifty percent (50%) of the voting power of Parent.

"CHARGES" shall mean all taxes, charges, fees, imposts, levies or

other assessments, including, without limitation, all net income, gross income,

gross receipts, sales, use, ad valorem, value added, transfer, franchise,

profits, inventory, capital stock, license, withholding, payroll, employment,

social security, unemployment, excise, severance, stamp, occupation and property

taxes, custom duties, fees, assessments, liens, claims and charges of any kind

whatsoever, together with any interest and any penalties, additions to tax or

additional amounts, imposed by any taxing or other authority, domestic or

foreign (including, without limitation, the PBGC or any environmental agency or

superfund), upon the Collateral, the Loan Parties or any of their Affiliates.

"CHARTER DOCUMENTS" shall mean, with respect to any Person, the

Articles of Incorporation, Certificate of Incorporation, certificate of limited

partnership, certificate of limited liability company, charter or analogous

organic instrument filed with the appropriate Governmental Authorities of such

Person, as applicable, including all amendments and supplements thereto.

"CLOSING" shall have the meaning assigned in Section 2.3 hereof.

"CLOSING PROCESSING FEE" shall mean an amount equal to $300,000 less

the amount of the Term Sheet Processing Fee paid by Parent to ACAS.

"CLOSING DATE" shall have the meaning assigned to such term in

Section 2.3 hereof.

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"CODE" shall mean the Internal Revenue Code of 1986, as amended.

"COLLATERAL" shall have the meaning assigned to such term in the

Security Agreement.

"COLLATERAL ASSIGNMENT OF CONTRACTS" shall have the meaning assigned

to such term in Section 4.1(c) hereof.

"COMMITMENT FEE" shall mean an amount equal to $300,000, which was

previously paid to ACAS by Parent upon the delivery of a commitment letter by

ACAS to Parent, pursuant to which ACAS committed to purchase the Senior Term

Notes from the Loan Parties subject to the terms and conditions contained

therein.

"COMMON STOCK" shall mean the common stock, without par value, of

Parent.

"CONDITION" shall mean any condition that results in or otherwise

relates to any Environmental Liabilities.

"CONTROLLED GROUP" shall mean the "controlled group of corporations"

as that term is defined in Section 1563 of the Code, of which the Loan Parties

are a party from time to time.

"COPYRIGHT LICENSES" means any agreement, whether written or oral,

providing for the grant by or to the Loan Parties or any of their Subsidiaries

of any right under any Copyright, including the grant of any right to use, copy,

publicly perform, display, create derivative works, manufacture, distribute,

exploit or sell materials derived from any Copyright.

"COPYRIGHTS" means (a) all right, title and interest in or relating

to copyrights, whether now owned or hereafter acquired or existing, arising

under the laws of the United States or any other country or any political

subdivision thereof, whether registered or unregistered and whether published or

unpublished, all registrations and recordings thereof and all applications in

connection therewith, including all registrations, recordings and applications

in the United States Copyright Office or in any counterparts thereof, and (b)

the right to obtain all renewals, continuations, reversions and extensions

thereof.

"COVERED TAXES" shall have the meaning assigned to such term in

Section 3.7 hereof.

"DEBT TO EBITDA RATIO" shall mean the ratio of (i) Indebtedness of

the Loan Parties, on a consolidated basis, as of a particular date, to (ii) the

EBITDA for the twelve (12) month period ending on such date.

"DEFAULT" shall mean any event or condition that, but for the giving

of notice or the lapse of time, or both, would constitute an Event of Default.

"DEPOSIT ACCOUNT CONTROL AGREEMENTS" shall have the meaning assigned

to such term in Section 4.1(c).

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"DOMESTIC SUBSIDIARY" shall mean, with respect to any Person, a

Subsidiary of such Person, which Subsidiary is incorporated or otherwise

organized under the laws of a State of the United States of America.

"EARNINGS BEFORE INTEREST AND TAXES" shall mean, for any period, the

sum of (i) net income (or loss) of Parent on a Consolidated Basis for such

period (excluding extraordinary gains or losses), plus (ii) all interest expense

of Parent on a Consolidated Basis for such period, plus (iii) all Charges

against income of Parent on a Consolidated Basis for such period for federal,

state and local Taxes.

"EBITDA" shall mean, for any period, the sum of (i) Earnings Before

Interest and Taxes for such period, plus (ii) depreciation expenses for such

period, plus (iii) amortization expenses for such period, plus (iv)

Acquisition-Related Expenses. For purposes of Sections 7.3(b), 7.3(c) and

7.3(d), EBITDA for the fiscal quarters ended prior to the Closing Date shall be

deemed to have been (w) $5,733,545 for the fiscal quarter ended March 31, 2004,

(x) $7,898,460 for the fiscal quarter ended June 30, 2004, (y) $13,845,283 for

the fiscal quarter ended September 30, 2004 and (z) $6,287,713 for the fiscal

quarter ended December 31, 2004.

"EJ FINANCIAL INFORMATION" shall have the meaning assigned to such

term in Section 5.1(c) hereof.

"EJ FOOTWEAR" shall have the meaning assigned to such term in the

recitals hereto.

"ENVIRONMENTAL LAWS" shall mean any Laws that address, are related

to or are otherwise concerned with environmental, health or safety issues,

including any Laws relating to any emissions, releases or discharges of

Pollutants into ambient air, surface water, ground water or land, or otherwise

relating to the manufacture, processing, distribution, use, treatment, storage,

disposal, transport, handling, clean-up or control of Pollutants or any exposure

or impact on worker health and safety.

"ENVIRONMENTAL LIABILITIES" shall mean any obligations or

liabilities (including any claims, suits or other assertions of obligations or

liabilities) that are:

(a) related to environmental, health or safety issues (including

on-site or off-site contamination by Pollutants of surface or subsurface soil or

water, and occupational safety and health); and

(b) based upon or related to (i) any provision of past, present or

future United States or foreign Environmental Law (including CERCLA and RCRA) or

common law, or (ii) any judgment, order, writ, decree, permit or injunction

imposed by any court, administrative agency, tribunal or otherwise.

The term "Environmental Liabilities" includes: (i) fines, penalties,

judgments, awards, settlements, losses, damages (including foreseeable and

unforeseeable consequential damages), costs, fees (including attorneys' and

consultants' fees), expenses and disbursements; (ii) defense and other responses

to any administrative or judicial action (including claims, notice letters,

complaints, and other assertions of liability); and (iii) financial

responsibility for (1) cleanup costs and injunctive relief, including any

Removal, Remedial or other Response actions, and natural resource damages, and

(2) any other compliance or remedial measures.

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"ENVIRONMENTAL SCHEDULE" shall have the meaning assigned to such

term in Section 5.1(l) hereof.

"EPA" shall mean the United States Environmental Protection Agency

and any governmental body or agency succeeding to the functions thereof.

"ERISA" shall mean the Employee Retirement Income Security Act of

1974, as the same may from time to time be amended, and the rules and

regulations of any governmental agency or authority, as from time to time in

effect, promulgated thereunder.

"ERISA AFFILIATE" shall mean any Loan Party and any Person who is a

member of a group which is under common control with any Loan Party, who

together with any Loan Party is treated as a single employer within the meaning

of Section 414 of the Internal Revenue Code.

"EVENT OF DEFAULT" shall mean any of the events of default described

in Section 8.1 hereof.

"EXCESS CASH FLOW" shall mean, for any period, the greater of (a)

zero (0); or (b) without duplication, the total of the following for Parent on a

Consolidated Basis, each calculated for such period: (i) EBITDA; plus (ii) tax

refunds actually received; less (iii) Capital Expenditures (to the extent

actually made in cash and/or due to be made in cash within such period,

excluding any Capital Expenditures under or with respect to Capitalized Leases

to the extent of the amount financed thereby; less (iv) income and franchise

taxes paid or accrued excluding any provision for deferred taxes included in the

determination of net income; less (v) decreases in deferred income taxes

resulting from payments of deferred taxes accrued in prior periods; less (vi)

amounts of cash interest paid during such period; less (vii) mandatory

prepayments made under the GMAC Credit Agreement (other than excess cash flow

payments pursuant to Section 2.4(B)(3) or this Agreement); less (viii) payments

of principal paid in cash with respect to all long-term Indebtedness (other than

Revolving Loans under the GMAC Credit Agreement) and Capitalized Leases.

"FINANCIAL PROJECTIONS" shall have the meaning assigned to such term

in Section 5.1(c) hereof.

"FINANCIAL STATEMENTS" shall have the meaning assigned to such term

in Section 5.1(c) hereof.

"FINANCING STATEMENTS" shall have the meaning assigned to such term

in Section 4.1(c) hereof.

"FISCAL YEAR" or "FISCAL YEAR" shall mean each twelve (12) month

period ending on December 31 of each year.

"FIXED CHARGE COVERAGE RATIO" shall mean, for any period, the ratio

of EBITDA of Parent on a Consolidated Basis less Capital Expenditures on a

consolidated basis during such period to the Fixed Charges during such period.

"FIXED CHARGES" shall mean, for any period, and each calculated for

such period (without duplication) of Parent on a Consolidated Basis, the sum of

(a) cash interest expense of the

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Loan Parties; (b) scheduled payments of principal with respect to all

Indebtedness; (c) any cash payment of income or franchise taxes included in the

determination of net income, excluding any provision for deferred taxes; and (d)

payment of deferred taxes, income and franchise taxes accrued in any prior

period.

"FOREIGN SUBSIDIARY" means, with respect to any Person, a Subsidiary

of such Person, which Subsidiary is not incorporated or otherwise organized

under the laws of a Sate of the United States of America.

"GAAP" shall have the meaning assigned to such term in Section 1.2

hereof.

"GMAC" shall mean GMAC Commercial Finance, LLC, a Delaware limited

liability company.

"GMAC AGENT" shall mean the administrative agent as defined in the

GMAC Credit Agreement.

"GMAC CREDIT AGREEMENT" shall mean that certain Loan and Security

Agreement by and among the Loan Parties and GMAC, dated as of January 6, 2005,

as such may be amended or modified from time to time as permitted hereunder.

"GMAC CREDIT DOCUMENTS" shall mean the GMAC Credit Agreement and all

ancillary documents and materials entered into in connection with the GMAC

Credit Agreement.

"GMAC FINANCING" shall mean, collectively, the Indebtedness and

other obligations under or relating to the Term Financing and the Revolving

Financing.

"GOVERNMENTAL AUTHORITIES" shall mean any federal, state or

municipal court or other governmental department, commission, board, bureau,

agency or instrumentality, governmental or quasi-governmental, domestic or

foreign.

"GUARANTY" shall mean any guaranty of the payment or performance of

any Indebtedness or other obligation and any other arrangement whereby credit is

extended to one obligor on the basis of any promise of another Person, whether

that promise is expressed in terms of an obligation to pay the Indebtedness of

such obligor, or to purchase an obligation owed by such obligor, or to purchase

goods and services from such obligor pursuant to a take-or-pay contract, or to

maintain the capital, working capital, solvency or general financial condition

of such obligor, whether or not any such arrangement is reflected on the balance

sheet of such other Person, firm or corporation, or referred to in a footnote

thereto, but shall not include endorsements of items for collection in the

ordinary course of business. For the purpose of all computations made under this

Agreement, the amount of a Guaranty in respect of any obligation shall be deemed

to be equal to the maximum aggregate amount of such obligation or, if the

Guaranty is limited to less than the full amount of such obligation, the maximum

aggregate potential liability under the terms of the Guaranty.

"INDEBTEDNESS" shall mean, for any Person at the time of any

determination, without duplication, all obligations, contingent or otherwise, of

such Person that, in accordance with GAAP, should be classified upon the balance

sheet of such Person as indebtedness, but in any event including: (i) all

obligations for borrowed money, (ii) all obligations arising from

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installment purchases of property or representing the deferred purchase price of

property or services in respect of which such Person is liable, contingently or

otherwise, as obligor or otherwise (other than trade payables and other current

liabilities incurred in the ordinary course of business on terms customary in

the trade), (iii) all obligations evidenced by notes, bonds, debentures,

acceptances or instruments, or arising out of letters of credit or bankers'

acceptances issued for such Person's account, (iv) all obligations, whether or

not assumed, secured by any Lien or payable out of the proceeds or production

from any property or assets now or hereafter owned or acquired by such Person,

(v) all obligations for which such Person is obligated pursuant to a Guaranty

which are classified under GAAP as indebtedness, (vi) the capitalized portion of

lease obligations under Capitalized Leases, (vii) all obligations for which such

Person is obligated pursuant to any Interest Rate Protection Agreements or

derivative agreements or arrangements, (viii) all factoring arrangements and

(ix) all obligations of such Person upon which interest charges are customarily

paid or accrued.

"INTELLECTUAL PROPERTY AGREEMENTS" shall have the meaning assigned

to such term in Section 4.1(c) hereof.

"INTELLECTUAL PROPERTY SCHEDULE" shall have the meaning assigned to

such term in Section 5.1(r) hereof.

"INTERCREDITOR AGREEMENT" shall have the meaning assigned to such

term in Section 10.17 hereof.

"INTEREST RATE PROTECTION AGREEMENT" shall mean any interest rate

swap, interest rate cap, interest rate collar or other interest rate hedging

agreement or arrangement.

"INVESTMENT" as applied to any Person shall mean the amount paid or

agreed to be paid or loaned, advanced or contributed to other Persons, and in

any event shall include, without limitation, (i) any direct or indirect purchase

or other acquisition of any notes, obligations, instruments, stock, securities

or ownership interest (including partnership interests and joint venture

interests) and (ii) any capital contribution to any other Person.

"IRS" shall mean the Internal Revenue Service and any governmental

body or agency succeeding to the functions thereof.

"LANDLORD WAIVER" shall mean a letter in form and substance

acceptable to Agent and executed by a landlord in respect of inventory of the

Loan Parties located at any leased premises of the Loan Parties pursuant to

which such landlord, among other things, waives or subordinates any Lien such

landlord may have in respect of such inventory.

"LAWS" shall mean all U.S. and foreign federal, state or local

statutes, laws, rules, regulations, ordinances, codes, policies, rules of common

law, and the like, now or hereafter in effect, including any judicial or

administrative interpretations thereof, and any judicial or administrative

orders, consents, decrees or judgments.

"LENDERS" shall collectively mean the lenders party to the GMAC

Credit Agreement.

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"LIBOR BUSINESS DAY" means a business day on which banks in the city

of London are generally open for interbank or foreign exchange transactions.

"LIBOR PERIOD" means each month commencing on the Closing Date (or

if the Closing Date is not a LIBOR Business Day, the next succeeding LIBOR

Business Day) and ending one month thereafter; provided, that the foregoing

provision relating to LIBOR Periods is subject to the following:

(a) if any LIBOR Period would otherwise end on a day that is not a

LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding

LIBOR Business Day unless the result of such extension would be to carry such

LIBOR Period into another calendar month in which event such LIBOR Period shall

end on the immediately preceding LIBOR Business Day;

(b) any LIBOR Period that would otherwise extend beyond the maturity

date of any Senior Term Note to which it relates shall end on such maturity

date; and

(c) any LIBOR Period that begins on the last LIBOR Business Day of a

calendar month (or on a day for which there is no numerically corresponding day

in the calendar month at the end of such LIBOR Period) shall end on the last

LIBOR Business Day following such calendar month.

"LIBOR RATE" shall mean, an interest rate per annum equal to the

posted rate for thirty (30) day deposits in United States dollars appearing on

Telerate page 3750 as of 11:00 a.m. (London time) on the Business Day that is

the second (2nd) Business Day immediately preceding the date as of which the

LIBOR Rate is to be determined; provided, further, that if no rate appears on

Telerate page 3750 at such time and day, then the LIBOR Rate shall be determined

by Agent using such other indication of the prevailing LIBOR Rate as may

reasonably be chosen by Agent.

"LIEN" shall mean any security interest, lien, pledge, bailment,

mortgage, hypothecation, deed of trust, conditional sales and title retention

agreement (including any lease in the nature thereof), charge, encumbrance or

other similar arrangement or interest in real or personal property, now owned or

hereafter acquired, whether such interest is based on common law, statute or

contract.

"LIFESTYLE" shall mean Lifestyle Footwear, Inc., a Delaware

corporation.

"LITIGATION SCHEDULE" shall have meaning assigned to such term in

Section 5.1(j) hereof.

"LOAN PARTY" shall have the meaning assigned to such term in the

preamble hereto.

"MANAGE" and "MANAGEMENT" shall mean generation, production,

handling, distribution, processing, use, storage, treatment, operation,

transportation, recycling, reuse and/or disposal, as those terms are defined in

CERCLA, RCRA and other Environmental Laws (including as those terms are further

defined, construed, or otherwise used in rules, regulations, standards,

guidelines and publications issued pursuant to, or otherwise in implementation

of, such Environmental Laws).

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"MATERIAL ADVERSE CHANGE" shall mean any change that has a Material

Adverse Effect.

"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on

the business, properties, assets, liabilities or condition (financial or

otherwise) of the Loan Parties, taken together as a whole.

"MATURITY DATE" shall have the meaning assigned to such term in

Section 3.2 hereof.

"MULTIEMPLOYER PLAN" shall mean a multiemployer plan (within the

meaning of Section 3(37) of ERISA) that is maintained for the benefit of the

employees of the Loan Parties or any member of the Controlled Group.

"ORGANIZATION SCHEDULE" shall have the meaning assigned to such term

in Section 5.1(a) hereof.

"OTHER TAXES" shall have the meaning assigned to such term in

Section 3.7 hereof.

"PARENT" shall have the meaning assigned to such term in the

preamble hereof.

"PARENT ON A CONSOLIDATED BASIS" shall mean the consolidation, in

accordance with GAAP, of the financial accounts of Parent and its Subsidiaries.

"PARENT SEC REPORTS" shall have the meaning assigned to such term in

Section 5.1(y) hereof.

"PATENT LICENSE" means all agreements, whether written or oral,

providing for the grant by or to the Loan Parties or any of their Subsidiaries

of any right to any Patent, including the grant of any right to manufacture,

have manufactured, use, import, lease, sell or offer for sale any invention

covered in whole or in part by a Patent.

"PATENTS" means (a) all right, title and interest in or relating to

letters patent of the United States, any other country or any political

subdivision thereof and all reissues, reexaminations, and extensions thereof,

(b) all applications for letters patent of the United States or any other

country or any political subdivisions thereof and all divisionals, continuations

and continuations-in-part thereof and (c) all rights to obtain any reissues,

reexaminations or extensions of the foregoing.

"PATRIOT ACT" shall have the meaning assigned to such term in

Section 5.1(x) hereof.

"PBGC" shall mean the Pension Benefit Guaranty Corporation

established pursuant to Subtitle A of Title IV of ERISA, or any other

governmental agency, department or instrumentality succeeding to the functions

thereof.

"PERMITTED ENCUMBRANCES SCHEDULE" shall have the meaning assigned to

such term in Section 7.2(b) hereof.

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"PERMITTED INDEBTEDNESS SCHEDULE" shall have the meaning assigned to

such term in Section 7.2(a) hereof.

"PERMITTED INVESTMENT" shall have the meaning assigned to such term

in Section 7.2(h) hereof.

"PERMITTED LIENS" shall have the meaning assigned to such term in

Section 7.2(b) hereof.

"PERSON" shall mean any individual, partnership, limited

partnership, corporation, limited liability company, association, joint stock

company, trust, joint venture, unincorporated organization or governmental

entity or department, agency or political subdivision thereof.

"PLAN" shall mean any employee benefit plan (within the meaning of

Section 3(3) of ERISA), other than a Multiemployer Plan, established or

maintained by the Loan Parties or any member of the Controlled Group.

"PLEDGE AGREEMENT" shall have the meaning assigned to such term in

Section 4.1(c) hereof.

"POLLUTANT" shall include any "hazardous substance" and any

"pollutant or contaminant" as those terms are defined in CERCLA; any "hazardous

waste" as that term is defined in RCRA; and any "hazardous material" as that

term is defined in the Hazardous Materials Transportation Act (49 U.S.C. Section

1801 et seq.), as amended (including as those terms are further defined,

construed, or otherwise used in rules, regulations, or standards promulgated

pursuant to, or otherwise in implementation of, said Environmental Laws); and

including without limitation any petroleum product or byproduct, solvent,

flammable or explosive material, radioactive material, asbestos, polychlorinated

biphenyls (PCBs), dioxins, dibenzofurans, heavy metals, and radon gas; and

including any other substance or material that is reasonably determined to

present a threat, hazard or risk to human health or the environment.

"PRO FORMA BALANCE SHEET" shall have the meaning assigned to such

term in Section 5.1(c)(iii).

"PROPERTIES AND FACILITIES" shall have the meaning assigned to such

term in Section 5.1(q) hereof.

"PROPERTIES SCHEDULE" shall have the meaning assigned to such term

in Section 5.1(q) hereof.

"PROPRIETARY RIGHTS" shall mean, collectively, whether now owned or

hereafter acquired or existing, (a) all right, title and interest of the Loan

Parties or any of their Subsidiaries in or relating to intellectual property or

industrial property, whether arising under United States, multinational or

foreign laws or otherwise, including Copyrights, Copyright Licenses, Patents,

Patent Licenses, Trademarks, Trademark Licenses, trade secrets, Internet domain

names and domain name registrations, software and contract rights relating to

software, Websites, advertising rights, rights in designs, including

registrations thereof, and rights in data, and (b) all right to income,

royalties, proceeds and damages now or hereafter due and/or payable under and

with

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respect thereto, including all rights to sue and recover at law or in equity for

any past, present and future infringement, misappropriation, dilution, violation

or other impairment thereof.

"PURCHASER" shall have the meaning assigned to such term in the

preamble hereto and in Section 6.2 hereof.

"RCRA" shall mean the Resource Conservation and Recovery Act (42

U.S.C. Section 6901 et seq.), as amended, and all rules, regulations, standards,

guidelines, and publications issued thereunder.

"REMOVAL," "REMEDIAL" and "RESPONSE" actions shall include the types

of activities "covered" by CERCLA, RCRA, and other comparable Environmental

Laws, and whether the activities are those that might be taken by a government

entity or those that a government entity or any other person might seek to

require of waste generators, handlers, distributors, processors, users, storers,

treaters, owners, operators, transporters, recyclers, reusers, disposers, or

other persons under "removal," "remedial," or other "response" actions.

"REPORTABLE EVENT" shall mean any of the events that are reportable

under Section 4043 of ERISA and the regulations promulgated thereunder, other

than an occurrence for which the thirty (30) day notice contained in 29 C.F.R.

Section 2615.3(a) is waived.

"REQUIRED PURCHASERS" shall mean, at any time, the Purchasers

holding a pro rata percentage of the outstanding principal amount of the Senior

Term Notes aggregating at least 66-2/3% at such time.

"REVOLVING FINANCING" shall mean a secured revolving line of credit

facility pursuant to the GMAC Credit Agreement in an aggregate principal amount

not to exceed $100,000,000, provided, however, that the outstanding amount of

Revolving Financing may exceed $ 100,000,000, so long as the advance rates and

standards for determining the eligible receivables and eligible inventory for

inclusion in the borrowing base under the GMAC Credit Agreement in effect on the

Closing Date support such increase and are satisfied.

"SARBANES OXLEY" shall mean the United States Sarbanes-Oxley Act of

2002.

"SEC" shall mean the Securities and Exchange Commission and any

governmental body or agency succeeding to the functions thereof.

"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.

"SECURITIES EXCHANGE ACT" shall mean the Securities Exchange Act of

1934, as amended.

"SECURITY AGREEMENT" shall have the meaning assigned to such term in

Section 4.1(c) hereof.

"SECURITY DOCUMENTS" shall mean the Security Agreement, the Pledge

Agreement, the Collateral Assignment of Contracts, the Financing Statements, and

all other documents, instruments and other materials necessary to create or

perfect the security interests created pursuant to the Security Agreement.

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"SENIOR DEBT" shall mean all Indebtedness of Parent on a

Consolidated Basis other than (a) senior Indebtedness under the Senior Term

Notes and (b) any unsecured Indebtedness.

"SENIOR LEVERAGE RATIO" shall mean, for any period, the ratio of (x)

Senior Debt as of the end of such period to (y) EBITDA for such period.

"SENIOR TERM NOTES" shall have the meaning assigned to such term in

Section 2.1 hereof.

"SUBSIDIARY" of any corporation shall mean any other corporation or

limited liability company of which the outstanding capital stock possessing a

majority of voting power in the election of directors (otherwise than as the

result of a default) is owned or controlled by such corporation directly or

indirectly through Subsidiaries.

"SUBSIDIARY SCHEDULE" shall have the meaning assigned to such term

in Section 5.1(e) hereof.

"TAXES" shall have the meaning assigned to such term in Section 3.7

hereof.

"TERM FINANCING" shall mean secured term credit facilities under the

GMAC Credit Agreement with aggregate principal amount not to exceed $18,000,000,

minus scheduled principal payments made thereon after the date hereof.

"TERM SHEET PROCESSING FEE" shall mean $60,000, which was paid by

Parent to ACAS in consideration of the execution of the term sheet, dated

November 3, 2004, by and between Parent and ACAS.

"THIRD PARTY PROPRIETARY RIGHTS" means any right, title or interest

of any Person other than the Loan Parties or any of their Subsidiaries under

patent, copyright, trademark or trade secret law or any other statutory

provision or common law doctrine relating to intellectual property or

proprietary rights.

"TOTAL LEVERAGE RATIO" shall mean, for any period, the ratio of (x)

total Indebtedness of Parent on a Consolidated Basis as of the end of such

period to (y) EBITDA for such period.

"TRADEMARK LICENSE" means any agreement, whether written or oral,

providing for the grant by or to the Loan Parties or any of their Subsidiaries

of any right under any Trademark.

"TRADEMARKS" means (a) all trademarks, trade names, corporate names,

company names, business names, fictitious business names, trade styles, trade

dress, service marks, logos and other source or business identifiers, and, in

each case, all goodwill associated therewith, whether now owned or hereafter

acquired or existing, all registrations and recordings thereof and all

applications in connection therewith, in each case whether in the United States

Patent and Trademark Office or in any similar office or agency of any State

thereof or any other country or any political subdivision thereof, or otherwise,

and all common-law rights related thereto, and (b) the right to obtain all

renewals and extensions thereof.

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"TRANSACTION DOCUMENTS" shall mean this Agreement, the Senior Term

Notes and the Security Documents and all other agreements, instruments and

documents delivered in connection therewith as any or all of the foregoing may

be supplemented or amended from time to time.

"TRANSACTIONS" shall mean the incurrence of debt and the issuance of

securities in connection therewith, as contemplated by this Agreement, the

Senior Term Notes, the consummation of the Acquisition, and all other agreements

contemplated hereby and thereby.

"UCC" shall mean the Maryland Uniform Commercial Code.

"UST" shall mean an underground storage tank, including as that term

is defined, construed and otherwise used in RCRA and in rules, regulations,

standards, guidelines and publications issued pursuant to RCRA and comparable

state and local laws.

"WORKING CAPITAL" shall mean, on a consolidated basis, current

assets minus current liabilities excluding short-term debt determined in

accordance with GAAP.

1.2 ACCOUNTING PRINCIPLES. The character or amount of any asset,

liability, capital account or reserve and of any item of income or expense to be

determined, and any consolidation or other accounting computation to be made,

and the construction of any definition containing a financial term, pursuant to

this Agreement shall be determined or made in accordance with generally accepted

accounting principles in the United States of America consistently applied

("GAAP"), unless such principles are inconsistent with the express requirements

of this Agreement.

1.3 OTHER DEFINITIONAL PROVISIONS; CONSTRUCTION. Whenever the

context so requires, neuter gender includes the masculine and feminine, the

singular number includes the plural and vice versa. The word "including" when

used herein shall mean "including without limitation" unless the context states

otherwise. The words "hereof," "herein" and "hereunder" and words of similar

import when used in this Agreement shall refer to this Agreement as a whole and

not to any particular provision of this Agreement, and references to any

section, article, annex, schedule, exhibit or like references are references to

this Agreement unless otherwise specified. A Default or Event of Default shall

"continue" or be "continuing" until such Default or Event of Default has been

cured or waived by Agent and the Purchasers. References in this Agreement to any

Persons shall include such Persons, successors and permitted assigns. Other

terms contained in this Agreement (which are not otherwise specifically defined

herein) shall have the meanings provided to such terms in Article 9 of the UCC

on the date hereof to the extent the same are used or defined therein.

ARTICLE 2

ISSUE AND SALE OF THE SENIOR TERM NOTES

2.1 SENIOR TERM NOTES. The Loan Parties have duly authorized the

issuance to the Purchasers designated on Annex A of $30,000,000 aggregate

principal amount of the Loan Parties' Senior Secured Term B Notes due January 6,

2011 (together with any promissory notes issued in substitution therefor

pursuant to Sections 6.3 and 6.4, the "SENIOR TERM NOTES") to be substantially

in the form of the promissory notes made by the Loan Parties in favor of the

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Purchasers thereof in the form attached hereto as Exhibit A to be delivered by

the Loan Parties at the Closing.

2.2 SALE AND PURCHASE. Subject to the terms and conditions and in

reliance upon the representations, warranties and agreements set forth herein,

the Loan Parties shall sell to the Purchasers, and the Purchasers shall purchase

from the Loan Parties, in amounts designated in Annex B, the Senior Term Notes

in the aggregate principal amount set forth in Section 2.1 hereof.

2.3 THE CLOSING. Delivery of and payment for the Senior Term Notes

(the "CLOSING") shall be made at the offices of Weil, Gotshal & Manges LLP, 767

Fifth Avenue, New York, NY 10153, commencing at 10:00 a.m., local time, on or

about January 6, 2005 or at such place or on such other date on or before

January 6, 2005 as may be mutually agreeable to the Loan Parties and the

Purchasers. The date and time of the Closing as finally determined pursuant to

this Section 2.3 are referred to herein as the "CLOSING DATE." Delivery of the

Senior Term Notes shall be made to the Purchasers against payment of the

purchase price therefor, less any unpaid Closing Processing Fee, Commitment Fee

or Term Sheet Processing Fee and other amounts payable pursuant to Section

4.1(l) hereof, by wire transfer of immediately available funds in the manner

agreed to by the Loan Parties and the Purchasers. The Senior Term Notes shall be

issued in such name or names and in such permitted denomination or

denominations, numbers and amounts as set forth in Annex A or as the Purchasers

may request in writing not less than two (2) Business Days before the Closing

Date.

ARTICLE 3

REPAYMENT OF SENIOR TERM NOTES

3.1 INTEREST RATES AND INTEREST PAYMENTS.

(a) SENIOR TERM NOTES. The Loan Parties, jointly and severally,

covenant and agree to make payments to Agent, for the ratable benefit of the

Purchasers holding Senior Term Notes, of accrued interest on the Senior Term

Notes monthly in arrears on the first LIBOR Business Day of each LIBOR Period,

commencing on February 1, 2005 through the date of repayment in full of the

Senior Term Notes. The Senior Term Notes shall bear interest on the outstanding

principal thereof at a rate equal to the LIBOR Rate, as such rate may adjust

from time to time, plus eight percent (8%).

(b) COMPUTATION OF INTEREST. Interest on the Senior Term Notes shall

be computed on the basis of a year with three hundred sixty (360) days and the

actual number of days elapsed.

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3.2 REPAYMENT OF SENIOR TERM NOTES. Beginning on the first day of

the first month following the third anniversary of the Closing, the Loan

Parties, jointly and severally, covenant and agree to repay to Agent, for the

ratable benefit of the Purchasers holding Senior Term Notes, by making equal

monthly payments of the then outstanding principal of the Senior Term Notes

(unless and until the then outstanding balance of the Senior Term Notes are

fully repaid). Notwithstanding the foregoing, the Loan Parties, jointly and

severally, covenant and agree to repay any and all unpaid principal on the

Senior Term Notes, together with all accrued and unpaid interest, fees and other

amounts due in connection with the Senior Term Notes upon maturity of the Senior

Term Notes on January 6, 2011 (the "MATURITY DATE").

3.3 OPTIONAL PREPAYMENT OF SENIOR TERM NOTES. Subject to the terms

of this Section 3.3, the Loan Parties may prepay to Agent, for the ratable

benefit of the Purchasers, the outstanding principal amount of the Senior Term

Notes in whole or in part in multiples of $100,000, or such lesser amount as is

then outstanding, at any time plus accrued interest, if any, to the date set for

prepayment on the principal amount to be repaid. All prepayments shall be

applied by Agent ratably to the outstanding principal amount of the Senior Term

Notes in inverse of order of maturity. All such prepayments shall be so applied

after application of such prepayment to any accrued interest payable, if any, in

connection therewith. For the avoidance of doubt, no prepayment fee shall be

payable with respect to the optional repayment of the Senior Term Notes at any

time.

3.4 NOTICE OF OPTIONAL PREPAYMENT. If the Loan Parties shall elect

to prepay any Senior Term Notes pursuant to Section 3.3 hereof, the Loan Parties

shall give notice of such prepayment to Agent and each holder of the Senior Term

Notes to be prepaid not less than thirty (30) days or more than ninety (90) days

prior to the date fixed for prepayment, specifying (i) the date on which such

prepayment is to be made, (ii) the principal amount of such Senior Term Notes to

be prepaid on such date, and (iii) the premium, if any, and accrued interest

applicable to the prepayment. Such notice shall be accompanied by a certificate

of the Chief Executive Officer, the Chief Financial Officer, or the Chief

Operating Officer of Parent that such prepayment is being made in compliance

with Section 3.3. Notice of prepayment having been so given, the aggregate

principal amount of the Senior Term Notes specified in such notice, together

with accrued interest thereon and the premium, if any, shall become due and

payable on the prepayment date set forth in such notice.

3.5 MANDATORY PREPAYMENT.

(a) CHANGE OF CONTROL; EVENT OF DEFAULT. The Senior Term Notes shall

be prepaid in full, together with all accrued and unpaid interest, fees and

expenses in the event of a Change of Control or upon such Senior Term Notes

becoming due as a consequence of an Event of Default pursuant to Section 8.2.

(b) EXCESS CASH FLOW. In addition to the amounts payable by the Loan

Parties in respect of the Senior Term Notes pursuant to Sections 3.1, 3.2, 3.3

and 3.5(a) hereof, the Loan Parties, jointly and severally, covenant and agree

to make annual principal prepayments on the Senior Term Notes (each a "CASH FLOW

PREPAYMENT") on or before the one hundred twentieth (120th) day following the

end of each Fiscal Year in an amount equal to twenty-five percent (25%) of the

Excess Cash Flow, or such lesser amount as is then outstanding under the Senior

Term Notes, for so long as any amounts remain outstanding under the Senior Term

Notes. All

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Cash Flow Prepayments in respect of any Fiscal Year shall be applied by Agent to

the outstanding principal of the Senior Term Notes in inverse order of maturity.

3.6 HOME OFFICE PAYMENT. The Loan Parties will pay all sums becoming

due on any Senior Term Note for principal, prepayment penalty, if any, and

interest to Agent by the method and at the address specified for such purpose in

Annex A, or by such other method or at such other address as the Purchasers

shall have from time to time specified to the Loan Parties in writing for such

purpose, without the presentation or surrender of such Senior Term Note or the

making of any notation thereon, except that upon written request of the Loan

Parties made concurrently with or reasonably promptly after payment or

prepayment in full of any Senior Term Note, each holder of a Senior Term Note

shall surrender such Senior Term Note for cancellation, reasonably promptly

after such request, to the Loan Parties at their principal executive office.

3.7 TAXES. Any and all payments by the Loan Parties hereunder or

under the Senior Term Notes or other Transaction Documents that are made to or

for the benefit of the Purchasers shall be made free and clear of and without

deduction for any and all present or future taxes, levies, imposts, deductions,

charges or withholdings and penalties, interests and all other liabilities with

respect thereto (collectively, "TAXES"), excluding taxes imposed on Agent's or

the Purchasers' net income or capital and franchise taxes imposed on any of them

by the jurisdiction under the laws of which any of them is organized or any

political subdivision thereof (all such non-excluded Taxes being hereinafter

referred to as "COVERED TAXES"). If any of the Loan Parties shall be required by

Law to deduct any Covered Taxes from or in respect of any sum payable hereunder

or under any Senior Term Notes or other Transaction Documents to Agent for the

benefit of the Purchasers, or to the Purchasers, the sum payable shall be

increased as may be necessary so that after making all required deductions of

Covered Taxes (including deductions of Covered Taxes applicable to additional

sums payable under this paragraph), each Purchaser receives an amount equal to

the sum it would have received had no such deductions been made. The Loan

Parties shall make such deductions and the Loan Parties shall pay the full

amount so deducted to the relevant taxation authority or other authority in

accordance with applicable law. In addition, the Loan Parties agree to pay any

present or future stamp, documentary, excise, privilege, intangible or similar

levies that arise at any time or from time to time from any payment made under

any and all Transaction Documents or from the execution or delivery by the Loan

Parties or from the filing or recording or maintenance of, or otherwise with

respect to the exercise by Agent or the Purchasers of their respective rights

under any and all Transaction Documents (collectively, "OTHER TAXES"). The Loan

Parties will indemnify Agent and the Purchasers for the full amount of Covered

Taxes imposed on or with respect to amounts payable hereunder and Other Taxes,

and any liability (including penalties, interest and expenses) arising therefrom

or with respect thereto. Payment of this indemnification shall be made within

thirty (30) days from the date Agent or the Purchasers provide the Loan Parties

with a certificate certifying and setting forth in reasonable detail the

calculation thereof as to the amount and type of such Taxes. Any such

certificates submitted by Agent or the Purchasers in good faith to the Loan

Parties shall, absent manifest error, be final, conclusive and binding on all

parties. The obligations of the Loan Parties under this Section 3.7 shall

survive the payment of the Senior Term Notes and the termination of this

Agreement. Within thirty (30) days after the Loan Parties having received a

receipt for payment of Covered Taxes and/or Other Taxes, the Loan Parties shall

furnish to Agent the original or certified copy of a receipt evidencing payment

thereof.

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3.8 MAXIMUM LAWFUL RATE. This Agreement, the Senior Term Notes and

the other Transaction Documents are hereby limited by this Section 3.8. In no

event, whether by reason of acceleration of the maturity of the amounts due

hereunder or otherwise, shall interest and fees contracted for, charged,

received, paid or agreed to be paid to the Purchasers exceed the maximum amount

permissible under applicable Law. If, from any circumstance whatsoever, interest

and fees would otherwise be payable to Agent or the Purchasers in excess of the

maximum amount permissible under applicable Law, the interest and fees shall be

reduced to the maximum amount permitted under such Law. If from any

circumstance, Agent or the Purchasers shall have received anything of value

deemed interest by applicable Law in excess of the maximum lawful amount, an

amount equal to any excess of interest shall be applied to the reduction of the

principal amount of the Senior Term Notes, in such manner as may be determined

by Agent, and not to the payment of fees or interest, or if such excess interest

exceeds the unpaid balance of the principal amount of the Senior Term Notes,

such excess shall be refunded to the Loan Parties.

3.9 BREAK FUNDING PAYMENTS. In the event of the payment of any

principal of any Senior Term Notes other than on the date such payment was

scheduled or the due date for mandatory prepayments pursuant to Section 3.5

hereof (including payments as a result of an Event of Default), the Loan Parties

shall compensate each Purchaser, upon demand, for the loss, cost and expense

attributable to such event with respect to the period from such payment date to

the day immediately preceding the next scheduled payment date.

3.10 CAPITAL ADEQUACY. If, after the date hereof, either the

introduction of or any change of the interpretation of any Law or the compliance

by the Purchasers with any guideline or request from any Governmental Authority

(whether or not having the force of Law) has or would have the effect of

reducing the rate of return on the capital or assets of the Purchasers as a

consequence of, as determined by Agent or the Purchasers in their reasonable

discretion, the existence of any Purchaser's obligations under this Agreement or

any other Transaction Documents, then, upon demand by the Purchasers, the Loan

Parties immediately shall pay to the Purchasers, from the time as specified by

Purchasers, additional amounts sufficient to compensate the Purchaser in light

of such circumstances. The obligations of the Loan Parties under this Section

3.10 shall survive the payments of the Senior Term Notes and the termination of

this Agreement.

3.11 CERTAIN WAIVERS. The Loan Parties unconditionally waive (i) any

rights to presentment, demand, protest or (except as expressly required hereby)

notice of any kind, and (ii) any rights of rescission, setoff, counterclaim or

defense to payment under the Senior Term Notes or otherwise that the Loan

Parties may have or claim against any Purchaser, Agent or any prior Purchaser or

Agent.

ARTICLE 4

CONDITIONS

4.1 CONDITIONS TO THE PURCHASE OF THE SENIOR TERM NOTES. The

obligation of the Purchasers to purchase and pay for the Senior Term Notes is

subject to the satisfaction, prior to or at the Closing, of the following

conditions:

(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and

warranties contained in Article 5 hereof shall be true and correct at and as of

the Closing Date as

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though then made, except to the extent of changes caused by the transactions

expressly contemplated herein.

(b) MATERIAL ADVERSE CHANGE. There shall have been no Material

Adverse Change in the business, financial condition, assets, Business or

prospects of Parent on a Consolidated Basis (prior to the effective date of the

Transactions), or the capital markets since December 15, 2004.

(c) SECURITY AGREEMENT; ETC. The Loan Parties and Agent, for the

benefit of the Purchasers, shall have entered into (i) a security agreement or

security agreements with Agent, in form and substance as set forth in Exhibit B

attached hereto (as the same may be amended, modified or supplemented from time

to time in accordance with the terms thereof, the "SECURITY AGREEMENT"), (ii)

(a) short-form security agreements for all Patents, Patent Licenses, Trademarks,

Trademark Licenses and registered Copyrights of the Loan Parties in form and

substance reasonably acceptable to Agent for filing with the United States

Patent and Trademark Office and the United States Copyright Office in the form

set forth in Exhibit C attached hereto and (b) a duly executed form of

assignment of all Internet domain names of the Loan Parties (together with

appropriate supporting documentation as may be requested by Agent) in form and

substance reasonably acceptable to Agent (such assignment and such short-form

security agreements set forth under the foregoing (ii)(a), as the same may be

amended, modified or supplemented from time to time in accordance with the terms

thereof, the "INTELLECTUAL PROPERTY AGREEMENTS"), (iii) a stock pledge and

security agreement in form and substance as set forth in Exhibit D attached

hereto (as the same may be amended, modified or supplemented from time to time

in accordance with the terms thereof, the "PLEDGE AGREEMENT") (iv) if reasonably

requested by GMAC Agent and Agent, the Loan Parties and their depository banks

shall have entered into deposit account control agreements in form and substance

satisfactory to Agent ("DEPOSIT ACCOUNT CONTROL AGREEMENTS"), and (v) a

collateral assignment of rights of the Loan Parties under certain documents

executed in connection with the Acquisition in form and substance as set forth

in Exhibit E (the "COLLATERAL ASSIGNMENT OF CONTRACTS"). The Loan Parties shall

have executed and delivered to Agent, for the benefit of the Purchasers, an

authorization to file such financing statements and other instruments

(collectively, "FINANCING STATEMENTS"), and shall have delivered to Agent such

certificates, instruments and documents, as Agent shall reasonably require in

order to perfect and maintain the continued perfection of the security interests

created by the agreements described herein. Agent shall have received reports of

filings with appropriate government agencies showing that there are no Liens on

the assets of the Loan Parties other than Permitted Liens.

(d) ENVIRONMENTAL REPORTS. Agent shall have received reports

covering the Loan Parties' properties in form and substance satisfactory to

Agent regarding the Loan Parties' compliance with Environmental Laws.

(e) INTERCREDITOR AGREEMENT. Agent and GMAC Agent shall have

executed the Intercreditor Agreement on terms reasonably satisfactory to Agent

and the Purchasers.

(f) CHARTER AND BYLAWS. Each Loan Party shall have made such

amendments to its Articles of Incorporation, Certificate of Incorporation,

By-laws, membership agreement and such other documents as the Purchasers shall

reasonably request.

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(g) CLOSING DOCUMENTS. The Loan Parties will have delivered or

caused to be delivered to Agent all of the following documents in form and

substance satisfactory to Agent:

(i) two (2) or more Senior Term Notes (as designated by Agent

and the Purchasers pursuant to Section 2.1 and Annex A hereof) in

aggregate original principal amounts as set forth herein, duly

completed and executed by the Loan Parties;

(ii) certificates of good standing dated not more than ten

(10) days prior to the Closing Date for the Loan Parties, issued by

their respective jurisdiction of organization and each jurisdiction

where a Loan Party is qualified to operate as a foreign corporation,

or its equivalent, except where the failure to so qualify is not

reasonably likely to have a Material Adverse Effect;

(iii) a copy of the Charter Documents of each of the Loan

Parties, certified by the appropriate governmental official of the

jurisdiction of its organization as of a date not more than thirty

(30) days prior to the Closing Date;

(iv) a copy of the By-laws or members agreement of the Loan

Parties, certified as of the Closing Date by the secretary,

assistant secretary, manager or general partner, as applicable, of

the Loan Parties;

(v) a certificate of the secretary or assistant secretary,

manager or general partner of the Loan Parties, certifying as to the

names and true signatures of the officers or other authorized person

of the Loan Parties authorized to sign this Agreement and the other

documents to be delivered by the Loan Parties hereunder;

(vi) copies of the resolutions duly adopted by the board of

directors, general partners, board of managers or other governing

body of the Loan Parties, authorizing the execution, delivery and

performance by the Loan Parties of this Agreement and each of the

other agreements, instruments and documents contemplated hereby to

which each of the Loan Parties is a party to, and the consummation

of all of the other Transactions, certified as of the Closing Date

by the secretary, assistant secretary, manager or general partner of

the Loan Parties;

(vii) a certificate dated as of the Closing Date from an

officer, general partner or manager of each of the Loan Parties

stating that the conditions specified in this Section 4.1 have been

fully satisfied or waived by Agent;

(viii) certificates of insurance evidencing the existence of

all insurance required to be maintained by the Loan Parties pursuant

to Section 7.1(c), and Agent shall be satisfied with the type and

extent of such coverage;

(ix) an opinion of Porter, Wright, Morris & Arthur LLP,

counsel to Parent, in form and substance satisfactory to Agent;

(x) copies of all material leases and contracts to which each

of the Loan Parties is a party; and

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(xi) such other documents relating to the Transactions

contemplated by this Agreement as Agent or its special counsel may

reasonably request.

(h) PURCHASER'S FEES AND EXPENSES.

(i) CLOSING PROCESSING FEE. On the Closing Date, the Loan

Parties shall pay the Closing Processing Fee to ACFS (and the Loan

Parties hereby authorize Agent to deduct from the aggregate proceeds

from the sales of the Senior Term Notes by the Loan Parties, the

unpaid amount of such Closing Processing Fee).

(ii) OTHER FEES AND EXPENSES. On the Closing Date, the Loan

Parties shall have paid the fees and expenses of Agent and the

Purchasers, payable by the Loan Parties pursuant to Section 10.4

hereof (and the Loan Parties hereby authorize Agent to deduct all

such amounts from the aggregate proceeds of the sale of the Senior

Term Notes by the Loan Parties).

(i) LEGAL INVESTMENT. On the Closing Date, the Purchasers' purchases

of the Senior Term Notes shall not be prohibited by any applicable law, rule or

regulation of any Governmental Authority (including, without limitation,

Regulations T, U or X of the Board of Governors of the Federal Reserve System)

as a result of the promulgation or enactment thereof or any changes therein, or

change in the interpretation thereof by any Governmental Authority, subsequent

to the date of this Agreement.

(j) PROCEEDINGS. All proceedings taken or required to be taken in

connection with the transactions contemplated hereby to be consummated at or

prior to the Closing and all documents incident thereto will be satisfactory in

form and substance to Agent and its special counsel and to the Purchasers and

their special counsel.

(k) BACKGROUND INVESTIGATIONS. Agent shall be satisfied with the

results of background investigations of Mike Brooks, John Grzybowski, John Hull,

James E. McDonald, and David Sharp.

(l) EMPLOYMENT/CONFIDENTIALITY AND NONCOMPETE AGREEMENTS. Parent

shall have entered into employment/confidentiality and noncompete arrangements

or agreements with officers and employees of EJ Footwear designated by Parent on

terms reasonably satisfactory to the Purchasers, and such confidentiality and

noncompete agreements shall be in full force and effect as of the Closing Date

and shall not have been amended or modified. The Loan Parties shall have

provided Agent with copies of all employment/confidentiality and noncompete

agreements and all other agreements providing compensation in any form

whatsoever (including, without limitation, any benefit plans between the Loan

Parties and any of their directors, officers or employees).

(m) CONSUMMATION OF ACQUISITION/CHARTER AND BYLAW AMENDMENTS. The

Acquisition shall have been consummated in form and substance satisfactory to

the Purchasers, in the Purchasers' sole discretion, and the Purchasers shall

have been provided copies of all material agreements, instruments and documents

delivered in connection therewith. The Loan Parties shall have entered into such

amendments to their respective Articles of Incorporation or Certificates of

Incorporation and Bylaws as the Purchasers shall request.

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(n) CONSUMMATION OF GMAC FINANCING. The GMAC Financing shall have

been consummated in form and substance satisfactory to the Purchasers in the

Purchasers' sole discretion and the Purchasers shall have been provided copies

of all agreements, instruments and documents in connection therewith.

(q) WORKING CAPITAL. Parent on a Consolidated Basis shall have in

the aggregate at least $100,000,000 of Working Capital on the Closing Date.

(o) MINIMUM EQUITY. Parent on a Consolidated Basis shall have at

least $70,000,000 in stockholders' equity on the Closing Date.

(p) MINIMUM AVAILABILITY. The Loan Parties shall have a minimum

availability under the Revolving Financing on the Closing Date of at least

$20,000,000.

(q) LANDLORD WAIVERS. The Loan Parties shall have used reasonable

efforts to deliver to Agent a Landlord Waiver for each leased property, in form

and substance satisfactory to Agent.

4.2 WAIVER. Any condition specified in this Article 4 may be waived

by Agent on behalf of the Purchasers; provided that no such waiver will be

effective against Agent unless it is set forth in a writing executed by Agent.

ARTICLE 5

REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES

5.1 REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES. As a

material inducement to Agent and the Purchasers to enter into this Agreement and

for the Purchasers to purchase the Senior Term Notes, Parent for itself and each

Loan Party and each Loan Party as to itself, hereby represent and warrant to

Agent and the Purchasers as follows:

(a) ORGANIZATION AND POWER. Each of the Loan Parties is a legal

entity of the type designated on Schedule 5.1(a). Each of the Loan Parties is

duly organized, validly existing and in good standing under the laws of its

state of formation. Each of the Loan Parties has all requisite corporate or

other organizational power and authority and all material licenses, permits,

approvals and authorizations necessary to own and operate its properties, to

carry on its businesses as now conducted and presently proposed to be conducted

and to carry out the Transactions, and is qualified to do business in the

jurisdictions listed on the "ORGANIZATIONAL SCHEDULE" attached hereto as

Schedule 5.1(a), which includes every jurisdiction where the failure to so

qualify is reasonably likely to have a Material Adverse Effect (other than

Lifestyle, which is not in good standing in Puerto Rico as of the Closing Date

but will be restored to good standing in such jurisdiction as soon as reasonably

practicable thereafter and in no event later than July 1, 2005). Each of the

Loan Parties has its principal place of business as set forth on the

Organizational Schedule. The copies of the Charter Documents and By-laws of each

of the Loan Parties that have been furnished to Agent reflect all amendments

made thereto at any time prior to the date of this Agreement and are correct and

complete.

(b) PRINCIPAL BUSINESS. The Loan Parties are primarily engaged in

the business of assembling and selling specialty footwear and related apparel

and accessories (the "BUSINESS").

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(c) FINANCIAL STATEMENTS AND FINANCIAL PROJECTIONS.

(i) FINANCIAL STATEMENTS; HISTORICAL STATEMENTS. Parent has

delivered to Agent copies of its audited consolidated year-end

financial statements for and as of the end of the three (3) fiscal

years ended December 31, 2003 together, and unaudited balance sheet,

income statements and cash flow statements for the nine (9) month

period ended September 30, 2004 (together, the "FINANCIAL

STATEMENTS"). The Financial Statements were compiled from the books

and records maintained by Parent's management are correct and

complete and fairly represent the consolidated financial condition

of Parent as of their dates and the results of operations for the

fiscal periods then ended and have been prepared in accordance with

GAAP consistently applied.

(ii) EJ FINANCIAL STATEMENTS. Parent has delivered to Agent

the unaudited, combined balance sheet, income statement, statements

of cash flows and owner's equity of EJ Footwear and their

Subsidiaries for the fiscal year ended September 30, 2004 (the "EJ

FINANCIAL INFORMATION"). To the knowledge of Parent, the EJ

Financial Information was derived from the internal books and

records of EJ Footwear and has been prepared in a manner consistent

with GAAP, and fairly presents, in all material respects, the

financial position of EJ Footwear and their Subsidiaries as of such

dates and the results of operations of EJ Footwear and their

Subsidiaries for the periods covered thereby, in each case on a

combined basis, and subject to the absence of footnotes and other

presentation items. The EJ Financial Information was prepared for

the purpose of the agreement evidencing the Acquisition and for the

internal management purposes of EJ Footwear. None of the companies

that EJ Footwear is comprised of was conducted on a stand-alone

basis as a separate entity during the periods indicated in the EJ

Financial Information and the allocations and estimates included in

the EJ Financial Information are not necessarily indicative of the

costs that would have resulted if each of the companies of EJ

Footwear had been operated and conducted on a stand-alone basis as a

separate entity during such periods.

(iii) PRO FORMA BALANCE SHEET. The unaudited pro forma balance

sheet of Parent on a Consolidated Basis as of December 31, 2004, a

copy of which has heretofore been delivered to Agent, gives pro

forma effect to the consummation of the Acquisition, the initial

extensions of credit made under this Agreement, and the payment of

transaction fees and expenses related to the foregoing, all as if

such events had occurred on such date (the "PRO FORMA BALANCE

SHEET"). The Pro Forma Balance Sheet has been prepared in a manner

consistent with customary accounting practices and the financial

statements described in Section 5.1(c)(i) (subject to the absence of

footnotes required by GAAP and subject to normal year-end

adjustments) and, subject to stated assumptions made in good faith

and having a reasonable basis set forth therein, presents fairly the

financial condition of the Loan Parties on an unaudited pro forma

basis as of the date set forth therein after giving effect to the

consummation of the transactions described above.

(iv) FINANCIAL PROJECTIONS. The Loan Parties have delivered to

Agent financial projections of Parent on a Consolidated Basis for

the period January 1,

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2005 through December 31, 2008 derived from various assumptions of

the Loan Parties' management (the "FINANCIAL PROJECTIONS"). The

Financial Projections were prepared in accordance with GAAP and

customary accounting procedures and reflect all information

available to the management of the Loan Parties at the time the

Financial Projections were produced. The Financial Projections in

good faith project the liabilities of the Loan Parties upon

consummation of the transactions contemplated hereby as of the

Closing Date.

(v) ACCURACY OF FINANCIAL STATEMENTS. As of the dates of such

Financial Statements, Parent on a Consolidated Basis did not have

any liabilities, contingent or otherwise, or forward or long-term

commitments that are not disclosed in the Financial Statements or in

the notes thereto, and except as disclosed therein, as of such

dates, and as disclosed on the Pro Forma Balance Sheets as of the

date hereof, there are no unrealized or anticipated losses from any

commitments of the Loan Parties that are reasonably likely to have a

Material Adverse Effect.

(d) CAPITALIZATION AND RELATED MATTERS. As of the Closing Date and

immediately thereafter, the authorized capital stock of Parent is as set forth

on the "CAPITALIZATION SCHEDULE" attached hereto as Schedule 5.1(d). As of the

Closing Date, the authorized capital stock or other equity interests of each of

the Subsidiaries of Parent and the number and ownership of all outstanding

capital stock or equity interests of each of the Loan Parties (other than

Parent) is set forth on Schedule 5.1(d). Except as set forth on the Schedule

5.1(d), as of the Closing Date, none of the Loan Parties will have outstanding

any stock or securities convertible into or exchangeable for any shares of its

capital stock and none will have outstanding any rights or options to subscribe

for or to purchase its capital stock or other equity interests or any stock or

securities convertible into or exchangeable for its capital stock or other

equity interests. As of the Closing Date, none of the Loan Parties will be

subject to any obligation (contingent or otherwise) to repurchase or otherwise

acquire or retire any shares of its capital stock or other equity interests. As

of the Closing Date, all of the outstanding shares and capital stock or other

equity interests of the Loan Parties will be validly issued, fully paid and

nonassessable. None of the Loan Parties have violated any applicable federal or

state securities laws in any material respect in connection with the offer, sale

or issuance of any of its capital stock or other equity interests, and the

offer, sale and issuance of the Senior Term Notes hereunder do not require

registration under the Securities Act or any applicable state securities laws.

(e) SUBSIDIARIES. Except as set forth on the "SUBSIDIARY SCHEDULE",

attached hereto as Schedule 5.1(e), the Loan Parties do not own, or hold any

rights to acquire, any shares of stock or any other security or interest in any

other Person.

(f) AUTHORIZATION; NO BREACH. The execution, delivery and

performance of this Agreement, the other Transaction Documents to which each of

the Loan Parties is a party, and the consummation of the Transactions and the

Acquisition have been duly authorized by the Loan Parties. The execution and

delivery by the Loan Parties of the Transaction Documents and the consummation

of the Transactions and the Acquisition does not and will not (i) conflict with

or result in a breach of the terms, conditions or provisions of, (ii) constitute

a default under, (iii) except as created pursuant to the Security Documents and

the GMAC Credit Documents, result in the creation of any Lien upon the Loan

Parties' capital stock or assets pursuant to, (iv) give any

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third party the right to accelerate any material obligation under, (v) result in

a violation of, or (vi) require any authorization, consent, approval, exemption

or other action by or notice to any Governmental Authority pursuant to, the

Charter Documents of the Loan Parties, or any law, statute, rule or regulation

to which the Loan Parties are subject, or any material agreement or instrument,

order, judgment or decree to which any of the Loan Parties is a party or to

which it or each of its respective assets are subject.

(g) GOVERNMENTAL APPROVALS. Except as specifically provided by the

Transaction Documents, no registration with or consent or approval of, or other

action by, any Governmental Authority is or will be required in connection with

the consummation of the Transactions by the Loan Parties. Except as specifically

provided by the Acquisition Agreement, no registration with or consent or

approval of, or other action by, any Governmental Authority was required in

connection with the consummation of the Acquisition.

(h) ENFORCEABILITY. This Agreement constitutes, and each of the

other Transaction Documents when duly executed and delivered by each of the Loan

Parties who is a party thereto will constitute, legal, valid and binding

obligations of the Loan Parties enforceable in accordance with their respective

terms, except as enforceability may be limited by applicable bankruptcy,

insolvency, moratorium or other laws affecting the enforcement of creditors'

rights generally and by general principles of equity.

(i) NO MATERIAL ADVERSE CHANGE. Since November 3, 2004, there has

been no Material Adverse Change, with respect to either (a) Parent and its

Subsidiaries taken as a whole, prior to giving effect to the Transactions, or

(b) EJ Footwear, taken as a whole, prior to giving effect to the Transactions;

provided, that the consummation of the Transactions shall not, in and of itself,

be deemed to be a Material Adverse Change.

(j) LITIGATION. Except as described in the "LITIGATION SCHEDULE"

attached hereto as Schedule 5.1(j), as of the Closing Date, there are no

actions, suits or proceedings at law or in equity or by or before any arbitrator

or any Governmental Authority now pending or, to the knowledge of the Loan

Parties' management after reasonable inquiry, threatened against or filed by or

affecting the Loan Parties or their respective directors or officers or the

businesses, assets or rights of any of the Loan Parties, which are reasonably

likely to have a Material Adverse Effect.

(k) COMPLIANCE WITH LAWS. The Loan Parties are not in violation of

any applicable Law which violation or violations are reasonably likely to have a

Material Adverse Effect. The Loan Parties are not in, and the consummation of

the Transactions will not cause any, default concerning any judgment, order,

writ, injunction or decree of any Governmental Authority. As of and after the

Closing Date, there is no investigation, enforcement action or regulatory action

pending or, to the knowledge of the Loan Parties, threatened against or

affecting any of the Loan Parties by any Governmental Authority, except as set

forth on the Litigation Schedule, which is reasonably likely to have a Material

Adverse Effect. Except as set forth in the Litigation Schedule, as of and after

the Closing Date, there is no remedial or other corrective action that any of

the Loan Parties is required to take to remain in compliance with any judgment,

order, writ, injunction or decree of any Governmental Authority or to maintain

any material permits, approvals or licenses granted by any Governmental

Authority in full force and effect which is reasonably likely to have a Material

Adverse Effect. To the knowledge of Parent, during the past ten (10) years, none

of the executive officers, directors or management of Parent or any of its

Subsidiaries

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(before giving effect to the Acquisition) have been arrested or convicted of any

material crime nor have any of them been bankrupt or an officer or director of a

bankrupt corporation or other entity.

(l) ENVIRONMENTAL PROTECTION. Except as specified in "ENVIRONMENTAL

SCHEDULE" attached hereto as Schedule 5.1(l) and after giving effect to the

Transactions, except for materials, conditions, operations and noncompliance

which are not reasonably likely to have a Material Adverse Effect: (i) the

business of the Loan Parties and each of their Subsidiaries, the methods and

means employed by the Loan Parties (and their Subsidiaries) in the operation

thereof (including all operations and conditions at or in the properties of the

Loan Parties or any of their Subsidiaries), the assets owned, leased, managed,

used, controlled, held or operated by the Loan Parties and/or their Subsidiaries

comply in all material respects with all applicable Environmental Laws; (ii)

with respect to the Properties and Facilities, and except as disclosed in the

Environmental Schedule, the Loan Parties have obtained, possess, and are in

compliance in all material respects with all permits, licenses, reviews,

certifications, approvals, registrations, consents, and any other authorizations

under any Environmental Laws; (iii) the Loan Parties have not received (x) any

claim or notice of violation, lien, complaint, suit, order or other claim or

notice to the effect that the Loan Parties are or may be liable to any Person as

a result of (A) the environmental condition of any of their Properties and

Facilities or any other property, or (B) the release or threatened release of

any Pollutant, or (y) any letter or request