ROCKY BRANDS, INC. (Form: 8-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) May 25, 2007


ROCKY BRANDS, INC.

(Exact name of registrant as specifýed in its charter)


Ohio	0-21026	31-1364046

(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identifýcation No.)


39 East Canal Street, Nelsonville, Ohio		45764

(Address of principal executive offýces)		(Zip Code)

Registrant’s telephone number, including area code (740) 753-1951

Not Applicable
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K fýling is intended to simultaneously satisfy the fýling obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry Into a Definitive Material Agreement.

On May 25, 2007, Rocky Brands, Inc. (the “Company”) and certain of its subsidiaries entered into a Note Purchase Agreement (the “Note Agreement”) with the note purchasers party thereto (each a “Purchaser” and collectively, the “Purchasers”), and Laminar Direct Capital L.P. (“Laminar”), as collateral agent for the Purchasers. Also, on May 25, 2007, the Company and certain of its subsidiaries entered into an Amended and Restated Loan and Security Agreement (the “Amended Loan Agreement”) with the financial institutions party thereto (each a “Lender” and collectively, the “Lenders”), and GMAC Commercial Finance LLC (“GMAC CF”), as administrative agent and sole lead arranger for the Lenders. (The Note Agreement and the Amended Loan Agreement are referred to herein as the “Agreements.”)

The Purchasers purchased, in the aggregate, $40 million in fixed rate Second Priority Senior Secured Notes (the “Notes”) from the Company. The Notes were sold in a private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Notes accrue interest at a fixed rate of 11.50% and are due on May 25, 2012. The Company used a portion of the proceeds from the sale of the Notes to repay all outstanding amounts under its existing term loans, including a $15 million term loan with a second lien lender at an interest rate of LIBOR plus 8.5% and $16 million amortizing term loans with GMAC CF at an interest rate of LIBOR plus 3.5%.

The foregoing description of the Agreements and the transactions contemplated thereby does not purport to be complete and is qualified in its entirety by reference to the complete text of the Agreements. Copies of the Agreements are attached hereto as Exhibit 10.1 and Exhibit 10.2 and are incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

See “Item 1.01. Entry into a Material Definitive Agreement,” which is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.


Exhibit No.		Description

10.1		Note Purchase Agreement, dated as of May 25, 2007, by and among Rocky Brands, Inc., Lifestyle Footwear, Inc., Rocky Brands Wholesale LLC, and Rocky Brands Retail LLC, as the Loan Parties, the purchasers party thereto (each a “Purchaser” and collectively, the “Purchasers”), and Laminar Direct Capital L.P., as collateral agent for the Purchasers.

10.2		Amended and Restated Loan and Security Agreement, dated as of May 25, 2007, by and among Rocky Brands, Inc., Lifestyle Footwear, Inc., Rocky Brands Wholesale LLC, and Rocky Brands Retail LLC, as Borrowers, the financial institutions party thereto (each a “Lender” and collectively, the “Lenders”), and GMAC Commercial Finance LLC, as administrative agent and sole lead arranger for the Lenders.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


	Rocky Brands, Inc.
Date: May 30, 2007	By:	/s/ James E. McDonald

		James E. McDonald, Executive Vice President and
		Chief Financial Officer

EXHIBIT INDEX


*Exhibit No.*		*Description*

10.1		Note Purchase Agreement, dated as of May 25, 2007, by and among Rocky Brands, Inc., Lifestyle Footwear, Inc., Rocky Brands Wholesale LLC, and Rocky Brands Retail LLC, as the Loan Parties, the purchasers party thereto (each a “Purchaser” and collectively, the “Purchasers”), and Laminar Direct Capital L.P., as collateral agent for the Purchasers.

10.2		Amended and Restated Loan and Security Agreement, dated as of May 25, 2007, by and among Rocky Brands, Inc., Lifestyle Footwear, Inc., Rocky Brands Wholesale LLC, and Rocky Brands Retail LLC, as Borrowers, the financial institutions party thereto (each a “Lender” and collectively, the “Lenders”), and GMAC Commercial Finance LLC, as administrative agent and sole lead arranger for the Lenders.

Exhibit 10.1

This Note Purchase Agreement is subject to the provisions of that certain Intercreditor Agreement (as may be amended, modified, supplemented, extended, renewed, restated or replaced from time to time, the “Intercreditor Agreement”) dated as of May 25, 2007 among, Laminar Direct Capital L.P., GMAC Commercial Finance LLC, Rocky Brands, Inc. and certain subsidiaries of Rocky Brands, Inc., and each party to this Note Purchase Agreement, by its acceptance hereof, shall be bound by the provisions of the Intercreditor Agreement.

NOTE PURCHASE AGREEMENT

by and among

ROCKY BRANDS, INC.
AND THE OTHER LOAN PARTIES IDENTIFIED ON
THE SIGNATURE PAGES HERETO,

LAMINAR DIRECT CAPITAL L.P.,
AS COLLATERAL AGENT,

and

THE PURCHASERS IDENTIFIED ON
ANNEX A HERETO

May 25, 2007

$40,000,000 Second Priority Senior Secured Notes Due May 25, 2012

TABLE OF CONTENTS


	Page
ARTICLE 1 DEFINITIONS		1

1.1 Certain Definitions		1
1.2 Accounting Principles		16
1.3 Other Definitional Provisions; Construction		16

ARTICLE 2 ISSUE AND SALE OF THE SENIOR TERM NOTES		17

2.1 Senior Term Notes		17
2.2 Sale and Purchase		17
2.3 The Closing		17

ARTICLE 3 REPAYMENT OF SENIOR TERM NOTES		17

3.1 Interest Rates and Interest Payments		17
3.2 Repayment of Senior Term Notes		18
3.3 Optional Prepayment of Senior Term Notes		18
3.4 Notice of Optional Prepayment		18
3.5 Mandatory Prepayment		18
3.6 Equity Payment		19
3.7 Home Office Payment		20
3.8 Maximum Lawful Rate		20
3.9 Taxes		21
3.10 Capital Adequacy		21
3.11 Certain Waivers		22

ARTICLE 4 CONDITIONS		22

4.1 Conditions to the Purchase of the Senior Term Notes		22
4.2 Waiver		24

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE LOAN PARTIES		25

5.1 Representations and Warranties of the Loan Parties		25
5.2 Absolute Reliance on the Representations and Warranties		33

ARTICLE 6 TRANSFER OF SENIOR TERM NOTES		33

6.1 Restricted Securities		33
6.2 Legends; Purchasers’ Representations		34
6.3 Transfer of Senior Term Notes		34
6.4 Replacement of Lost Senior Term Notes		35
6.5 No Other Representations Affected		35

ARTICLE 7 COVENANTS		35


	Page
7.1 Affirmative Covenants		35
7.2 Negative Covenants		39
7.3 Financial Covenant		46

ARTICLE 8 EVENTS OF DEFAULT		47

8.1 Events of Default		47
8.2 Consequences of Event of Default		49

ARTICLE 9 AGENT		49

9.1 Authorization and Action		49
9.2 Delegation of Duties		50
9.3 Exculpatory Provisions		50
9.4 Reliance		50
9.5 Non-Reliance on Agent and Other Purchasers		50
9.6 No Liability of Purchasers		51
9.7 Agent in its Individual Capacity		51
9.8 Successor Agent		51
9.9 Consent of Purchasers.		51
9.10 This Article Not Applicable to the Loan Parties		51

ARTICLE 10 MISCELLANEOUS		52

10.1 Successors and Assigns		52
10.2 Modifications and Amendments		52
10.3 No Implied Waivers; Cumulative Remedies; Writing Required		52
10.4 Reimbursement of Expenses		52
10.5 Holidays		53
10.6 Notices		53
10.7 Survival		54
10.8 Governing Law		54
10.9 Jurisdiction, Consent to Service of Process.		54
10.10 Jury Trial Waiver		55
10.11 Severability		55
10.12 Headings		55
10.13 Indemnity		55
10.14 Environmental Indemnity		56
10.15 Counterparts		56
10.16 Integration		57
10.17 Intercreditor		57
10.18 Confidentiality		57

SIGNATURE PAGE TO NOTE PURCHASE AGREEMENT		59

ANNEX A INFORMATION RELATING TO THE PURCHASERS		3

ANNEX B ALLOCATION OF SENIOR TERM NOTES AMONG PURCHASERS		5

NOTE PURCHASE AGREEMENT

$40,000,000 Aggregate Principal Amount of
Second Priority Senior Secured Notes Due May 25, 2012

THIS NOTE PURCHASE AGREEMENT (this “ Agreement ”), dated as of May 25, 2007, is by and among ROCKY BRANDS, 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, together with its successors and permitted assigns, a “ Purchaser ” and collectively, the “ Purchasers ”), and Laminar Direct Capital L.P., a Delaware limited partnership, as 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 Second Priority Senior Secured Notes to the Purchasers designated on Annex A in the aggregate amount of $40,000,000 for the purpose of (i) refinancing certain existing outstanding indebtedness of the Loan Parties (A) to the Lenders under the GMAC Credit Agreement (as defined herein), including a Term Loan A in the original principal amount of $18,000,000 (“ Term Loan A ”) and a Term Loan C in the original principal amount of $15,000,000 (“ Term Loan C ”) and (B) under a certain Note Purchase Agreement in the original aggregate principal amount in favor of American Capital Financial Services, Inc. and the purchasers thereunder (collectively, the “ Refinancing ”), (ii) paying transaction costs associated with the Refinancing and (iii) providing for general business purposes of the Loan Parties.

B. The Loan Parties have also proposed to enter into an amended and restated revolving credit facility with the Lenders (as defined herein) in the aggregate amount of $100,000,000.

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:

“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 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.

“ 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 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, with respect to any Person, the sum of expenditures for, or contracts for expenditures with respect to, any fixed assets or improvements, or for replacements, substitutions or additions thereto, that in accordance with GAAP either would be required to be capitalized on the balance sheet of such Person, or would be classified and accounted for as capital expenditures on a statement of cash flows of such Person.

“ Capitalization Schedule ” shall have the meaning assigned to such term in Section 5.1(d).

“ Capitalized Leases ” shall mean, with respect to any Person, any lease of any property (whether real, personal or mixed) that in conformity with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person.

“ Cash Interest Expense ” shall mean, without duplication, for any period, for Parent on a Consolidated Basis: interest expense deducted in the determination of net income (excluding (a) the amortization of fees and costs with respect to the Parent’s acquisition of certain equity interests and the financing thereof on or about January 6, 2005, which have been capitalized as transaction costs in accordance with the provisions of Section 1.3; (b) any non-cash charges and/or amortization of other capitalized fees and costs subsequent to January 6, 2005, and (c) interest paid in kind).

“ CERCLA ” shall mean the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § 9604, et seq.), as amended, and rules, regulations, and standards promulgated thereunder.

“ Change of Control ” shall mean the occurrence of any of the following:

(a) any person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) shall obtain ownership or control in one or more series of transactions of more than 50% of the common stock or 50% of the voting power of the Parent entitled to vote in the election of members of the board of directors of the 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; or

(c) a sale, transfer or other disposition of all or substantially all of the assets of Parent and its Subsidiaries, on a consolidated basis.

“ 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 Date ” shall have the meaning assigned to such term in Section 2.3 hereof.

“ Code ” shall mean the Internal Revenue Code of 1986, as amended.

“ Collateral ” shall have the meaning assigned to such term in the Security Agreement.

“ 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 3.9 hereof.

“ 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).

“ 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.

“ EBITDA ” means, for any period, without duplication, the total of the following for Parent on a Consolidated Basis, each calculated for such period: (a) net income determined in accordance with GAAP; plus, to the extent included in the calculation of net income, (b) the sum of (i) income and franchise taxes paid or accrued; (ii) interest expense, net of interest income, paid or accrued; (iii) amortization and depreciation, (iv) Non-Recurring Charges and (v) any non-cash intellectual property impairment charges, non-cash stock compensation expense charges and other non-cash charges (excluding accruals for cash expenses made in the ordinary course of business); less, to the extent included in the calculation of net income, (c) the sum of (i) the income of any Person (other than wholly-owned Subsidiaries of Parent) in which Parent or a wholly-owned Subsidiary of Parent has an ownership interest, except to the extent such income is received by Parent or such wholly-owned Subsidiary in a cash distribution during such period; (ii) gains or losses from sales or other dispositions of assets (other than inventory in the normal course of business) and (iii) extraordinary gains.

“ 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.

“ Environmental Schedule ” shall have the meaning assigned to such term in Section 5.1(l) hereof.

“ 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.

“ Equity Equivalent ” shall have the meaning assigned to such term in Section 3.6 hereof.

“ Equity Prepayment ” shall have the meaning assigned to such term in Section 3.6 hereof.

“ Equity Prepayment Premium ” shall have the meaning assigned to such term in Section 3.6 hereof.

“ 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.

“ 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 of four (4) consecutive calendar quarters, 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 Loan Parties; (b) scheduled payments of principal with respect to all Indebtedness (other than (i) the Revolving Financing and (ii) payments made with respect to Term Loan A and Term Loan C); (c) any provision for 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 state 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 Amended and Restated Loan and Security Agreement by and among the Loan Parties and GMAC, dated as of May 25, 2007, as such may be amended or modified from time to time as permitted hereunder; and any loan and security agreement, credit agreement or other financing agreement evidencing any refinancing of the Indebtedness evidenced by such GMAC Credit Agreement; provided that (i) the principal amount of such refinanced Indebtedness does not exceed the amount permitted by the definition of “Revolving Financing”, (ii) such Indebtedness does not extend beyond December 31, 2013, (iii) the terms and conditions of the agreements, documents and instruments related to such refinancing, taken as a whole, are not, in the reasonable judgment of Agent or the Required Purchasers, materially more onerous to the Agent and the Required Purchases or the Loan Parties than those set forth in the GMAC Credit Agreement, as in effect on the date of such

refinancing and (iv) such Indebtedness, including the documentation therefore, otherwise constitutes Senior Indebtedness under the Intercreditor Agreement and the agent or lender thereunder has executed a joinder or supplement to the Intercreditor Agreement or a new intercreditor agreement on substantially the same terms as the Intercreditor Agreement.

“ 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 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 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.

“ 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.

“ Liabilities ” shall have the meaning given that term in accordance with GAAP and shall include, without limitation, Indebtedness.

“ 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.

“ Litigation Schedule ” shall have meaning assigned to such term in Section 5.1(j) hereof.

“ Loan Party ” and “Loan Parties” shall have the meanings assigned to such terms in the preamble hereto.

“ 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).

“ Material Adverse Change ” shall mean any change that has a Material Adverse Effect.

“ Material Adverse Effect ” shall mean (a) a material adverse effect on the business, properties, assets, liabilities or condition (financial or otherwise) of the Loan Parties, taken together as a whole, (b) a material impairment of the ability of the Loan Parties, taken as a whole, to perform their material obligations under the Transaction Documents to which they are parties, taken as a whole, or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Loan Parties of the Transaction Documents to which they are parties, taken as a whole.

“Material Contracts” shall have the meaning assigned to such term in Section 5.1(w) hereof.

“ Maturity Date ” shall have the meaning assigned to such term in Section 3.2 hereof.

“ Moody’s ” shall have the meaning assigned to such term in Section 7.2(h) 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.

“ Non-Recurring Charges ” shall mean the sum of the aggregate amount of fees, expenses, financing costs and other expenses incurred in connection with (i) the Parent’s acquisition of certain equity interests and the financing thereof on or about January 6, 2005, to the extent paid substantially contemporaneously with, on or about such acquisition and (ii) the Transactions, to the extent paid substantially contemporaneously with, on or about the Closing Date.

“ Offering Memorandum ” shall mean that certain Second Priority Senior Secured Notes $40,000,000 Confidential Private Placement Offering Memorandum dated April, 2007, prepared in conjunction with Piper Jaffray & Co.

“ 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 3.9 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.

“ PCBs ” shall have the mean assigned to such term within the definition of the term “Pollutant” below.

“ Permitted Acquisition ” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement by which the Parent or any Subsidiary thereof (a) acquires any ongoing business or all or a substantially all of the operations or assets of any Person, any division thereof or operating unit thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or in a series of transactions) all or substantially all (in number of votes) of the equity interests of a Person which have ordinary voting power for the election of directors or constitute a majority (by percentage of voting power) of the outstanding equity interests of another Person (any of the foregoing an “ Acquisition ”); provided that :

(i) such Acquisition is made at a time when, after giving effect to such Acquisition and the related financing thereof, no Default or Event of Default exists;

(ii) after giving effect to such Acquisition, no Default or Event of Default exists or would occur based on a 12 month pro forma good faith prospective calculation of the covenant set forth in Section 7.3(A) (excluding any Acquisition as a Capital Expenditure), giving effect to the EBITDA of the acquired operations or Person and any higher levels of Indebtedness associated with the acquired operations or Person;

(iii) the acquired Person or post-merger Person (other than any Foreign Subsidiary), if such Acquisition is of equity interests, guarantees all obligations under this Agreement and grants to Agent, for the benefit of Agent and Purchasers, a first Lien upon all of the tangible and intangible personal property of such acquired Person, whether then owned or thereafter acquired or arising, subject only to Liens permitted by this Agreement;

(iv) if the Acquisition is of equity interests, such Loan Party acquiring such equity interests grants to Agent, for the benefit of Agent and Purchasers, a Lien upon all such equity interests (or not less than 65% of such equity interests if a Foreign Subsidiary) pursuant to a pledge agreement or joinder in form and substance satisfactory to Agent;

(v) any acquired assets become subject to Liens in favor of Agent, for the benefit of Agent and Purchasers, pursuant to such agreements, instruments and documents as shall be satisfactory in form and substance to Agent, and are free and clear of all other Liens except as permitted under this Agreement;

(vi) Parent delivers written notice to Agent of its or such Subsidiary’s intention to make such Acquisition no less than 15 Business Days prior to the proposed closing date for such Acquisition, together with a certificate that sets forth (A) information regarding liabilities and obligations with respect to tax, ERISA and environmental matters, if any, to be incurred by such Person (including, without limitation, the acquired Person in the event of an Acquisition of equity interests) as a result of such Acquisition, any indemnities afforded under the terms of such Acquisition and the scope and results of any tax, ERISA or environmental review undertaken by the Parent or such Subsidiary in connection therewith and (B) any available financial statements of (1) such acquired Person if such Acquisition of equity interests, and (2) operating unit or division if such Acquisition is of assets;

(vii) on the date of the closing of the Permitted Acquisition, all representations and warranties under the Transaction 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;

(viii) such Acquisition is of or with a Person assembling and selling specialty footwear, apparel and accessories or an industry related thereto;

(ix) such Acquisition shall have been approved by the board of directors of such Person (or similar governing body if such Person is not a corporation) that is the subject of such Acquisition, and such Person shall not have announced that it will oppose such Acquisition or shall not have commenced any action which alleges that such Acquisition will violate any applicable law;

(x) the consideration for the Permitted Acquisition shall have been paid only (A) in cash, (B) in deferred installment payments, provided that any indebtedness incurred in connection therewith is permitted pursuant to Section 7.2(a) or equity interests of the Parent or such Subsidiary making such Acquisition, and the purchase price for any such Acquisition, including (1) the original stated purchase price therefor, plus (2) the reasonably estimated transaction costs associated with such Acquisition, plus (3) the amount of Indebtedness for borrowed money assumed (directly or indirectly) as a result thereof, plus (4) all amounts payable of any nature whatsoever, including cost of goods sold, to the seller or any Affiliate of such seller following such Acquisition, shall not

exceed the amount set forth in Section 7.2(d) (excluding any portion of any of the foregoing payable in common equity of the Parent or any Subsidiary thereof); and

(xi) on the funding date for any borrowing of any Loans for the purpose of consummating a Permitted Acquisition, Agent shall have received a certificate from an officer of Parent (A) certifying that (1) such Acquisition meets the requirements of the definition of Permitted Acquisition and (2) the liabilities assumed with respect to such Permitted Acquisition do not or are not reasonably likely to have a Material Adverse Effect, and (B) attaching calculations of financial covenant set forth in Section 7.3 , copies of the definitive purchase agreement or most recent draft of the same, and copies of all material, business and financial information relating to the business purchased in the Permitted Acquisition, all as Agent may reasonably request.

“ Permitted Encumbrances Schedule ” shall have the meaning assigned to such term in Section 7.2(b) hereof.

“ 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.

“ Permitted Sale/Leaseback ” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement by which the Parent or any Subsidiary thereof (a) sells any of its real property and equipment which is subject to, as of the Closing Date, a Lien in favor of General Electric Capital Business Asset Funding Corporation and, substantially simultaneously therewith, (b) leases such real property (or a portion thereof) from the purchaser thereof or an Affiliate of such purchaser, or otherwise enters into a contractual relationship pursuant to which such purchaser (or an Affiliate thereof) provides logistic services for one or more of the Loan Parties at such property; provided that :

(i) such sale/leaseback is made at a time when, after giving effect thereto, no Default or Event of Default exists;

(ii) the entire balance of the mortgage secured by such real property is paid in full from the sale proceeds thereof;

(iii) any Net Cash Proceeds (as defined in the GMAC Credit Agreement) thereof are remitted to GMAC Agent in accordance with the GMAC Credit Agreement; and

(iv) any non-cash proceeds thereof consisting of any notes or other evidence of Indebtedness are delivered to the GMAC Agent as additional Collateral, together with such Transaction Documents as Agent may reasonable request in connection therewith.

“ 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. § 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.

“ Prepayment Fee ” shall mean a non-refundable fee payable pro rata to the Purchasers equal to the principal amount of any Senior Term Note prepaid pursuant to Section 3.3 or 3.5, multiplied by (i) five percent (5%), if such prepayment occurs during the period beginning with the first anniversary of the Closing Date and ending with the day immediately preceding the second anniversary of the Closing Date, (ii) three percent (3%), if such prepayment occurs during the period beginning with the second anniversary of the Closing Date and ending with the day immediately preceding the third anniversary of the Closing Date, (iii) one and one-half percent (1.5%) if such prepayment occurs during the period beginning with the third anniversary of the Closing Date and ending with the day immediately preceding the fourth anniversary of the Closing Date, and (iv) zero percent (0%) if such prepayment occurs at any time thereafter.

“ 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 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 ” and “ Purchasers ” shall have the meanings assigned to such terms in the preamble hereto and in Section 6.2 hereof.

“ RCRA ” shall mean the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), as amended, and all rules, regulations, standards, guidelines, and publications issued thereunder.

“ Refinancing ” shall have the meaning assigned to such term in the recitals hereto.

“ 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. § 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 50.1% 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 principal amount of Revolving Financing may be increased to $110,000,000, 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.

“ S&P ” shall have the meaning assigned to such term in Section 7.2(h) hereof.

“ 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.

“ Securitization ” shall have the meaning assigned to such term in Section 10.18 hereof.

“ 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 Financing Statements, and all other documents, instruments and other materials necessary to create or perfect the security interests created pursuant to the Security Agreement.

“ 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 3.9 hereof.

“ Term Loan A ” shall have the meaning assigned to such term in the recitals hereto.

“ Term Loan C ” shall have the meaning assigned to such term in the recitals hereto.

“ 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.

“ 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.

“ 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 Refinancing, and all other agreements contemplated hereby and thereby.

“ UCC ” shall mean the New York 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.

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. In the event any “Accounting Changes” (as defined below) shall occur and such changes affect financial covenants, standards or terms in this Agreement, then Loan Parties and Required Purchasers agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the financial condition of the Loan Parties shall be the same after such Accounting Changes as if such Accounting Changes had not been made, and until such time as such an amendment shall have been executed and delivered by Loan Parties and Requisite Lenders, (A) all financial covenants, standards and terms in this Agreement shall be calculated and/or construed as if such Accounting Changes had not been made, and (B) the Loan Parties shall prepare footnotes to each compliance certificate and the financial statements required to be delivered hereunder that show the differences between the financial statements delivered (which reflect such Accounting Changes) and the basis for calculating financial covenant compliance (without reflecting such Accounting Changes). “Accounting Changes” means: (a) changes in accounting principles required by GAAP and implemented by Loan Parties and (b) changes in accounting principles recommended by Loan Parties’ accountants.

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 Required Purchasers or the Purchasers, as applicable, pursuant to Section 10.2. 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 . On the Closing Date, the Loan Parties duly authorized the issuance to the Purchasers designated on Annex A of $40,000,000 aggregate principal amount of the Loan Parties’ Second Priority Senior Secured Notes due May 25, 2012 (together with any promissory notes issued in substitution therefor pursuant to Sections 6.3 and 6.4, the “ Senior Term Notes ”) substantially in the form of the promissory notes made by the Loan Parties in favor of the Purchasers thereof in the form attached hereto as Exhibit A .

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 on May 25, 2007, or at such other date 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 amounts payable pursuant to Section 4.1(g) 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 the Purchasers holding Senior Term Notes, of accrued interest on the Senior Term Notes semi-annually in arrears on the first Business Day of each June and December, commencing on December 1, 2007, 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 fixed rate of eleven and one-half percent (11.50%).

(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 twelve 30-day months.

3.2 Repayment of Senior Term Notes . 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 May 25, 2012 (the “ Maturity Date ”).

3.3 Optional Prepayment of Senior Term Notes . At any time on or after the first anniversary of the Closing Date, subject to the terms of this Section 3.3, and in connection with any Equity Prepayment pursuant to Section 3.9 (regardless of when such event occurs), the Loan Parties may prepay to the Purchasers the outstanding principal amount of the Senior Term Notes in whole or in part in multiples of $500,000, or such lesser amount as is then outstanding, plus accrued interest, if any, to the date set for prepayment on the principal amount to be repaid. At the time of each such prepayment made at any time prior to the fourth anniversary of the Closing Date, the Loan Parties shall pay to the Purchasers the applicable Prepayment Fee or Equity Prepayment Premium. All such prepayments shall be so applied after application of such prepayment to any accrued interest payable, if any, in connection therewith and any applicable Prepayment Fee or Equity Prepayment Premium.

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 the Agent and the Purchasers 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 applicable Prepayment Fee or Equity Prepayment Premium, if any, and accrued interest applicable to such 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 : Change of Control; Event of Default .

(a) Upon the occurrence of a Change of Control, each Purchaser shall have the right to require the Loan Parties to repurchase all or any part of such Purchaser’s Senior Term Notes pursuant to the offer described below (the “ Change of Control Offer ”) at an offer price (the “ Change of Control Payment ”) in cash equal to the outstanding principal amount of the applicable Senior Term Notes, together with all accrued and unpaid interest, fees, expenses and a premium for the ratable benefit of the Purchasers equal to five percent (5%) of the aggregate outstanding principal amounts of the Senior Term Notes being prepaid, in each case as of the date of purchase (the “ Change of Control Payment Date ”). The Loan Parties will make the Change of Control Offer by delivering a written notice of such offer to the Purchasers at least five (5) Business Days prior to the occurrence of a Change of Control, specifying the Change of Control Payment Date (which such date shall not be more than five (5) Business Days following

such Change of Control). A Purchaser may accept such Change of Control Offer by delivering a written notice of acceptance to the Loan Parties within five (5) Business Days after receipt of the Change of Control Offer specifying the amount of the Senior Term Notes to be redeemed.

(b) By 2:00 p.m. (noon) Central Time on the Change of Control Payment Date, the Loan Parties shall (1) accept for payment all Senior Term Notes or portions thereof properly tendered pursuant to the Change of Control Offer, and (2) pay via wire transfer in immediately available funds an amount equal to the Change of Control Payment in respect of all Senior Term Notes or portions thereof so tendered. All payments under this Section 3.5 shall be applied first to all costs, expenses, indemnities and other amounts payable hereunder and under the applicable Senior Term Notes, then to payment of default interest, if any, then to payment of premium, if any, then to payment of accrued interest and thereafter to payment of principal. The Loan Parties shall send to each Purchaser that has tendered its Senior Term Notes the applicable Change of Control Payment for such Senior Term Notes, and the Loan Parties shall promptly execute and mail to each Purchaser a new Senior Term Note equal in principal amount to any unpurchased portion of the Senior Term Notes surrendered, if any.

(c) In addition, the Senior Term Notes shall be prepaid in full, together with all accrued and unpaid interest, fees, any applicable Prepayment Fee, for the ratable benefit of the Purchasers, and expenses upon such Senior Term Notes becoming due as a consequence of an Event of Default (other than due to a Change of Control) pursuant to Section 8.2. If the Senior Term Notes shall become due prior to the first anniversary of the Closing Date as a result of an Event of Default, the applicable Prepayment Fee shall be deemed to be 5.0% of the aggregate principal amount of the Senior Term Notes prepaid.

3.6 Equity Payment . In the event the Parent or any Subsidiary shall at any time or from time to time issue any equity securities to any Person other than the Parent or any Subsidiary thereof, notwithstanding any provision of this Agreement, but subject to the terms of this Section 3.6, the Loan Parties may prepay to the Purchasers, on a ratable basis, from the net cash proceeds of any such equity issuance, up to 35% of the aggregate outstanding principal amount of the Senior Term Notes then outstanding (an “ Equity Prepayment ”) in whole or in part in multiples of $500,000, or such lesser amount as is then outstanding, plus accrued interest, if any, to the date set for prepayment on the principal amount to be repaid. If any such prepayment or redemption is made at any time prior to the first anniversary of the Closing Date, the Loan Parties shall pay to the Purchasers a prepayment premium (an “ Equity Prepayment Premium ”) (expressed as a percentage of principal amount) equal to 11.50% of the aggregate principal amount of the Senior Term Notes prepaid or redeemed with each Equity Prepayment. If any such prepayment or redemption is made at any time on or after the first anniversary of the Closing Date, the Loan Parties shall pay to the Purchasers any applicable Prepayment Fee on the Senior Term Notes prepaid or redeemed with each Equity Prepayment to the extent applicable. In the event of any such prepayment from the net cash proceeds of an equity issuance, at the election of the Parent, and provided no Default or Event of Default then exists, such Equity Prepayment Premium or Prepayment Fee may be paid, subject to the terms of this Section 3.6, either in cash or in equity securities of the Parent. If the Parent elects to pay such Equity Prepayment Premium or Prepayment Fee in equity securities rather than cash, such securities shall be paid in registered, marketable, publicly traded equity securities of the Parent in an

amount equal to the Equity Equivalent (as defined below). If the Parent elects to prepay any Senior Term Notes pursuant to this Section 3.6 hereof, the Parent shall give notice of such prepayment to Agent and the Purchasers not less than forty-five (45) days or more than one hundred and five (105) days prior to the date fixed for such Equity 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, (iii) such Equity Prepayment Premium or Prepayment Fee, if any, and accrued interest applicable to such prepayment and (iv) whether such Equity Prepayment Premium or Prepayment Fee will be paid in cash or equity securities. 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 this Section 3.6. 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. “Equity Equivalent” shall be determined by dividing (i) the cash value of the applicable Equity Prepayment Premium or Prepayment Fee by (ii) the per share average closing price of Parent’s equity securities as reported on the exchange on which such equity securities are then listed for the seven trading days prior to a date that is three trading days prior to the date fixed for prepayment or redemption.

3.7 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 the respective Purchasers 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