8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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) June 19, 2008 (June 16, 2008)

PHOENIX FOOTWEAR GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

001-31309	15-0327010
(Commission File Number)	(IRS Employer Identification No.)

5840 El Camino Real, Suite 106, Carlsbad, California	92008
(Address of Principal Executive Offices)	(Zip Code)

(760) 602-9688

(Registrant’s Telephone Number, Including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

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

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

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

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

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

INFORMATION TO BE INCLUDED IN THE REPORT

Item 1.01 Entry into a Material Definitive Agreement.

On June 16, 2008, we and our subsidiaries entered into a Credit and Security Agreement with Wells Fargo for a three year revolving line of credit and letters of credit collateralized by all of our assets and those of our subsidiaries. Under the facility we can borrow up to $17 million (subject to a borrowing base which includes eligible receivables and eligible inventory), which, subject to the satisfaction of certain conditions, may be increased to $20 million. The credit facility also includes a $7.5 million letter of credit sub facility.

Concurrently with the execution of the Credit and Security Agreement, we made an initial borrowing thereunder in the amount of $11.2 million, which we used to pay in full the outstanding balances owed to our then lender, Manufacturers & Traders Trust Company (“M&T”). We also terminated the underlying credit agreement, notes, security agreements and related instruments and documents, but left in force a Letter of Credit Reimbursement Agreement between M&T and us. In connection with the pay off of the M&T facility, we cash collateralized on a dollar-for-dollar basis four letters of credit previously issued by M&T which will remain outstanding until they expire or are drawn upon. These letters of credit are in the aggregate face amount of approximately $3.1 million. We pledged the cash collateral account to M&T pursuant to a Pledge Account Agreement which we entered into with M&T.

In addition to the repayment of our loans from M&T, the proceeds of the Wells Fargo facility can be used for ongoing working capital needs.

The borrowings under the revolving line of credit bear interest at prime rate minus .25% or the applicable 30, 90, 180-day LIBOR plus 2.4%, subject to certain minimums, and .25% downward adjustment if a required net income amount is earned by the Company for fiscal 2008. Additionally, a monthly collateral management fee will be charged. We paid a closing fee of $57,500 to Wells Fargo and will pay letter of credit fees to Wells Fargo in the amount of 1.0% per annum of the face amount of standby letters of credit issued and .75% per annum of the face amount of commercial letters of credit issued. A prepayment fee in an amount equal to the following percentages of the prepaid amount applies: 3.0% for the first year of the facility; 2.0% for the period between the end of the first year and the 18^th month of the facility; and 1.0% thereafter.

The agreement includes various financial and other covenants with which we have to comply in order to maintain borrowing availability and avoid penalties, including an annual capital expenditure limitation and a minimum quarterly net income requirement. Other covenants include, but are not limited to, covenants limiting or restricting the Company’s ability to incur indebtedness, incur liens, enter into mergers or consolidations, dispose of assets, make investments, pay dividends, enter into transactions with affiliates, or prepay certain indebtedness. The credit and security agreement also contains customary events of default including, but not limited to, payment defaults, covenant defaults, cross-defaults to other indebtedness, material judgment defaults, inaccuracy of representations and warranties, bankruptcy and insolvency events, defects in Wells Fargo’ security interest, change in control events, material adverse change and certain officers being convicted of felonies. The occurrence of an event of default will increase the interest rate by 3.0% over the rate otherwise applicable and could result in the acceleration of all obligations of the Company to Wells Fargo with respect to indebtedness, whether under the Credit and Security Agreement or otherwise.

This summary of the Credit and Security Agreement and related instruments and documents executed pursuant thereto are qualified in their entirety by reference to the full text of thereof filed as exhibits herewith, all of which are incorporated by reference herein.

Item 1.02 Termination of a Material Definitive Agreement.

The information set forth in the second paragraph under Item 1.01, “Entry into a Material Definitive Agreement,” is 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.

The information set forth under Item 1.01, “Entry into a Material Definitive Agreement,” is incorporated herein by reference.

Item 9.01 Exhibits.

(d) Exhibits

Exhibit No.	Description	Reference
10.1	Credit and Security Agreement	Filed herewith
10.2	$20,000,000 Revolving Promissory Note	Filed herewith
10.3	Collateral Pledge Agreement	Filed herewith
10.4	Phoenix Footwear Group, Inc. Patent and Trademark Security Agreement	Filed herewith
10.5	Penobscot Shoe Company Patent and Trademark Security Agreement	Filed herewith
10.6	Chambers Belt Company Patent and Trademark Security Agreement	Filed herewith
10.7	H.S. Trask & Co. Patent and Trademark Security Agreement	Filed herewith
10.8	Chambers Belt Company Copyright Security Agreement	Filed herewith
10.9	Standby Letter of Credit Agreement	Filed herewith
10.10	Commercial Letter of Credit Agreement	Filed herewith
10.11	Pledge Account Agreement with M&T	Filed herewith

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.

	PHOENIX FOOTWEAR GROUP, INC.
Date: June 19, 2008	By:	/s/ Scott Sporrer
	Name:	Scott Sporrer
	Title:	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description	Reference
10.1	Credit and Security Agreement	Filed herewith
10.2	$20,000,000 Revolving Promissory Note	Filed herewith
10.3	Collateral Pledge Agreement	Filed herewith
10.4	Phoenix Footwear Group, Inc. Patent and Trademark Security Agreement	Filed herewith
10.5	Penobscot Shoe Company Patent and Trademark Security Agreement	Filed herewith
10.6	Chambers Belt Company Patent and Trademark Security Agreement	Filed herewith
10.7	H.S. Trask & Co. Patent and Trademark Security Agreement	Filed herewith
10.8	Chambers Belt Company Copyright Security Agreement	Filed herewith
10.9	Standby Letter of Credit Agreement	Filed herewith
10.10	Commercial Letter of Credit Agreement	Filed herewith
10.11	Pledge and Assignment of Deposit Account Agreement with M&T	Filed herewith

EX-10.1

Exhibit 10.1

WELLS FARGO BUSINESS CREDIT

CREDIT AND SECURITY AGREEMENT

THIS CREDIT AND SECURITY AGREEMENT (the “Agreement”) is dated June 10, 2008, and is entered into by and among PHOENIX FOOTWEAR GROUP, INC., a Delaware corporation (“Phoenix Footwear”), PENOBSCOT SHOE COMPANY, a Maine corporation (“Penobscot”), H.S. TRASK & CO., a Montana corporation (“Trask”), CHAMBERS BELT COMPANY, a Delaware corporation (“Chambers”), and PHOENIX DELAWARE ACQUISITION, INC., a Delaware corporation (“Phoenix Acquisition”; Phoenix Footwear, Penobscot, Trask, Chambers and Phoenix Acquisition are sometimes individually referred to in this Agreement as a “Company” and collectively as the “Companies”), and WELLS FARGO BANK, NATIONAL ASSOCIATION (as more fully defined in Exhibit A, “Wells Fargo”), acting through its Wells Fargo Business Credit operating division.

RECITALS

Companies have asked Wells Fargo to provide them with a $17,000,000 (increasable to $20,000,000, as provided herein) revolving line of credit (the “Line of Credit”) for working capital purposes and to facilitate the issuance of letters of credit. Wells Fargo is agreeable to meeting Companies’ request, provided that Companies agree to the terms and conditions of this Agreement.

For purposes of this Agreement, capitalized terms not otherwise defined in the Agreement shall have the meaning given them in Exhibit A.

1. AMOUNT AND TERMS OF THE LINE OF CREDIT

1.1 Line of Credit; Limitations on Borrowings; Termination Date; Use of Proceeds.

(a) Line of Credit and Limitations on Borrowing. Wells Fargo shall make Advances to Companies under the Line of Credit that, together with the L/C Amount, shall not at any time exceed in the aggregate the lesser of (i) the Maximum Line Amount (as in effect from time to time as described below), or (ii) the Borrowing Base limitations described in Section 1.2. Within these limits, Companies may periodically borrow, prepay in whole or in part, and reborrow. Wells Fargo has no obligation to make an Advance during a Default Period or at any time Wells Fargo believes that an Advance would result in an Event of Default. The “Maximum Line Amount” shall initially be $17,000,000. The Maximum Line Amount may be increased from time to time from $17,000,000 upon satisfaction of the following terms and conditions: (i) Wells Fargo has received an Authenticated Record from Company Funds Administrator requesting each such increase not less than 30 days prior to the effective date of such increase; (ii) each increase shall be at least $2,000,000, and increments above such $2,000,000 amount shall be not less than $1,000,000 each; provided that the Maximum Line Amount shall not exceed $20,000,000; (iii) no Default Period shall exist at the time of each such requested increase; and (iv) Wells Fargo shall have received from Companies a line increase fee equal to one-quarter of one percent (0.25%) of the increase to the Maximum Line Amount.

(b) Maturity and Termination Dates. Company Funds Administrator may request Advances from the date that the conditions set forth in Section 3 are satisfied until the earlier of (the earliest of such dates, the “Termination Date”): (i) June 30, 2011 (the “Maturity Date”), (ii) the date Companies terminate the Line of Credit, or (iii) the date Wells Fargo terminates the Line of Credit in accordance with Section 6.2.

(c) Use of Line of Credit Proceeds. Companies shall use the proceeds of the initial Advance to repay the Companies’ indebtedness to their existing bank as of such time, and each subsequent Advance and each Letter of Credit for ordinary working capital and general corporate purposes. In addition, the proceeds of initial Advance resulting from any increase in the Maximum Line Amount may be used for the following additional purposes: (i) to redeem or repurchase the capital stock of Phoenix Footwear Group, Inc. at its current market value, and (ii) to acquire additional brands (free and clear of any Liens (other than in favor of Wells Fargo) and so long as no indebtedness is incurred or assumed in connection therewith) subject to such agreements, documents, and instruments that are in form and substance acceptable to Wells Fargo in Wells Fargo’s sole discretion.

(d) Revolving Note. Companies’ obligation to repay Line of Credit Advances, regardless of how initiated under Section 1.3, shall be evidenced by a revolving promissory note (as renewed, amended or replaced from time to time, the “Revolving Note”).

1.2 Borrowing Base; Mandatory Prepayment.

(a) Borrowing Base. The borrowing base (the “Borrowing Base”) is an amount equal to:

(i) 85% or such lesser percentage of Eligible Phoenix Accounts as Wells Fargo in its sole discretion may deem appropriate; provided that this rate may be reduced at any time by Wells Fargo’s in its sole discretion by one (1) percent for each percentage point by which Dilution on the date of determination is in excess of five percent (5.0%) (Companies acknowledge that, due to Dilution at the time of the initial Advance, the advance rate applicable to Eligible Phoenix Accounts shall be 79%, with such advance rate subject to adjustment from time to time as provided above); plus

(ii) 85% or such lesser percentage of Eligible Chambers Accounts as Wells Fargo in its sole discretion may deem appropriate; provided that this rate may be reduced at any time by Wells Fargo’s in its sole discretion by one (1) percent for each percentage point by which Dilution on the date of determination is in excess of five percent (5.0%), plus

(iii) the least of (x) 85% or such lesser percentage (as Wells Fargo in its sole discretion may deem appropriate) of the Net Orderly Liquidation Value of Eligible Inventory, (y) 49.4% or such lesser percentage (as Wells Fargo in its sole discretion may deem appropriate) of Eligible Inventory valued at the lower of cost or fair market value in accordance with GAAP, or (z) the Inventory Sublimit; provided that (A) Advances and/or Letters of Credit supported by Tommy Bahama branded inventory shall not exceed $2,000,000, (B) Advances and/or Letters of Credit supported by Wrangler branded inventory shall not exceed $2,500,000, and (C) the maximum amount of Eligible In-Transit Inventory that may be included as Eligible Inventory for purposes of this paragraph (iii) shall not exceed $2,000,000 (based on the lower of cost or fair market value), less

(iv) the Borrowing Base Reserve (such reserve to be adjusted monthly or more frequently in Wells Fargo’s discretion, and to include, without limitation, (x) unpaid freight charges and customs duties for in-transit inventory and (y) accrued and unpaid royalty and license payments owing by Companies), less

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(v) Indebtedness that Companies owes Wells Fargo that has not been advanced on the Revolving Note, less

(vi) Indebtedness that is not otherwise described in Section 1 that Wells Fargo in its sole discretion finds on the date of determination to be equal to Wells Fargo’s net credit exposure with respect to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar transaction or arrangement extended to any Company by Wells Fargo and any Indebtedness owed by Company to Wells Fargo Merchant Services, L.L.C.

(b) Mandatory Prepayment; Overadvances. If unreimbursed Line of Credit Advances evidenced by the Revolving Note plus the L/C Amount exceed the Borrowing Base or the Maximum Line Amount at any time, then Companies shall prepay the Revolving Note in an amount sufficient to eliminate the excess within five (5) Business Days of such occurrence, and if payment in full of the Revolving Note is insufficient to eliminate this excess and the L/C Amount continues to exceed the Borrowing Base, then Companies shall deliver cash, within such five (5) Business Day period, to Wells Fargo in an amount equal to the remaining excess for deposit to the Special Account, unless in each case, Wells Fargo has delivered to Company Funds Administrator an Authenticated Record consenting to the Overadvance prior to its occurrence, in which event the Overadvance shall be temporarily permitted on such terms and conditions as Wells Fargo in its sole discretion may deem appropriate, including the payment of additional fees or interest, or both.

1.3 Procedures for Line of Credit Advances.

(a) Advances to Operating Account. Advances shall be credited to Company Funds Administrator’s demand deposit account maintained with Wells Fargo (the “Operating Account”), unless the parties agree in a Record Authenticated by both of them to disburse to another account.

(i) Advances upon Company Funds Administrator’s Request. Line of Credit Advances may be funded upon Company Funds Administrator’s request. No request will be deemed received until Wells Fargo acknowledges receipt, and Company Funds Administrator, if requested by Wells Fargo, confirms the request in an Authenticated Record. Companies shall repay all Advances, even if the Person requesting the Advance on behalf of Companies lacked authorization.

(A) Floating Rate Advances. If Company Funds Administrator wants a Floating Rate Advance, it shall make the request no later than 9:00 a.m. Pasadena, California Time on the Business Day on which it wants the Floating Rate Advance to be funded, which request shall specify the principal Advance amount being requested.

(B) LIBOR Advances. If Company Funds Administrator wants a LIBOR Advance, it shall make the request no later than 9:00 a.m. Pasadena, California Time three (3) Business Days preceding the Business Day on which it wants the LIBOR Advance to be funded, which request shall specify both the principal Advance amount and Interest Period being requested. No more than five (5) separate LIBOR Advance Interest Periods may be outstanding at any time. Each LIBOR Advance shall be in multiples of $1,000,000 and in the minimum amount of at least $1,000,000. LIBOR Advances are not available for Advances made through the Loan Manager Service, and shall not be available during Default Periods.

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(ii) Advances through Loan Manager. If Wells Fargo has separately agreed that Companies may use the Wells Fargo Loan Manager service (“Loan Manager”), Line of Credit Advances will be initiated by Wells Fargo and credited to the Operating Account as Floating Rate Advances as of the end of each Business Day in an amount sufficient to maintain an agreed upon ledger balance in the Operating Account, subject only to Line of Credit availability as provided in Section 1.1(a). If Wells Fargo terminates Companies’ access to Loan Manager, Company Funds Administrator may continue to request Line of Credit Advances as provided in Section 1.3(a)(i). Wells Fargo shall have no obligation to make an Advance through Loan Manager during a Default Period, or in an amount in excess of Line of Credit availability, and may terminate Loan Manager at any time in its sole discretion.

(b) Protective Advances; Advances to Pay Indebtedness Due. Wells Fargo may initiate a Floating Rate Advance on the Line of Credit in its sole discretion for any reason at any time, without Companies’ compliance with any of the conditions of this Agreement, and (i) disburse the proceeds directly to third Persons in order to protect Wells Fargo’s interest in Collateral or to perform any of Companies’ obligations under this Agreement, or (ii) apply the proceeds to the amount of any Indebtedness then due and payable to Wells Fargo.

1.4 LIBOR Advances.

(a) Funding Line of Credit Advances as LIBOR Advances for Fixed Interest Periods. Company Funds Administrator may fund a Line of Credit Advance as a LIBOR Advance for one, three, or six month periods (each period an “Interest Period”, as more fully defined in Exhibit A).

(b) Procedure for Converting Floating Rate Advances to LIBOR Advances. Company Funds Administrator may request that all or any part of an outstanding Floating Rate Advance be converted to a LIBOR Advance, provided that no Default Period is in effect, and that Wells Fargo receives the request no later than 9:00 a.m. Pasadena, California Time three (3) Business Days preceding the Business Day on which Company Funds Administrator wishes the conversion to become effective. Each request shall (i) specify the principal amount of the Floating Rate Advance to be converted, (ii) the Business Day of conversion, and (iii) the Interest Period desired. The request shall be confirmed in an Authenticated Record if requested by Wells Fargo. Each conversion to a LIBOR Advance shall be in multiples of $1,000,000 and in the minimum amount of at least $1,000,000.

(c) Expiring LIBOR Advance Interest Periods. Unless Company Funds Administrator requests a new LIBOR Advance, or prepays an outstanding LIBOR Advance at the expiration of an Interest Period, Wells Fargo shall convert each LIBOR Advance to a Floating Rate Advance on the last day of the expiring Interest Period. If no Default Period is in effect, Company Funds Administrator may request that all or part of any expiring LIBOR Advance be renewed as a new LIBOR Advance, provided that Wells Fargo receives the request no later than 9:00 a.m. Pasadena, California Time three (3) Business Days preceding the

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Business Day that constitutes the first day of the new Interest Period. Each request shall specify the principal amount of the expiring LIBOR Advance to be continued and Interest Period desired, and shall be confirmed in an Authenticated Record if requested by Wells Fargo. Each renewal of a LIBOR Advance shall be in multiples of $1,000,000 and in the minimum amount of at least $1,000,000.

(d) Quotation of LIBOR Advance Interest Rates. Wells Fargo shall, with respect to any request for a new or renewal LIBOR Advance, or the conversion of a Floating Rate Advance to a LIBOR Advance, provide Company Funds Administrator with a LIBOR quote for each Interest Period identified by Company Funds Administrator on the Business Day on which the request was made, if the request is received by Wells Fargo no later than 9:00 a.m. Pasadena, California Time three (3) Business Days preceding the Business Day on which Company Funds Administrator has requested that the LIBOR Advance be made effective; provided that any such quote shall be deemed to be an estimate of LIBOR for such Interest Period, and the actual LIBOR that will be applicable to a LIBOR Advance as of the first date of the applicable Interest Period for such LIBOR Advance shall be subject to adjustment based on the actual LIBOR determined by Wells Fargo as of the beginning of such Interest Period.

(e) Taxes and Regulatory Costs. Companies shall also pay Wells Fargo with respect to any LIBOR Advance all (i) withholdings, interest equalization taxes, stamp taxes or other taxes (except income and franchise taxes) imposed by any domestic or foreign governmental authority that are related to LIBOR, and (ii) future, supplemental, emergency or other changes in the LIBOR Reserve Percentage, the assessment rates imposed by the Federal Deposit Insurance Corporation, or similar costs imposed by any domestic or foreign governmental authority or resulting from compliance by Wells Fargo with any request or directive (whether or not having the force of law) from any central bank or other governmental authority that are related to LIBOR but not otherwise included in the calculation of LIBOR. In determining which of these amounts are attributable to an existing LIBOR Advance, any reasonable allocation made by Wells Fargo among its operations shall be deemed conclusive and binding.

(f) Maximum Aggregate LIBOR Advances. Notwithstanding any provision to the contrary in this Agreement, the maximum aggregate amount of LIBOR Advances shall not exceed an amount equal to 80% of the aggregate Advances outstanding at any time (the “LIBOR Cap”). To the extent that the LIBOR Cap is exceeded at any time, Companies shall not be permitted to convert or continue any Advances as LIBOR Advances if such conversion or continuation would cause the aggregate Advances to exceed the LIBOR Cap.

1.5 Collection of Accounts and Application to Revolving Note.

(a) The Collection Account. Companies have granted a security interest to Wells Fargo in the Collateral, including all Accounts. Except as otherwise agreed by both parties in an Authenticated Record, all Proceeds of Accounts and other Collateral, upon receipt or collection, shall be deposited each Business Day into the Collection Account. Funds so deposited (“Account Funds”) are the property of Wells Fargo, and may only be withdrawn from the Collection Account by Wells Fargo.

(b) Payment of Accounts by Companies’ Account Debtors. Companies shall instruct all account debtors to make payments either directly to the Lockbox for deposit by Wells Fargo directly to the Collection Account, or instruct them to deliver such payments

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to Wells Fargo by wire transfer, ACH, or other means as Wells Fargo may direct for deposit to the Collection Account or for direct application to the Line of Credit. If a Company receives a payment or the Proceeds of Collateral directly, such Company will promptly deposit the payment or Proceeds into the Collection Account. Until deposited, it will hold all such payments and Proceeds in trust for Wells Fargo without commingling with other funds or property. All deposits held in the Collection Account shall constitute Proceeds of Collateral and shall not constitute the payment of Indebtedness.

(c) Application of Payments to Revolving Note. Wells Fargo will withdraw Account Funds deposited to the Collection Account and pay down borrowings on the Line of Credit by applying them to the Revolving Note on the first Business Day following the Business Day of deposit to the Collection Account, or, if payments are received by Wells Fargo that are not first deposited to the Collection Account pursuant to any treasury management service provided to Companies by Wells Fargo, such payments shall be applied to the Revolving Note as provided in the Master Agreement for Treasury Management Services and the relevant service description.

1.6 Interest and Interest Related Matters.

(a) Interest Rates Applicable to Line of Credit. Except as otherwise provided in this Agreement, the unpaid principal amount of each Line of Credit Advance evidenced by the Revolving Note shall accrue interest at an annual interest rate calculated as follows:

Floating Rate:

Line of Credit Advances = Prime Rate minus the applicable Margin, which interest rate shall change whenever the Prime Rate changes (the “Floating Rate”); or

LIBOR Advance Rate for One, Three, or Six Month Interest Periods:

Line of Credit Advances = LIBOR plus the applicable Margin (the “LIBOR Advance Rate”)

Multiple Advances under the Line of Credit may simultaneously accrue interest at both the Floating Rate and at the LIBOR Advance Rate, subject to the limitations of Section 1.3(a)(i).

The Margins through and including the adjustment occurring as specified below shall be 0.25% per annum for Floating Rate Advances, and 2.40% per annum for LIBOR Advances. The Margins shall be reduced by 0.25% per annum on a one-time basis if the following conditions precedent have been satisfied (as verified by Wells Fargo): (i) the Companies’ Net Income for the fiscal year ending December 31, 2008 (as presented in Companies’ financial statements audited by independent public accountants acceptable to Wells Fargo), is greater than $1,500,000, and (ii) no Default Period is existing at the time Wells Fargo receives such year-end audited financial statements.

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The Margin reduction provided for in the immediately preceding paragraph shall become effective on the first calendar day of the first calendar month following the month of receipt by Wells Fargo of fiscal year end financial statements that have been audited by an independent public accounting firm, acceptable to Wells Fargo.

If amended or restated financial statements would change previously calculated Margins, or if Wells Fargo determines that any financial statements have materially misstated Companies’ financial condition, then Wells Fargo may, using the most accurate information available to it, recalculate the financial test or tests governing the Margins and retroactively increase the Margins from the date of receipt of such amended or restated financial statements and charge Companies additional interest, which may be imposed on them from the beginning of the appropriate month to which the restated statements or recalculated financial tests relate, as Wells Fargo in its sole discretion deems appropriate.

(b) Minimum Interest Charge. Notwithstanding the other terms of Section 1.6 to the contrary, and except as limited by the usury savings provision of Section 1.6(e), Companies shall pay Wells Fargo at least $20,000 of interest for each calendar month ending on or before December 31, 2008, and at least $17,500 of interest for each calendar month ending on or after January 31, 2009 (the “Minimum Interest Charge”) during the term of this Agreement, and Companies shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise payable on the first day of each month and on the Termination Date. When calculating this deficiency, the Default Rate set forth in Section 1.6(c), if applicable, shall be disregarded.

(c) Default Interest Rate. Commencing on the day an Event of Default occurs, through and including the date that the Event of Default has been cured or waived by Wells Fargo in a Record (each such period a “Default Period”), or during a time period specified in Section 1.9, or at any time following the Termination Date, in Wells Fargo’s sole discretion and without waiving any of its other rights or remedies, the principal amount of the Revolving Note shall bear interest at a rate that is three percent (3.0%) above the contractual rate set forth in Section 1.6(a) (the “Default Rate”), or any lesser rate that Wells Fargo may deem appropriate, starting on the first day of the fiscal quarter in which the Default Period begins through the last day of that Default Period, or any shorter time period to which Wells Fargo may agree in an Authenticated Record.

(d) Interest Accrual on Payments Applied to Revolving Note. Payments received by Wells Fargo shall be applied to the Revolving Note as provided in Section 1.5(c), but the principal amount paid down shall continue to accrue interest through the end of the first Business Day following the Business Day that the payment was applied to the Revolving Note.

(e) Usury. No interest rate shall be effective which would result in a rate greater than the highest rate permitted by law. Payments in the nature of interest and other charges made under any Loan Documents or any other document or agreement described in or related to this Agreement that are later determined to be in excess of the limits imposed by applicable usury law will be deemed to be a payment of principal, and the Indebtedness shall be reduced by that amount so that such payments will not be deemed usurious.

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1.7 Fees.

(a) Origination Fee. Companies shall pay Wells Fargo a one time origination fee of $57,500 shall be fully earned and due and payable upon the execution of this Agreement.

(b) Unused Line Fee. [INTENTIONALLY OMITTED].

(c) Facility Fee. [INTENTIONALLY OMITTED].

(d) Collateral Exam Fees. Companies shall pay Wells Fargo fees in connection with any collateral exams, audits or inspections conducted by or on behalf of Wells Fargo at the current rates established from time to time by Wells Fargo as its collateral exam fees (which fees are currently $105 per day per collateral examiner), together with all actual out-of-pocket costs and expenses incurred in conducting any collateral examination or inspection; but Companies shall not, with the exception of fees, costs, and expenses incurred during Default Periods, be required to reimburse Wells Fargo to the extent that the fees, costs and expenses incurred after the date of this Agreement exceed (i) $20,000 during the one-year period after the date of this Agreement, or (ii) $15,000 during any one-year period after the first anniversary of this Agreement. So long as no Default Period has occurred, Wells Fargo does not intend to conduct collateral examinations, audits, or inspections more frequently than once every 90 days; provided that after the first anniversary of this Agreement, Wells Fargo does not intend to conduct collateral examinations, audits, or inspections more frequently than once every 120 days if the following conditions precedent are satisfied: (A) no Default Period is existing; (B) Companies are performing at a level that is equal to or better than the financial projections that are presented to Wells Fargo by Companies prior to the initial Advance and on an annual basis thereafter; and (C) average daily Excess Availability measured on a rolling 90-day basis is greater than $2,000,000.

(e) Collateral Monitoring Fees. Companies shall pay Wells Fargo a fee at the rates established from time to time by Wells Fargo (or any other Person providing such services to the Wells Fargo, including, but not limited to, Collateral Services, Inc.) as its Collateral monitoring fees (which fees currently consist of a one-time set up fee of $1,800 and a monthly fee of $400), due and payable monthly in advance on the first day of the month and on the Termination Date.

(f) Line of Credit Termination and/or Reduction Fees. If (i) Wells Fargo terminates the Line of Credit during a Default Period, (ii) Companies terminate the Line of Credit on a date other than on the Maturity Date, (iii) Companies terminate the Line of Credit on the Maturity Date but fail to provide Wells Fargo with an Authenticated Record at least 60 days prior to the Maturity Date of Companies’ intention to terminate the Line of Credit on the Maturity Date, or (iv) Company Funds Administrator and Wells Fargo agree to reduce the Maximum Line Amount, then Companies shall pay Wells Fargo as liquidated damages a termination or reduction fee in an amount equal to a percentage of the Maximum Line Amount (or the reduction of the Maximum Line Amount, as the case may be) calculated as follows: (A) three percent (3%) if the termination or reduction occurs on or before June 30, 2009; (B) two percent (2%) if the termination or reduction occurs after June 30, 2009, but on or before June 30, 2010; and (C) one percent (1%) if the termination or reduction occurs after June 30, 2010.

(g) Overadvance Fees. Except in those instances in which an Overadvance results due to a Wells Fargo calculation error, Companies shall pay a $500 Overadvance fee for each day that an Overadvance exists which was not agreed to by Wells Fargo in an Authenticated Record prior to its occurrence if such Overadvance is not repaid or otherwise eliminated within five (5)

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Business Days of when it first arises (and, for sake of clarity, if such Overadvance is not so repaid or eliminated within such five (5) Business Day period, such $500 per day fee shall accrue and be payable from the first day that the Overadvance was outstanding); provided that Wells Fargo’s acceptance of the payment of such fees shall not constitute either consent to the Overadvance or waiver of the resulting Event of Default. Companies shall pay additional Overadvance fees and interest in such amounts and on such terms as Wells Fargo in its sole discretion may consider appropriate for any Overadvance to which Wells Fargo has specifically consented in an Authenticated Record prior to its occurrence.

(h) Treasury Management Fees. Companies will pay service fees to Wells Fargo for treasury management services provided pursuant to the Master Agreement for Treasury Management Services or any other agreement entered into by the parties, in the amount prescribed in Wells Fargo’s current service fee schedule.

(i) Letter of Credit Fees. With respect to the aggregate face amount of each Letter of Credit issued by Wells Fargo (the “Aggregate Face Amount”), the Companies shall pay the following fees in full in advance upon the issuance of each Letter of Credit: (i) one percent (1.0%) of the Aggregate Face Amount of each standby Letter of Credit, and (ii) three-quarters of one percent (0.75%) of the Aggregate Face Amount of each documentary (i.e., commercial) Letter of Credit. Such Letter of Credit fees shall be deemed fully earned and non-refundable upon the issuance each such Letter of Credit, regardless of how long such Letters of Credit remain outstanding. Companies shall pay an additional fee equal one percent (1%) of the undrawn Aggregate Face Amount of any standby Letter of Credit that has an expiry date that exceeds one year (or is renewed for a period that exceeds the initial one-year period), which fee shall be due and payable in advance on each anniversary of the issuance date of such standby Letter of Credit. During a Default Period, Companies shall, at Wells Fargo option (exercised in Wells Fargo’s sole discretion), pay an additional fee equal to three percent (3.0%) per annum of the Aggregate Face Amount, commencing on the first day of the month in which the Default Period begins and continuing through the last day of such Default Period, or any shorter time period that Wells Fargo in its sole discretion may deem appropriate, without waiving any of its other rights and remedies, and such additional fee shall be due and payable on demand.

(j) Letter of Credit Administrative Fees. Companies shall pay all administrative fees charged by Wells Fargo in connection with the honoring of drafts under any Letter of Credit, and any amendments to or transfers of any Letter of Credit, and any other activity with respect to the Letters of Credit at the current rates published by Wells Fargo for such services rendered on behalf of its customers generally.

(k) Other Fees and Charges. Wells Fargo may impose additional fees and charges during a Default Period for (i) waiving an Event of Default, or (ii) the administration of Collateral by Wells Fargo. All such fees and charges shall be imposed at Wells Fargo’s sole discretion following oral notice to Company Funds Administrator on either an hourly, periodic, or flat fee basis, and in lieu of or in addition to imposing interest at the Default Rate, and Company Funds Administrator’s request for an Advance following such notice shall constitute Companies’ agreement to pay such fees and charges.

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(l) Termination Fees Following Refinance by Wells Fargo Bank Regional Commercial Banking Office or Another Lender. Notwithstanding paragraph (f) of this Section 1.7, if after December 31, 2009, the Line of Credit is refinanced in full by either a Wells Fargo Bank Regional Commercial Banking Office or another lender that has provided Qualified Refinancing (as defined below) and no Default Period is existing at the time of such refinancing, such refinance shall not be deemed a termination or prepayment resulting in the payment of termination fees, provided that with respect to such a refinancing by a Wells Fargo Bank Regional Commercial Banking Office, Companies agree, at the time of refinance, to the continued payment of comparable termination and/or prepayment fees in an amount no less than the amount set forth in this Agreement, in the event that any facilities subject to this Agreement at the time of the refinancing facilities are at a later date terminated early or prepaid. “Qualified Refinancing” means a bona fide financing offer made by a third-party lender that satisfies the following criteria (as determined by Wells Fargo): (i) such financing offer is in writing and signed by the third-party lender, such financing offer is sufficiently detailed to enable Wells Fargo to determine all material terms of such financing offer, and Wells Fargo has received complete copies of such financing offer not less than 30 days prior to the consummation of any such financing; (ii) such financing offer is sufficient to fully repay all Line of Credit Advances and replace all Letters of Credit issued under or in connection with this Agreement; and (iii) Wells Fargo shall have been provided with at least 30 days after receipt of all of the documents referred to clause (i) of this sentence to match such financing offer, and Wells Fargo has declined to match such offer within such 30-day period.

(m) LIBOR Advance Breakage Fees. Companies may prepay any LIBOR Advance at any time in any amount, whether voluntarily or by acceleration; provided, however, that if the LIBOR Advance is prepaid, Companies shall pay Wells Fargo upon demand a LIBOR Advance breakage fee equal to the sum of the discounted monthly differences for each month from the month of prepayment through the month in which such Interest Period matures, calculated as follows for each such month:

(i) Determine the amount of interest which would have accrued each month on the amount prepaid at the interest rate applicable to such amount had it remained outstanding until the last day of the applicable Interest Period.

(ii) Subtract from the amount determined in (i) above the amount of interest which would have accrued for the same month on the amount prepaid for the remaining term of such Interest Period at LIBOR in effect on the date of prepayment for new loans made for such term in a principal amount equal to the amount prepaid.

(iii) If the result obtained in (ii) for any month is greater than zero, discount that difference by LIBOR used in (ii) above.

Each Company acknowledges that prepayment of the Revolving Note may result in Wells Fargo incurring additional costs, expenses or liabilities, and that it is difficult to ascertain the full extent of such costs, expenses or liabilities. Companies agree to pay the above-described LIBOR Advance breakage fee and agrees that this amount represents a reasonable estimate of the LIBOR Advance breakage costs, expenses and/or liabilities of Wells Fargo.

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1.8 Interest Accrual; Principal and Interest Payments; Computation.

(a) Interest Payments and Interest Accrual. Accrued and unpaid interest under the Revolving Note on Floating Rate Advances shall be due and payable on the first day of each month (each an “Interest Payment Date”) and on the Termination Date, and shall be paid in the manner provided in Section 1.5(c). Interest shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of Advance to the Interest Payment Date. Interest accruing on any LIBOR Advance shall be due and payable on the last day of the applicable Interest Period and on the Termination Date; provided, however, for Interest Periods in excess of one month, interest shall nevertheless be due and payable monthly on the last day of each month, and on the last day of the Interest Period.

(b) Payment of Revolving Note Principal. The principal amount of the Revolving Note shall be paid from time to time as provided in this Agreement, and shall be fully due and payable on the Termination Date.

(c) Payments Due on Non-Business Days. If an Interest Payment Date or the Termination Date falls on a day which is not a Business Day, payment shall be made on the next Business Day, and interest shall continue to accrue during that time period.

(d) Computation of Interest and Fees. Interest accruing on the unpaid principal amount of the Revolving Note and fees payable under this Agreement shall be computed on the basis of the actual number of days elapsed in a year of 360 days.

(e) Liability Records. Wells Fargo shall maintain accounting and bookkeeping records of all Advances and payments under the Line of Credit and all other Indebtedness due to Wells Fargo in such form and content as Wells Fargo in its sole discretion deems appropriate. Wells Fargo’s calculation of current Indebtedness shall be presumed correct unless proven otherwise by Companies. Upon Wells Fargo’s request, Companies will admit and certify in a Record the exact principal balance of the Indebtedness that Companies then believe to be outstanding. Any billing statement or accounting provided by Wells Fargo shall be conclusive and binding unless Company Funds Administrator notifies Wells Fargo in a detailed Record of its intention to dispute the billing statement or accounting within 30 days of receipt.

1.9 Termination, Reduction or Non-Renewal of Line of Credit by Company Funds Administrator; Notice.

(a) Termination by Company Funds Administrator after Advance Notice. Company Funds Administrator may terminate or reduce the Line of Credit at any time prior to the Maturity Date, if it (i) delivers an Authenticated Record notifying Wells Fargo of its intentions at least 90 days prior to the proposed Termination Date, (ii) pays Wells Fargo the termination fee set forth in Section 1.7(f), and (iii) pays the Indebtedness in full or down to the reduced Maximum Line Amount.

(b) Termination by Company Funds Administrator without Advance Notice. If Company Funds Administrator fails to deliver Wells Fargo timely notice of its intention to terminate the Line of Credit or reduce the Maximum Line Amount as provided in Section 1.9(a), Company Funds Administrator may nevertheless terminate the Line of Credit or reduce the Maximum Line

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Amount and pay the Indebtedness in full or down to the reduced Maximum Line Amount if it (i) pays the termination fee set forth in Section 1.7(f), and (ii) pays the Default Rate on the Revolving Note commencing on the 90^th day prior to the proposed Termination Date and continuing through the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company Funds Administrator’s intention to terminate.

(c) Non-Renewal by Company Funds Administrator; Notice. If Company Funds Administrator does not wish Wells Fargo to consider renewal of the Line of Credit on the next Maturity Date, Company Funds Administrator shall deliver an Authenticated Record to Wells Fargo at least 90 days prior to the Maturity Date notifying Wells Fargo of its intention not to renew. If Company Funds Administrator fails to deliver to Wells Fargo such timely notice, then the Revolving Note shall accrue interest at the Default Rate commencing on the 90^th day prior to the Maturity Date and continuing through the date that Wells Fargo receives delivery of an Authenticated Record giving it actual notice of Company Funds Administrator’s intention not to renew.

1.10 Letters of Credit

(a) Issuance of Letters of Credit; Amount. Wells Fargo, subject to the terms and conditions of this Agreement, shall issue, on or after the date that Wells Fargo is obligated to make its first Advance under this Agreement and prior to the Termination Date, one or more irrevocable standby or documentary letters of credit (each, a “Letter of Credit”, and collectively, “Letters of Credit”) for Companies’ account. Wells Fargo will not issue any Letter of Credit if the face amount of the Letter of Credit would exceed the lesser of: (i) $7,500,000 less the L/C Amount, or (ii) the Borrowing Base, less an amount equal to aggregate unreimbursed Line of Credit Advances plus the L/C Amount.

(b) Additional Letter of Credit Documentation. Prior to requesting issuance of a Letter of Credit, Companies shall first execute and deliver to Wells Fargo a Standby Letter of Credit Agreement or a Commercial Letter of Credit Agreement, as applicable, an L/C Application, and any other documents that Wells Fargo may request, which shall govern the issuance of the Letter of Credit and Companies’ obligation to reimburse Wells Fargo for any related Letter of Credit draws (the “Obligation of Reimbursement”).

(c) Expiration. No Letter of Credit shall be issued that has an expiry date that is later than one (1) year from the date of issuance, or the Maturity Date in effect on the date of issuance, whichever is earlier.

(d) Obligation of Reimbursement During Default Periods. If Companies are unable, due to the existence of a Default Period or for any other reason, to obtain an Advance to pay any Obligation of Reimbursement, Companies shall pay Wells Fargo on demand and in immediately available funds, the amount of the Obligation of Reimbursement together with interest, accrued from the date presentment of the underlying draft until reimbursement in full at the Default Rate. Wells Fargo is authorized, alternatively and in its sole discretion, to make an Advance in an amount sufficient to discharge the Obligation of Reimbursement and pay all accrued but unpaid interest and fees with respect to the Obligation of Reimbursement.

1.11 Special Account. If the Line of Credit is terminated for any reason while a Letter of Credit is outstanding, or if after prepayment of the Revolving Note the L/C Amount continues to exceed the Borrowing Base, then Companies shall promptly pay Wells

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Fargo in immediately available funds for deposit to the Special Account, an amount equal, as the case may be, to either (a) the L/C Amount plus any anticipated fees and costs, or (b) the amount by which the L/C Amount exceeds the Borrowing Base. If Companies fail to pay these amounts promptly, then Wells Fargo may in its sole discretion make an Advance to pay these amounts and deposit the proceeds to the Special Account. The Special Account shall be an interest bearing account maintained with Wells Fargo or any other financial institution acceptable to Wells Fargo. Wells Fargo may in its sole discretion apply amounts on deposit in the Special Account to the Indebtedness. Companies may not withdraw amounts deposited to the Special Account until the Line of Credit has been terminated and all outstanding Letters of Credit have either been returned to Wells Fargo or have expired and the Indebtedness has been fully paid.

2. SECURITY INTEREST AND OCCUPANCY OF COMPANIES’ PREMISES

2.1 Grant of Security Interest. Each Company hereby pledges, assigns and grants to Wells Fargo, for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C., a Lien and security interest (collectively referred to as the “Security Interest”) in the Collateral, as security for the payment and performance of all Indebtedness. Following request by Wells Fargo, each Company shall grant Wells Fargo, for the benefit of Wells Fargo and as agent for Wells Fargo Merchant Services, L.L.C., a Lien and security interest in all commercial tort claims that it may have against any Person.

2.2 Notifying Account Debtors and Other Obligors; Collection of Collateral. Wells Fargo may at any time (whether or not a Default Period then exists) deliver a Record giving an account debtor or other Person obligated to pay an Account, a General Intangible, or other amount due, notice that the Account, General Intangible, or other amount due has been assigned to Wells Fargo for security and must be paid directly to Wells Fargo. Each Company shall join in giving such notice and shall Authenticate any Record giving such notice upon Wells Fargo’s request. After any Company or Wells Fargo gives such notice, Wells Fargo may, but need not, in Wells Fargo’s or in such Company’s name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, such Account, General Intangible, or other amount due, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any account debtor or other obligor. Wells Fargo may, in Wells Fargo’s name or in any Company’s name, as any such Company’s agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of such Company’s mail to any address designated by Wells Fargo, otherwise intercept such Company’s mail, and receive, open and dispose of such Company’s mail, applying all Collateral as permitted under this Agreement and holding all other mail for such Company’s account or forwarding such mail to such Company’s last known address.

2.3 Assignment of Insurance. As additional security for the Indebtedness, each Company hereby assigns to Wells Fargo and to Wells Fargo Merchant Services, L.L.C., all rights of each Company under every policy of insurance covering the Collateral and all business records and other documents relating to it, and all monies (including proceeds and refunds) that may be payable under any policy, and each Company hereby directs the issuer of each policy to pay all such monies directly to Wells Fargo. At any time, whether or not a Default Period then exists, Wells Fargo may (but need not), in Wells Fargo’s or any Company’s

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name, execute and deliver proofs of claim, receive payment of proceeds and endorse checks and other instruments representing payment of the policy of insurance, and adjust, litigate, compromise or release claims against the issuer of any policy. Any monies received under any insurance policy assigned to Wells Fargo, other than liability insurance policies, or received as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid to Wells Fargo and, as determined by Wells Fargo in its sole discretion, either be applied to prepayment of the Indebtedness or disbursed to a Company under staged payment terms reasonably satisfactory to Wells Fargo for application to the cost of repairs, replacements, or restorations which shall be effected with reasonable promptness and shall be of a value at least equal to the value of the items or property destroyed.

2.4 Companies’ Premises

(a) Wells Fargo’s Right to Occupy each Company’s Premises. Each Company hereby grants to Wells Fargo the right, at any time during a Default Period and without notice or consent, to take exclusive possession of all locations where each Company conducts its business or has any rights of possession, including the locations described on Exhibit B (the “Premises”), until the earlier of (i) payment in full and discharge of all Indebtedness and termination of the Line of Credit, or (ii) final sale or disposition of all items constituting Collateral and delivery of those items to purchasers.

(b) Wells Fargo’s Use of each Company’s Premises. Wells Fargo may use the Premises to store, process, manufacture, sell, use, and liquidate or otherwise dispose of items that are Collateral, and for any other incidental purposes deemed appropriate by Wells Fargo in good faith.

(c) Each Company’s Obligation to Reimburse Wells Fargo. Wells Fargo shall not be obligated to pay rent or other compensation for the possession or use of any Premises, but if Wells Fargo elects to pay rent or other compensation to the owner of any Premises in order to have access to the Premises, then each Company shall promptly reimburse Wells Fargo all such amounts, as well as all taxes, fees, charges and other expenses at any time payable by Wells Fargo with respect to the Premises by reason of the execution, delivery, recordation, performance or enforcement of any terms of this Agreement.

2.5 License. Without limiting the generality of any other Security Document, each Company hereby grants to Wells Fargo a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all Intellectual Property Rights of each Company for the purpose of: (a) completing the manufacture of any in-process materials during any Default Period so that such materials become saleable Inventory, all in accordance with the same quality standards previously adopted by each Company for its own manufacturing and subject to each Company’s reasonable exercise of quality control; and (b) selling, leasing or otherwise disposing of any or all Collateral during any Default Period.

2.6 Financing Statements. Each Company authorizes Wells Fargo to file financing statements describing Collateral to perfect Wells Fargo’s Security Interest in the Collateral, and Wells Fargo may describe the Collateral as “all personal property” or “all assets” or describe specific items of Collateral including commercial tort claims as Wells Fargo may consider necessary or useful to perfect the Security Interest. All financing statements filed before the date of this Agreement to perfect the Security

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Interest were authorized by each Company and are hereby re-authorized. Following the termination of the Line of Credit and payment of all Indebtedness, Wells Fargo shall, at each Company’s expense and within the time periods required under applicable law, release or terminate any filings or other agreements that perfect the Security Interest.

2.7 Setoff. Wells Fargo may at any time, in its sole discretion and without demand or notice to anyone, setoff any liability owed to any Company by Wells Fargo against any Indebtedness, whether or not due.

2.8 Collateral Related Matters. This Agreement does not contemplate a sale of Accounts or chattel paper, and, as provided by law, each Company is entitled to any surplus and shall remain liable for any deficiency. Wells Fargo’s duty of care with respect to Collateral in its possession (as imposed by law) will be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third Person, exercises reasonable care in the selection of the bailee or third Person, and Wells Fargo need not otherwise preserve, protect, insure or care for such Collateral. Wells Fargo shall not be obligated to preserve rights Companies may have against prior parties, to liquidate the Collateral at all or in any particular manner or order or apply the Proceeds of the Collateral in any particular order of application. Wells Fargo has no obligation to clean-up or prepare Collateral for sale. Each Company waives any right it may have to require Wells Fargo to pursue any third Person for any of the Indebtedness.

2.9 Notices Regarding Disposition of Collateral. If notice to any Company of any intended disposition of Collateral or any other intended action is required by applicable law in a particular situation, such notice will be deemed commercially reasonable if given in the manner specified in Section 7.4 at least ten calendar days before the date of intended disposition or other action.

3. CONDITIONS PRECEDENT

3.1 Conditions Precedent to Initial Advance and Issuance of Initial Letter of Credit. Wells Fargo’s obligation to make the initial Advance or issue the first Letter of Credit shall be subject to the condition that Wells Fargo shall have received this Agreement and each of the Loan Documents, and any document, agreement, or other item described in or related to this Agreement, and all fees and information described in Exhibit C, executed and in form and content satisfactory to Wells Fargo.

3.2 Additional Conditions Precedent to All Advances and Letters of Credit. Wells Fargo’s obligation to make any Advance (including the initial Advance) or issue any Letter of Credit shall be subject to the further additional conditions: (a) that the representations and warranties described in Exhibit D are correct on the date of the Advance or the issuance of the Letter of Credit, except to the extent that such representations and warranties relate solely to an earlier date; and (b) that no event has occurred and is continuing, or would result from the requested Advance or issuance of the Letter of Credit that would result in an Event of Default.

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4. REPRESENTATIONS AND WARRANTIES

To induce Wells Fargo to enter into this Agreement, each Company makes the representations and warranties described in Exhibit D. Any request for an Advance will be deemed a representation by each Company that all representations and warranties described in Exhibit D are true, correct, and complete as of the time of the request, unless they relate exclusively to an earlier date. Each Company shall promptly deliver a Record notifying Wells Fargo of any change in circumstance that would affect the accuracy of any representation or warranty, unless the representation and warranty specifically relates to an earlier date.

5. COVENANTS

So long as the Indebtedness remains unpaid, or the Line of Credit has not been terminated, each Company shall comply with each of the following covenants, unless Wells Fargo shall consent otherwise in an Authenticated Record delivered to the applicable Company.

5.1 Reporting Requirements. Companies shall deliver to Wells Fargo the following information, compiled where applicable using GAAP consistently applied, in form and content acceptable to Wells Fargo:

(a) Annual Financial Statements. As soon as available and in any event within 95 days after Companies’ fiscal year end, Companies’ audited financial statements prepared by an independent public accounting firm acceptable to Wells Fargo, which shall include Companies’ balance sheet, income statement, and statement of retained earnings and cash flows prepared on a consolidated and, if requested by Wells Fargo, consolidating basis. The annual financial statements shall be accompanied by a certificate (the “Compliance Certificate”) in the form of Exhibit E that is signed by Companies’ chief financial officer.

Each Compliance Certificate that accompanies an annual financial statement shall also be accompanied by (i) copies of all management letters prepared by Companies’ accountants; and (ii) a report signed by the accountant stating that in making the investigations necessary to render the opinion, the accountant obtained no knowledge, except as specifically stated, of any Event of Default under the Agreement, and a detailed statement, including computations, demonstrating whether or not Companies are in compliance with the financial covenants of this Agreement.

(b) Monthly Financial Statements. As soon as available and in any event within 25 days after the end of each month, a Companies-prepared balance sheet, income statement, and statement of retained earnings prepared for that month and for the year–to-date period then ended, prepared on a consolidated and, if requested by Wells Fargo, consolidating basis to include each Company’s Affiliates, and stating in comparative form the figures for the corresponding date and periods in the prior fiscal year, subject to year-end adjustments. The financial statements shall be accompanied by a Compliance Certificate in the form of Exhibit E that is signed by Companies’ chief financial officer.

(c) Collateral Reports. No later than 15 days after each month end (or more frequently if Wells Fargo shall request it), detailed agings of Companies’ accounts receivable and accounts payable, a detailed inventory report (including the locations and categories of Inventory at each location), a calculation of Companies’ Accounts, Eligible Accounts, Inventory and Eligible Inventory, a report as to in-transit inventory and the status of (including location) of in-transit inventory, a report on all accrued

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royalty, marketing, license, and similar payments owing to any licensor of a patent, trademark, copyright, or similar right, a report on all inventory close-out items, and a general ledger trial balance report, in each case as of the end of that month or shorter time period requested by Wells Fargo.

(d) Projections. No later than 30 days prior to each fiscal year end, Companies’ projected balance sheet, income statement, and statement of retained earnings and cash flows for each month of the next fiscal year, certified to have been prepared in good faith and on the basis of reasonable assumptions by Companies’ chief financial officer and accompanied by a statement of assumptions and supporting schedules and information.

(e) Supplemental Reports. Weekly, or more frequently if Wells Fargo requests, Companies’ standard form of “daily collateral report”, together with accounts receivable schedules, collection reports, adjustments to accounts receivable, copies of the three (3) largest invoices issued during the previous week together with copies of any other invoices in excess of $200,000 issued during such week, and shipment documents and delivery receipts (or proof of customer pickup) for goods sold to account debtors for the three (3) largest sales of goods during the previous week and copies of shipment documents and delivery receipts for any other sales in excess of $200,000 during such week. Notwithstanding the foregoing, on and after January 1, 2009, the reporting required by this paragraph (e) shall be changed to a monthly basis (and due no later than 15 days after each month end) if (A) no Default Period is existing, (B) Companies are performing in accordance with financial projections submitted by Companies to Wells Fargo, and (C) Companies maintain Excess Availability of not less than $2,000,000 at all times (the continued satisfaction of such conditions is referred to as the “Monthly Collateral Reporting Period”).

(f) Litigation. No later than three (3) Business Days after discovery, a Record notifying Wells Fargo of any litigation or other proceeding before any court or governmental agency which seeks a monetary recovery against any Company in excess of $100,000.

(g) Intellectual Property. (i) No later than 30 days before it acquires material Intellectual Property Rights, a Record notifying Wells Fargo of any Company’s intention to acquire such rights; (ii) except for transfers permitted under Section 5.18, no later than 30 days before it disposes of material Intellectual Property Rights, a Record notifying Wells Fargo of any Company’s intention to dispose of such rights, along with copies of all proposed documents and agreements concerning the disposal of such rights as requested by Wells Fargo; (iii) promptly upon discovery, a Record notifying Wells Fargo of (A) any Infringement of any Company’s Intellectual Property Rights by any Person, (B) claims that any Company is Infringing another Person’s Intellectual Property Rights and (C) any threatened cancellation, termination or material limitation of any Company’s Intellectual Property Rights; and (iv) promptly upon receipt, copies of all registrations and filings with respect to any Company’s Intellectual Property Rights.

(h) Defaults. No later than three days after learning of the probable occurrence of any Event of Default, a Record notifying Wells Fargo of the Event of Default and the steps being taken by Companies to cure the Event of Default.

(i) Disputes. Promptly upon discovery, a Record notifying Wells Fargo of (i) any disputes or claims by any Company’s customers exceeding $100,000 individually or $150,000 in the aggregate during any fiscal year; (ii) credit memos not previously reported

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in Section 5.1(e); and (iii) any goods returned to or recovered by any Company outside of the ordinary course of business which have a book value, individually or in the aggregate, in excess of $50,000.

(j) Changes in Officers and Directors. Promptly following occurrence, a Record notifying Wells Fargo of any change in the persons constituting any Company’s Officers and Directors.

(k) Collateral. Promptly upon discovery, a Record notifying Wells Fargo of any loss of or material damage to any Collateral or of any substantial adverse change in any Collateral or the prospect of its payment.

(l) Commercial Tort Claims. Promptly upon discovery, a Record notifying Wells Fargo of any commercial tort claims brought by any Company against any Person, including the name and address of each defendant, a summary of the facts, an estimate of such Company’s damages, copies of any complaint or demand letter submitted by such Company, and such other information as Wells Fargo may request.

(m) Reports to Owners. Promptly upon distribution, copies of all financial statements, reports and proxy statements which any Company shall have sent to its Owners.

(n) Tax Returns of Companies. No later than 30 days after they are required to be filed (inclusive of any extension periods), copies of each Company’s signed and dated state and federal income tax returns and all related schedules, and copies of any extension requests.

(o) Tax Returns and Personal Financial Statements of Owners and Guarantors. [INTENTIONALLY OMITTED].

(p) Violations of Law. No later than three days after discovery of any violation, a Record notifying Wells Fargo of any Company’s violation of any law, rule or regulation, the non-compliance with which would have a Material Adverse Effect on Company.

(q) Pension Plans. (i) Promptly upon discovery, and in any event within 30 days after any Company knows or has reason to know that any Reportable Event with respect to any Pension Plan has occurred, a Record authenticated by Companies’ chief financial officer notifying Wells Fargo of the Reportable Event in detail and the actions which Companies propose to take to correct the deficiency, together with a copy of any related notice sent to the Pension Benefit Guaranty Corporation; (ii) promptly upon discovery, and in any event within 10 days after any Company fails to make a required quarterly Pension Plan contribution under Section 412(m) of the IRC, a Record authenticated by the Companies’ chief financial officer notifying Wells Fargo of the failure in detail and the actions that Companies will take to cure the failure, together with a copy of any related notice sent to the Pension Benefit Guaranty Corporation; and (iii) promptly upon discovery, and in any event within 10 days after any Company knows or has reason to know that it may be liable or may be reasonably expected to have liability for any withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan under Sections 4201 or 4243 of ERISA, a Record authenticated by Companies’ chief financial officer notifying Wells Fargo of the details of the event and the actions that Companies propose to take in response.

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(r) Other Reports. From time to time, with reasonable promptness, all receivables schedules, inventory reports, collection reports, deposit records, equipment schedules, invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other materials, reports, records or information as Wells Fargo may request.

5.2 Financial Covenants. Companies agree to comply with the financial covenants described below, which shall be calculated using GAAP consistently applied, except as they may be otherwise modified by the following capitalized definitions:

(a) Minimum Net Income. Companies shall achieve Net Income of not less than the amount set forth below for each period set forth below (numbers appearing between “< >“ are negative):

Period	Minimum Net Income
Six-month period ending June 30, 2008	$	<1,900,000>
Three-month period ending September 30, 2008	$	500,000
Six-month period ending December 31, 2008	$	2,000,000

With respect to the six-month period ending June 30, 2008 only, Net Income may be adjusted on a dollar-for-dollar basis for Companies’ write-off (occurring during the six-month period ending June 30, 2008) of unamortized loan closing costs incurred in connection with Companies’ credit facilities prior to the Line of Credit represented by this Agreement.

(b) Capital Expenditures. Companies shall not incur or contract to incur unfinanced Capital Expenditures of more than the following: (i) $850,000 during the six-month period ending June 30, 2008; (ii) $900,000 during the nine-month period ending September 30, 2008; and (iii) $900,000 during the twelve-month period ending December 31, 2008. With respect to periods after December 31, 2008, the Companies and Wells Fargo shall undertake reasonable efforts to agree on limits on unfinanced Capital Expenditures for such future periods based upon the Companies’ projections required to be delivered to Wells Fargo under Section 5.1(d). If the Companies and Wells Fargo are unable to timely agree to such limits on unfinanced Capital Expenditures for any period after December 31, 2008, the Companies shall not incur or contract to incur unfinanced Capital Expenditures for any calendar quarter after December 31, 2008 of more than $50,000 per each such quarter.

(c) Stop Loss. If the Companies and Wells Fargo have not agreed to a new minimum Net Income requirement under Section 5.2(a) above for any period after December 31, 2008, the Companies shall comply with the following covenant during any such period: Companies’ Net Income shall not be less than (i) $<350,000> during any fiscal quarter, or (ii) $<600,000> on a fiscal year to date basis (measured as of the end of each fiscal quarter). With respect to the foregoing sentence, numbers appearing between “<>“ are negative.

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5.3 Other Liens and Permitted Liens.

(a) Other Liens; Permitted Liens. Companies shall not create, incur or suffer to exist any Lien upon any of their assets, now owned or later acquired, as security for any indebtedness, with the exception of the following (each a “Permitted Lien”; collectively, “Permitted Liens”): (i) In the case of real property, covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with Companies’ business or operations as presently conducted; (ii) Liens in existence on the date of this Agreement that are described in Exhibit F and secure indebtedness for borrowed money permitted under Section 5.4; (iii) The Security Interest and Liens created by the Security Documents; (iv) purchase money Liens or capitalized lease obligations for the acquisition of machinery and equipment (including vehicles) of the Companies not exceeding the lesser of cost or fair market value thereof, provided such obligations are subject to the limitation set forth in Section 5.4(d); and (v) Liens in respect of judgments or awards, individually or in the aggregate of less than $100,000, for which appeals or proceedings for review are being prosecuted and in respect of which a stay of execution upon any such appeal or proceeding for review shall have been secured and with respect to which Wells Fargo’s security interest in the Collateral (securing all of the Indebtedness) remains senior in priority to any such Liens, provided that (A) such Person shall have established adequate reserves for such judgments or awards in accordance with GAAP, (B) such judgments or awards shall be fully insured (subject to deductibles) and the insurer shall not have denied coverage, or (C) such judgments or awards shall have been bonded to the satisfaction of Wells Fargo.

(b) Financing Statements. Companies shall not authorize the filing of any financing statement by any Person as Secured Party with respect to any of Companies’ assets, other than Wells Fargo or in connection with Permitted Liens. Companies shall not amend any financing statement filed by Wells Fargo as Secured Party except as permitted by law.

5.4 Indebtedness. Companies shall not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or letters of credit issued on Companies’ behalf, or advances or any indebtedness for borrowed money of any kind, whether or not evidenced by an instrument, except: (a) Indebtedness described in this Agreement; (b) indebtedness of Companies described in Exhibit F; (c) indebtedness secured by Permitted Liens; and (d) indebtedness incurred in connection with Capital Expenditures to the extent (i) the aggregate amount of such outstanding indebtedness (including capital leases) does not exceed $200,000 at any time, and (ii) such indebtedness is either unsecured or secured only by the Capital Expenditures financed by such indebtedness.

5.5 Guaranties. Companies shall not assume, guarantee, endorse or otherwise become directly or contingently liable for the obligations of any Person, except: (a) the endorsement of negotiable instruments by Companies for deposit or collection or similar transactions in the ordinary course of business; (b) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons in existence on the date of this Agreement and described in Exhibit F; and (c) any guaranty of another Company’s obligations if such other obligations are otherwise permitted under this Agreement.

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5.6 Investments and Subsidiaries. Companies shall not make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any Person or Affiliate, including any partnership or joint venture, nor purchase or hold beneficially any stock or other securities or evidence of indebtedness of any Person or Affiliate, except:

(a) Investments in direct obligations of the United States of America or any of its political subdivisions whose obligations constitute the full faith and credit obligations of the United States of America and have a maturity of one year or less, commercial paper issued by U.S. corporations rated “A-1” or “A-2” by Standard & Poor’s Ratings Services or “P-1” or “P-2” by Moody’s Investors Service or certificates of deposit or bankers’ acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers’ acceptances are fully insured by the Federal Deposit Insurance Corporation);

(b) Travel advances or loans to Companies’ Officers and employees not exceeding at any one time an aggregate of $50,000;

(c) Prepaid rent not exceeding one month or security deposits;

(d) Current investments in those Subsidiaries in existence on the date of this Agreement which are identified on Exhibit D, or investments by one Company into another Company; and

(e) Advances by and between the Companies.

5.7 Dividends and Distributions. Companies shall not declare or pay any dividends (other than dividends made by one Company solely to another Company) on any class of its stock, or make any payment on account of the purchase, redemption or retirement of any shares of its stock, or other securities or evidence of its indebtedness or make any distribution regarding its stock, either directly or indirectly; provided, however, that on and after July 1, 2009, Phoenix Footwear may redeem or repurchase it capital stock from time to time so long as the following conditions precedent are satisfied: (i) the Maximum Line Amount has been increased to $20,000,000 in accordance with the terms and conditions of this Agreement; (ii) no Default Period is existing or would result from such stock redemption or repurchase; (iii) the aggregate amount of consideration paid for such stock redemptions and repurchases shall not exceed $2,500,000, (iv) the consideration paid for such stock redemptions or repurchases shall not exceed the fair market value of such stock at the time of redemption or repurchase; and (v) Excess Availability after giving effect to any stock redemption or repurchase shall be equal to or greater than $1,500,000.

5.8 Salaries. Companies shall not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation; provided that so long as the compensation committee of Phoenix Footwear’s board of directors reviews and approves the compensation for the Companies’ Officers, such approved compensation will not be considered excessive or unreasonable.

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5.9 Key Person Life Insurance. [INTENTIONALLY OMITTED].

5.10 Books and Records; Collateral Examination; Inspection and Appraisals.

(a) Books and Records; Inspection. Companies shall keep complete and accurate books and records with respect to the Collateral and Companies’ business and financial condition and any other matters that Wells Fargo may request, in accordance with GAAP. Companies shall permit any employee, attorney, accountant or other agent of Wells Fargo to audit, review, make extracts from and copy any of their books and records at any time during ordinary business hours, and to discuss Companies’ affairs with any of their Directors, Officers, employees, Owners or agents.

(b) Authorization to Companies’ Agents to Make Disclosures to Wells Fargo. Companies authorize all accountants and other Persons acting as their agent to disclose and deliver to Wells Fargo’s employees, accountants, attorneys and other Persons acting as its agent, at Companies’ expense, all financial information, books and records, work papers, management reports and other information in their possession regarding Companies.

(c) Collateral Exams and Inspections. Companies shall permit Wells Fargo’s employees, accountants, attorneys or other Persons acting as its agent, to examine and inspect any Collateral or any other property of Companies at any time during ordinary business hours.

(d) Collateral Appraisals. Wells Fargo may also obtain, from time to time, at Companies’ expense, an appraisal of each Company’s Collateral, by an appraiser acceptable to Wells Fargo in its sole discretion; provided that so long as no Default Period exists, Wells Fargo will not charge Companies for more than (i) two such appraisals during the one-year period after the date of this Agreement, or (ii) one such appraisal for each one-year period thereafter.

5.11 Account Verification; Payment of Permitted Liens.

(a) Account Verification. Wells Fargo or its agents may (i) contact account debtors and other obligors at any time to verify Companies’ Accounts; and (ii) require Companies to send requests for verification of Accounts or send notices of assignment of Accounts to account debtors and other obligors.

(b) Covenant to Pay Permitted Liens. Companies shall pay when due each account payable due to any Person holding a Permitted Lien (as a result of such payable) on any Collateral.

5.12 Compliance with Laws.

(a) General Compliance with Applicable Law; Use of Collateral. Companies shall (i) comply, and cause each Subsidiary to comply, with the requirements of applicable laws and regulations, the non-compliance with which would have a Material Adverse Effect on its business or its financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance.

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(b) Compliance with Federal Regulatory Laws. Companies shall (i) prohibit, and cause each Subsidiary to prohibit, any Person that is an Owner or Officer from being listed on the Specially Designated Nationals and Blocked Person List or other similar lists maintained by the Office of Foreign Assets Control (“OFAC”), the Department of the Treasury or included in any Executive Orders, (ii) not permit the proceeds of the Line of Credit or any other financial accommodation extended by Wells Fargo to be used in any way that violates any foreign asset control regulations of OFAC or other applicable law, (iii) comply, and cause each Subsidiary to comply, with all applicable Bank Secrecy Act laws and regulations, as amended from time to time, and (iv) otherwise comply with the USA Patriot Act and Wells Fargo’s related policies and procedures.

(c) Compliance with Environmental Laws. Companies shall (i) comply, and cause each Subsidiary to comply, with the requirements of applicable Environmental Laws and obtain and comply with all permits, licenses and similar approvals required by them, and (ii) not generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any material liability or obligation under the common law of any jurisdiction or any Environmental Law.

5.13 Payment of Taxes and Other Claims. Companies shall pay or discharge, when due, and cause each Subsidiary to pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including the Collateral) or upon or against the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon any properties of Companies, although Companies shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made.

5.14 Maintenance of Collateral and Properties.

(a) Companies shall keep and maintain the Collateral and all of their other properties necessary or useful in their business in good condition, repair and working order (normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts, although Companies may discontinue the operation and maintenance of any properties if Companies believe that such discontinuance is desirable to the conduct of their business and not disadvantageous in any material respect to Wells Fargo. Companies shall take all commercially reasonable steps necessary to protect and maintain their Intellectual Property Rights.

(b) Companies shall defend the Collateral against all Liens, claims and demands of all third Persons claiming any interest in the Collateral. Companies shall keep all Collateral free and clear of all Liens except Permitted Liens. Companies shall take all commercially reasonable steps necessary to prosecute any Person Infringing their Intellectual Property Rights and to defend themselves against any Person accusing any Company of Infringing any Person’s Intellectual Property Rights.

5.15 Insurance. Each Company shall at all times maintain insurance with insurers acceptable to Wells Fargo, in such amounts, on such terms (including any deductibles) and against such risks as Wells Fargo may require, in such amounts and against such

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risks as is usually carried by companies engaged in similar business and owning similar properties in the same geographical areas in which each Company operates. Each Company shall also, at all times and without limitation maintain business interruption insurance (including force majeure coverage) and keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of motor vehicles) and such other risks and in such amounts as Wells Fargo may reasonably request, with any loss payable to Wells Fargo to the extent of its interest, and all such policies of insurance shall contain a lender’s loss payable endorsement for the benefit of Wells Fargo. All policies of liability insurance shall name Wells Fargo as an additional insured.

5.16 Preservation of Existence. Each Company shall preserve and maintain its existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner.

5.17 Delivery of Instruments, etc. Upon request by Wells Fargo, Companies shall promptly deliver to Wells Fargo in pledge all instruments, documents and chattel paper constituting Collateral, endorsed or assigned by each applicable Company.

5.18 Sale or Transfer of Assets; Suspension of Business Operations. Companies shall not sell, lease, assign, transfer or otherwise dispose of (a) the stock of any Subsidiary, (b) all or a substantial part of their assets, or (c) any Collateral or any interest in Collateral (whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business and shall not liquidate, dissolve or suspend business operations. Companies shall not transfer any part of its ownership interest in any Intellectual Property Rights and shall not permit their rights as licensee of Licensed Intellectual Property to lapse, except that Companies may transfer such rights or permit them to lapse if they have reasonably determined that such Intellectual Property Rights are no longer useful in their business. Companies shall not license any other Person to use any of Companies’ Intellectual Property Rights, except that Companies may grant licenses in the ordinary course of their business in connection with sales of Inventory or the provision of services to their customers.

5.19 Consolidation and Merger; Asset Acquisitions. No Company shall consolidate with or merge into any other entity, or permit any other entity to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all of the assets of any other entity; provided that one Company may merge into another Company (provided, further, that Companies shall provide Wells Fargo with written notice of any such merger, together with copies of the merger documents, within 15 days after the completion of any such merger between one Company and another Company).

5.20 Sale and Leaseback. Companies shall not enter into any arrangement, directly or indirectly, with any other Person pursuant to which any Company shall sell or transfer any real or personal property, whether owned now or acquired in the future, and then rent or lease all or part of such property or any other property which such Company intends to use for substantially the same purpose or purposes as the property being sold or transferred.

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5.21 Restrictions on Nature of Business. Companies will not engage in any line of business materially different from that presently engaged in by Companies, and will not purchase, lease or otherwise acquire assets not related to their business.

5.22 Accounting. Companies will not adopt any material change in accounting principles except as required by GAAP, consistently applied. Companies will not change their fiscal year.

5.23 Discounts, etc. After notice from Wells Fargo, Companies will not grant any discount, credit or allowance to any customer of Companies or accept any return of goods sold. Companies will not at any time modify, amend, subordinate, cancel or terminate any Account, other than in the ordinary course of business of the Companies consistent with past practice so long as no Default Period is existing.

5.24 Pension Plans. Except as disclosed to Wells Fargo in a Record prior to the date of this Agreement, neither Companies nor any ERISA Affiliate will (a) adopt, create, assume or become party to any Pension Plan, (b) become obligated to contribute to any Multiemployer Plan, (c) incur any obligation to provide post-retirement medical or insurance benefits with respect to employees or former employees (other than benefits required by law) or (d) amend any Plan in a manner that would materially increase its funding obligations.

5.25 Place of Business; Name. Companies will not transfer their chief executive office or principal place of business, or move, relocate, close or sell any business Premises. Companies will not permit any tangible Collateral or any records relating to the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. Companies will not change their respective names or jurisdictions of organization.

5.26 Constituent Documents; S Corporation Status. Companies will not amend their Constituent Documents. Companies will not become subchapter S corporations.

5.27 Performance by Wells Fargo. If any Company fails to perform or observe any of its obligations under this Agreement at any time, Wells Fargo may, but need not, perform or observe them on behalf of Companies and may, but need not, take any other actions which Wells Fargo may reasonably deem necessary to cure or correct this failure; and Companies shall pay Wells Fargo upon demand the amount of all costs and expenses (including reasonable attorneys’ fees and legal expense) incurred by Wells Fargo in performing these obligations, together with interest on these amounts at the Default Rate.

5.28 Wells Fargo Appointed as Company’s Attorney in Fact. To facilitate Wells Fargo’s performance or observance of Companies’ obligations under this Agreement, each Company hereby irrevocably appoints Wells Fargo and Wells Fargo’s agents, as such Company’s attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) to create, prepare, complete, execute, deliver, endorse or file on behalf of such Company any instruments, documents, assignments, security agreements, financing statements, applications for insurance and any other agreements or any Record required to be obtained, executed, delivered or endorsed by such Company in accordance with the terms of this Agreement.

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6. EVENTS OF DEFAULT AND REMEDIES

6.1 Events of Default. An “Event of Default” means any of the following:

(a) Any Company fails to pay the amount of any Indebtedness on the date that it becomes due and payable;

(b) Any Company fails to observe or perform any covenant or agreement of Companies set forth in this Agreement, or in any of the Loan Documents, or in any other document or agreement described in or related to this Agreement or to any Indebtedness;

(c) An Overadvance arises as the result of any reduction in the Borrowing Base, or arises in any manner or on terms not otherwise approved of in advance by Wells Fargo in a Record that it has Authenticated and is not paid within two (2) Business Days;

(d) An event of default or termination event (however defined) occurs under any swap, derivative, foreign exchange, hedge or any similar transaction or arrangement entered into between any Company and Wells Fargo;

(e) A Change of Control shall occur;

(f) Any Company or any Guarantor becomes insolvent or admits in a Record an inability to pay debts as they mature, or any Company or any Guarantor makes an assignment for the benefit of creditors; or any Company or any Guarantor applies for or consents to the appointment of any receiver, trustee, or similar officer for the benefit of any Company or any Guarantor, or for any of their properties; or any receiver, trustee or similar officer is appointed without the application or consent of any Company or any Guarantor; or any judgment, writ, warrant of attachment or execution or similar process is issued or levied against a substantial part of the property of any Company or any Guarantor;

(g) (i) Any Company or any Guarantor files a petition under any chapter of the United States Bankruptcy Code or under the laws of any other jurisdiction naming any Company or any Guarantor as debtor; (ii) any such petition is instituted against any Company or any Guarantor, and such petition has not been dismissed within 45 days of the filing thereof; provided that during any such 45-day period, Wells Fargo shall have no obligation to continue making Advances or issuing Letters of Credit (iii) any Company or any Guarantor institutes (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, debt arrangement, dissolution, liquidation or similar proceeding under the laws of any jurisdiction; or (iv) any such proceeding is instituted (by petition, application or otherwise) against any Company or any Guarantor, and such proceeding has not been dismissed within 45 days of the filing thereof provided that during any such 45-day period, Wells Fargo shall have no obligation to continue making Advances or issuing Letters of Credit.

(h) Any representation or warranty made by any Company in this Agreement or by any Guarantor in any Guaranty, or by any Company (or any of its Officers) or any Guarantor in any agreement, certificate, instrument or financial statement or other statement delivered to Wells Fargo in connection with this Agreement or pursuant to such Guaranty is untrue or misleading in any material respect when delivered to Wells Fargo;

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(i) A final, non-appealable arbitration award, judgment, or decree or order for the payment of money is entered against any Company which is not fully covered by insurance (other than deductibles not to exceed $150,000 in the aggregate) in excess of $150,000 and such arbitration award, judgment, decree or order remains unsatisfied and in effect for any period of 30 consecutive days without a stay of execution; provided that during any such 30-day period, Wells Fargo shall have no obligation to continue making Advances or issuing Letters of Credit if such Advance or Indebtedness associated with the Letter(s) of Credit would not be secured by a first priority perfected security interest in the Collateral;

(j) Any Company is in default with respect to any bond, debenture, note or other evidence of indebtedness, individually or in the aggregate exceeding $150,000, issued by any Company that is held by any third Person other than Wells Fargo, or under any instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any material lease or other contract, and the applicable grace period, if any, has expired, regardless of whether such default has been waived by the holder of such indebtedness;

(k) Any Company liquidates, dissolves, terminates or suspends its business operations or otherwise fails to operate its business in the ordinary course, or merges with another Person (other than another Company) ; or any Company sells or attempts to sell all or substantially all of its assets (other than to another Company);

(l) Any Company fails to pay any indebtedness or obligation owed to Wells Fargo which is unrelated to the Line of Credit or this Agreement as it becomes due and payable;

(m) Any Guarantor repudiates or purports to revoke the Guarantor’s Guaranty, or fails to perform any obligation under such Guaranty, or any individual Guarantor dies or becomes incapacitated, or any other Guarantor ceases to exist for any reason;

(n) Any Company engages in any act prohibited by any Subordination Agreement, or makes any payment on subordinated indebtedness (described in any such Subordination Agreement) that the Subordinated Creditor was not contractually entitled to receive;

(o) Any event or circumstance occurs that Wells Fargo in good faith believes is reasonably likely to impair the prospect of payment of all or part of the Indebtedness, or the Companies’ ability to perform any of their material obligations under any of the Loan Documents, or any other document or agreement described in or related to this Agreement, or there occurs any material adverse change in the business or financial condition of the Companies (taken as a whole).

(p) (i) Any Company hires an Officer or appoints a Director who has been convicted of any felony offence under state or federal law, or (ii) any Director, Officer, or Designated Person is indicted for a felony offence under state or federal law if, with respect to this clause (ii), (x) such indictment has not been dismissed within 15 days of the indictment of such Director, Officer, or Designated Person, or (y) such Director, Officer, or Designated Person has not been relieved of his or her duties as a Director, Officer, or Designated Officer, as applicable, within 15 days of such indictment.

(q) Any Reportable Event, which Wells Fargo in good faith believes to constitute sufficient grounds for termination of any Pension Plan or for the appointment of a trustee to administer any Pension Plan, has occurred and is continuing 30 days after any

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Company gives Wells Fargo a Record notifying it of the Reportable Event; or a trustee is appointed by an appropriate court to administer any Pension Plan; or the Pension Benefit Guaranty Corporation institutes proceedings to terminate or appoint a trustee to administer any Pension Plan; or any Company or any ERISA Affiliate files for a distress termination of any Pension Plan under Title IV of ERISA; or any Company or any ERISA Affiliate fails to make any quarterly Pension Plan contribution required under Section 412(m) of the IRC, which Wells Fargo in good faith believes may, either by itself or in combination with other failures, result in the imposition of a Lien on any Company’s assets in favor of the Pension Plan; or any withdrawal, partial withdrawal, reorganization or other event occurs with respect to a Multiemployer Plan which could reasonably be expected to result in a material liability by any Company to the Multiemployer Plan under Title IV of ERISA.

6.2 Rights and Remedies. During any Default Period, Wells Fargo may in its discretion exercise any or all of the following rights and remedies:

(a) Wells Fargo may terminate the Line of Credit and decline to make Advances, and terminate any services extended to any Company under the Master Agreement for Treasury Management Services;

(b) Wells Fargo may declare the Indebtedness to be immediately due and payable and accelerate payment of the Revolving Note, and all Indebtedness shall immediately become due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which each Company hereby expressly waives;

(c) Wells Fargo may, without notice to Companies, apply any money owing by Wells Fargo to any Company to payment of the Indebtedness;

(d) Wells Fargo may exercise and enforce any rights and remedies available upon default to a secured party under the UCC, including the right to take possession of Collateral, proceeding with or without judicial process (without a prior hearing or notice of hearing, which each Company hereby expressly waives) and sell, lease or otherwise dispose of Collateral for cash or on credit (with or without giving warranties as to condition, fitness, merchantability or title to Collateral, and in the event of a credit sale, Indebtedness shall be reduced only to the extent that payments are actually received), and each Company will upon Wells Fargo’s demand assemble the Collateral and make it available to Wells Fargo at any place designated by Wells Fargo which is reasonably convenient to both parties;

(e) Wells Fargo may exercise and enforce its rights and remedies under any of the Loan Documents and any other document or agreement described in or related to this Agreement;

(f) Companies will pay Wells Fargo upon demand in immediately available funds an amount equal to the Aggregate Face Amount plus any anticipated costs and fees for deposit to the Special Account pursuant to Section 1.11;

(g) Wells Fargo may for any reason apply for the appointment of a receiver of the Collateral, to which appointment Companies hereby consent; and

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(h) Wells Fargo may exercise any other rights and remedies available to it by law or agreement.

6.3 Immediate Default and Acceleration. Following the occurrence of an Event of Default described in Section 6.1(f) or (g), the Line of Credit shall immediately terminate and all of Companies’ Indebtedness shall immediately become due and payable without presentment, demand, protest or notice of any kind.

7. MISCELLANEOUS

7.1 No Waiver; Cumulative Remedies. No delay or any single or partial exercise by Wells Fargo of any right, power or remedy under the Loan Documents, or under any other document or agreement described in or related to this Agreement, shall constitute a waiver of any other right, power or remedy under the Loan Documents or granted by Companies to Wells Fargo under other agreements or documents that are unrelated to the Loan Documents. No notice to or demand on any Company in any circumstance shall entitle Companies to any additional notice or demand in any other circumstances. The remedies provided in the Loan Documents or in any other document or agreement described in or related to this Agreement are cumulative and not exclusive of any remedies provided by law. Wells Fargo may comply with applicable law in connection with a disposition of Collateral, and such compliance will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.

7.2 Amendment; Consents and Waivers; Authentication. No amendment or modification of any Loan Documents, or any other document or agreement described in or related to this Agreement, or consent to or waiver of any Event of Default, or consent to or waiver of the application of any covenant or representation set forth in any of the Loan Documents, or any other document or agreement described in or related to this Agreement, or any release of Wells Fargo’s Security Interest in any Collateral, shall be effective unless it has been agreed to by Wells Fargo and memorialized in a Record that: (a) specifically states that it is intended to amend or modify specific Loan Documents, or any other document or agreement described in or related to this Agreement, or waive any Event of Default or the application of any covenant or representation of any terms of specific Loan Documents, or any other document or agreement described in or related to this Agreement, or is intended to release Wells Fargo’s Security Interest in specific Collateral; and (b) is Authenticated by the signature of an authorized employee of both parties, or by an authorized employee of Wells Fargo with respect to a consent or waiver. The terms of an amendment, consent or waiver memorialized in any Record shall be effective only to the extent, and in the specific instance, and for the limited purpose to which Wells Fargo has agreed.

7.3 Execution in Counterparts; Delivery of Counterparts. This Agreement and all other Loan Documents, or any other document or agreement described in or related to this Agreement, and any amendment or modification to them may be Authenticated by the parties in any number of counterparts, each of which, once authenticated and delivered in accordance with the terms of this Section 7.3, will be deemed an original, and all such counterparts, taken together, shall constitute one and the same instrument. Delivery by fax or by encrypted e-mail or e-mail file attachment of any counterpart to any Loan Document Authenticated by an authorized signature will be deemed the equivalent of the delivery of the original Authenticated instrument. Companies shall send the original Authenticated counterpart to Wells Fargo by first class U.S. mail or by overnight courier, but Company’s

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failure to deliver a Record in this form shall not affect the validity, enforceability, and binding effect of this Agreement or the other Loan Documents, or any other document or agreement described in or related to this Agreement.

7.4 Notices, Requests, and Communications; Confidentiality. Except as otherwise expressly provided in this Agreement:

(a) Delivery of Notices, Requests and Communications. Any notice, request, demand, or other communication by either party that is required under the Loan Documents, or any other document or agreement described in or related to this Agreement, to be in the form of a Record (but excluding any Record containing information any Company must report to Wells Fargo under Section 5.1) may be delivered (i) in person, (ii) by first class U.S. mail, (iii) by overnight courier of national reputation, or (iv) by fax, or the Record may be sent as an Electronic Record and delivered (v) by an encrypted e-mail, or (vi) through Wells Fargo’s Commercial Electronic Office^® (“CEO^®”) portal or other secure electronic channel to which the parties have agreed.

(b) Addresses for Delivery. Delivery of any Record under this Section 7.4 shall be made to the appropriate address set forth on the last page of this Agreement (which either party may modify by a Record sent to the other party), or through Wells Fargo’s CEO portal or other secure electronic channel to which the parties have agreed.

(c) Date of Receipt. Each Record sent pursuant to the terms of this Section 7.4 will be deemed to have been received on (i) the date of delivery if delivered in person, (ii) the date deposited in the mail if sent by mail, (iii) the date delivered to the courier if sent by overnight courier, (iv) the date of transmission if sent by fax, or (v) the date of transmission, if sent as an Electronic Record by electronic mail or through Wells Fargo’s CEO portal or similar secure electronic channel to which the parties have agreed; except that any request for an Advance or any other notice, request, demand or other communication from any Company (including Company Funds Administrator) required under Section 1, and any request for an accounting under Section 9-210 of the UCC, will not be deemed to have been received until actual receipt by Wells Fargo on a Business Day by an authorized employee of Wells Fargo.

(d) Confidentiality of Unencrypted E-mail. Each Company acknowledges that if it sends or receives an Electronic Record to or from Wells Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure.

7.5 Company Information Reporting; Confidentiality. Except as otherwise expressly provided in this Agreement:

(a) Delivery of Company Information Records. Any information that any Company is required to deliver under Section 5.1 in the form of a Record may be delivered to Wells Fargo (i) in person, or by (ii) first class U.S. mail, (iii) overnight courier of national reputation, or (iv) fax, or the Record may be sent as an Electronic Record (v) by encrypted e-mail, or (vi) through the file upload service of Wells Fargo’s CEO portal or other secure electronic channel to which the parties have agreed.

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(b) Addresses for Delivery. Delivery of any Record to Wells Fargo under this Section 7.5 shall be made to the appropriate address set forth on the last page of this Agreement (which Wells Fargo may modify by a Record sent to any Company), or through Wells Fargo’s CEO portal or other secure electronic channel to which the parties have agreed.

(c) Date of Receipt. Each Record sent pursuant to this Section will be deemed to have been received on (i) the date of delivery to an authorized employee of Wells Fargo, if delivered in person, or by U.S. mail, overnight courier, fax, or e-mail; or (ii) the date of transmission, if sent as an Electronic Record through Wells Fargo’s CEO portal or similar secure electronic channel to which the parties have agreed.

(d) Authentication of Company Information Records. Companies shall Authenticate any Record delivered (i) in person, or by U.S. mail, overnight courier, or fax, by the signature of the Officer or employee of any Company who prepared the Record; (ii) as an Electronic Record sent via encrypted e-mail, by the signature of the Officer or employee of any Company who prepared the Record by any file format signature that is acceptable to Wells Fargo, or by a separate certification signed and sent by fax; or (iii) as an Electronic Record via the file upload service of Wells Fargo’s CEO portal or similar secure electronic channel to which the parties have agreed, through such credentialing process as Wells Fargo and any Company may agree to under the CEO agreement.

(e) Certification of Company Information Records. Any Record (including any Electronic Record) Authenticated and delivered to Wells Fargo under this Section 7.5 will be deemed to have been certified as materially true, correct, and complete by each Company and each Officer or employee of each Company who prepared and Authenticated the Record on behalf of each Company, and may be legally relied upon by Wells Fargo without regard to method of delivery or transmission.

(f) Confidentiality of Company Information Records Sent by Unencrypted E-mail. Each Company acknowledges that if it sends an Electronic Record to Wells Fargo without encryption by e-mail or as an e-mail file attachment, there is a risk that the Electronic Record may be received by unauthorized Persons, and that by so doing it will be deemed to have accepted this risk and the consequences of any such unauthorized disclosure. Each Company acknowledges that it may deliver Electronic Records containing Companies’ information to Wells Fargo by e-mail pursuant to any encryption tool acceptable to Wells Fargo and Company Funds Administrator, or through Wells Fargo’s CEO portal file upload service without risk of unauthorized disclosure.

7.6 Further Documents. Each Company will from time to time execute, deliver, endorse and authorize the filing of any instruments, documents, conveyances, assignments, security agreements, financing statements, control agreements and other agreements that Wells Fargo may reasonably request in order to secure, protect, perfect or enforce the Security Interest or Wells Fargo’s rights under the Loan Documents, or any other document or agreement described in or related to this Agreement (but any failure to request or assure that any Company executes, delivers, endorses or authorizes the filing of any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents, or any other document or agreement described in or related to this Agreement, and the Security Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a similar context or on a prior occasion).

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7.7 Costs and Expenses. Companies shall pay on demand all costs and expenses, including reasonable attorneys’ fees, incurred by Wells Fargo in connection with the Indebtedness, this Agreement, the Loan Documents, or any other document or agreement described in or related to this Agreement, and the transactions contemplated by this Agreement, including all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration, performance, collection and enforcement of the Indebtedness and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest.

7.8 Indemnity. In addition to its obligation to pay Wells Fargo’s expenses under the terms of this Agreement, Companies shall indemnify, defend and hold harmless Wells Fargo, its parent Wells Fargo & Company, and any of its affiliates and successors, and all of their present and future Officers, Directors, employees, attorneys and agents (the “Indemnitees”) from and against any of the following (collectively, “Indemnified Liabilities”):

(a) Any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents, or any other document or agreement described in or related to this Agreement or the making of the Advances;

(b) Any claims, loss or damage to which any Indemnitee may be subjected if any representation or warranty contained in Exhibit D proves to be incorrect in any respect or as a result of any violation of the covenants contained in Section 5.12; and

(c) Any and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel) in connection with this Agreement and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party to such proceedings, which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents, or any other document or agreement described in or related to this Agreement, or the use or intended use of the proceeds of the Advances, with the exception of any Indemnified Liability caused by or arising out of the gross negligence or willful misconduct of an Indemnitee or a breach of this Agreement or any other Loan Document by Wells Fargo.

If any investigative, judicial or administrative proceeding described in this Section is brought against any Indemnitee, upon the Indemnitee’s request, Companies, or counsel designated by Company Funds Administrator and reasonably satisfactory to the Indemnitee, will resist and defend the action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at Companies’ sole cost and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If this agreement to indemnify is held to be unenforceable because it violates any law or public policy, Companies shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities to the extent permissible under applicable law. Companies’ obligations under this Section shall survive the termination of this Agreement and the discharge of Companies’ other obligations under this Agreement.

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7.9 Retention of Company’s Records. Wells Fargo shall have no obligation to maintain Electronic Records or retain any documents, schedules, invoices, agings, or other Records delivered to Wells Fargo by any Company in connection with the Loan Documents, or any other document or agreement described in or related to this Agreement for more than 30 days after receipt by Wells Fargo. If there is a special need to retain specific Records, Company Funds Administrator must notify Wells Fargo of any Company’s need to retain or return such Records with particularity, which notice must be delivered to Wells Fargo in accordance with the terms of this Agreement at the time of the initial delivery of the Record to Wells Fargo.

7.10 Binding Effect; Assignment; Complete Agreement. The Loan Documents, or any other document or agreement described in or related to this Agreement, shall be binding upon and inure to the benefit of Companies and Wells Fargo and their respective successors and assigns, except that Companies shall not have the right to assign their rights under this Agreement or any interest in this Agreement without Wells Fargo’s prior consent, which must be confirmed in a Record Authenticated by Wells Fargo. To the extent permitted by law, each Company waives and will not assert against any assignee any claims, defenses or set-offs which any Company could assert against Wells Fargo. This Agreement shall also bind all Persons who become a party to this Agreement as a borrower. This Agreement, together with the Loan Documents, or any other document or agreement described in or related to this Agreement, comprises the complete and integrated agreement of the parties on the subject matter of this Agreement and supersedes all prior agreements, whether oral or evidenced in a Record. To the extent that any provision of this Agreement contradicts other provisions of the Loan Documents other than this Agreement, or any other document or agreement described in or related to this Agreement, this Agreement shall control.

7.11 Sharing of Information. Wells Fargo may share any information that it may have regarding any Company and its Affiliates with its accountants, lawyers, and other advisors, and Wells Fargo and each direct and indirect subsidiary of Wells Fargo & Company may also share any information that they have with each other, and each Company waives any right of confidentiality it may have with respect to the sharing of all such information.

7.12 Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining terms of this Agreement.

7.13 Headings. Section and subsection headings in this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

7.14 Company Funds Administrator.

(a) Companies maintain an integrated cash management system reflecting their interdependence on one another and the mutual benefits shared among them as a result of their respective operations. In order to efficiently fund and operate their respective businesses and minimize the number of borrowings which they will make under this Agreement and thereby reduce the administrative costs and record keeping required in connection therewith, including the necessity to enter into and maintain separately identified and monitored borrowing facilities, Companies have requested and Wells Fargo has agreed that all

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Advances will be advanced, and all Letters of Credit issued, to and for the account of Companies on a joint and several basis in accordance with the other provisions hereof. Each Company hereby acknowledges that it will be receiving direct and indirect benefits from each Advance made or Letter of Credit issued pursuant to this Agreement.

(b) Each Company hereby designates, appoints, authorizes and empowers Company Funds Administrator as its agent to act as specified in this Agreement and each of the other Loan Documents and Company Funds Administrator hereby acknowledges such designation, authorization and empowerment, and accepts such appointment. Each Company hereby irrevocably authorizes and directs Company Funds Administrator to take such action on its behalf under the provisions of this Agreement and the other Loan Documents, and any other instruments, documents and agreements referred to herein or therein, and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of Company Funds Administrator by the respective terms and provisions hereof and thereof, and such other powers as are reasonably incidental thereto, including, without limitation, to take the following actions for and on such Company’s behalf:

(i) to submit on behalf of each Company, borrowing requests, calculations of the Borrowing Base, and other notices and reports to Wells Fargo in accordance with the provisions of this Agreement;

(ii) to receive on behalf of each Company the proceeds of Advances in accordance with the provisions of this Agreement, such proceeds to be disbursed to or for the account of the applicable Company as soon as practicable after its receipt thereof; and

(iii) to submit on behalf of each Company, compliance certificates and all other certificates, notices, reports, and other communications given or required to be given hereunder.

Company Funds Administrator hereby further is authorized and directed by each Company to take all such actions on behalf of such Company necessary to exercise the specific power granted in clauses (i) through (iii) above and to perform such other duties hereunder and under the other Loan Documents, and deliver such agreements, documents, certificates and instruments as delegated to or required of Company Funds Administrator by the terms hereof or thereof.

(c) The administration by Wells Fargo of the credit facility under this Agreement as a co-borrowing facility with a funds administrator in the manner set forth herein is solely as an accommodation to Companies and at their request and Wells Fargo shall not incur any liability to any Company as a result thereof.

7.15 Joint and Several Liability.

(a) Each Company acknowledges that it is jointly and severally liable for all of the Indebtedness and other obligations, covenants, and agreements now existing or hereafter arising under the Loan Documents. Each Company expressly understands, agrees and acknowledges that (i) Companies are all affiliated entities by common ownership, (ii) each Company desires to have the availability of one common credit facility instead of separate credit facilities, (iii) each Company has requested that Wells Fargo

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extend such a common credit facility on the terms herein provided, (iv) Wells Fargo will be lending against, and relying on a Lien upon, all of Companies’ assets even though the proceeds of any particular Advance made hereunder may not be advanced directly to a particular Company, (v) each Company will nonetheless benefit by the making of all such Advances by Wells Fargo and the availability of a single credit facility of a size greater than each could independently warrant, (vi) all of the representations, warranties, covenants, obligations, conditions, agreements and other terms contained in the Loan Documents shall be applicable to and shall be binding upon each Company and (vii) Companies have each executed or will execute the Notes as co-makers of the Notes and that it would not be able to obtain the credit provided by Wells Fargo hereunder without the financial support provided by the other Companies.

(b) Each Company, to the extent not directly liable therefore, hereby guarantees the prompt payment and performance in full of all Indebtedness. Such guarantee constitutes a guarantee of payment and not of collection. Each Company’s obligations under this Agreement shall, to the fullest extent permitted by law, be unconditional irrespective of (i) the validity or enforceability, avoidance or subordination of the Indebtedness of any other Company or of any promissory note or other document evidencing all or any part of the Indebtedness of any other Company, (ii) the absence of any attempt to collect the Indebtedness from any other Company, or any other security therefor, or the absence of any other action to enforce the same, (iii) the waiver, consent, extension, forbearance or granting of any indulgence by Wells Fargo with respect to any provision of any instrument evidencing the Indebtedness of any other Company or any part thereof, or any other agreement now or hereafter executed by any other Company and delivered to Wells Fargo, (iv) the failure by Wells Fargo to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for the Indebtedness of any other Company, (v) Wells Fargo’s election, in any proceeding instituted under the Bankruptcy Code, of the application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by any other Company, as debtor-in-possession under Section 364 of the Bankruptcy Code, (vii) the disallowance of all or any portion of Wells Fargo’s claim(s) for the repayment of the Indebtedness of any other Company under Section 502 of the Bankruptcy Code or (viii) any other circumstances which might constitute a legal or equitable discharge or defense of a guarantor or of any other Company (other than actual indefeasible payment in full in cash). With respect to any Company’s Indebtedness arising as a result of the joint and several liability of Companies hereunder with respect to Advances or other extensions of credit made to any of the other Companies hereunder, such Company hereby forever waives any right to enforce any right of subrogation or any remedy which Wells Fargo now has or may hereafter have against any other Company, or any endorser of all or any part of the Indebtedness, and any benefit of, and any right to participate in, any security or collateral given to Wells Fargo to secure payment of the Indebtedness or any other liability of any Company to Wells Fargo. During the existence of any Event of Default, Wells Fargo may proceed directly and at once, without notice, against any Company to collect and recover the full amount, or any portion of the Indebtedness, without first proceeding against any other Company or any other Person, or against any security or collateral for the Indebtedness. Each Company consents and agrees that Wells Fargo shall be under no obligation to marshal any assets in favor of any Company or against or in payment of any or all of the Indebtedness. Without limiting the generality of the foregoing or any other provision hereof, each Company waives any rights and benefits which might otherwise be available to such Company under California Civil Code Sections 2787 to 2855, inclusive, 2899, and 3433.

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(c) Each Company is obligated to repay the Indebtedness as a joint and several obligor under this Agreement and the other Loan Documents. To the extent that any Company shall, under this Agreement as a joint and several obligor, repay any of the Indebtedness constituting Advances made to another Company hereunder or other Indebtedness incurred directly and primarily by any other Company (an “Accommodation Payment”), then the Company making such Accommodation Payment shall be entitled to contribution and indemnification from, and be reimbursed by, each of the other Companies in an amount, for each of such other Companies, equal to a fraction of such Accommodation Payment, the numerator of which fraction is such other Company’s Allocable Amount and the denominator of which is the sum of the Allocable Amounts of all of the Companies. As of any date of determination, the “Allocable Amount” of each Company shall be equal to the maximum amount of liability for Accommodation Payments which could be asserted against such Company hereunder without (i) rendering such Company “insolvent” within the meaning of Section 101 (31) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent Transfer Act (“UFTA”) or Section 2 of the Uniform Fraudulent Conveyance Act (“UFCA”), (ii) leaving such Company with unreasonably small capital or assets, within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA, or (iii) leaving such Company unable to pay its debts as they become due within the meaning of Section 548 of the Bankruptcy Code, Section 4 of the UFTA or Section 5 of the UFCA. All rights and claims of contribution, indemnification, and reimbursement under this Section 7.15 shall be subordinate in right of payment to the prior indefeasible payment in full in cash of the Indebtedness. The provisions of this Section 7.15 shall, to the extent inconsistent with any provision in any Loan Document, supersede such inconsistent provision.

(d) If (i) any court holds that Companies are guarantors and not jointly and severally liable as principal obligors or (ii) bankruptcy or reorganization proceedings at any time are instituted by or against any Company under any Debtor Relief Law, then each Company hereby: (A) expressly and irrevocably waives, to the fullest extent possible, except as otherwise provided in Section 7.15(c), on behalf of such Company, any and all rights at law or in equity to subrogation, reimbursement, exoneration, contribution, indemnification, set off or any other rights that could accrue to a surety against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, to a holder or transferee against a maker, or to the holder of a claim against any Person, and which such Company may have or hereafter acquire against any Person in connection with or as a result of such Company’s execution, delivery and/or performance of this Agreement, or any other documents to which such Company is a party or otherwise; (B) expressly and irrevocably waives any “claim” (as such term is defined in the Bankruptcy Code) of any kind against any other Company, and further agrees that it shall not have or assert any such rights against any Person (including any surety), either directly or as an attempted set off to any action commenced against such Company by Wells Fargo or any other Person; and (C) acknowledges and agrees (I) that this waiver is intended to benefit Wells Fargo and shall not limit or otherwise affect such Company’s liability hereunder or the enforceability of this Agreement, and (II) that Wells Fargo and its successors and assigns are intended beneficiaries of this waiver, and the agreements set forth in this Section 7.15 and their rights under this Section 7.15 shall survive payment in full of the Indebtedness.

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(e) EACH COMPANY WAIVES THE FILING OF A CLAIM WITH A COURT IN THE EVENT OF RECEIVERSHIP OR BANKRUPTCY OF ANY COMPANY, AND WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH ANY COMPANY MAY NOW HAVE OR HEREAFTER MAY HAVE TO ANY ACTION BY WELLS FARGO IN ENFORCING THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, EVERY DEFENSE, COUNTERCLAIM OR SETOFF WHICH SUCH COMPANY MAY NOW HAVE, OR HEREAFTER MAY HAVE, AGAINST ANOTHER COMPANY OR ANY OTHER PARTY LIABLE TO WELLS FARGO IN ANY MANNER. AS FURTHER SECURITY, ANY AND ALL DEBTS AND LIABILITIES NOW OR HEREAFTER ARISING AND OWING TO ANY COMPANY BY ANY OTHER COMPANY, OR TO ANY OTHER PARTY LIABLE TO WELLS FARGO, ARE HEREBY SUBORDINATED TO WELLS FARGO’S CLAIMS AND UPON THE OCCURRENCE OF AN EVENT OF DEFAULT ARE ASSIGNED TO WELLS FARGO. EACH COMPANY RATIFIES AND CONFIRMS WHATEVER WELLS FARGO MAY DO PURSUANT TO THE TERMS HEREOF, AND AGREES THAT WELLS FARGO SHALL NOT BE LIABLE FOR ANY ERROR IN JUDGMENT OR MISTAKES OF FACT OR LAW. EACH COMPANY HEREBY AGREES THAT IT MAY BE JOINED AS A PARTY DEFENDANT IN ANY LEGAL PROCEEDING (INCLUDING, BUT NOT LIMITED TO, A FORECLOSURE PROCEEDING) INSTITUTED BY WELLS FARGO AGAINST ANY OTHER COMPANY.

(f) Should a claim be made upon Wells Fargo at any time for repayment of any amount received by Wells Fargo in payment of the Indebtedness, or any part thereof, whether received from any Company or received by Wells Fargo as the proceeds of Collateral, by reason of: (1) any judgment, decree or order of any court or administrative body having jurisdiction over Wells Fargo or any of their property, or (2) any settlement or compromise of any such claim effected by Wells Fargo, in its sole discretion, with the claimant (including a Company), each Company shall remain liable to Wells Fargo for the amount so repaid to the same extent as if such amount had never originally been received by Wells Fargo, notwithstanding any termination hereof or the cancellation of any note or other instrument evidencing any of the Indebtedness.

(g) To the extent that any payment to, or realization by, Wells Fargo on the Indebtedness exceeds the limitations of this Section 7.15 and is otherwise subject to avoidance and recovery in any such proceeding, the amount subject to avoidance shall in all events be limited to the amount by which such actual payment or realization exceeds such limitation, and this Agreement as limited shall in all events remain in full force and effect and be fully enforceable against such Company. This Section 7.15 is intended solely to reserve the rights of Wells Fargo hereunder against each Company, in such proceeding to the maximum extent permitted by applicable Debtor Relief Laws and no Company, guarantor of the Indebtedness or other Person shall have any right, claim or defense under this Section 7.15 that would not otherwise be available under applicable Debtor Relief Laws in such proceeding.

7.16 Governing Law; Jurisdiction, Venue. The Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of California. The parties hereto hereby (i) consent to the personal jurisdiction of the state and federal courts located in the State of California in connection with any controversy related to this Agreement; (ii) waive any argument that venue in any such forum is not convenient; (iii) agree that any litigation initiated by Wells Fargo or the Companies in connection with this Agreement or the other Loan Documents may be venued in either the

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state or federal courts located in the City of Los Angeles, County of Los Angeles, California; and (iv) agree that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

7.17 Arbitration.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way (i) the loan and related Loan Documents which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination; or (ii) requests for additional credit.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal

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judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

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(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

[Signatures on next page]

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COMPANIES AND WELLS FARGO have executed this Agreement through their authorized officers as of the date set forth above.

WELLS FARGO BANK,     NATIONAL ASSOCIATION		Wells Fargo Bank, National Association
		245 S. Los Robles Avenue, Suite 700
		Pasadena, California 91101
By:	/s/ Harry L. Joe	Fax:
Print Name:	Harry L. Joe	Attention:	Phoenix Footwear Group Account
Title:	Vice President		Officer
PHOENIX FOOTWEAR GROUP, INC.		c/o Phoenix Footwear Group, Inc.
		5840 El Camino Real, Suite 106
By:	/s/ James R. Riedman	Carlsbad, California 92008
Print Name:	James R. Riedman	Fax:
Title:	Chairman	Attention:	James R. Riedman
		e-mail:
		Federal Employer Identification No.
		Organizational Identification No.
PENOBSCOT SHOE COMPANY		c/o Phoenix Footwear Group, Inc.
		5840 El Camino Real, Suite 106
By:	/s/ James R. Riedman	Carlsbad, California 92008
Print Name:	James R. Riedman	Fax:
Title:	Chairman	Attention:	James R. Riedman
		e-mail:
		Federal Employer Identification No.
		Organizational Identification No.
H.S. TRASK & CO.		c/o Phoenix Footwear Group, Inc.
		5840 El Camino Real, Suite 106
By:	/s/ James R. Riedman	Carlsbad, California 92008
Print Name:	James R. Riedman	Fax:
Title:	Chairman	Attention:	James R. Riedman
		e-mail:
		Federal Employer Identification No.
		Organizational Identification No.
CHAMBERS BELT COMPANY		c/o Phoenix Footwear Group, Inc.
		5840 El Camino Real, Suite 106
By:	/s/ James R. Riedman	Carlsbad, California 92008
Print Name:	James R. Riedman	Fax:
Title:	Chairman	Attention:	James R. Riedman
		e-mail:
		Federal Employer Identification No.
		Organizational Identification No.

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PHOENIX DELAWARE ACQUISITION, INC.		c/o Phoenix Footwear Group, Inc.
		5840 El Camino Real, Suite 106
By:	/s/ James R. Riedman	Carlsbad, California 92008
Print Name:	James R. Riedman	Fax:
Title:	Chairman	Attention:	James R. Riedman
		e-mail:
		Federal Employer Identification No.
		Organizational Identification No.

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REVOLVING NOTE

$20,000,000 June 10, 2008

FOR VALUE RECEIVED, the undersigned, PHOENIX FOOTWEAR GROUP, INC., a Delaware corporation (“Phoenix Footwear”), PENOBSCOT SHOE COMPANY, a Maine corporation (“Penobscot”), H.S. TRASK & CO., a Montana corporation (“Trask”), CHAMBERS BELT COMPANY, a Delaware corporation (“Chambers”), and PHOENIX DELAWARE ACQUISITION, INC., a Delaware corporation (“Phoenix Acquisition”; Phoenix Footwear, Penobscot, Trask, Chambers and Phoenix Acquisition are sometimes individually referred to in this Agreement as a “Company” and collectively as the “Companies”), hereby jointly and severally promise to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated June 10, 2008 (as amended from time to time, the “Agreement”) and entered into by and among Companies and Wells Fargo, at Wells Fargo’s office at 245 S. Los Robles Avenue, Suite 700, Pasadena, California 91101, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of Twenty Million Dollars ($20,000,000) or the aggregate unpaid principal amount of all Advances made by Wells Fargo to Companies under the terms of the Agreement, together with interest on the principal amount computed on the basis of actual days elapsed in a 360-day year, from the date of this Revolving Note until this Revolving Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal balance amount of this Revolving Note shall be due and payable as provided in the Agreement. This Revolving Note may be prepaid only in accordance with the Agreement.

This Revolving Note is the Revolving Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Revolving Note. This Revolving Note is secured, among other things, by the Agreement and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Revolving Note.

Companies shall jointly and severally pay all costs of collection, including reasonable attorneys’ fees and legal expenses if this Revolving Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived. Any person included as one of the Companies that is an accommodation party, co-maker, guarantor or other surety and each endorser of this Revolving Note hereby (i) waives all suretyship defenses, (ii) consents to any and all future releases of other Companies and other guarantors, releases of Collateral and amendments, modifications, extensions, renewals, restatements and supplements of Loan Documents, and (iii) agrees to make payment and that Wells Fargo may realize upon Collateral granted by the person without prior action by Wells Fargo against any other Company or any Collateral granted by any other Company. Each Company acknowledges that it is jointly and severally liable for all of the Indebtedness and other obligations, covenants, and agreements now existing or hereafter arising under the Loan Documents.

[signatures on next page]

PHOENIX FOOTWEAR GROUP, INC.
By:	/s/ James R. Riedman
Print Name:	James R. Riedman
Title:	Chairman
PENOBSCOT SHOE COMPANY
By:	/s/James R. Riedman
Print Name:	James R. Riedman
Title:	Chairman
H.S. TRASK & CO.
By:	/s/ James R. Riedman
Print Name:	James R. Riedman
Title:	Chairman
CHAMBERS BELT COMPANY
By:	/s/ James R. Riedman
Print Name:	James R. Riedman
Title:	Chairman
PHOENIX DELAWARE ACQUISITION, INC.
By:	/s/ James R. Riedman
Print Name:	James R. Riedman
Title:	Chairman

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Exhibit A to Credit and Security Agreement

DEFINITIONS

“Account Funds” is defined in Section 1.5(a).

“Accounts” shall have the meaning given it under the UCC.

“Advance” and “Advances” means an advance or advances under the Line of Credit.

“Affiliate” or “Affiliates” means any other Person controlled by, controlling or under common control with any Company, including any Subsidiary of any Company. For purposes of this definition, “control,” when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.

“Aggregate Face Amount” means the aggregate amount that may then be drawn under each outstanding Letter of Credit, assuming compliance with all conditions for drawing.

“Agreement” means this Credit and Security Agreement.

“Authenticated” means (a) to have signed; or (b) to have executed or to have otherwise adopted a symbol, or have encrypted or similarly processed a Record in whole or in part, with the present intent of the authenticating Person to identify the Person and adopt or accept a Record.

“Availability” means the amount, if any, by which the Borrowing Base exceeds the sum of the outstanding Line of Credit Advances and the L/C Amount

“Borrowing Base” is defined in Section 1.2(a).

“Borrowing Base Reserve” means, as of any date of determination, an amount or a percent of a specified category or item that Wells Fargo establishes in its sole discretion from time to time to reduce availability under the Borrowing Base (a) to reflect events, conditions, contingencies or risks which affect the assets, business or prospects of any Company, or the Collateral or its value, or the enforceability, perfection or priority of Wells Fargo’s Security Interest in the Collateral, as the term “Collateral” is defined in this Agreement, or (b) to reflect Wells Fargo’s judgment that any collateral report or financial information relating to any Company and furnished to Wells Fargo may be incomplete, inaccurate or misleading in any material respect. Without limiting the generality of the foregoing, Wells Fargo may establish and adjust from time to time Borrowing Base Reserves for accrued and unpaid royalty, license, marketing, and similar payments owing by any Company to any licensor of a patent, trademark, copyright, or similar right.

“Business Day” means a day on which the Federal Reserve Bank of New York is open for business and, if such day relates to a LIBOR Advance, a day on which dealings are carried on in the London interbank eurodollar market.

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“Capital Expenditures” means for a period, any expenditure of money during such period for the purchase or construction of assets, or for improvements or additions to such assets or for the lease, purchase or other acquisition of any capital asset, or for the lease of any other asset whether payable currently or in the future, which are capitalized on any Company’s balance sheet.

“CEO” is defined in Section 7.4(a).

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

(a) Any Person or “group” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) who does not have an ownership interest in Phoenix Footwear on the date of the initial Advance is or becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that any such Person, entity or group will be deemed to have “beneficial ownership” of all securities that such Person, entity or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than twenty percent (20%) of the voting power of all classes of ownership of Phoenix Footwear;

(b) During any consecutive two-year period, individuals who at the beginning of such period constituted the board of Directors of Phoenix Footwear (together with any new Directors whose election to such board of Directors, or whose nomination for election by the Owners of Phoenix Footwear, was approved by a vote of two thirds of the Directors then still in office who were either Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of Directors of Phoenix Footwear then in office;

(c) Penobscot, Trask, Chambers, or Phoenix Acquisition fail to be wholly-owned subsidiaries of Phoenix Footwear (unless any such entity is merged into another Company);

(d) Any Designated Person shall cease to actively manage the day-to-day activities of Companies; or

(e) The Chief Financial Officer of the Companies shall cease to employed in his or her position as the Chief Financial Officer or become disabled and he or she is not replaced within thirty (30) calendar days by an interim replacement and within 180 days by a permanent replacement, each to Wells Fargo’s reasonable satisfaction, or any such replacement ceases such employment or otherwise becomes disabled unless replaced in the same time periods, in each case to Wells Fargo’s reasonable satisfaction.

“Collateral” means all of each Company’s Accounts, chattel paper and electronic chattel paper, deposit accounts, documents, Equipment, General Intangibles, goods, instruments, Inventory, Intellectual Property, Investment Property, letter-of-credit rights, letters of credit, all sums on deposit in any Collection Account, and any items in any Lockbox; together with (a) all substitutions and replacements for and products of such property; (b) in the case of all goods, all accessions; (c) all accessories, attachments, parts, Equipment and repairs now or subsequently attached or affixed to or used in connection with any goods; (d) all warehouse receipts, bills of lading and other documents of title that cover such goods now or in the future; (e) all collateral subject to the Lien of any of

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the Security Documents; (f) any money, or other assets of any Company that come into the possession, custody, or control of Wells Fargo now or in the future; (g) Proceeds of any of the above Collateral; (h) books and records of each Company, including all mail or e-mail addressed to any Company; and (i) all of the above Collateral, whether now owned or existing or acquired now or in the future or in which each Company has rights now or in the future; provided, however, that the Collateral shall not include more than 66% of the stock of any Subsidiary that is a “controlled foreign corporation”, as defined in the Internal Revenue code of 1986, as amended.

“Collection Account” means “Collection Account” as defined in the Master Agreement for Treasury Management Services and related Lockbox and Collection Account Service Description or Collection Account Service Description, whichever is applicable. .

“Company Funds Administrator” means Phoenix Footwear Group, Inc., a Delaware corporation.

“Compliance Certificate” is defined in Section 5.1(a) and is in the form of Exhibit E.

“Commercial Letter of Credit Agreement” means an agreement governing the issuance of documentary letters of credit entered into between any Company as applicant and Wells Fargo as issuer.

“Constituent Documents” means with respect to any Person, as applicable, that Person’s certificate of incorporation, articles of incorporation, by-laws, certificate of formation, articles of organization, limited liability company agreement, management agreement, operating agreement, shareholder agreement, partnership agreement or similar document or agreement governing such Person’s existence, organization or management or concerning disposition of ownership interests of such Person or voting rights among such Person’s owners.

“Copyright Security Agreement” means each Copyright Security Agreement entered into between any Company and Wells Fargo.

“Default Period” is defined in Section 1.6(c).

“Default Rate” is defined in Section 1.6(c).

“Designated Person” means James Riedman.

“Dilution” means, as of any date of determination, a percentage which is the result of dividing (a) actual bad debt write-downs, discounts, advertising allowances, credits, and any other items with respect to the Accounts determined to be dilutive by Wells Fargo in its sole discretion during any measurement period selected by Wells Fargo, by (b) Companies’ net sales during such period (excluding extraordinary items) plus the amount of clause (a); provided that any such measurement period shall (i) occur during the twelve months immediately prior to any date of determination, and (ii) be not less than 30 days in length.

“Director” means a director if a Company is a corporation, or a governor or manager if a Company is a limited liability company.

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“Electronic Record” means a Record that is created, generated, sent, communicated, received, or stored by electronic means, but does not include any Record that is sent, communicated, or received by fax.

“Eligible Accounts” means all unpaid Accounts of each Company arising from the sale or lease of goods or the performance of services, net of any credits, but excluding any Accounts having any of the following characteristics:

(a) That portion of Accounts unpaid (i) 90 days or more after the original invoice date, for Accounts that originally have 30-day (or less) payment terms, or (ii) 120 days or more after the original invoice date, for Accounts that originally have payment terms exceeding 30 days;

(b) That portion of Accounts related to goods or services with respect to which a Company has received notice of a claim or dispute, which are subject to a claim of offset or a contra account, or which reflect a reasonable reserve for warranty claims or returns;

(c) That portion of Accounts not yet earned by the final delivery of goods or that portion of Accounts not yet earned by the final rendition of services by a Company to the account debtor, including with respect to both goods and services, progress billings, and that portion of Accounts for which an invoice has not been sent to the applicable account debtor;

(d) Accounts constituting (i) Proceeds of copyrightable material unless such copyrightable material shall have been registered with the United States Copyright Office, or (ii) Proceeds of patentable inventions unless such patentable inventions have been registered with the United States Patent and Trademark Office;

(e) Accounts owed by any unit of government, whether foreign or domestic (except that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which a Company has provided evidence satisfactory to Wells Fargo that (i) Wells Fargo’s Security Interest constitutes a perfected first priority Lien in such Accounts, and (ii) such Accounts may be enforced by Wells Fargo directly against such unit of government under all applicable laws);

(f) Accounts denominated in any currency other than United States Dollars;

(g) Accounts owed by an account debtor located outside the United States or Canada which are not (i) backed by a bank letter of credit naming Wells Fargo as beneficiary or assigned to Wells Fargo, in Wells Fargo’s possession or control, and with respect to which a control agreement concerning the letter-of-credit rights is in effect, and acceptable to Wells Fargo in all respects, in its sole discretion, or (ii) covered by a foreign receivables insurance policy acceptable to Wells Fargo in its sole discretion;

(h) Accounts owed by an account debtor who is insolvent or is the subject of bankruptcy proceedings or who has gone out of business;

(i) Accounts owed by an Owner, Subsidiary, Affiliate, Officer or employee of any Company;

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(j) Accounts not subject to the Security Interest or which are subject to any Lien in favor of any Person other than Wells Fargo;

(k) That portion of Accounts that has been restructured, extended, amended or modified;

(l) That portion of Accounts that constitutes advertising, finance charges, service charges or sales or excise taxes;

(m) Accounts owed by an account debtor, regardless of whether otherwise eligible, to the extent that the aggregate balance of such Accounts exceeds (i) thirty five percent (35%) of the aggregate amount of all Eligible Accounts with respect to Accounts owing by either Wal-Mart Stores, Inc. and its affiliates, and (ii) fifteen percent (15%) of the aggregate amount of all Eligible Accounts with respect to Accounts owing by all account debtors other than Wal-Mart Stores, Inc. and its respective affiliates;

(n) Accounts owed by an account debtor, regardless of whether otherwise eligible, if 25% or more of the total amount of Accounts due from such debtor is ineligible under clauses (a), (b), or (k) above; and

(o) Accounts, or portions of Accounts, otherwise deemed ineligible by Wells Fargo in its sole discretion.

“Eligible Chambers Accounts” means Eligible Accounts owing by account debtors of Chambers Belt Company.

“Eligible In-Transit Inventory” means those items of Inventory that do not qualify as Eligible Landed Inventory solely because they are not located at one of a Company’s locations or at a distribution center for which Wells Fargo has received a bailee waiver agreement (in form and substance satisfactory to Wells Fargo) or in transit among such locations, but as to which (a) the Inventory was the subject of a Qualified Import Letter of Credit or has been paid for by cash in advance, (b) such Inventory currently is in transit (whether by vessel, air, or land) from a location outside of the continental United States to one of Companies’ retail locations or to a distribution center for which Wells Fargo has received a bailee waiver agreement (in form and substance satisfactory to Wells Fargo), (c) title to such Inventory has passed to a Company, (d) such Inventory is insured against types of loss, damage, hazards, and risks, and in amounts, satisfactory to Wells Fargo in its reasonable discretion, (e) such Inventory either (1) is the subject of a negotiable bill of lading (x) that is consigned to Wells Fargo (either directly or by means of endorsements), (y) that was issued by the carrier respecting the subject Inventory, and (z) that is in the possession of Wells Fargo or a customs broker (who has entered into an agreement with Wells Fargo, in form and substance satisfactory to Wells Fargo, in respect of such bills of lading and related goods), or (2) is the subject of a negotiable cargo receipt and is not the subject of a bill of lading (other than a negotiable bill of lading consigned to, and in the possession of, a consolidator or Wells Fargo, or their respective agents) and such negotiable cargo receipt is (x) consigned to Wells Fargo (either directly or by means of endorsements), (y) that was issued by a consolidator respecting the subject Inventory, and (z) that is in the possession of Wells Fargo or a customs broker (who has entered into an agreement with Wells Fargo, in form and substance satisfactory to Wells Fargo, in respect of such cargo receipts and related goods), and (f) Companies have provided a certificate to Wells Fargo that certifies that, to the best knowledge of Companies, such Inventory meets all of Companies’ representations and warranties contained in the Loan Documents concerning Eligible Inventory and it will satisfy each of the

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criteria for treatment as “Eligible Inventory,” that they know of no reason why such Inventory would not be accepted by Companies when it arrives at one of Companies’ retail locations (or such distribution center described above), and that the shipment as evidenced by the documents conforms to the related order documents.

“Eligible Inventory” means all Inventory of each Company consisting of new finished goods valued at the lower of cost or market in accordance with GAAP; but excluding Inventory having any of the following characteristics:

(a) Inventory that is: in-transit (other than Eligible In-Transit Inventory); located at any warehouse, job site or other premises not approved by Wells Fargo in an Authenticated Record delivered to a Company; not subject to a perfected first priority Lien in Wells Fargo’s favor; subject to any Lien or encumbrance (other than in favor of Wells Fargo), unless such Lien or encumbrance is contractually subordinated to Wells Fargo’s Lien pursuant to a written subordination agreement in form and substance acceptable to Wells Fargo; covered by any negotiable or non-negotiable warehouse receipt, bill of lading or other document of title; on consignment from any consignor; or on consignment to any consignee or subject to any bailment unless the consignee or bailee has executed an agreement with Wells Fargo;

(b) Supplies, packaging, parts, or sample Inventory, or customer supplied parts or Inventory;

(c) Work-in-process Inventory or raw materials Inventory;

(d) Inventory that is damaged, defective, obsolete, slow moving or not currently saleable in the normal course of a Company’s operations, or the amount of such Inventory that has been reduced by shrinkage;

(e) Inventory that a Company has returned, has attempted to return, is in the process of returning or intends to return to the vendor of the Inventory;

(f) Inventory that is perishable or live;

(g) Inventory manufactured by a Company pursuant to a license unless either (x) the applicable licensor has agreed in a Record that has been Authenticated by licensor to permit Wells Fargo to exercise its rights and remedies against such Inventory, or (y) Wells Fargo permits such Inventory to be treated as Eligible Inventory in Wells Fargo’s sole discretion;

(h) Inventory stored at locations holding less than 10% of the aggregate value of a Company’s Inventory; and

(i) Inventory otherwise deemed ineligible by Wells Fargo in its sole discretion.

“Eligible Landed Inventory” means Inventory consisting of first quality finished goods held for sale in the ordinary course of Companies’ business located at one of Companies’ business locations or a distribution center (for which Wells Fargo has received a bailee waiver agreement in form and substance satisfactory to Wells Fargo), or in-transit between any such locations, that constitute “Eligible Inventory,” and that is not excluded as ineligible by virtue of the one or more of the criteria set forth in the definition of “Eligible Inventory.”

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“Eligible Phoenix Accounts” means Eligible Accounts owing by account debtors of Phoenix Footwear Group, Inc., Penobscot Shoe Company, H.S. Trask & Company, or Phoenix Delaware Acquisition, Inc.

“Environmental Law” means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment.

“Equipment” shall have the meaning given it under the Uniform Commercial Code in effect in the state whose laws govern this Agreement.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is a member of a group which includes any Company and which is treated as a single employer under Section 414 of the IRC.

“Event of Default” is defined in Section 6.1.

“Excess Availability” means, as of any date of determination, (i) Availability less (ii) the sum of Companies’ trade payables older than 60 days from the original due date, book overdrafts, and other past due obligations.

“Floating Rate” is defined in Section 1.6(a).

“Floating Rate Advance” means an Advance bearing interest at the Floating Rate.

“GAAP” means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described on Exhibit D.

“General Intangibles” shall have the meaning given it under the UCC.

“Guarantor” means any Person now or in the future guaranteeing any Indebtedness through the issuance of a Guaranty.

“Guaranty” means an unconditional continuing guaranty executed by a Guarantor in favor of Wells Fargo (if more than one, the “Guaranties”).

“Hazardous Substances” means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials listed in, regulated by or identified in any Environmental Law.

“Indebtedness” is used in its most comprehensive sense and means any debts, obligations and liabilities of each Company to Wells Fargo, whether incurred in the past, present or future, whether voluntary or involuntary, and however arising, and whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and including without limitation all obligations arising under any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar transaction or arrangement however described or defined that any Company may enter into at any time with Wells Fargo or with Wells Fargo Merchant Services, L.L.C., whether or not a Company may be liable individually or jointly with others, or whether recovery upon such Indebtedness may subsequently become unenforceable.

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“Indemnified Liabilities” is defined in Section 7.8.

“Indemnitees” is defined in Section 7.8.

“Infringement” or “Infringing” when used with respect to Intellectual Property Rights means any infringement or other violation of Intellectual Property Rights.

“Intellectual Property Rights” means all actual or prospective rights arising in connection with any intellectual property or other proprietary rights, including all rights arising in connection with copyrights, patents, service marks, trade dress, trade secrets, trademarks, trade names or mask works.

“Interest Payment Date” is defined in Section 1.8(a).

“Interest Period” means the period that commences on (and includes) the Business Day on which either a LIBOR Advance is made or continued or on which a Floating Rate Advance is converted to a LIBOR Advance, and ending on (but excluding) the Business Day numerically corresponding to that date that falls the number of months afterward as selected by Company Funds Administrator pursuant to Section 1.4, during which period the outstanding principal amount of the LIBOR Advance shall bear interest at the LIBOR Advance Rate; provided, however, that:

(a) If an Interest Period would otherwise end on a day which is not a Business Day, then it shall end on the next Business Day, unless that day is the first Business Day of a month, in which case the Interest Period shall end on the last Business Day of the preceding month;

(b) No Interest Period applicable to an Advance may end later than the Maturity Date; and

(c) In no event shall Company Funds Administrator select Interest Periods with respect to LIBOR Advances which would result in the payment of a LIBOR Advance breakage fee under this Agreement in order to make required principal payments.

“Inventory” shall have the meaning given it under the UCC.

“Inventory Sublimit” shall initially mean $7,500,000; provided that if the Maximum Line Amount is increased to $20,000,000 in accordance with this Agreement, the Inventory Sublimit shall be $8,500,000.

“Investment Property” shall have the meaning given it under the UCC.

“L/C Amount” means the sum of (a) the Aggregate Face Amount of any outstanding Letters of Credit, plus (b) the amount of each Obligation of Reimbursement that either remains unreimbursed or has not been paid through an Advance on the Line of Credit.

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“L/C Application” means an application for the issuance of standby or documentary Letters of Credit pursuant to the terms of a Standby Letter of Credit Agreement or Commercial Letter of Credit Agreement, in form acceptable to Wells Fargo.

“Letter of Credit” and “Letters of Credit” are each defined in Section 1.10(a).

“LIBOR” means the rate per annum (rounded upward, if necessary, to the nearest whole 1/8^th of one percent (1%)) determined pursuant to the following formula:

LIBOR =	Base LIBOR
	100% -LIBOR Reserve Percentage

(a) “Base LIBOR” means the rate per annum for United States dollar deposits quoted by Wells Fargo as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by Wells Fargo for the purpose of calculating effective rates of interest for loans making reference to it, on the first day of an Interest Period for delivery of funds on that date for a period of time approximately equal to the number of days in that Interest Period and in an amount approximately equal to the principal amount to which that Interest Period applies. Each Company understands and agrees that Wells Fargo may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as Wells Fargo in its discretion deems appropriate including the rate offered for U.S. dollar deposits on the London Inter-Bank Market.

(b) “LIBOR Reserve Percentage” means the reserve percentage prescribed by the Board of Governors of the Federal Reserve System (or any successor) for “Eurocurrency Liabilities” (as defined in Regulation D of the Federal Reserve Board, as amended), adjusted by Wells Fargo for expected changes in such reserve percentage during the applicable Interest Period.

“LIBOR Advance” means an Advance bearing interest at the LIBOR Advance Rate.

“LIBOR Advance Rate” is defined in Section 1.6(a).

“Licensed Intellectual Property” is defined in Exhibit D.

“Lien” means any security interest, mortgage, deed of trust, pledge, lien, charge, encumbrance, title retention agreement or analogous instrument or device, including the interest of each lessor under any capitalized lease and the interest of any bondsman under any payment or performance bond, in, of or on any assets or properties of a Person, whether now owned or subsequently acquired and whether arising by agreement or operation of law.

“Line of Credit” is defined in the Recitals.

“Loan Documents” means this Agreement, the Revolving Note, the Master Agreement for Treasury Management Services, each Subordination Agreement, each Standby Letter of Credit Agreement, each Commercial Letter of Credit Agreement, any L/C Applications, and the Security Documents, together with every other agreement, note, document, contract or instrument to which any Company now or in the future may be a party and which may be required by Wells Fargo in connection with, or as a condition to, the execution of this Agreement. Any documents or other agreements entered into between any Company and Wells Fargo that relate to

any swap, derivative, foreign exchange, hedge, or similar product or transaction, or which are entered into with an operating division of Wells Fargo other than Wells Fargo Business Credit, shall not be included in this definition.

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“Loan Manager” means the treasury management service defined in the Master Agreement for Treasury Management Services and related Loan Manager Service Description.

“Lockbox” means “Lockbox” as defined in the Master Agreement for Treasury Management Services and related Lockbox and Collection Account Service Description.

“Margin” means a rate per annum, expressed as a percentage, as more fully described in Section 1.6(a).

“Master Agreement for Treasury Management Services” means the Master Agreement for Treasury Management Services, the related Acceptance of Services, and the Service Description governing each treasury management service used by any Company.

“Material Adverse Effect” means any of the following:

(a) A material adverse effect on the business, operations, results of operations, prospects, assets, liabilities or financial condition of the Companies taken as a whole;

(b) A material adverse effect on the ability of any Company to perform its obligations under the Loan Documents, or any other document or agreement related to this Agreement; or

(c) A material adverse effect on the ability of Wells Fargo to enforce the Indebtedness or to realize the intended benefits of the Security Documents, including a material adverse effect on the validity or enforceability of any Loan Document or of any rights against any Guarantor, or on the status, existence, perfection, priority (subject to Permitted Liens) or enforceability of any Lien securing payment or performance of the Indebtedness.

“Maturity Date” is defined in Section 1.1(b).

“Maximum Line Amount” is defined in Section 1.1(a).

“Minimum Interest Charge” is defined in Section 1.6(b).

“Monthly Collateral Reporting Period” is defined in Section 5.1(e).

“Multiemployer Plan” means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which any Company or any ERISA Affiliate contributes or is obligated to contribute.

“Net Cash Proceeds” means the cash proceeds of any asset sale (including cash proceeds received as deferred payments pursuant to a note, installment receivable or otherwise, but only upon actual receipt) net of (a) attorney, accountant, and investment banking fees, (b) brokerage commissions, (c) amounts required to be applied to the repayment of debt secured by a Lien not prohibited by this Agreement on the asset being sold, and (c) taxes paid or reasonably estimated to be payable as a result of such asset sale.

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“Net Forced Liquidation Value” means a professional opinion of the probable Net Cash Proceeds that could be realized at a properly advertised and professionally managed forced sale public auction conducted without reserve under economic trends current within 60 days of the appraisal, which opinion may consider physical location, difficulty of removal, adaptability, specialization, marketability, physical condition, overall appearance and psychological appeal.

“Net Income” means, for any measurement period, before-tax income from continuing operations for such period, including extraordinary losses but excluding extraordinary gains, all as determined in accordance with GAAP. Upon exhaustion of all of Companies’ net operating loss carry-forwards (existing as of the date of this Agreement), “Net Income” shall thereafter mean, for any measurement period, after-tax income from continuing operations for such period, including extraordinary losses but excluding extraordinary gains, all as determined in accordance with GAAP.

“Net Orderly Liquidation Value” means a professional opinion of the probable Net Cash Proceeds that could be realized at a properly advertised and professionally conducted liquidation sale, conducted under orderly sale conditions for an extended period of time (usually three to nine months), under the economic trends existing at the time of the appraisal.

“Obligation of Reimbursement” is defined in Section 1.10(b).

“OFAC” is defined in Section 5.12(b).

“Officer” means with respect to any Company, an officer if such Company is a corporation, a manager if such Company is a limited liability company, or a partner if such Company is a partnership.

“Operating Account” is defined in Section 1.3(a), and maintained in accordance with the terms of Wells Fargo’s Commercial Account Agreement in effect for demand deposit accounts.

“Overadvance” means the amount, if any, by which the unpaid principal amount of the Revolving Note, plus the L/C Amount, is in excess of the then-existing Borrowing Base.

“Owned Intellectual Property” is defined in Exhibit D.

“Owner” means with respect to any Company, each Person having legal or beneficial title to an ownership interest in such Company or a right to acquire such an interest.

“Patent and Trademark Security Agreement” means each Patent and Trademark Security Agreement entered into between any Company and Wells Fargo.

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA) maintained for employees of any Company or any ERISA Affiliate and covered by Title IV of ERISA.

“Permitted Lien” and “Permitted Liens” are defined in Section 5.3(a).

“Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision of a governmental entity.

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“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) maintained for employees of any Company or any ERISA Affiliate.

“Premises” is defined in Section 2.4(a).

“Prime Rate” means at any time the rate of interest most recently announced by Wells Fargo at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Wells Fargo’s base rates, and serves as the basis upon which effective rates of interest are calculated for those loans making reference to it, and is evidenced by its recording in such internal publication or publications as Wells Fargo may designate. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced by Wells Fargo.

“Proceeds” shall have the meaning given it under the UCC.

“Qualified Import Letter of Credit” means a Letter of Credit that (a) is issued to facilitate the purchase by a Company of Eligible Inventory, (b) is in form and substance acceptable to Wells Fargo, and (c) is drawable by the beneficiary thereof by the presentation of, among other documents, either (i) a negotiable bill of lading that is consigned to Wells Fargo (either directly or by means of endorsements) and that was issued by the carrier respecting the subject Eligible Inventory, or (ii) a negotiable cargo receipt that is consigned to Wells Fargo (either directly or by means of endorsements) and that was issued by a consolidator respecting the subject Eligible Inventory; provided, however, that, in the latter case, no bill of lading shall have been issued by the carrier (other than a bill of lading consigned to the consolidator or to Wells Fargo).

“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form, and includes all information that is required to be reported by any Company to Wells Fargo pursuant to Section 5.1.

“Reportable Event” means a reportable event (as defined in Section 4043 of ERISA), other than an event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the Pension Benefit Guaranty Corporation.

“Revolving Note” is defined in Section 1.1(d).

“Security Documents” means this Agreement, the Copyright Security Agreement, the Patent and Trademark Security Agreement, and any other document delivered to Wells Fargo from time to time to secure the Indebtedness.

“Security Interest” is defined in Section 2.1.

“Special Account” means a specified cash collateral account maintained with Wells Fargo or another financial institution acceptable to Wells Fargo in connection with each undrawn Letter of Credit issued by Wells Fargo, as more fully described in Section 1.11.

“Standby Letter of Credit Agreement” means an agreement governing the issuance of standby letters of credit by Wells Fargo entered into between any Company as applicant and Wells Fargo as issuer.

“Subordinated Creditor(s)” means any Person now or in the future subordinating indebtedness of any Company held by that Person to the payment of the Indebtedness.

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“Subordination Agreement” means a subordination agreement executed by a Subordinated Creditor in favor of Wells Fargo (if more than one, the “Subordination Agreements”).

“Subsidiary” means any Person of which more than 50% of the outstanding ownership interests having general voting power under ordinary circumstances to elect a majority of the board of directors or the equivalent of such Person, irrespective of whether or not at the time ownership interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency, is at the time directly or indirectly owned by any Company, by any Company and one or more other Subsidiaries, or by one or more other Subsidiaries.

“Termination Date” is defined in Section 1.1(b).

“UCC” means the Uniform Commercial Code in effect in the state designated in this Agreement as the state whose laws shall govern this Agreement, or in any other state whose laws are held to govern this Agreement or any portion of this Agreement.

“Wells Fargo” means Wells Fargo Bank, National Association in its broadest and most comprehensive sense as a legal entity, and is not limited in its meaning to the Wells Fargo Business Credit operating division, or to any other operating division of Wells Fargo.

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Exhibit B to Credit and Security Agreement

PREMISES

The Premises referred to in the Credit and Security Agreement have the following addresses:

1. 5840 El Camino Real, Suite 106

Carlsbad, California 92008

2. 5445 Jillson Street

Commerce California

B-1

Exhibit C to Credit and Security Agreement

CONDITIONS PRECEDENT

Wells Fargo’s obligation to make an initial Advance shall be subject to the condition that Wells Fargo shall have received the following, executed and in form and content satisfactory to Wells Fargo. The following descriptions are limited descriptions for reference purposes only and should not be construed as limiting in any way the subject matter that Wells Fargo requires each document to address.

A. Loan Documents to be Executed by Companies:

(1) The Revolving Note.

(2) The Credit and Security Agreement.

(3) The Master Agreement for Treasury Management Services, the Acceptance of Services, and the related Service Description for each deposit or treasury management related product or service that Companies will subscribe to, including without limitation the Loan Manager Service Description and the Lockbox and Collection Account Service Description.

(4) The Copyright Security Agreement.

(5) The Patent and Trademark Security Agreement.

(6) A Standby Letter of Credit Agreement and the Commercial Letter of Credit Agreement, and a separate L/C Application for each Letter of Credit that Company Funds Administrator has requested that Wells Fargo issue.

B. Loan Documents to be Executed by Third Parties:

(1) A Waiver of Interest issued by the spouse of each individual Guarantor, waiving certain interests he or she may have.

(2) The Collateral Pledge Agreement of Phoenix Footwear, pursuant to which that Person grants Wells Fargo a security interest in the shares of stock more fully described in the Collateral Pledge Agreement, together with the stock certificates and stock powers, as security for the full and prompt payment of Companies’ Indebtedness.

(3) An Acknowledgement of Warehouseman from each warehouse where any Company stores Inventory, pursuant to which the warehouseman waives its Lien in the Inventory.

(4) An Imported Inventory Agreement from each broker or consignee of any Company’s Inventory.

(5) A copy of each Notice of Ownership of Goods sent to each Person to whom tangible Collateral has been delivered but who will not be taking ownership of such property, notifying each such Person of the continued ownership interest of any Company in such property and the Lien being retained by Wells Fargo in such Collateral.

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(6) A Landlord’s Disclaimer and Consent to each lease entered into by any Company and that Landlord with respect to the Premises, pursuant to which the Landlord waives its Lien in any goods or other Inventory of any Company located on the Premises.

(7) Certificates of Insurance required under this Agreement, with all hazard insurance containing a lender’s loss payable endorsement in Wells Fargo’s favor and with all liability insurance naming Wells Fargo as additional insured.

C. Documents Related to the Premises

(1) Any leases pursuant to which any Company is leasing the Premises from a lessor.

(2) Every bailment or consignment pursuant to which any property of any Company is in the possession of a third Person such as a consignee or subcontractor, together with, in the case of any goods held by such Person for resale, UCC financing statements sufficient to protect Companies’ and Wells Fargo’s interests in such goods.

D. Federal Tax, State Tax, Judgment, UCC and Intellectual Property Lien Searches

(1) Current searches of Companies in appropriate filing offices showing that (i) no Liens have been filed and remain in effect against Companies and Collateral except Permitted Liens or Liens held by Persons who have agreed in an Authenticated Record that upon receipt of proceeds of the initial Advances, they will satisfy, release or terminate such Liens in a manner satisfactory to Wells Fargo, and (ii) Wells Fargo has filed all UCC financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing.

(2) Current searches of Third Persons in appropriate filing offices with respect to any of the Collateral that is in the possession of a Person other than Companies that is held for resale, showing that (i) UCC financing statements sufficient to protect Companies’ and Wells Fargo’s interests in such Collateral have been filed, and (ii) no other secured party has filed a financing statement against such Person and covering property similar to Companies’, other than Companies, or if there exists any such secured party, evidence that each such party has received notice from Companies and Wells Fargo sufficient to protect Companies’ and Wells Fargo’s interests in Companies’ goods from any claim by such secured party.

E. Constituent Documents:

(1) The Certificate of Authority of Companies, which shall include as part of the Certificate or as exhibits to the Certificate, (i) the Resolution of Companies’ Directors and, if required, Owners, authorizing the execution, delivery and performance of those Loan Documents and other documents or agreements described in or related to this Agreement to which any Company is a party, (ii) an Incumbency Certificate containing the signatures of Companies’ Officers or agents authorized to execute and deliver those instruments, agreements and certificates referenced in (i) above, as well as Advance requests, on Companies’ behalf, (iii) Companies’ Constituent Documents, (iv) a current Certificate of Good Standing or Certificate of Status issued

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by the secretary of state or other appropriate authority for each Company’s state of organization, certifying that each Company is in good standing and in compliance with all applicable organizational requirements of the state of organization, and (v) a Secretary’s Certificate of each Company’s secretary or assistant secretary certifying that the Certificate of Authority of Company is true, correct and complete.

(2) Evidence that Companies are licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by them makes such licensing or qualification necessary.

(3) An Officer’s Certificate of an appropriate Officer of Companies confirming, in his or her personal capacity, the representations and warranties set forth in this Agreement.

(4) A Customer Identification Information Form and such other forms and verification as Wells Fargo may need to comply with the U.S.A. Patriot Act.

F. Miscellaneous Matters or Documents:

(1) Payment of fees and reimbursable costs and expenses due under this Agreement through the date of initial Advance or issuance of a Letter of Credit, including all legal expenses incurred through the date of the closing of this Agreement.

(2) Evidence that after making the initial Advance and satisfying all obligations owed to Companies’ prior lender and all trade payables older than 60 days from the original due date, book overdrafts and closing costs, the availability under the Line of Credit is not less than $1,400,000.

(3) Any documents or other agreements entered into by any Company and Wells Fargo that relate to any swap, derivative, foreign exchange, hedge, deposit, treasury management or similar product or transaction extended to any Company by Wells Fargo not already provided pursuant to the requirements above.

(4) Such other documents as Wells Fargo in its sole discretion may require.

C-3

Exhibit D to Credit and Security Agreement

REPRESENTATIONS AND WARRANTIES

Each Company represents and warrants to Wells Fargo as follows:

(a) Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Federal Employer Identification Number and Organizational Identification Number. Each Company is a corporation, duly organized, validly existing, and in good standing under the laws of its state of incorporation and is licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. Each Company has all requisite power and authority to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, those Loan Documents and any other documents or agreements that it has entered into with Wells Fargo related to this Agreement. During its existence, each Company has done business solely under the names set forth below in addition to its correct legal name. Each Company’s chief executive office and principal place of business is located at the address set forth below, and all of each Company’s records relating to its business or the Collateral are kept at that location. All Inventory and Equipment is located at that location or at one of the other locations listed in Schedule I. Each Company’s name, Federal Employer Identification Number and Organization Identification Number are correctly set forth in Schedule I.

(b) Capitalization. The capitalization chart in Schedule II constitutes a correct and complete list of all ownership interests of five percent (5%) or more of the outstanding stock of the Company, based upon the most recent SEC filings on Form 13D and 13G prior to the date hereof, and rights to acquire ownership interests including the record holder, number of interests and percentage interests on a fully diluted basis, and the organizational chart below shows the ownership structure of all Subsidiaries of Phoenix Footwear.

(c) Authorization of Borrowing; No Conflict as to Law or Agreements. The execution, delivery and performance by each Company of the Loan Documents and any other documents or agreements described in or related to this Agreement, and all borrowing under the Line of Credit have been authorized and do not (i) require the consent or approval of any Company’s Owners; (ii) require the authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental agency or instrumentality, whether domestic or foreign, or any other Person, except to the extent obtained, accomplished or given prior to the date of this Agreement; (iii) violate any provision of any law, rule or regulation (including Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to any Company or of any Company’s Constituent Documents; (iv) result in a breach of or constitute a default or event of default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which any Company is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than the Security Interest) upon or with respect to any of the properties now owned or subsequently acquired by any Company.

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(d) Legal Agreements. This Agreement, the other Loan Documents, and any other document or agreement described in or related to this Agreement, will constitute the legal, valid and binding obligations of each Company, enforceable against each Company in accordance with their respective terms.

(e) Subsidiaries. Except as disclosed in Schedule I, no Company has any Subsidiaries.

(f) Financial Condition; No Adverse Change. Companies have furnished to Wells Fargo their audited financial statements for its fiscal year ended December 31, 2007, and unaudited financial statements for the fiscal-year-to-date period ended March 31, 2008, and those statements fairly present Companies’ financial condition as of those dates and the results of Companies’ operations and cash flows for the periods then ended and were prepared in accordance with GAAP (except for the absence of year-end adjustment and footnotes in the case of unaudited financial statements). Since the date of the most recent financial statements, there has been no Material Adverse Effect in Companies’ business, properties, or condition (financial or otherwise).

(g) Litigation. Except as set forth in Schedule IV, as of the date hereof, there are no actions, suits or proceedings pending or, to Companies’ knowledge, threatened against or affecting any Company or any of their Affiliates or the properties of any Company or any of their Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to any Company or any of their Affiliates, would have a Material Adverse Effect on the financial condition, properties or operations of any Company or any of its Affiliates.

(h) Intellectual Property Rights.

(i) Owned Intellectual Property. Set forth on Schedule V-A is a complete list of all patents, applications for patents, trademarks, applications to register trademarks, service marks, applications to register service marks, mask works, trade dress and copyrights for which any Company is the owner of record (the “Owned Intellectual Property”). Except as set forth below, (A) each Company owns the Owned Intellectual Property free and clear of all restrictions (including covenants not to sue any Person), court orders, injunctions, decrees, writs or Liens, whether by agreement memorialized in a Record Authenticated by a Company or otherwise, (B) no Person other than a Company owns or has been granted any right in the Owned Intellectual Property, (C) all Owned Intellectual Property is valid, subsisting and enforceable, and (D) each Company has taken all commercially reasonable action necessary to maintain and protect the Owned Intellectual Property.

(ii) Agreements with Employees and Contractors. Each Company has entered into a legally enforceable agreement with each Person that is an employee or subcontractor obligating that Person to assign to the applicable Company, without additional compensation, any Intellectual Property Rights created, discovered or invented by that Person in the course of that Person’s employment or engagement with such Company (except to the extent prohibited by law), and further obligating that Person to cooperate with such Company, without additional compensation, to secure and enforce the Intellectual Property Rights on behalf of such Company, unless the job description of the Person is such that it is not reasonably foreseeable that the employee or subcontractor will create, discover, or invent Intellectual Property Rights.

D-2

(iii) Intellectual Property Rights Licensed from Others. Set forth on Schedule V-B is a complete list of all agreements under which each Company has licensed Intellectual Property Rights from another Person (“Licensed Intellectual Property”) other than readily available, non-negotiated licenses of computer software and other intellectual property used solely for performing accounting, word processing and similar administrative tasks (“Off-the-shelf Software”) and a summary of any ongoing payments any Company is obligated to make with respect thereto. Except as set forth below or in any other Record, copies of which have been given to Wells Fargo, each Company’s licenses to use the Licensed Intellectual Property are free and clear of all restrictions, Liens, court orders, injunctions, decrees, or writs, whether by agreed to in a Record Authenticated by any Company or otherwise. Except as disclosed on Schedule V-B, no Company is contractually obligated to make royalty payments of a material nature, or pay fees to any owner of, licensor of, or other claimant to, any Intellectual Property Rights.

(iv) Other Intellectual Property Needed for Business. Except for Off-the-shelf Software and as disclosed on Schedule V-B, the Owned Intellectual Property and the Licensed Intellectual Property constitute all Intellectual Property Rights used or necessary to conduct each Company’s business as it is presently conducted or as each Company reasonably foresees conducting it.

(v) Infringement. Except as disclosed on Schedule V-B, no Company has any knowledge of, and has not received notice either orally or in a Record alleging, any Infringement of another Person’s Intellectual Property Rights (including any claim set forth in a Record that Company must license or refrain from using the Intellectual Property Rights of any Person) nor, to any Company’s knowledge, is there any threatened claim or any reasonable basis for any such claim.

(i) Taxes. Each Company and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes required to be withheld by each of them. Each Company and its Affiliates have filed all federal, state and local tax returns which to the knowledge of the Officers of each Company or any Affiliate, as the case may be, are required to be filed, and each Company and its Affiliates have paid or caused to be paid to the respective taxing authorities all taxes as shown on these returns or on any assessment received by any of them to the extent such taxes have become due.

(j) Titles and Liens. Each Company has good and absolute title to all Collateral free and clear of all Liens other than Permitted Liens. No financing statement naming Company as debtor is on file in any office except to perfect only Permitted Liens.

(k) No Defaults. Each Company is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which would have a Material Adverse Effect on any Company’s financial condition, properties or operations.

D-3

(l) Submissions to Wells Fargo. All financial and other information provided to Wells Fargo by or on behalf of any Company in connection with any Company’s request for the credit facilities contemplated hereby is (i) true and correct in all material respects and (ii) does not omit any material fact that would cause such information to be misleading. As of the date hereof based on available information, the projections provided by the Companies to Wells Fargo present a good faith opinion of the Companies’ management of the Companies’ anticipated future financial performance, although there is no guarantee that they will be achieved.

(m) Financing Statements. Each Company has previously authorized the filing of financing statements sufficient when filed to perfect the Security Interest and other Liens created by the Security Documents. When such financing statements are filed, Wells Fargo will have a valid and perfected security interest in all Collateral capable of being perfected by the filing of financing statements. None of the Collateral is or will become a fixture on real estate, unless a sufficient fixture filing has been filed with respect to such Collateral.

(n) Rights to Payment. Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral is (or, in the case of all future Collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim of the account debtor or other obligor named in that instrument.

(o) Employee Benefit Plans. Except as disclosed in Schedule VI,

(i) Maintenance and Contributions to Plans. No Company nor any ERISA Affiliate (A) maintains or has maintained any Pension Plan, (B) contributes or has contributed to any Multiemployer Plan, or (C) provides or has provided post-retirement medical or insurance benefits to employees or former employees (other than benefits required under Section 601 of ERISA, Section 4980B of the IRC, or applicable state law).

(ii) Knowledge of Plan Noncompliance with Applicable Law. No Company nor any ERISA Affiliate has (A) knowledge that any Company or the ERISA Affiliate is not in full compliance with all of the material requirements of ERISA, the IRC, or applicable state law with respect to any Plan, (B) knowledge that a Reportable Event occurred or continues to exist in connection with any Pension Plan, or (C) sponsored a Plan that it intends to maintain as qualified under the IRC that is not so qualified, and no fact or circumstance exists which may have an adverse effect on such Plan’s tax-qualified status.

(iii) Funding Deficiencies and Other Liabilities. No Company nor any ERISA Affiliate has liability for any (A) accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the IRC) under any Plan, whether or not waived, (B) withdrawal, partial withdrawal, reorganization or other event under any Multiemployer Plan under Section 4201 or 4243 of ERISA, or (C) event or circumstance which could result in financial obligation to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than routine claims for benefits under the Plan).

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(p) Environmental Matters. Except as disclosed in Schedule VII,

(i) Hazardous Substances on Premises. There are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any material liability or obligation for either Companies or Wells Fargo under the common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked, discharged, emitted or released in, on or under the Premises in such a way as to create a material liability.

(ii) Disposal of Hazardous Substances. The Companies have not disposed of Hazardous Substances in such a manner as to create any material liability under any Environmental Law.

(iii) Claims and Proceedings with Respect to Environmental Law Compliance. There have not existed in the past, nor are there any threatened or impending requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation relating in any way to the Premises or any Company, alleging material liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto.

(iv) Compliance with Environmental Law; Permits and Authorizations. The Companies (A) conduct their business at all times in compliance with applicable Environmental Law, (B) possesses valid licenses, permits and other authorizations required under applicable Environmental Law for the lawful and efficient operation of its business, none of which are scheduled to expire, or withdrawal, or material limitation within the next 12 months, and (C) have not been denied insurance on grounds related to potential environmental liability.

(v) Status of Premises. The Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database.

(vi) Environmental Audits, Reports, Permits and Licenses. Each Company has delivered to Wells Fargo all environmental assessments, audits, reports, permits, licenses and other documents describing or relating in any way to the Premises or any Company’s businesses.

D-5

Exhibit E to Credit and Security Agreement

COMPLIANCE CERTIFICATE

To:	Wells Fargo Bank, National Association
Date:	[            , 200  ]
Subject:	Financial Statements

In accordance with our Credit and Security Agreement dated June 10, 2008 (as amended from time to time, the “Credit Agreement”), attached are the financial statements of PHOENIX FOOTWEAR GROUP, INC., a Delaware corporation (“Phoenix Footwear”), PENOBSCOT SHOE COMPANY, a Maine corporation (“Penobscot”), H.S. TRASK & CO., a Montana corporation (“Trask”), CHAMBERS BELT COMPANY, a Delaware corporation (“Chambers”), and PHOENIX DELAWARE ACQUISITION, INC., a Delaware corporation (“Phoenix Acquisition”; Phoenix Footwear, Penobscot, Trask, Chambers and Phoenix Acquisition are sometimes individually referred to in this Agreement as a “Company” and collectively as the “Companies”), dated                      (the “Reporting Date”) and the year-to-date period then ended (the “Current Financials”). All terms used in this certificate have the meanings given in the Credit Agreement.

A. Preparation and Accuracy of Financial Statements. I certify that the Current Financials have been prepared in accordance with GAAP, subject to year-end audit adjustments and lack of footnotes, and fairly present Companies’ financial condition as of the Reporting Date.

B. Name of Companies; Merger and Consolidation. I certify that:

(Check one)

¨ No Company has, since the date of the Credit Agreement, changed its name or jurisdiction of organization, nor has it consolidated or merged with another Person.

¨ A Company has, since the date of the Credit Agreement, either changed its name or jurisdiction of organization, or both, or has consolidated or merged with another Person, which change, consolidation or merger:  ¨ was consented to in advance by Wells Fargo in an Authenticated Record, and/or  ¨ is more fully described in the statement of facts attached to this Certificate.

C. Events of Default. I certify that:

(Check one)

¨ I have no knowledge of the occurrence of an Event of Default under the Credit Agreement, except as previously reported to Wells Fargo in a Record.

¨ I have knowledge of an Event of Default under the Credit Agreement not previously reported to Wells Fargo in a Record, as more fully described in the statement of facts attached to this Certificate, and further, I acknowledge that Wells Fargo may under the terms of the Credit Agreement impose the Default Rate at any time during the resulting Default Period.

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D. Litigation Matters. I certify that:

(Check one)

¨ I have no knowledge of any material adverse change to the litigation exposure of any Company or any of its Affiliates or of any Guarantor.

¨ I have knowledge of material adverse changes to the litigation exposure of a Company or any of its Affiliates or of any Guarantor not previously disclosed in Exhibit D, as more fully described in the statement of facts attached to this Certificate.

E. Financial Covenants. I further certify that:

(Check and complete each of the following)

1. Minimum Net Income. Pursuant to Section 5.2(a) of the Credit Agreement, as of the Reporting Date, Companies’ Net Income was $            , which  ¨ satisfies  ¨ does not satisfy the requirement that Net Income be not less than $             on the Reporting Date.

2. Capital Expenditures. Pursuant to Section 5.2(b) of the Credit Agreement, Companies have incurred aggregate unfinanced Capital Expenditures of $             for the             -month period ending                  in the aggregate, which  ¨ satisfies  ¨ does not satisfy the requirement that such expenditures not exceed $             for such period.

3. Stop Loss. Pursuant to Section 5.2(c) of the Credit Agreement (if applicable), as of the Reporting Date, Companies’ Net Loss was $            , which  ¨ satisfies  ¨ does not satisfy the requirement that Net Loss be not greater than $100,000 per fiscal quarter as of the Reporting Date.

4. Salaries. [The compensation committee of Phoenix Footwear’s board of directors has reviewed and approved compensation for the Companies’ Officers during the applicable period] or [The Companies have not paid excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation.]

Attached are statements of all relevant facts and computations in reasonable detail sufficient to evidence Companies’ compliance with the financial covenants referred to above, which computations were made in accordance with GAAP.

PHOENIX FOOTWEAR GROUP, INC PENOBSCOT SHOE COMPANY H.S. TRASK & CO. CHAMBERS BELT COMPANY PHOENIX DELAWARE ACQUISITION, INC.
By:
Its:	Chief Financial Officer

E-2

Exhibit F to Credit and Security Agreement

PERMITTED LIENS

Creditor	Collateral	Jurisdiction	Filing Date	Filing No.
Manufacturers and Traders Trust Company	Cash collateral held by Creditor to secure reimbursement obligations arising under Letters of Credit and CADs issued by Creditor (in the approximate amount of $3,150,000), existing as of the date of this Credit and Security Agreement.	N/A	N/A	N/A
IBM Credit	specific equipment	Delaware	3/31/2008	81120300

INDEBTEDNESS

Indebtedness secured by the permitted liens described above.

GUARANTIES

[None]

F-1

EX-10.2

Exhibit 10.2

REVOLVING NOTE

$20,000,000 June 10, 2008

FOR VALUE RECEIVED, the undersigned, PHOENIX FOOTWEAR GROUP, INC., a Delaware corporation (“Phoenix Footwear”), PENOBSCOT SHOE COMPANY, a Maine corporation (“Penobscot”), H.S. TRASK & CO., a Montana corporation (“Trask”), CHAMBERS BELT COMPANY, a Delaware corporation (“Chambers”), and PHOENIX DELAWARE ACQUISITION, INC., a Delaware corporation (“Phoenix Acquisition”; Phoenix Footwear, Penobscot, Trask, Chambers and Phoenix Acquisition are sometimes individually referred to in this Agreement as a “Company” and collectively as the “Companies”), hereby jointly and severally promise to pay to the order of WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), acting through its WELLS FARGO BUSINESS CREDIT operating division, on the Termination Date described in the Credit and Security Agreement dated June 10, 2008 (as amended from time to time, the “Agreement”) and entered into by and among Companies and Wells Fargo, at Wells Fargo’s office at 245 S. Los Robles Avenue, Suite 700, Pasadena, California 91101, or at any other place designated at any time by the holder, in lawful money of the United States of America and in immediately available funds, the principal sum of Twenty Million Dollars ($20,000,000) or the aggregate unpaid principal amount of all Advances made by Wells Fargo to Companies under the terms of the Agreement, together with interest on the principal amount computed on the basis of actual days elapsed in a 360-day year, from the date of this Revolving Note until this Revolving Note is fully paid at the rate from time to time in effect under the terms of the Agreement. Principal and interest accruing on the unpaid principal balance amount of this Revolving Note shall be due and payable as provided in the Agreement. This Revolving Note may be prepaid only in accordance with the Agreement.

This Revolving Note is the Revolving Note referred to in the Agreement, and is subject to the terms of the Agreement, which provides, among other things, for the acceleration of this Revolving Note. This Revolving Note is secured, among other things, by the Agreement and the Security Documents as defined in the Agreement, and by any other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements that may subsequently be given for good and valuable consideration as security for this Revolving Note.

Companies shall jointly and severally pay all costs of collection, including reasonable attorneys’ fees and legal expenses if this Revolving Note is not paid when due, whether or not legal proceedings are commenced.

Presentment or other demand for payment, notice of dishonor and protest are expressly waived. Any person included as one of the Companies that is an accommodation party, co-maker, guarantor or other surety and each endorser of this Revolving Note hereby (i) waives all suretyship defenses, (ii) consents to any and all future releases of other Companies and other guarantors, releases of Collateral and amendments, modifications, extensions, renewals, restatements and supplements of Loan Documents, and (iii) agrees to make payment and that Wells Fargo may realize upon Collateral granted by the person without prior action by Wells Fargo against any other Company or any Collateral granted by any other Company. Each Company acknowledges that it is jointly and severally liable for all of the Indebtedness and other obligations, covenants, and agreements now existing or hereafter arising under the Loan Documents.

[signatures on next page]

PHOENIX FOOTWEAR GROUP, INC.

By:

Print Name:

Title:

PENOBSCOT SHOE COMPANY

By:

Print Name:

Title:

H.S. TRASK & CO.

By:

Print Name:

Title:

CHAMBERS BELT COMPANY

By:

Print Name:

Title:

PHOENIX DELAWARE ACQUISITION, INC.

By:

Print Name:

Title:

EX-10.3

Exhibit 10.3

COLLATERAL PLEDGE AGREEMENT

Date: June 10, 2008

DEBTOR:	PHOENIX FOOTWEAR GROUP, INC. (the “Debtor”)
	5840 El Camino Real, Suite 106
	Carlsbad, California 92008 Attn: James Riedman
	Telecopier No.:
SECURED PARTY:	Wells Fargo Bank, National Association, acting through its Wells Fargo Business Credit operation division (the “Secured Party”)
	245 S. Los Robles Avenue, Suite 700
	Pasadena, California 91101
	Attn: Phoenix Footwear Group Account Executive

1. Security Interest and Collateral. To secure the payment and performance of the Indebtedness (defined below) which the Debtor may now or at any time hereafter owe to the Secured Party, the Debtor hereby grants the Secured Party a security interest (herein called the “Security Interest”) in all of the following property now or at any time hereafter owned by the Debtor, or in which the Debtor may now or hereafter have an interest (the “Collateral”): (i) the issued and outstanding capital stock, equity securities, membership interests or units, and ownership interests, and rights issued or granted in connection with the foregoing, of any Person that are now or hereafter owned or held of record or beneficially by Debtor, including, but not limited to, the interests listed on Schedule 1 hereto (and the certificates representing such shares, securities and/or interests); (ii) all other capital stock, equity securities, warrants, options, membership interests and units, and ownership interests, and rights issued or granted in connection with the foregoing, issued by any Person now or hereafter owned or held of record or beneficially by Debtor at any time (and the certificates or other documents or instruments representing such shares, securities and/or other interests); and (iii) any and all replacements, products and proceeds of, and dividends, distributions in property or securities, returns of capital or other distributions made on or with respect to, any of the foregoing, together with all rights in connection with such property; provided, however, that the term “Collateral” shall not include more than 66% of the stock of any Subsidiary that is a “controlled foreign corporation” as defined in the United Stated Internal Revenue Code. “Indebtedness” is used herein in its most comprehensive sense and means any and all advances, debts, obligations and liabilities of the Debtor to the Secured Party, heretofore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, including under any swap, derivative, foreign exchange, hedge, deposit, treasury management or other similar transaction or arrangement at any time entered into by the Debtor with the Secured Party or with Wells Fargo Merchant Services, L.L.C., and whether the Debtor may be liable individually or jointly with others, or whether recovery upon such Indebtedness may be or hereafter becomes unenforceable.

Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

2. Representations, Warranties and Covenants. The Debtor represents, warrants and covenants that:

2.1 The Debtor will duly endorse, in blank, each and every instrument constituting Collateral by signing on said instrument or by signing a separate document of assignment or transfer, if required by the Secured Party.

2.2 The Debtor is the owner of the Collateral free and clear of all liens, encumbrances, security interests and restrictions, except the Security Interest and any restrictive legend appearing on any instrument constituting Collateral.

2.3 The Debtor will keep the Collateral free and clear of all liens, encumbrances and security interests, except the Security Interest and any restrictive legend appearing on any instrument constituting Collateral.

2.4 The Debtor will pay, when due, all taxes and other governmental charges levied or assessed upon or against any Collateral.

2.5 At any time, upon request by the Secured Party, the Debtor will deliver to the Secured Party all notices, financial statements, reports or other communications received by the Debtor as an owner or holder of the Collateral.

2.6 The Debtor will upon receipt deliver to the Secured Party in pledge as additional Collateral all securities distributed on account of the Collateral such as stock dividends and securities resulting from stock splits, reorganizations and recapitalizations.

3. Rights of the Secured Party. The Debtor agrees that the Secured Party may at any time, after the occurrence and during the continuation of an Event of Default (as defined below) and without notice or demand of any kind, (i) notify the obligor on or issuer of any Collateral to make payment to the Secured Party of any amounts due or distributable thereon; (ii) in the Debtor’s name or the Secured Party’s name enforce collection of any Collateral by suit or otherwise, or surrender, release or exchange all or any part of it, or compromise, extend or renew for any period any obligation evidenced by the Collateral; (iii) receive all proceeds of the Collateral; and (iv) hold any increase or profits received from the Collateral as additional security for the Indebtedness, except that any money received from the Collateral shall, at the Secured Party’s option, be applied in reduction of the Indebtedness, in such order of application as the Secured Party may determine, or be remitted to the Debtor.

4. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called “Event of Default”): (i) the Debtor shall fail to pay any or all of the Indebtedness when due or (if payable on demand) on demand, or the Debtor shall fail to observe or perform any covenant or agreement herein binding on it; (ii) any representation or warranty by the Debtor set forth in this Agreement or made to the Secured Party in any financial statements or reports submitted to the Secured Party by or on behalf of the Debtor shall prove materially false or misleading; or (iii) an Event of Default, as defined in any credit agreement or other instrument or agreement evidencing or governing any or all of the Indebtedness, shall occur.

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Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

5. Remedies upon Event of Default. Upon the occurrence of an Event of Default and at any time thereafter, the Secured Party may exercise any one or more of the following rights or remedies: (i) declare all unmatured Indebtedness to be immediately due and payable, and the same shall thereupon be immediately due and payable, without presentment or other notice or demand; (ii) exercise all voting and other rights as a holder of the Collateral; (iii) exercise and enforce any or all rights and remedies available upon default to a secured party under the Uniform Commercial Code as in effect from time to time in the state of California, including the right to take control of and to offer and sell the Collateral privately to purchasers who will agree to take the Collateral for investment and not with a view to distribution and who will agree to the imposition of restrictive legends on the certificates representing the Collateral, and the right to arrange for a sale which would otherwise qualify as exempt from registration under the Securities Act of 1933; and if notice to the Debtor of any intended disposition of the Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given at least 10 calendar days prior to the date of intended disposition or other action; or (iv) exercise or enforce any or all other rights or remedies available to the Secured Party by law or agreement against the Collateral, against the Debtor or against any other person or property.

6. Miscellaneous. Any disposition of the Collateral in the manner provided in Section 5 shall be deemed commercially reasonable. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party. A waiver signed by the Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Secured Party’s rights or remedies. All rights and remedies of the Secured Party shall be cumulative and may be exercised singularly or concurrently, at the Secured Party’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to the Debtor shall be deemed sufficiently given if delivered or mailed by registered or certified mail, postage prepaid, or by telecopier to the Debtor at its address or telecopier number, as the case may be, set forth above or at the most recent address or telecopier number shown on the Secured Party’s records. All requests under Section 9-210 of the Uniform Commercial Code (i) shall be made in a writing signed by a person duly authorized by Debtor, (ii) shall be personally delivered, sent by registered or certified mail, return receipt requested, or by overnight courier of national reputation, (iii) shall be deemed to be sent when received by the Secured Party, and (iv) shall otherwise comply with the requirements of Section 9-210. The Debtor requests that the Secured Party respond to all such requests which on their face appear to come from an authorized individual and releases the Secured Party from any liability for so responding. The Debtor shall pay Secured Party the maximum amount allowed by law for responding to such requests. The Secured Party’s duty of care with respect to

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Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

Collateral in its possession (as imposed by law) shall be deemed fulfilled if the Secured Party exercises reasonable care in physically safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and the Secured Party need not otherwise preserve, protect, insure or care for any Collateral. The Secured Party shall not be obligated to preserve any rights the Debtor may have against prior parties, to exercise at all or in any particular manner any voting rights which may be available with respect to any Collateral, to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral in any particular order of application. The Debtor will reimburse the Secured Party for all expenses (including reasonable attorneys’ fees and legal expenses) incurred by the Secured Party in the protection, defense or enforcement of the Security Interest, including expenses incurred in any litigation or bankruptcy or insolvency proceedings. This Agreement shall be binding upon and inure to the benefit of the Debtor and the Secured Party and their respective heirs, representatives, successors and assigns and shall take effect when signed by the Debtor and delivered to the Secured Party, and the Debtor waives notice of the Secured Party’s acceptance hereof. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Indebtedness. If this Agreement is signed by more than one person as the Debtor, the term “Debtor” shall refer to each of them separately and to both or all of them jointly; all such persons shall be bound both severally and jointly with the other(s); and the Indebtedness shall include all debts, liabilities and obligations owed to the Secured Party by any Debtor solely or by both or several or all Debtors jointly or jointly and severally, and all property described in Section 1 shall be included as part Collateral, whether it is owned jointly by both or all Debtors or is owned in whole or in part by one (or more) of them. This Agreement shall be governed by the internal laws (other than conflict laws) of the state of California and, unless the context otherwise requires, all terms used herein which are defined in Articles 1 and 9 of the Uniform Commercial Code, as in effect in California, shall have the meanings therein stated. Each party consents to the personal jurisdiction of the state and federal courts located in the State of California in connection with any controversy related to this Agreement, waives any argument that venue in any such forum is not convenient, and agrees that any litigation initiated by any of them in connection with this Agreement may be venued in either the state and federal courts located in Los Angeles County, California.

7. Arbitration

7.1 Arbitration. The parties hereto agree, upon demand by any party (or by Secured Party, who shall be considered a “party” for purposes of this Section 7), to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way the Indebtedness which are the subject of this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination.

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Collateral Pledge Agreement

WFBC/ Phoenix Footwear (pledge of sub’s)

7.2 Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

7.3 No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party (if not otherwise restricted by the terms and conditions of this Agreement) to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

7.4 Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s

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Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

7.5 Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

7.6 Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

7.7 Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

7.8 Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

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Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

7.9 Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

[Signature on next page]

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Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

IN WITNESS WHEREOF, this Collateral Pledge Agreement has been duly executed by the Debtor as of the date first written above.

PHOENIX FOOTWEAR GROUP, INC.

By

Print Name:

Title:

S-1

Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

SCHEDULE 1

Pledgor/Debtor	Name of Entity	Identity of Pledged Equity	Percentage of Ownership	Certificate Representing Such Securities
Phoenix Footwear Group, Inc.	Penobscot Shoe Company	Common Stock	100%	No. 7212
Phoenix Footwear Group, Inc.	H.S. Trask & Co.	Common Stock	100%	No. 2
Phoenix Footwear Group, Inc.	Phoenix Delaware Acquisition, Inc.	Common Stock	100%	No. 1
Phoenix Footwear Group, Inc.	Chambers Belt Company	Common Stock	100%	No. 1
Phoenix Footwear Group, Inc.	PXG Canada, Inc.	Common Stock	66%	No. 2

1

Collateral Pledge Agreement

WFBC/Phoenix Footwear (pledge of sub’s)

EX-10.4

Exhibit 10.4

PATENT AND TRADEMARK SECURITY AGREEMENT

This Patent and Trademark Security Agreement (the “Agreement”), dated as of June 10, 2008, is made by and between Phoenix Footwear Group, Inc., a Delaware corporation having a business location at the address set forth below next to its signature (the “Debtor”), and Wells Fargo Bank, National Association (“Wells Fargo”), and having a business location at the address set forth below next to its signature.

Recitals

A. Company, certain affiliates of Company, and Wells Fargo are parties to a Credit and Security Agreement (as amended, supplemented or restated from time to time, the “Credit Agreement”) dated the same date as this Agreement, setting forth the terms on which Wells Fargo may now or hereafter extend credit to or for the account of Company.

B. As a condition to extending credit to or for the account of Company, Wells Fargo has required the execution and delivery of this Agreement by Company.

ACCORDINGLY, in consideration of the mutual covenants contained in the Loan Documents and herein, the parties hereby agree as follows:

1. Definitions. All terms defined in the Recitals hereto or in the Credit Agreement that are not otherwise defined herein shall have the meanings given to them in the Credit Agreement. In addition, the following terms have the meanings set forth below:

“Patents” means all of Company’s right, title and interest in and to patents or applications for patents, fees or royalties with respect to each, and including without limitation the right to sue for past infringement and damages therefor, and licenses thereunder, all as presently existing or hereafter arising or acquired, including without limitation the patents listed on Exhibit A.

“Security Interest” has the meaning given in Section 2.

“Trademarks” means all of Company’s right, title and interest in and to: (i) trademarks, service marks, collective membership marks, registrations and applications for registration for each, and the respective goodwill associated with each, (ii) licenses, fees or royalties with respect to each, (iii) the right to sue for past, present and future infringement, dilution and damages therefor, and (iv) licenses thereunder, all as presently existing or hereafter arising or acquired, including, without limitation, the marks listed on Exhibit B.

2. Security Interest. Company hereby irrevocably pledges and assigns to, and grants Wells Fargo a security interest (the “Security Interest”) with power of sale to the extent permitted by law, in the Patents and in the Trademarks to secure payment of the Indebtedness. As set forth in the Credit Agreement, the Security Interest is coupled with a security interest in substantially all of the personal property of Company. This Agreement grants only the Security Interest herein

described, is not intended to and does not affect any present transfer of title of any trademark registration or application and makes no assignment and grants no right to assign or perform any other action with respect to any intent to use trademark application, unless such action is permitted under 15 U.S.C. § 1060.

3. Representations, Warranties and Agreements. Company represents, warrants and agrees as follows:

(a) Existence; Authority. Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and this Agreement has been duly and validly authorized by all necessary corporate action on the part of Company.

(b) Patents. Exhibit A accurately lists all Patents owned or controlled by Company as of the date hereof, or to which Company has a right as of the date hereof to have assigned to it, and accurately reflects the existence and status of applications and letters patent pertaining to the Patents as of the date hereof. If after the date hereof, Company owns, controls or has a right to have assigned to it any Patents not listed on Exhibit A, or if Exhibit A ceases to accurately reflect the existence and status of applications and letters patent pertaining to the Patents, then Company shall within 60 days provide written notice to Wells Fargo with a replacement Exhibit A, which upon acceptance by Wells Fargo shall become part of this Agreement.

(c) Trademarks. Exhibit B accurately lists all Trademarks owned or controlled by Company as of the date hereof and accurately reflects the existence and status of Trademarks and all applications and registrations pertaining thereto as of the date hereof; provided, however, that Exhibit B need not list common law marks (i.e., Trademarks for which there are no applications or registrations) which are not material to Company’s or any Affiliate’s business(es). If after the date hereof, Company owns or controls any Trademarks not listed on Exhibit B (other than common law marks which are not material to Company’s or any Affiliate’s business(es)), or if Exhibit B ceases to accurately reflect the existence and status of applications and registrations pertaining to the Trademarks, then Company shall promptly provide written notice to Wells Fargo with a replacement Exhibit B, which upon acceptance by Wells Fargo shall become part of this Agreement.

(d) Affiliates. As of the date hereof, no Affiliate owns, controls, or has a right to have assigned to it any items that would, if such item were owned by Company, constitute Patents or Trademarks. If after the date hereof any Affiliate owns, controls, or has a right to have assigned to it any such items, then Company shall promptly either: (i) cause such Affiliate to assign all of its rights in such item(s) to Company; or (ii) notify Wells Fargo of such item(s) and cause such Affiliate to execute and deliver to Wells Fargo a patent and trademark security agreement substantially in the form of this Agreement.

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Patent and Trademark Security Agreement

WFBC/Phoenix Footwear Group

(e) Title. Company has absolute title to each Patent and each Trademark listed on Exhibits A and B, free and clear of all Liens except Permitted Liens. Company (i) will have, at the time Company acquires any rights in Patents or Trademarks hereafter arising, absolute title to each such Patent or Trademark free and clear of all Liens except Permitted Liens, and (ii) will keep all Patents and Trademarks free and clear of all Liens except Permitted Liens.

(f) No Sale. Except as permitted in the Credit Agreement, Company will not assign, transfer, encumber or otherwise dispose of the Patents or Trademarks, or any interest therein, without Wells Fargo’s prior written consent.

(g) Defense. Company will at its own expense and using commercially reasonable efforts, protect and defend the Patents and Trademarks against all claims or demands of all Persons other than those holding Permitted Liens.

(h) Maintenance. Company will at its own expense maintain the Patents and the Trademarks to the extent reasonably advisable in its business including, but not limited to, filing all applications to obtain letters patent or trademark registrations and all affidavits, maintenance fees, annuities, and renewals possible with respect to letters patent, trademark registrations and applications therefor. Company covenants that it will not abandon nor fail to pay any maintenance fee or annuity due and payable on any Patent or Trademark, nor fail to file any required affidavit or renewal in support thereof, without first providing Wells Fargo: (i) sufficient written notice, of at least 30 days, to allow Wells Fargo to timely pay any such maintenance fees or annuities which may become due on any Patents or Trademarks, or to file any affidavit or renewal with respect thereto, and (ii) a separate written power of attorney or other authorization to pay such maintenance fees or annuities, or to file such affidavit or renewal, should such be necessary or desirable.

(i) Wells Fargo’s Right to Take Action. If Company fails to perform or observe any of its covenants or agreements set forth in this Section 3, and if such failure continues for a period of ten (10) calendar days after Wells Fargo gives Company written notice thereof (or, in the case of the agreements contained in subsection (h), immediately upon the occurrence of such failure, without notice or lapse of time), or if Company notifies Wells Fargo that it intends to abandon a Patent or Trademark, Wells Fargo may (but need not) perform or observe such covenant or agreement or take steps to prevent such intended abandonment on behalf and in the name, place and stead of Company (or, at Wells Fargo’s option, in Wells Fargo’s own name) and may (but need not) take any and all other actions which Wells Fargo may reasonably deem necessary to cure or correct such failure or prevent such intended abandonment.

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(j) Costs and Expenses. Except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Company shall pay Wells Fargo on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Wells Fargo in connection with or as a result of Wells Fargo’s taking action under subsection (i) or exercising its rights under Section 6, together with interest thereon from the date expended or incurred by Wells Fargo at the Default Rate.

(k) Power of Attorney. To facilitate Wells Fargo’s taking action under subsection (i) and exercising its rights under Section 6, Company hereby irrevocably appoints (which appointment is coupled with an interest) Wells Fargo, or its delegate, as the attorney-in-fact of Company with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Company, any and all instruments, documents, applications, financing statements, and other agreements and writings required to be obtained, executed, delivered or endorsed by Company under this Section 3, or, necessary for Wells Fargo, after an Event of Default and at any time thereafter during the Default Period commenced thereby, to enforce or use the Patents or Trademarks or to grant or issue any exclusive or non-exclusive license under the Patents or Trademarks to any third party, or to sell, assign, transfer, pledge, encumber or otherwise transfer title in or dispose of the Patents or Trademarks to any third party. Company hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted herein shall terminate upon the termination of the Credit Agreement as provided therein and the payment and performance of all Indebtedness.

4. Debtor’s Use of the Patents and Trademarks. Company shall be permitted to control and manage the Patents and Trademarks, including the right to exclude others from making, using or selling items covered by the Patents and Trademarks and any licenses thereunder, in the same manner and with the same effect as if this Agreement had not been entered into, so long as no Event of Default occurs and remains uncured or unwaived by Wells Fargo.

5. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called “Event of Default”): (a) an Event of Default, as defined in the Credit Agreement, shall occur; or (b) Company shall fail promptly to observe or perform any covenant or agreement herein binding on it; or (c) any of the representations or warranties contained in Section 3 shall prove to have been incorrect in any material respect when made.

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Patent and Trademark Security Agreement

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6. Remedies. Upon the occurrence of an Event of Default and at any time thereafter during the Default Period commenced thereby, Wells Fargo may, at its option, take any or all of the following actions:

(a) Wells Fargo may exercise any or all remedies available under the Credit Agreement.

(b) Wells Fargo may sell, assign, transfer, pledge, encumber or otherwise dispose of the Patents and Trademarks.

(c) Wells Fargo may enforce the Patents and Trademarks and any licenses thereunder, and if Wells Fargo shall commence any suit for such enforcement, Company shall, at the request of Wells Fargo, do any and all lawful acts and execute any and all proper documents required by Wells Fargo in aid of such enforcement.

7. Miscellaneous. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by Wells Fargo. A waiver signed by Wells Fargo shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Wells Fargo’s rights or remedies. All rights and remedies of Wells Fargo shall be cumulative and may be exercised singularly or concurrently, at Wells Fargo’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to Debtor under this Agreement shall be given in the manner and with the effect provided in the Credit Agreement. Wells Fargo shall not be obligated to preserve any rights Company may have against prior parties, to realize on the Patents and Trademarks at all or in any particular manner or order, or to apply any cash proceeds of Patents and Trademarks in any particular order of application. This Agreement shall be binding upon and inure to the benefit of Company and Wells Fargo and their respective participants, successors and assigns and shall take effect when signed by Company and delivered to Wells Fargo, and Company waives notice of Wells Fargo’s acceptance hereof. Wells Fargo may execute this Agreement if appropriate for the purpose of filing, but the failure of Wells Fargo to execute this Agreement shall not affect or impair the validity or effectiveness of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement signed by Company shall have the same force and effect as the original for all purposes of a financing statement. This Agreement shall be governed by the internal law of State of California without regard to conflicts of law provisions. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Indebtedness.

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Patent and Trademark Security Agreement

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8. Arbitration.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party (if not otherwise restricted by the terms and conditions of this Agreement) to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents

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only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

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(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

[signatures continued on next page]

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IN WITNESS WHEREOF, the parties have executed this Patent and Trademark Security Agreement as of the date written above.

	PHOENIX FOOTWEAR GROUP, INC.
5840 El Camino Real, Suite 106
Carlsbad, California 92008	By
Fax:	Print Name:
Attention: James Riedman	Title:
Wells Fargo Bank, National Association	WELLS FARGO BANK, NATIONAL ASSOCIATION
245 S. Los Robles Ave., Suite 700
Pasadena, CA 91101	By
Fax: 626.844.9063	Print Name:
Attn: Phoenix Footwear Account Executive	Title:

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200__, by                                     , the President of                                              , a                      corporation, on behalf of the corporation.

Notary Public

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200    , by                                              , a Vice President of Wells Fargo Bank, National Association, on behalf of the national association.

Notary Public

EXHIBIT A

PATENTS AND PATENT APPLICATIONS

LEGAL OWNERSHIP	DOCKET #	COUNTRY	TITLE	APP #/PAT #	STATUS
Phoenix Footwear Group, Inc.	3120-36	Canada	Insole Construction for Footwear	2,382,040	Patented
Phoenix Footwear Group, Inc.	3120-94	Canada	Footwear Construction	2,523,884	Patented
Phoenix Footwear Group, Inc.	3120-37	Europe	Insole Construction for Footwear	2000948782.8	Pending
Phoenix Footwear Group, Inc.	3120-31	PCT	Insole Construction for Footwear	PCT/US00/19660	filed in Canada and Europe
Phoenix Footwear Group, Inc.	3120-79	PCT	Footwear Construction	PCT/US04/13995	filed in Canada
Phoenix Footwear Group, Inc.	3120-29	United States	Insole Construction for Footwear	09/360155	CPA filed, see 3120-32
Phoenix Footwear Group, Inc.	3120-32	United States	Insole Construction for Footwear	6,675,501	Patented
Phoenix Footwear Group, Inc.	3120-50	United States	Footwear Construction	6,857,202	Patented
Phoenix Footwear Group, Inc.	3120-57	United States	Insole Construction for Footwear	6,922,914	Patented
Phoenix Footwear Group, Inc.	3120-84	United States	Footwear Construction	6,976,319	Patented
Phoenix Footwear Group, Inc.	3120-91	United States	Insole Construction for Footwear	7,171,764	Patented
Phoenix Footwear Group, Inc.	3120-101	United States	Insole Construction for Footwear	11/641,775	Pending

A-1

EXHIBIT B

TRADEMARKS AND TRADEMARK APPLICATIONS

LEGAL OWNERSHIP	DOCKET #	COUNTRY	MARK	APP #/REG #	FILING / REG DATE	RENEWAL DATE	STATUS
Phoenix Footwear Group, Inc.	3120-38	Brazil	TROTTERS	824289463	2/7/2002		Pending
Phoenix Footwear Group, Inc.	3120-11	Canada	TROTTERS	TMA 489463	2/6/1998	2/6/2013	Registered
Phoenix Footwear Group, Inc.	3120-21	Canada	TROTTERS & design	TMA 470465	2/4/1997	2/4/2012	Registered
Phoenix Footwear Group, Inc.	3120-52	Canada	SOFT WALK	TMA 627350	12/2/2004	12/2/2019	Registered
Phoenix Footwear Group, Inc.	3120-53	Canada	Foot Design	TMA 620409	9/23/2004	9/22/2019	Registered
Phoenix Footwear Group, Inc.	3120-103	Canada	Z COLLECTION BY TROTTERS	1349664	5/31/2007		Pending
Phoenix Footwear Group, Inc.	3120-106	Canada	Z COLLECTION & Design	1369833	10/30/2007		Pending
Phoenix Footwear Group, Inc.	3120-95	China	TROTTERS & Design	5134022	1/23/2006		Pending
Phoenix Footwear Group, Inc.	3120-96	China	TROTTERS	5133872	1/23/2006		Pending
Phoenix Footwear Group, Inc.	3120-07	United States	TROTTERS	2089400	8/19/1997	8/19/2017	Registered
Phoenix Footwear Group, Inc.	3120-33	United States	TROTTERS & design	2671664	1/7/2003	1/7/2013	Registered – 8&15 declaration due 1/7/2009
Phoenix Footwear Group, Inc.	3120-34	United States	T design	2722442	6/3/2003	6/3/2013	Registered – 8&15 declaration due 6/3/2009
Phoenix Footwear Group, Inc.	3120-51	United States	SOFT WALK & Design	2899145	11/2/2004	11/2/2014	Registered
Phoenix Footwear Group, Inc.	3120-102	United States	Z COLLECTION BY TROTTERS	77/176144	5/9/2007		Pending
Phoenix Footwear Group, Inc.	3120-104	United States	BORN IN BOZEMAN	77/248640	8/7/2007		Pending
Phoenix Footwear Group, Inc.	3120-105	United States	Z COLLECTION	77/315789	10/29/2007		Pending

B-1

LEGAL OWNERSHIP	DOCKET #	COUNTRY	MARK	APP #/REG #	FILING / REG DATE	RENEWAL DATE	STATUS
Phoenix Footwear Group, Inc.	3120-108	United States	BRIDGER	77/360970	12/28/2007		Pending
Phoenix Footwear Group, Inc.	3120-110	United States	LIVINGSTON	77/360946	12/28/2007		Pending
Phoenix Footwear Group, Inc.	3120-112	United States	H.S. TRASK, BORN IN BOZEMAN & Design	77/369114	1/11/2008		Pending
Phoenix Footwear Group, Inc.	3120-113	United States	H.S. TRASK & bison Design	77/369249	1/11/2008		Pending
Phoenix Footwear Group, Inc.	3120-114	United States	H.S. TRASK & star Design	77/369290	1/11/2008		Pending
Phoenix Footwear Group, Inc.	3120-115	United States	H.S. TRASK & Design	77/369101	1/10/2008		Pending
Phoenix Footwear Group, Inc.	3120-116	United States	H.S. TRASK BORN IN BOZEMAN & Design	77/371684	1/15/2008		Pending
Phoenix Footwear Group, Inc.	3120-117	United States	Black Bison Design	77/371691	1/15/2008		Pending
Phoenix Footwear Group, Inc.	3120-118	United States	H.S. TRASK, BORN IN BOZEMAN & white bison design	77/371703	1/15/2008		Pending
Phoenix Footwear Group, Inc.	3120-119	United States	White Bison Design	77/371719	1/15/2008		Pending

B-2

EX-10.5

Exhibit 10.5

PATENT AND TRADEMARK SECURITY AGREEMENT

This Patent and Trademark Security Agreement (the “Agreement”), dated as of June 10, 2008, is made by and between Penobscot Shoe Company, a Maine corporation having a business location at the address set forth below next to its signature (the “Debtor”), and Wells Fargo Bank, National Association (“Wells Fargo”), and having a business location at the address set forth below next to its signature.

Recitals

A. Company, certain affiliates of Company, and Wells Fargo are parties to a Credit and Security Agreement (as amended, supplemented or restated from time to time, the “Credit Agreement”) dated the same date as this Agreement, setting forth the terms on which Wells Fargo may now or hereafter extend credit to or for the account of Company.

B. As a condition to extending credit to or for the account of Company, Wells Fargo has required the execution and delivery of this Agreement by Company.

ACCORDINGLY, in consideration of the mutual covenants contained in the Loan Documents and herein, the parties hereby agree as follows:

1. Definitions. All terms defined in the Recitals hereto or in the Credit Agreement that are not otherwise defined herein shall have the meanings given to them in the Credit Agreement. In addition, the following terms have the meanings set forth below:

“Patents” means all of Company’s right, title and interest in and to patents or applications for patents, fees or royalties with respect to each, and including without limitation the right to sue for past infringement and damages therefor, and licenses thereunder, all as presently existing or hereafter arising or acquired, including without limitation the patents listed on Exhibit A.

“Security Interest” has the meaning given in Section 2.

“Trademarks” means all of Company’s right, title and interest in and to: (i) trademarks, service marks, collective membership marks, registrations and applications for registration for each, and the respective goodwill associated with each, (ii) licenses, fees or royalties with respect to each, (iii) the right to sue for past, present and future infringement, dilution and damages therefor, and (iv) licenses thereunder, all as presently existing or hereafter arising or acquired, including, without limitation, the marks listed on Exhibit B.

2. Security Interest. Company hereby irrevocably pledges and assigns to, and grants Wells Fargo a security interest (the “Security Interest”) with power of sale to the extent permitted by law, in the Patents and in the Trademarks to secure payment of the Indebtedness. As set forth in the Credit Agreement, the Security Interest is coupled with a security interest in substantially all of the personal property of Company. This Agreement grants only the Security Interest herein

described, is not intended to and does not affect any present transfer of title of any trademark registration or application and makes no assignment and grants no right to assign or perform any other action with respect to any intent to use trademark application, unless such action is permitted under 15 U.S.C. § 1060.

3. Representations, Warranties and Agreements. Company represents, warrants and agrees as follows:

(a) Existence; Authority. Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and this Agreement has been duly and validly authorized by all necessary corporate action on the part of Company.

(b) Patents. Exhibit A accurately lists all Patents owned or controlled by Company as of the date hereof, or to which Company has a right as of the date hereof to have assigned to it, and accurately reflects the existence and status of applications and letters patent pertaining to the Patents as of the date hereof. If after the date hereof, Company owns, controls or has a right to have assigned to it any Patents not listed on Exhibit A, or if Exhibit A ceases to accurately reflect the existence and status of applications and letters patent pertaining to the Patents, then Company shall within 60 days provide written notice to Wells Fargo with a replacement Exhibit A, which upon acceptance by Wells Fargo shall become part of this Agreement.

(c) Trademarks. Exhibit B accurately lists all Trademarks owned or controlled by Company as of the date hereof and accurately reflects the existence and status of Trademarks and all applications and registrations pertaining thereto as of the date hereof; provided, however, that Exhibit B need not list common law marks (i.e., Trademarks for which there are no applications or registrations) which are not material to Company’s or any Affiliate’s business(es). If after the date hereof, Company owns or controls any Trademarks not listed on Exhibit B (other than common law marks which are not material to Company’s or any Affiliate’s business(es)), or if Exhibit B ceases to accurately reflect the existence and status of applications and registrations pertaining to the Trademarks, then Company shall promptly provide written notice to Wells Fargo with a replacement Exhibit B, which upon acceptance by Wells Fargo shall become part of this Agreement.

(d) Affiliates. As of the date hereof, no Affiliate owns, controls, or has a right to have assigned to it any items that would, if such item were owned by Company, constitute Patents or Trademarks. If after the date hereof any Affiliate owns, controls, or has a right to have assigned to it any such items, then Company shall promptly either: (i) cause such Affiliate to assign all of its rights in such item(s) to Company; or (ii) notify Wells Fargo of such item(s) and cause such Affiliate to execute and deliver to Wells Fargo a patent and trademark security agreement substantially in the form of this Agreement.

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(e) Title. Company has absolute title to each Patent and each Trademark listed on Exhibits A and B, free and clear of all Liens except Permitted Liens. Company (i) will have, at the time Company acquires any rights in Patents or Trademarks hereafter arising, absolute title to each such Patent or Trademark free and clear of all Liens except Permitted Liens, and (ii) will keep all Patents and Trademarks free and clear of all Liens except Permitted Liens.

(f) No Sale. Except as permitted in the Credit Agreement, Company will not assign, transfer, encumber or otherwise dispose of the Patents or Trademarks, or any interest therein, without Wells Fargo’s prior written consent.

(g) Defense. Company will at its own expense and using commercially reasonable efforts, protect and defend the Patents and Trademarks against all claims or demands of all Persons other than those holding Permitted Liens.

(h) Maintenance. Company will at its own expense maintain the Patents and the Trademarks to the extent reasonably advisable in its business including, but not limited to, filing all applications to obtain letters patent or trademark registrations and all affidavits, maintenance fees, annuities, and renewals possible with respect to letters patent, trademark registrations and applications therefor. Company covenants that it will not abandon nor fail to pay any maintenance fee or annuity due and payable on any Patent or Trademark, nor fail to file any required affidavit or renewal in support thereof, without first providing Wells Fargo: (i) sufficient written notice, of at least 30 days, to allow Wells Fargo to timely pay any such maintenance fees or annuities which may become due on any Patents or Trademarks, or to file any affidavit or renewal with respect thereto, and (ii) a separate written power of attorney or other authorization to pay such maintenance fees or annuities, or to file such affidavit or renewal, should such be necessary or desirable.

(i) Wells Fargo’s Right to Take Action. If Company fails to perform or observe any of its covenants or agreements set forth in this Section 3, and if such failure continues for a period of ten (10) calendar days after Wells Fargo gives Company written notice thereof (or, in the case of the agreements contained in subsection (h), immediately upon the occurrence of such failure, without notice or lapse of time), or if Company notifies Wells Fargo that it intends to abandon a Patent or Trademark, Wells Fargo may (but need not) perform or observe such covenant or agreement or take steps to prevent such intended abandonment on behalf and in the name, place and stead of Company (or, at Wells Fargo’s option, in Wells Fargo’s own name) and may (but need not) take any and all other actions which Wells Fargo may reasonably deem necessary to cure or correct such failure or prevent such intended abandonment.

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(j) Costs and Expenses. Except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Company shall pay Wells Fargo on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Wells Fargo in connection with or as a result of Wells Fargo’s taking action under subsection (i) or exercising its rights under Section 6, together with interest thereon from the date expended or incurred by Wells Fargo at the Default Rate.

(k) Power of Attorney. To facilitate Wells Fargo’s taking action under subsection (i) and exercising its rights under Section 6, Company hereby irrevocably appoints (which appointment is coupled with an interest) Wells Fargo, or its delegate, as the attorney-in-fact of Company with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Company, any and all instruments, documents, applications, financing statements, and other agreements and writings required to be obtained, executed, delivered or endorsed by Company under this Section 3, or, necessary for Wells Fargo, after an Event of Default and at any time thereafter during the Default Period commenced thereby, to enforce or use the Patents or Trademarks or to grant or issue any exclusive or non-exclusive license under the Patents or Trademarks to any third party, or to sell, assign, transfer, pledge, encumber or otherwise transfer title in or dispose of the Patents or Trademarks to any third party. Company hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted herein shall terminate upon the termination of the Credit Agreement as provided therein and the payment and performance of all Indebtedness.

4. Debtor’s Use of the Patents and Trademarks. Company shall be permitted to control and manage the Patents and Trademarks, including the right to exclude others from making, using or selling items covered by the Patents and Trademarks and any licenses thereunder, in the same manner and with the same effect as if this Agreement had not been entered into, so long as no Event of Default occurs and remains uncured or unwaived by Wells Fargo.

5. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called “Event of Default”): (a) an Event of Default, as defined in the Credit Agreement, shall occur; or (b) Company shall fail promptly to observe or perform any covenant or agreement herein binding on it; or (c) any of the representations or warranties contained in Section 3 shall prove to have been incorrect in any material respect when made.

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6. Remedies. Upon the occurrence of an Event of Default and at any time thereafter during the Default Period commenced thereby, Wells Fargo may, at its option, take any or all of the following actions:

(a) Wells Fargo may exercise any or all remedies available under the Credit Agreement.

(b) Wells Fargo may sell, assign, transfer, pledge, encumber or otherwise dispose of the Patents and Trademarks.

(c) Wells Fargo may enforce the Patents and Trademarks and any licenses thereunder, and if Wells Fargo shall commence any suit for such enforcement, Company shall, at the request of Wells Fargo, do any and all lawful acts and execute any and all proper documents required by Wells Fargo in aid of such enforcement.

7. Miscellaneous. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by Wells Fargo. A waiver signed by Wells Fargo shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Wells Fargo’s rights or remedies. All rights and remedies of Wells Fargo shall be cumulative and may be exercised singularly or concurrently, at Wells Fargo’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to Debtor under this Agreement shall be given in the manner and with the effect provided in the Credit Agreement. Wells Fargo shall not be obligated to preserve any rights Company may have against prior parties, to realize on the Patents and Trademarks at all or in any particular manner or order, or to apply any cash proceeds of Patents and Trademarks in any particular order of application. This Agreement shall be binding upon and inure to the benefit of Company and Wells Fargo and their respective participants, successors and assigns and shall take effect when signed by Company and delivered to Wells Fargo, and Company waives notice of Wells Fargo’s acceptance hereof. Wells Fargo may execute this Agreement if appropriate for the purpose of filing, but the failure of Wells Fargo to execute this Agreement shall not affect or impair the validity or effectiveness of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement signed by Company shall have the same force and effect as the original for all purposes of a financing statement. This Agreement shall be governed by the internal law of State of California without regard to conflicts of law provisions. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Indebtedness.

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8. Arbitration.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party (if not otherwise restricted by the terms and conditions of this Agreement) to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents

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only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

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Patent and Trademark Security Agreement

WFBC/Phoenix Footwear Group

(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

[signatures continued on next page]

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Patent and Trademark Security Agreement

WFBC/Phoenix Footwear Group

IN WITNESS WHEREOF, the parties have executed this Patent and Trademark Security Agreement as of the date written above.

	PENOBSCOT SHOE COMPANY
5840 El Camino Real, Suite 106
Carlsbad, California 92008	By
Fax:	Print Name:
Attention: James Riedman	Title:
Wells Fargo Bank, National Association	WELLS FARGO BANK, NATIONAL ASSOCIATION
245 S. Los Robles Ave., Suite 700
Pasadena, CA 91101	By
Fax: 626.844.9063	Print Name:
Attn: Phoenix Footwear Account Executive	Title:

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200__, by                                     , the President of                                              , a                      corporation, on behalf of the corporation.

Notary Public

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200    , by                                              , a Vice President of Wells Fargo Bank, National Association, on behalf of the national association.

Notary Public

EXHIBIT A

PATENTS AND PATENT APPLICATIONS

None

A-1

EXHIBIT B

TRADEMARKS AND TRADEMARK APPLICATIONS

LEGAL OWNERSHIP	DOCKET #	COUNTRY	MARK	APP # / REG #	FILING / REG DATE	RENEWAL DATE	STATUS
Penobscot Shoe Company	3120-10	Canada	SOFT-WALK SUSPENSION	TMA 451486	12/8/1995	12/8/2010	Registered

B-1

EX-10.6

Exhibit 10.6

PATENT AND TRADEMARK SECURITY AGREEMENT

This Patent and Trademark Security Agreement (the “Agreement”), dated as of June 10, 2008, is made by and between Chambers Belt Company, a Delaware corporation having a business location at the address set forth below next to its signature (the “Debtor”), and Wells Fargo Bank, National Association (“Wells Fargo”), and having a business location at the address set forth below next to its signature.

Recitals

A. Company, certain affiliates of Company, and Wells Fargo are parties to a Credit and Security Agreement (as amended, supplemented or restated from time to time, the “Credit Agreement”) dated the same date as this Agreement, setting forth the terms on which Wells Fargo may now or hereafter extend credit to or for the account of Company.

B. As a condition to extending credit to or for the account of Company, Wells Fargo has required the execution and delivery of this Agreement by Company.

ACCORDINGLY, in consideration of the mutual covenants contained in the Loan Documents and herein, the parties hereby agree as follows:

1. Definitions. All terms defined in the Recitals hereto or in the Credit Agreement that are not otherwise defined herein shall have the meanings given to them in the Credit Agreement. In addition, the following terms have the meanings set forth below:

“Patents” means all of Company’s right, title and interest in and to patents or applications for patents, fees or royalties with respect to each, and including without limitation the right to sue for past infringement and damages therefor, and licenses thereunder, all as presently existing or hereafter arising or acquired, including without limitation the patents listed on Exhibit A.

“Security Interest” has the meaning given in Section 2.

“Trademarks” means all of Company’s right, title and interest in and to: (i) trademarks, service marks, collective membership marks, registrations and applications for registration for each, and the respective goodwill associated with each, (ii) licenses, fees or royalties with respect to each, (iii) the right to sue for past, present and future infringement, dilution and damages therefor, and (iv) licenses thereunder, all as presently existing or hereafter arising or acquired, including, without limitation, the marks listed on Exhibit B.

2. Security Interest. Company hereby irrevocably pledges and assigns to, and grants Wells Fargo a security interest (the “Security Interest”) with power of sale to the extent permitted by law, in the Patents and in the Trademarks to secure payment of the Indebtedness. As set forth in the Credit Agreement, the Security Interest is coupled with a security interest in substantially all of the personal property of Company. This Agreement grants only the Security Interest herein described, is not intended to and does not

affect any present transfer of title of any trademark registration or application and makes no assignment and grants no right to assign or perform any other action with respect to any intent to use trademark application, unless such action is permitted under 15 U.S.C. § 1060.

3. Representations, Warranties and Agreements. Company represents, warrants and agrees as follows:

(a) Existence; Authority. Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and this Agreement has been duly and validly authorized by all necessary corporate action on the part of Company.

(b) Patents. Exhibit A accurately lists all Patents owned or controlled by Company as of the date hereof, or to which Company has a right as of the date hereof to have assigned to it, and accurately reflects the existence and status of applications and letters patent pertaining to the Patents as of the date hereof. If after the date hereof, Company owns, controls or has a right to have assigned to it any Patents not listed on Exhibit A, or if Exhibit A ceases to accurately reflect the existence and status of applications and letters patent pertaining to the Patents, then Company shall within 60 days provide written notice to Wells Fargo with a replacement Exhibit A, which upon acceptance by Wells Fargo shall become part of this Agreement.

(c) Trademarks. Exhibit B accurately lists all Trademarks owned or controlled by Company as of the date hereof and accurately reflects the existence and status of Trademarks and all applications and registrations pertaining thereto as of the date hereof; provided, however, that Exhibit B need not list common law marks (i.e., Trademarks for which there are no applications or registrations) which are not material to Company’s or any Affiliate’s business(es). If after the date hereof, Company owns or controls any Trademarks not listed on Exhibit B (other than common law marks which are not material to Company’s or any Affiliate’s business(es)), or if Exhibit B ceases to accurately reflect the existence and status of applications and registrations pertaining to the Trademarks, then Company shall promptly provide written notice to Wells Fargo with a replacement Exhibit B, which upon acceptance by Wells Fargo shall become part of this Agreement.

(d) Affiliates. As of the date hereof, no Affiliate owns, controls, or has a right to have assigned to it any items that would, if such item were owned by Company, constitute Patents or Trademarks. If after the date hereof any Affiliate owns, controls, or has a right to have assigned to it any such items, then Company shall promptly either: (i) cause such Affiliate to assign all of its rights in such item(s) to Company; or (ii) notify Wells Fargo of such item(s) and cause such Affiliate to execute and deliver to Wells Fargo a patent and trademark security agreement substantially in the form of this Agreement.

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Patent and Trademark Security Agreement

WFBC/Chambers Belt Company

(e) Title. Company has absolute title to each Patent and each Trademark listed on Exhibits A and B, free and clear of all Liens except Permitted Liens. Company (i) will have, at the time Company acquires any rights in Patents or Trademarks hereafter arising, absolute title to each such Patent or Trademark free and clear of all Liens except Permitted Liens, and (ii) will keep all Patents and Trademarks free and clear of all Liens except Permitted Liens.

(f) No Sale. Except as permitted in the Credit Agreement, Company will not assign, transfer, encumber or otherwise dispose of the Patents or Trademarks, or any interest therein, without Wells Fargo’s prior written consent.

(g) Defense. Company will at its own expense and using commercially reasonable efforts, protect and defend the Patents and Trademarks against all claims or demands of all Persons other than those holding Permitted Liens.

(h) Maintenance. Company will at its own expense maintain the Patents and the Trademarks to the extent reasonably advisable in its business including, but not limited to, filing all applications to obtain letters patent or trademark registrations and all affidavits, maintenance fees, annuities, and renewals possible with respect to letters patent, trademark registrations and applications therefor. Company covenants that it will not abandon nor fail to pay any maintenance fee or annuity due and payable on any Patent or Trademark, nor fail to file any required affidavit or renewal in support thereof, without first providing Wells Fargo: (i) sufficient written notice, of at least 30 days, to allow Wells Fargo to timely pay any such maintenance fees or annuities which may become due on any Patents or Trademarks, or to file any affidavit or renewal with respect thereto, and (ii) a separate written power of attorney or other authorization to pay such maintenance fees or annuities, or to file such affidavit or renewal, should such be necessary or desirable.

(i) Wells Fargo’s Right to Take Action. If Company fails to perform or observe any of its covenants or agreements set forth in this Section 3, and if such failure continues for a period of ten (10) calendar days after Wells Fargo gives Company written notice thereof (or, in the case of the agreements contained in subsection (h), immediately upon the occurrence of such failure, without notice or lapse of time), or if Company notifies Wells Fargo that it intends to abandon a Patent or Trademark, Wells Fargo may (but need not) perform or observe such covenant or agreement or take steps to prevent such intended abandonment on behalf and in the name, place and stead of Company (or, at Wells Fargo’s option, in Wells Fargo’s own name) and may (but need not) take any and all other actions which Wells Fargo may reasonably deem necessary to cure or correct such failure or prevent such intended abandonment.

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Patent and Trademark Security Agreement

WFBC/Chambers Belt Company

(j) Costs and Expenses. Except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Company shall pay Wells Fargo on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Wells Fargo in connection with or as a result of Wells Fargo’s taking action under subsection (i) or exercising its rights under Section 6, together with interest thereon from the date expended or incurred by Wells Fargo at the Default Rate.

(k) Power of Attorney. To facilitate Wells Fargo’s taking action under subsection (i) and exercising its rights under Section 6, Company hereby irrevocably appoints (which appointment is coupled with an interest) Wells Fargo, or its delegate, as the attorney-in-fact of Company with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Company, any and all instruments, documents, applications, financing statements, and other agreements and writings required to be obtained, executed, delivered or endorsed by Company under this Section 3, or, necessary for Wells Fargo, after an Event of Default and at any time thereafter during the Default Period commenced thereby, to enforce or use the Patents or Trademarks or to grant or issue any exclusive or non-exclusive license under the Patents or Trademarks to any third party, or to sell, assign, transfer, pledge, encumber or otherwise transfer title in or dispose of the Patents or Trademarks to any third party. Company hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted herein shall terminate upon the termination of the Credit Agreement as provided therein and the payment and performance of all Indebtedness.

4. Debtor’s Use of the Patents and Trademarks. Company shall be permitted to control and manage the Patents and Trademarks, including the right to exclude others from making, using or selling items covered by the Patents and Trademarks and any licenses thereunder, in the same manner and with the same effect as if this Agreement had not been entered into, so long as no Event of Default occurs and remains uncured or unwaived by Wells Fargo.

5. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called “Event of Default”): (a) an Event of Default, as defined in the Credit Agreement, shall occur; or (b) Company shall fail promptly to observe or perform any covenant or agreement herein binding on it; or (c) any of the representations or warranties contained in Section 3 shall prove to have been incorrect in any material respect when made.

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Patent and Trademark Security Agreement

WFBC/Chambers Belt Company

6. Remedies. Upon the occurrence of an Event of Default and at any time thereafter during the Default Period commenced thereby, Wells Fargo may, at its option, take any or all of the following actions:

(a) Wells Fargo may exercise any or all remedies available under the Credit Agreement.

(b) Wells Fargo may sell, assign, transfer, pledge, encumber or otherwise dispose of the Patents and Trademarks.

(c) Wells Fargo may enforce the Patents and Trademarks and any licenses thereunder, and if Wells Fargo shall commence any suit for such enforcement, Company shall, at the request of Wells Fargo, do any and all lawful acts and execute any and all proper documents required by Wells Fargo in aid of such enforcement.

7. Miscellaneous. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by Wells Fargo. A waiver signed by Wells Fargo shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Wells Fargo’s rights or remedies. All rights and remedies of Wells Fargo shall be cumulative and may be exercised singularly or concurrently, at Wells Fargo’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to Debtor under this Agreement shall be given in the manner and with the effect provided in the Credit Agreement. Wells Fargo shall not be obligated to preserve any rights Company may have against prior parties, to realize on the Patents and Trademarks at all or in any particular manner or order, or to apply any cash proceeds of Patents and Trademarks in any particular order of application. This Agreement shall be binding upon and inure to the benefit of Company and Wells Fargo and their respective participants, successors and assigns and shall take effect when signed by Company and delivered to Wells Fargo, and Company waives notice of Wells Fargo’s acceptance hereof. Wells Fargo may execute this Agreement if appropriate for the purpose of filing, but the failure of Wells Fargo to execute this Agreement shall not affect or impair the validity or effectiveness of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement signed by Company shall have the same force and effect as the original for all purposes of a financing statement. This Agreement shall be governed by the internal law of State of California without regard to conflicts of law provisions. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Indebtedness.

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Patent and Trademark Security Agreement

WFBC/Chambers Belt Company

8. Arbitration.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party (if not otherwise restricted by the terms and conditions of this Agreement) to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or

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Patent and Trademark Security Agreement

WFBC/Chambers Belt Company

federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not

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Patent and Trademark Security Agreement

WFBC/Chambers Belt Company

submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

[signatures continued on next page]

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Patent and Trademark Security Agreement

WFBC/Chambers Belt Company

IN WITNESS WHEREOF, the parties have executed this Patent and Trademark Security Agreement as of the date written above.

	CHAMBERS BELT COMPANY
5840 El Camino Real, Suite 106
Carlsbad, California 92008	By
Fax:	Print Name:
Attention: James Riedman	Title:
Wells Fargo Bank, National Association	WELLS FARGO BANK, NATIONAL ASSOCIATION
245 S. Los Robles Ave., Suite 700
Pasadena, CA 91101	By
Fax: 626.844.9063	Print Name:
Attn: Phoenix Footwear Account Executive	Title:

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200__, by                                     , the President of                                              , a                      corporation, on behalf of the corporation.

Notary Public

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200    , by                                              , a Vice President of Wells Fargo Bank, National Association, on behalf of the national association.

Notary Public

EXHIBIT A

UNITED STATES ISSUED PATENTS

Legal Ownership	Patent Title	Application Number	Date of Filing	Territory
Chambers Belt Company	Extensible belts	60/580,923	6/17/2004	USPTO

FOREIGN ISSUED PATENTS

Title Country Patent Number Issue Date

UNITED STATES PATENT APPLICATIONS

Title Serial Number Filing Date

A-1

EXHIBIT B

TRADEMARKS

Legal Ownership	Mark	Reg/Serial Number	Date of Issuance/ Filing	Territory	Expiration	Status
CHAMBERS BELT COMPANY	CHAMBERS (script)	1550081	8/1/1989	USPTO	7/31/2009
CHAMBERS BELT COMPANY	ABSOLUTELY FRESH	78/395563	5/2/2004	USPTO
CHAMBERS BELT COMPANY	ABSOLUTELY WEST	78/395558	5/2/2004	USPTO
CHAMBERS BELT COMPANY	ABSOLUTELY KIDS	78/395092	4/1/2004	USPTO
CHAMBERS BELT COMPANY	PRESTIGE	COMMON LAW TRADEMARK

B-1

EX-10.7

Exhibit 10.7

PATENT AND TRADEMARK SECURITY AGREEMENT

This Patent and Trademark Security Agreement (the “Agreement”), dated as of June 10, 2008, is made by and between H.S. Trask & Co., a Montana corporation having a business location at the address set forth below next to its signature (the “Debtor”), and Wells Fargo Bank, National Association (“Wells Fargo”), and having a business location at the address set forth below next to its signature.

Recitals

A. Company, certain affiliates of Company, and Wells Fargo are parties to a Credit and Security Agreement (as amended, supplemented or restated from time to time, the “Credit Agreement”) dated the same date as this Agreement, setting forth the terms on which Wells Fargo may now or hereafter extend credit to or for the account of Company.

B. As a condition to extending credit to or for the account of Company, Wells Fargo has required the execution and delivery of this Agreement by Company.

ACCORDINGLY, in consideration of the mutual covenants contained in the Loan Documents and herein, the parties hereby agree as follows:

1. Definitions. All terms defined in the Recitals hereto or in the Credit Agreement that are not otherwise defined herein shall have the meanings given to them in the Credit Agreement. In addition, the following terms have the meanings set forth below:

“Patents” means all of Company’s right, title and interest in and to patents or applications for patents, fees or royalties with respect to each, and including without limitation the right to sue for past infringement and damages therefor, and licenses thereunder, all as presently existing or hereafter arising or acquired, including without limitation the patents listed on Exhibit A.

“Security Interest” has the meaning given in Section 2.

“Trademarks” means all of Company’s right, title and interest in and to: (i) trademarks, service marks, collective membership marks, registrations and applications for registration for each, and the respective goodwill associated with each, (ii) licenses, fees or royalties with respect to each, (iii) the right to sue for past, present and future infringement, dilution and damages therefor, and (iv) licenses thereunder, all as presently existing or hereafter arising or acquired, including, without limitation, the marks listed on Exhibit B.

2. Security Interest. Company hereby irrevocably pledges and assigns to, and grants Wells Fargo a security interest (the “Security Interest”) with power of sale to the extent permitted by law, in the Patents and in the Trademarks to secure payment of the Indebtedness. As set forth in the Credit Agreement, the Security Interest is coupled with a security interest in substantially all of the personal property of Company. This Agreement grants only the Security Interest herein described, is not intended to and does not

affect any present transfer of title of any trademark registration or application and makes no assignment and grants no right to assign or perform any other action with respect to any intent to use trademark application, unless such action is permitted under 15 U.S.C. § 1060.

3. Representations, Warranties and Agreements. Company represents, warrants and agrees as follows:

(a) Existence; Authority. Company is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation, and this Agreement has been duly and validly authorized by all necessary corporate action on the part of Company.

(b) Patents. Exhibit A accurately lists all Patents owned or controlled by Company as of the date hereof, or to which Company has a right as of the date hereof to have assigned to it, and accurately reflects the existence and status of applications and letters patent pertaining to the Patents as of the date hereof. If after the date hereof, Company owns, controls or has a right to have assigned to it any Patents not listed on Exhibit A, or if Exhibit A ceases to accurately reflect the existence and status of applications and letters patent pertaining to the Patents, then Company shall within 60 days provide written notice to Wells Fargo with a replacement Exhibit A, which upon acceptance by Wells Fargo shall become part of this Agreement.

(c) Trademarks. Exhibit B accurately lists all Trademarks owned or controlled by Company as of the date hereof and accurately reflects the existence and status of Trademarks and all applications and registrations pertaining thereto as of the date hereof; provided, however, that Exhibit B need not list common law marks (i.e., Trademarks for which there are no applications or registrations) which are not material to Company’s or any Affiliate’s business(es). If after the date hereof, Company owns or controls any Trademarks not listed on Exhibit B (other than common law marks which are not material to Company’s or any Affiliate’s business(es)), or if Exhibit B ceases to accurately reflect the existence and status of applications and registrations pertaining to the Trademarks, then Company shall promptly provide written notice to Wells Fargo with a replacement Exhibit B, which upon acceptance by Wells Fargo shall become part of this Agreement.

(d) Affiliates. As of the date hereof, no Affiliate owns, controls, or has a right to have assigned to it any items that would, if such item were owned by Company, constitute Patents or Trademarks. If after the date hereof any Affiliate owns, controls, or has a right to have assigned to it any such items, then Company shall promptly either: (i) cause such Affiliate to assign all of its rights in such item(s) to Company; or (ii) notify Wells Fargo of such item(s) and cause such Affiliate to execute and deliver to Wells Fargo a patent and trademark security agreement substantially in the form of this Agreement.

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Patent and Trademark Security Agreement

WFBC/H.S. Trask & Co.

(e) Title. Company has absolute title to each Patent and each Trademark listed on Exhibits A and B, free and clear of all Liens except Permitted Liens. Company (i) will have, at the time Company acquires any rights in Patents or Trademarks hereafter arising, absolute title to each such Patent or Trademark free and clear of all Liens except Permitted Liens, and (ii) will keep all Patents and Trademarks free and clear of all Liens except Permitted Liens.

(f) No Sale. Except as permitted in the Credit Agreement, Company will not assign, transfer, encumber or otherwise dispose of the Patents or Trademarks, or any interest therein, without Wells Fargo’s prior written consent.

(g) Defense. Company will at its own expense and using commercially reasonable efforts, protect and defend the Patents and Trademarks against all claims or demands of all Persons other than those holding Permitted Liens.

(h) Maintenance. Company will at its own expense maintain the Patents and the Trademarks to the extent reasonably advisable in its business including, but not limited to, filing all applications to obtain letters patent or trademark registrations and all affidavits, maintenance fees, annuities, and renewals possible with respect to letters patent, trademark registrations and applications therefor. Company covenants that it will not abandon nor fail to pay any maintenance fee or annuity due and payable on any Patent or Trademark, nor fail to file any required affidavit or renewal in support thereof, without first providing Wells Fargo: (i) sufficient written notice, of at least 30 days, to allow Wells Fargo to timely pay any such maintenance fees or annuities which may become due on any Patents or Trademarks, or to file any affidavit or renewal with respect thereto, and (ii) a separate written power of attorney or other authorization to pay such maintenance fees or annuities, or to file such affidavit or renewal, should such be necessary or desirable.

(i) Wells Fargo’s Right to Take Action. If Company fails to perform or observe any of its covenants or agreements set forth in this Section 3, and if such failure continues for a period of ten (10) calendar days after Wells Fargo gives Company written notice thereof (or, in the case of the agreements contained in subsection (h), immediately upon the occurrence of such failure, without notice or lapse of time), or if Company notifies Wells Fargo that it intends to abandon a Patent or Trademark, Wells Fargo may (but need not) perform or observe such covenant or agreement or take steps to prevent such intended abandonment on behalf and in the name, place and stead of Company (or, at Wells Fargo’s option, in Wells Fargo’s own name) and may (but need not) take any and all other actions which Wells Fargo may reasonably deem necessary to cure or correct such failure or prevent such intended abandonment.

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WFBC/H.S. Trask & Co.

(j) Costs and Expenses. Except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, Company shall pay Wells Fargo on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Wells Fargo in connection with or as a result of Wells Fargo’s taking action under subsection (i) or exercising its rights under Section 6, together with interest thereon from the date expended or incurred by Wells Fargo at the Default Rate.

(k) Power of Attorney. To facilitate Wells Fargo’s taking action under subsection (i) and exercising its rights under Section 6, Company hereby irrevocably appoints (which appointment is coupled with an interest) Wells Fargo, or its delegate, as the attorney-in-fact of Company with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Company, any and all instruments, documents, applications, financing statements, and other agreements and writings required to be obtained, executed, delivered or endorsed by Company under this Section 3, or, necessary for Wells Fargo, after an Event of Default and at any time thereafter during the Default Period commenced thereby, to enforce or use the Patents or Trademarks or to grant or issue any exclusive or non-exclusive license under the Patents or Trademarks to any third party, or to sell, assign, transfer, pledge, encumber or otherwise transfer title in or dispose of the Patents or Trademarks to any third party. Company hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted herein shall terminate upon the termination of the Credit Agreement as provided therein and the payment and performance of all Indebtedness.

4. Debtor’s Use of the Patents and Trademarks. Company shall be permitted to control and manage the Patents and Trademarks, including the right to exclude others from making, using or selling items covered by the Patents and Trademarks and any licenses thereunder, in the same manner and with the same effect as if this Agreement had not been entered into, so long as no Event of Default occurs and remains uncured or unwavied by Wells Fargo.

5. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called “Event of Default”): (a) an Event of Default, as defined in the Credit Agreement, shall occur; or (b) Company shall fail promptly to observe or perform any covenant or agreement herein binding on it; or (c) any of the representations or warranties contained in Section 3 shall prove to have been incorrect in any material respect when made.

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Patent and Trademark Security Agreement

WFBC/H.S. Trask & Co.

6. Remedies. Upon the occurrence of an Event of Default and at any time thereafter during the Default Period commenced thereby, Wells Fargo may, at its option, take any or all of the following actions:

(a) Wells Fargo may exercise any or all remedies available under the Credit Agreement.

(b) Wells Fargo may sell, assign, transfer, pledge, encumber or otherwise dispose of the Patents and Trademarks.

(c) Wells Fargo may enforce the Patents and Trademarks and any licenses thereunder, and if Wells Fargo shall commence any suit for such enforcement, Company shall, at the request of Wells Fargo, do any and all lawful acts and execute any and all proper documents required by Wells Fargo in aid of such enforcement.

7. Miscellaneous. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by Wells Fargo. A waiver signed by Wells Fargo shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Wells Fargo’s rights or remedies. All rights and remedies of Wells Fargo shall be cumulative and may be exercised singularly or concurrently, at Wells Fargo’s option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. All notices to be given to Debtor under this Agreement shall be given in the manner and with the effect provided in the Credit Agreement. Wells Fargo shall not be obligated to preserve any rights Company may have against prior parties, to realize on the Patents and Trademarks at all or in any particular manner or order, or to apply any cash proceeds of Patents and Trademarks in any particular order of application. This Agreement shall be binding upon and inure to the benefit of Company and Wells Fargo and their respective participants, successors and assigns and shall take effect when signed by Company and delivered to Wells Fargo, and Company waives notice of Wells Fargo’s acceptance hereof. Wells Fargo may execute this Agreement if appropriate for the purpose of filing, but the failure of Wells Fargo to execute this Agreement shall not affect or impair the validity or effectiveness of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement signed by Company shall have the same force and effect as the original for all purposes of a financing statement. This Agreement shall be governed by the internal law of State of California without regard to conflicts of law provisions. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Indebtedness.

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Patent and Trademark Security Agreement

WFBC/H.S. Trask & Co.

8. Arbitration.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party (if not otherwise restricted by the terms and conditions of this Agreement) to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver, before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or

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Patent and Trademark Security Agreement

WFBC/H.S. Trask & Co.

federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not

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Patent and Trademark Security Agreement

WFBC/H.S. Trask & Co.

submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

[signatures continued on next page]

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Patent and Trademark Security Agreement

WFBC/H.S. Trask & Co.

IN WITNESS WHEREOF, the parties have executed this Patent and Trademark Security Agreement as of the date written above.

	H.S. TRASK & CO.
5840 El Camino Real, Suite 106
Carlsbad, California 92008	By
Fax:	Print Name:
Attention: James Riedman	Title:
Wells Fargo Bank, National Association	WELLS FARGO BANK, NATIONAL ASSOCIATION
245 S. Los Robles Ave., Suite 700
Pasadena, CA 91101	By
Fax: 626.844.9063	Print Name:
Attn: Phoenix Footwear Account Executive	Title:

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200__, by                             , the President of                                              , a                      corporation, on behalf of the corporation.

Notary Public

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200    , by                                     , a Vice President of Wells Fargo Bank, National Association, on behalf of the national association.

Notary Public

EXHIBIT A

Patents and Patent Applications

None

A-1

EXHIBIT B

Trademarks and Trademark Applications

LEGAL OWNERSHIP	DOCKET #	COUNTRY	MARK	APP # / REG #	FILING / REG DATE	RENEWAL DATE	STATUS
H.S. Trask and Co.	3120-97	Brazil	H.S. TRASK & Design	818300108	7/19/2005	7/18/2015	Registered
H.S. Trask and Co.	3120-71	Canada	H.S. TRASK & Design	TMA 517003	9/24/1999	9/24/2014	Registered
H.S. Trask and Co.	3120-98	China	H.S. TRASK & Design	909.199	12/7/1996	12/6/2016	Registered
H.S. Trask and Co.	3120-99	Hong Kong	H.S. TRASK & Design	1969/1998	1/9/1995	1/9/2016	Registered

B-1

EX-10.8

Exhibit 10.8

COPYRIGHT SECURITY AGREEMENT

This Copyright Security Agreement (the “Agreement”) dated as of June 10, 2008, is made by and between Chambers Belt Company, a Delaware corporation having a business location at the address set forth below next to its signature (the “Company”), and Wells Fargo Bank, National Association (“Wells Fargo”), and having a business location at the address set forth below next to its signature.

Recitals

A. The Company is the owner of all of the copyrighted works, registrations, and applications for registration described in Schedule A hereto.

B. The Company, certain affiliates of the Company, and Wells Fargo are parties to a Credit and Security Agreement (as amended, supplemented or restated from time to time, the “Credit Agreement”) dated the same date as this Agreement.

C. As a condition to extending credit under the Credit Agreement, Wells Fargo has required that the Company execute this Agreement to evidence the security interest granted to Wells Fargo in any copyrights or copyright applications not expressly covered by other security agreements.

ACCORDINGLY, in consideration of the agreements of Wells Fargo set forth in the Credit Agreement, the Company hereby agrees as follows:

1. Definitions. Terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings given them in the Credit Agreement. In addition, the following terms have the meanings set forth below:

“Copyrights” means all of the Company’s right, title and interest in and to all copyrightable works and all copyrights of the Company and licenses thereunder, whether presently existing or hereafter arising, including but not limited to the registered copyrights, applications to register copyrights, and unregistered works (if any) listed on Schedule A.

“Event of Default” means (i) an Event of Default, as defined in the Credit Agreement or any other credit agreement or security agreement now in existence or hereafter entered into by the Company, or (ii) any breach by the Company of any of its obligations under this Agreement.

2. Security Interest. In order to secure the Indebtedness, the Company hereby confirms and acknowledges that it has granted and created (and, to the extent not previously granted under the Credit Agreement, does hereby irrevocably grant and create) a security interest, with power of sale to the extent permitted by law, in the Copyrights. This security interest is in any and all rights of Company that may exist or hereafter arise under any copyright law now or hereinafter in effect in the United States of America or in any other country.

3. Representations and Warranties. The Company represents and warrants that (a) the Company owns each of the works and rights listed in Schedule A, free and clear of any Lien other than Permitted Liens, and (b) the Copyrights listed in Schedule A include all copyrightable works owned or controlled by the Company as of the effective date hereof, excluding immaterial copyrights.

4. Satisfaction. Upon full payment or satisfaction of the Indebtedness and termination of any credit facilities extended to the Company by Wells Fargo, this Agreement, and the rights granted hereunder to Wells Fargo, shall be terminated upon demand by a written termination statement to the effect that Wells Fargo no longer claims a security interest under this Agreement.

5. Administration of Copyrights. Prior to the occurrence of an Event of Default, the Company may control and manage the Copyrights, including the right to make and distribute copies of the works covered thereby, and may receive and use the income, revenue, profits, and royalties that arise from the use of the Copyrights and any licenses thereunder, in the same manner and to the same extent as if this Agreement had not been entered into. The Company shall give Wells Fargo prompt notice of any change in the status of said Copyrights or the Company’s rights thereunder.

6. Protection of Copyrights. The Company covenants that it will at its own expense protect, defend and maintain the Copyrights to the extent reasonably advisable in its business, and if the Company fails to do so, Wells Fargo may (but shall have no obligation to) do so in the Company’s name or in Wells Fargo’s name, but at the Company’s expense, and the Company shall reimburse Wells Fargo in full for all expenses, including reasonable attorney’s fees incurred by Wells Fargo in protecting, defending and maintaining the Copyrights. The Company further covenants that it will give notice to Wells Fargo sufficient to allow Wells Fargo to timely carry out the provisions of this paragraph.

7. Remedies. Upon the occurrence of an Event of Default and at any time during the Default Period commenced thereby, Wells Fargo may, at its option, exercise any one or more of the following remedies: (a) exercise all rights and remedies available under the UCC, or under any applicable law; (b) sell, assign, transfer, pledge, encumber or otherwise dispose of any Copyright; (c) enforce any Copyright, and any licenses thereunder; and (d) exercise or enforce any or all other rights or remedies available to Wells Fargo by law or agreement against the Copyrights, against the Company or against any other person or property. Upon the exercise of any remedy by Wells Fargo hereunder, the Company shall be deemed to have waived all of its rights provided in 17 U.S.C. § 106A or any other “moral rights of authors.” If Wells Fargo shall exercise any remedy under this Agreement, the Company shall, at the request of Wells Fargo, do any and all lawful acts and execute any and all proper documents required by Wells Fargo in aid of thereof. For the purposes of this paragraph, the Company appoints Wells Fargo as its attorney with the right, but not the duty, at any time after the occurrence of an Event of Default and continuing during the Default Period commenced thereby, to endorse such Company’s name

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WFBC/Chambers Belt Company

on all applications, documents, papers and instruments necessary for Wells Fargo to (i) act in its own name or enforce or use the Copyrights, (ii) grant or issue any exclusive or non-exclusive licenses under the Copyrights to any third party, and/or (iii) sell, assign, transfer, pledge, encumber or otherwise transfer title in or dispose of any Copyright. The Company hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable until satisfaction of this Agreement in accordance with paragraph 4. The Company shall reimburse Wells Fargo for all reasonable attorney’s fees and expenses of all types incurred by Wells Fargo, or its counsel, in connection with the exercise of the rights of Wells Fargo under this Agreement, together with interest thereon from the date or dates the same were incurred at the Default Rate.

8. Arbitration.

(a) Arbitration. The parties hereto agree, upon demand by any party, to submit to binding arbitration all claims, disputes and controversies between or among them (and their respective employees, officers, directors, attorneys, and other agents), whether in tort, contract or otherwise arising out of or relating to in any way this Agreement and its negotiation, execution, collateralization, administration, repayment, modification, extension, substitution, formation, inducement, enforcement, default or termination.

(b) Governing Rules. Any arbitration proceeding will (i) proceed in a location in California selected by the American Arbitration Association (“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the documents between the parties; and (iii) be conducted by the AAA, or such other administrator as the parties shall mutually agree upon, in accordance with the AAA’s commercial dispute resolution procedures, unless the claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and costs in which case the arbitration shall be conducted in accordance with the AAA’s optional procedures for large, complex commercial disputes (the commercial dispute resolution procedures or the optional procedures for large, complex commercial disputes to be referred to, as applicable, as the “Rules”). If there is any inconsistency between the terms hereof and the Rules, the terms and procedures set forth herein shall control. Any party who fails or refuses to submit to arbitration following a demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any dispute. Nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. §91 or any similar applicable state law.

(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The arbitration requirement does not limit the right of any party (if not otherwise restricted by the terms and conditions of this Agreement) to (i) foreclose against real or personal property collateral; (ii) exercise self-help remedies relating to collateral or proceeds of collateral such as setoff or repossession; or (iii) obtain provisional or ancillary remedies such as replevin, injunctive relief, attachment or the appointment of a receiver,

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Copyright Security Agreement

WFBC/Chambers Belt Company

before during or after the pendency of any arbitration proceeding. This exclusion does not constitute a waiver of the right or obligation of any party to submit any dispute to arbitration or reference hereunder, including those arising from the exercise of the actions detailed in sections (i), (ii) and (iii) of this paragraph.

(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in which the amount in controversy is $5,000,000.00 or less will be decided by a single arbitrator selected according to the Rules, and who shall not render an award of greater than $5,000,000.00. Any dispute in which the amount in controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel of three arbitrators; provided however, that all three arbitrators must actively participate in all hearings and deliberations. The arbitrator will be a neutral attorney licensed in the State of California or a neutral retired judge of the state or federal judiciary of California, in either case with a minimum of ten years experience in the substantive law applicable to the subject matter of the dispute to be arbitrated. The arbitrator will determine whether or not an issue is arbitratable and will give effect to the statutes of limitation in determining any claim. In any arbitration proceeding the arbitrator will decide (by documents only or with a hearing at the arbitrator’s discretion) any pre-hearing motions which are similar to motions to dismiss for failure to state a claim or motions for summary adjudication. The arbitrator shall resolve all disputes in accordance with the substantive law of California and may grant any remedy or relief that a court of such state could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award. The arbitrator shall also have the power to award recovery of all costs and fees, to impose sanctions and to take such other action as the arbitrator deems necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. The institution and maintenance of an action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of any party, including the plaintiff, to submit the controversy or claim to arbitration if any other party contests such action for judicial relief.

(e) Discovery. In any arbitration proceeding discovery will be permitted in accordance with the Rules. All discovery shall be expressly limited to matters directly relevant to the dispute being arbitrated and must be completed no later than 20 days before the hearing date and within 180 days of the filing of the dispute with the AAA. Any requests for an extension of the discovery periods, or any discovery disputes, will be subject to final determination by the arbitrator upon a showing that the request for discovery is essential for the party’s presentation and that no alternative means for obtaining information is available.

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Copyright Security Agreement

WFBC/Chambers Belt Company

(f) Class Proceedings and Consolidations. The resolution of any dispute arising pursuant to the terms of this Agreement shall be determined by a separate arbitration proceeding and such dispute shall not be consolidated with other disputes or included in any class proceeding.

(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award all costs and expenses of the arbitration proceeding.

(h) Real Property Collateral; Judicial Reference. Notwithstanding anything herein to the contrary, no dispute shall be submitted to arbitration if the dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such dispute is not submitted to arbitration, the dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA’s selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645.

(i) Miscellaneous. To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business or by applicable law or regulation. If more than one agreement for arbitration by or between the parties potentially applies to a dispute, the arbitration provision most directly related to the Loan Documents or the subject matter of the dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Loan Documents or any relationship between the parties.

9. General Rights and Obligations. Except as expressly set forth herein, the rights and obligations of the Company and Wells Fargo with respect to the Copyrights shall in all respects be governed by the Credit Agreement, the terms of which are incorporated as fully as if set forth at length herein.

[signatures continued on next page]

-5-

Copyright Security Agreement

WFBC/Chambers Belt Company

IN WITNESS WHEREOF, the parties have executed this Copyright Security Agreement as of the date written above.

	CHAMBERS BELT COMPANY
5840 El Camino Real, Suite 106
Carlsbad, California 92008	By
Fax:	Print Name:
Attention: James Riedman	Title:
Wells Fargo Bank, National Association	WELLS FARGO BANK, NATIONAL ASSOCIATION
245 S. Los Robles Ave., Suite 700
Pasadena, CA 91101	By
Fax: 626.844.9063
Attn: Phoenix Footwear Account Executive		Its Vice President

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200__, by                             , the President of                                                  , a                              corporation, on behalf of the corporation.

Notary Public

STATE OF ________________	)
	)
COUNTY OF ______________	)

The foregoing instrument was acknowledged before me this          day of             , 200    , by                                              , a Vice President of Wells Fargo Bank, National Association, on behalf of the national association.

Notary Public

S-1

Copyright Security Agreement

WFBC/Chambers Belt Company

(Phoenix Footwear)

Schedule A

Legal Ownership	Copyright Title	Reg/Appl Number	Territory	Registration Date	Creation/ Publication Date
Chambers Belt Company	[Concho] : no. BSL45-TRI	VA-648-041	US LOC	1/18/1994	4/30/1993
Chambers Belt Company	[Trophy buckle] : no. TRO76-NFL.	VA-648-042	US LOC	1/18/1994	9/2/1993
Chambers Belt Company	[Concho] : no. BSL45-BNE.	VA-648-043	US LOC	1/18/1994	4/30/1993
Chambers Belt Company	[Bola slide] : no. BT042-SIL.	VA-648-044	US LOC	1/18/1994	4/30/1993
Chambers Belt Company	[Buckle, loop & tip] : no. TR018-SIL.	VA-648-045	US LOC	1/18/1994	8/1/1993
Chambers Belt Company	[Sandbar1 concho]	VA-648-046	US LOC	1/18/1994	1/1/1991
Chambers Belt Company	[Concho] : no. BSL45-DMD.	VA-648-047	US LOC	1/18/1994	4/30/1993
Chambers Belt Company	[Buckle] : no. TR025-SRTP.	VA-648-048	US LOC	1/18/1994	7/1/1993
Chambers Belt Company	[Concho] : no. BSL17-IVAN.	VAu-297-443	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle, loop & tip : no. TR085-SIL.	VAu-297-444	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle, loop & tip : no. TR084-SIL.	VAu-297-445	US LOC	1/18/1994	1993
Chambers Belt Company	Concho : no. BSL45-LGR.	VAu-297-446	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle, loop & tip : no. TR086-SIL.	VAu-297-447	US LOC	1/18/1994	1993
Chambers Belt Company	Concho : no. BSL45-OVL.	VAu-297-448	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle, loop & tip : no. TR077-LIZ.	VAu-297-449	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle, loop & tip : no. TR077-HHD.	VAu-297-450	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle, loop & tip : no. TR045-SRTP.	VAu-297-451	US LOC	1/18/1994	1993
Chambers Belt Company	Bola slide : no. BT055-SIL.	VAu-297-452	US LOC	1/18/1994	1993

A-1

Copyright Security Agreement

WFBC/Chambers Belt Company

(Phoenix Footwear)

Legal Ownership	Copyright Title	Reg/Appl Number	Territory	Registration Date	Creation/ Publication Date
Chambers Belt Company	Buckle : no. TR044-SRTP.	VAu-297-453	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle : no. BSLOVL-SRTP.	VAu-297-454	US LOC	1/18/1994	1993
Chambers Belt Company	Concho : no. BSL20-ROPE.	VAu-297-455	US LOC	1/18/1994	1993
Chambers Belt Company	Concho : no. BSLFLR-IVAN.	VAu-297-456	US LOC	1/18/1994	1993
Chambers Belt Company	Buckle, loop & tip : no. TR036-SRTP.	VAu-297-457	US LOC	1/18/1994	1993
Chambers Belt Company	Concho : no. BSLSCL-IVAN.	VAu-297-458	US LOC	1/18/1994	1993
Chambers Belt Company	BSLLG-SRTP buckle.	VAu-307-529	US LOC	1/18/1994	1993

A-2

Copyright Security Agreement

WFBC/Chambers Belt Company

(Phoenix Footwear)

EX-10.9

Exhibit 10.9

STANDBY LETTER OF CREDIT AGREEMENT

To: WELLS FARGO BANK, NATIONAL ASSOCIATION

Applicant hereby requests that you, Wells Fargo Bank, National Association (“Wells Fargo”), issue in your name one or more standby letters of credit pursuant to Applications for the issuance of such Credits and the terms and conditions of this Agreement. Each Credit will be issued at Applicant’s request and for its account, and, unless otherwise specifically provided in any Loan Document, at your option. Applicant agrees that the terms and conditions in this Agreement shall apply to each Application and the Credit issued pursuant to each Application, and to transactions under each Application, each Credit and this Agreement.

SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth after each term: “Agreement” means this Standby Letter of Credit Agreement as it may be revised or amended from time to time. “Applicant” means collectively each person and/or entity signing this Agreement as Applicant. “Application” means your printed form titled “Application For Standby Letter of Credit” or any other form acceptable to you on which Applicant applies for the issuance by you of a Credit and/or an application for amendment of a Credit or any combination of such applications, as the context may require. “Beneficiary” means the person or entity named on an Application as the beneficiary or any transferee of such beneficiary. “Collateral” means the Property, together with the proceeds of such Property, securing any or all of Applicant’s obligations and liabilities at any time existing under or in connection with any L/C Document and/or any Loan Document. “Commission Fee” means the fee, computed at the commission fee rate specified by you or specified in any Loan Document, charged by you at the time or times specified by you on the amount of each Credit and on the amount of each increase in a Credit for the time period each Credit is outstanding. “Credit” means an instrument or document titled “Irrevocable Standby Letter of Credit” or “Standby Letter of Credit”, or any instrument or document whatever it is titled or whether or not it is titled functioning as a standby letter of credit, issued under or pursuant to an Application, and all renewals, extensions and amendments of such instrument or document. “Demand” means any sight draft, electronic or telegraphic transmission or other written demand drawn or made, or purported to be drawn or made, under or in connection with any Credit. “Document” means any instrument, statement, certificate or other document referred to in or related to any Credit or required by any Credit to be presented with any Demand. “Dollars” means the lawful currency at any time for the payment of public or private debts in the United States of America. “Event of Default” means any of the events set forth in Section 13 of this Agreement. “Expiration Date” means the date any Credit expires. “Guarantor” means any person or entity guaranteeing the payment and/or performance of any or all of Applicant’s obligations under or in connection with any L/C Document and/or any Loan Document. “Holding Company” means any company or other entity directly or indirectly controlling you. “L/C Document” means this Agreement, each Application, each Credit, and each Demand. “Loan Document” means each and any promissory note, loan agreement, security agreement, pledge agreement, guarantee or other agreement or document executed in connection with, or relating to, any extension of credit under which any Credit is issued. “Maximum Rate” means the maximum amount of interest (as defined by applicable laws), if any, permitted to be paid, taken, reserved, received, collected or charged under applicable laws, as the same may be amended or modified from time to time. “Negotiation Fee” means the fee, computed at the negotiation fee rate specified by you or specified in any Loan Document, charged by you on the amount of each Demand paid by you or any other bank specified by you when each Demand is paid. “Payment Office” means the office specified by you or specified in any Loan Document as the office where reimbursements and other payments under or in connection with any L/C Document are to be made by Applicant. “Prime Rate” means the rate of interest most recently announced within Wells Fargo at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Wells Fargo’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. “Property” means all forms of property, whether tangible or intangible, real, personal or mixed. “Rate of Exchange” means Wells Fargo’s then current selling rate of exchange in San Francisco, California for sales of the currency of payment of any Demand, or of any fees or expenses or other amounts payable under this Agreement, for cable transfer to the country of which such currency is the legal tender. “UCP” means the Uniform Customs and Practice for Documentary Credits, an International Chamber of Commerce publication, or any substitution therefor or replacement thereof. “Unpaid and Undrawn Balance” means at any time the entire amount which has not been paid by you under all the Credits issued for Applicant’s account, including, without limitation, the amount of each Demand on which you have not yet effected payment as well as the amount undrawn under all such Credits. “Wells Fargo & Company” means Wells Fargo & Company, a Delaware corporation.

SECTION 2. HONORING DEMANDS AND DOCUMENTS. You may receive, accept and honor, as complying with the terms of any Credit, any Demand and any Documents accompanying such Demand; provided, however, that such Demand and accompanying Documents appear on their face to comply substantially with the provisions of such Credit and are, or appear on their face to be, signed or issued by (a) a person or entity authorized under such Credit to draw, sign or issue such Demand and accompanying Documents, or (b) an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver or other legal representative or successor in interest by operation of law of any such person or entity.

SECTION 3. REIMBURSEMENT FOR PAYMENT OF DEMANDS. Applicant shall reimburse you for all amounts paid by you on each Demand, including, without limitation, all such amounts paid by you to any paying, negotiating or other bank. If in connection with the issuance of any Credit, you agree to pay any other bank the amount of any payment or negotiation made by such other bank under such Credit upon your receipt of a cable, telex or other written telecommunication advising you of such payment or negotiation, or authorize any other bank to debit your account for the amount of such payment or negotiation, Applicant agrees to reimburse you for all such amounts paid by you, or debited to your account with such other bank, even if any Demand or Document specified in such Credit fails to arrive in whole or in part or if, upon the arrival of any such Demand or Document, the terms of such Credit have not been complied with or such Demand or Document does not conform to the requirements of such Credit or is not otherwise in order.

SECTION 4. FEES AND EXPENSES. Applicant agrees to pay to you (a) all Commission Fees, Negotiation Fees, cable fees, amendment fees, non-usance fees, and cancellation fees of, and all out-of-pocket expenses incurred by, you under or in connection with any L/C Document, and (b) all fees and charges of banks or other entities other than you under or in connection with any L/C Document if any Application (i) does not indicate who will pay such fees and charges, (ii) indicates that such fees and charges are to be paid by Applicant, or (iii) indicates that such fees and charges are to be paid by the Beneficiary and the Beneficiary does not, for any reason whatsoever, pay such fees or charges. There shall be no refund of any portion of any Commission Fee in the event any Credit is used, reduced, amended, modified or terminated before its Expiration Date.

SECTION 5. DEFAULT INTEREST. Unless otherwise specified in any Loan Document, or on an Application and agreed to by you, all amounts to be reimbursed by Applicant to you, and all fees and expenses to be paid by Applicant to you, and all other amounts due from Applicant to you under or in connection with any L/C Documents, will bear interest (to the extent permitted by law), payable on demand, from the date you paid the amounts to be reimbursed or the date such fees, expenses and other amounts were due until such amounts are paid in full, at a rate per annum (computed on the basis of a 360-day year, actual days elapsed) which is the lesser of (a) two percent (2%) above the Prime Rate in effect from time to time, or (b) the Maximum Rate.

SECTION 6. TIME AND METHOD OF REIMBURSEMENT AND PAYMENT. Unless otherwise specified in this Section, in any Loan Document, or on an Application and agreed to by you, all amounts to be reimbursed by Applicant to you, all fees and expenses to be paid by Applicant to you, and all interest and other amounts due to you from Applicant under or in connection with any L/C Documents will be reimbursed or paid at the Payment Office in Dollars in immediately available funds without setoff or counterclaim (i) on demand or, (ii) at your option by your debiting any of Applicant’s accounts with you, with each such debit being made without presentment, protest, demand for reimbursement or payment, notice of dishonor or any other notice whatsoever, all of which are hereby expressly waived by Applicant. Each such debit will be made at the time each Demand is paid by you or, if earlier, at the time each amount is paid by you to any paying, negotiating or other bank, or at the time each fee and expense is to be paid or any interest or other amount is due under or in connection with any L/C Documents. If any Demand or any fee, expense, interest or other amount payable under or in connection with any L/C Documents is payable in a currency other than Dollars, Applicant agrees to reimburse you for all amounts paid by you on such Demand, and/or to pay you all such fees, expenses, interest and other amounts, in one of the three following ways, as determined by you in your sole discretion in each case: (a) at such place as you shall direct, in

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such other currency; or (b) at the Payment Office in the Dollar equivalent of the amount of such other currency calculated at the Rate of Exchange on the date determined by you in your sole discretion; or (c) at the Payment Office in the Dollar equivalent, as determined by you (which determination shall be deemed correct absent manifest error), of such fees, expenses, interest or other amounts or of the actual cost to you of paying such Demand. Applicant assumes all political, economic and other risks of disruptions or interruptions in any currency exchange.

SECTION 7. AGREEMENTS OF APPLICANT. Applicant agrees that (a) unless otherwise specifically provided in any Loan Document, you shall not be obligated at any time to issue any Credit for Applicant’s account; (b) unless otherwise specifically provided in any Loan Document, if any Credit is issued by you for Applicant’s account, you shall not be obligated to issue any further Credit for Applicant’s account or to make other extensions of credit to Applicant or in any other manner to extend any financial consideration to Applicant; (c) you have not given Applicant any legal or other advice with regard to any L/C Document or Loan Document; (d) if you at any time discuss with Applicant the wording for any Credit, any such discussion will not constitute legal or other advice by you or any representation or warranty by you that any wording or Credit will satisfy Applicant’s needs; (e) Applicant is responsible for the wording of each Credit, including, without limitation, any drawing conditions, and will not rely on you in any way in connection with the wording of any Credit or the structuring of any transaction related to any Credit; (f) Applicant, and not you, is responsible for entering into the contracts relating to the Credits between Applicant and the Beneficiaries and for causing Credits to be issued; (g) you may, as you deem appropriate, modify or alter and use in any Credit the terminology contained on the Application for such Credit; (h) unless the Application for a Credit specifies whether the Documents to be presented with a Demand under such Credit must be sent to you in one parcel or in two parcels or may be sent to you in any number of parcels, you may, if you so desire, make such determination and specify in the Credit whether such Documents must be sent in one parcel or two parcels or may be sent in any number of parcels; (i) you shall not be deemed Applicant’s agent or the agent of any Beneficiary or any other user of any Credit, and neither Applicant, nor any Beneficiary nor any other user of any Credit shall be deemed your agent; (j) Applicant will promptly examine all Documents and each Credit if and when they are delivered to Applicant and, in the event of any claim of noncompliance of any Documents or any Credit with Applicant’s instructions or any Application, or in the event of any other irregularity, Applicant will promptly notify you in writing of such noncompliance or irregularity, Applicant being conclusively deemed to have waived any such claim of noncompliance or irregularity unless such notice is promptly given; (k) all directions and correspondence relating to any L/C Document are to be sent at Applicant’s risk; (l) if any Credit has a provision concerning the automatic extension of its Expiration Date, you may, at your sole option, give notice of nonrenewal of such Credit and if Applicant does not at any time want such Credit to be renewed Applicant will so notify you at least fifteen (15) calendar days before you are to notify the Beneficiary of such Credit or any advising bank of such nonrenewal pursuant to the terms of such Credit; (m) Applicant will not seek to obtain, apply for, or acquiesce in any temporary or permanent restraining order, preliminary or permanent injunction, permanent injunction or any other pretrial or permanent injunctive or similar relief, restraining, prohibiting or enjoining you, any of your correspondents or any advising, confirming, negotiating, paying or other bank from paying or negotiating any Demand or honoring any other obligation under or in connection with any Credit; and (n) except for Applicant’s obligations specifically affected by those actions or failures to act referred to in subsections (ii) and (vii) of this Section 7(n) which you have performed or approved or accepted, Applicant’s obligations under or in connection with each L/C Document and Loan Document shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of each such L/C Document and Loan Document under all circumstances whatsoever, including, without limitation, the following circumstances, the circumstances listed in Section 12(b) through (u) of this Agreement, and any other event or circumstance similar to such circumstances: (i) any lack of validity or enforceability of any L/C Document, any Loan Document, any Document or any agreement relating to any of the foregoing; (ii) any amendment of or waiver relating to, or any consent to or departure from, any L/C Document, any Loan Document or any Document; (iii) any release or substitution at any time of any Property held as Collateral; (iv) your failure to deliver to Applicant any Document you have received with a drawing under a Credit because doing so would, or is likely to, violate any law, rule or regulation of any government authority; (v) the existence of any claim, set-off, defense or other right which Applicant may have at any time against you or any Beneficiary (or any person or entity for whom any Beneficiary may be acting) or any other person or entity, whether under or in connection with any L/C Document, any Loan Document, any Document or any Property referred to in or related to any of the foregoing or under or in connection with any unrelated transaction; (vi) any breach of contract or other dispute between or among any two or more of you, Applicant, any Beneficiary, any transferee of any Beneficiary, any person or entity for whom any Beneficiary or any transferee of any Beneficiary may be acting, or any other person or entity; or (vii) any delay, extension of time, renewal, compromise or other indulgence granted or agreed to by you with or without notice to Applicant, or Applicant’s approval, in respect of any of Applicant’s indebtedness or other obligations to you under or in connection with any L/C Document or any Loan Document.

SECTION 8. COMPLIANCE WITH LAWS AND REGULATIONS. Applicant represents and warrants to you that no Application, Credit or transaction under any Application and/or Credit will contravene any law or regulation of the government of the United States or any state thereof. Applicant agrees (a) to comply with all federal, state and foreign exchange regulations and other government laws and regulations now or hereafter applicable to any L/C Document, to any payments under or in connection with any L/C Document, to each transaction under or in connection with any L/C Document, or to the import, export, shipping or financing of the Property referred to in or shipped under or in connection with any Credit, and (b) to reimburse you for such amounts as you may be required to expend as a result of such laws or regulations, or any change therein or in the interpretation thereof by any court or administrative or government authority charged with the administration of such laws or regulations.

SECTION 9. TAXES, RESERVES AND CAPITAL ADEQUACY REQUIREMENTS. In addition to, and notwithstanding any other provision of any L/C Document or any Loan Document, in the event that any law, treaty, rule, regulation, guideline, request, order, directive or determination (whether or not having the force of law) of or from any government authority, including, without limitation, any court, central bank or government regulatory authority, or any change therein or in the interpretation or application thereof, (a) does or shall subject you to any tax of any kind whatsoever with respect to the L/C Documents, or change the basis of taxation of payments to you of any amount payable thereunder (except for changes in the rate of tax on your net income); (b) does or shall impose, modify or hold applicable any reserve, special deposit, assessment, compulsory loan, Federal Deposit Insurance Corporation insurance or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, other credit extended by or any other acquisition of funds by, any of your offices; (c) does or shall impose, modify or hold applicable any capital adequacy requirements (whether or not having the force of law); or (d) does or shall impose on you any other condition; and the result of any of the foregoing is (i) to increase the cost to you of issuing or maintaining any Credit or of performing any transaction under any L/C Document, (ii) to reduce any amount receivable by you under any L/C Document, or (iii) to reduce the rate of return on your capital or the capital of the Holding Company to a level below that which you or the Holding Company could have achieved but for any imposition, modification or application of any capital adequacy requirement (taking into consideration your policy and the policy of the Holding Company, as the case may be, with respect to capital adequacy), and any such increase or reduction is material (as determined by you or the Holding Company, as the case may be, in your or the Holding Company’s sole discretion); then, in any such case, Applicant agrees to pay to you or the Holding Company, as the case may be, such amount or amounts as may be necessary to compensate you or the Holding Company for (A) any such additional cost, (B) any reduction in the amount received by you under any L/C Document, or (C) to the extent allocable (as determined by you or the Holding Company, as the case may be, in your or the Holding Company’s sole discretion) to any L/C Document, any reduction in the rate of return on your capital or the capital of the Holding Company.

SECTION 10. COLLATERAL. In addition to, and not in substitution for, any Property delivered, conveyed, transferred or assigned to you under any Loan Document as security for any or all of Applicant’s obligations and liabilities to you at any time existing under or in connection with any L/C Document or any Loan Document, Applicant grants to you a security interest in and to the following Collateral, whether or not any such Collateral is in your possession or control or the possession or control of your agents or correspondents or in transit to, or set apart for, you or your agents or correspondents, until such time as all Applicant’s obligations and liabilities to you at any time existing under or in connection with each L/C Document and each Loan Document have been fully paid and discharged, all as security for such obligations and liabilities, (a) all Applicant’s property, claims, demands, right, title and interest in and to the balance of each of Applicant’s deposit accounts with you now or at any time hereafter existing, and all evidences of such deposit accounts, (b) all Property belonging to Applicant or in which it may have an interest, now or at any time hereafter delivered, conveyed, transferred, assigned, pledged or paid to you or your agents or correspondents in any manner whatsoever, whether as security or for safekeeping or otherwise, including, without limitation, any items received for collection or transmission, and the proceeds of such items, whether or not such Property is in whole or in part released to Applicant on trust or bailee receipt or otherwise, and (c) where Applicant is more than one person or entity, all right, title and interest of each of Applicants in and to all the Property which any of Applicants may now or hereafter obtain as security for the obligations of any one or more of Applicants to one or more of the others of Applicants arising under or in connection with the transaction to which any Credit relates.

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Further, in addition to, and not in substitution for, any Property delivered, conveyed, transferred or assigned to you under any Loan Document as security for any or all of Applicant’s obligations and liabilities to you at any time existing under or in connection with any L/C Document or any Loan Document, Applicant agrees to deliver, convey, transfer and assign to you on demand, as security, Property of a value and character satisfactory to you, (i) if you at any time feel insecure about Applicant’s ability or willingness to repay any amounts which you have paid or may pay in the future on any Demand or in honoring any other of your obligations under or in connection with any Credit, or (ii) without limiting the generality of the foregoing, if any temporary or permanent restraining order, preliminary or permanent injunction, or any other pretrial or permanent injunctive or similar relief is obtained restraining, prohibiting or enjoining you, any of your correspondents, or any advising, confirming, negotiating, paying or other bank from paying or negotiating any Demand or honoring any other obligation under or in connection with any Credit. Applicant agrees that the receipt by you or any of your agents or correspondents at any time of any kind of security, including, without limitation, cash, shall not be deemed a waiver of any of your rights or powers under this Agreement. Applicant agrees to sign and deliver to you on demand, all such deeds of trust, security agreements, financing statements and other documents as you shall at any time request which are necessary or desirable (in your sole opinion) to grant to you an effective and perfected security interest in and to any or all of the Collateral. Applicant agrees to pay all filing and recording fees related to the perfection of any security interest granted to you in accordance with this Section. Applicant hereby agrees that any or all of the Collateral may be held and disposed of as provided in this Agreement by you. Upon any transfer, sale, delivery, surrender or endorsement of any Document or Property which is or was part of the Collateral, Applicant will indemnify and hold you and your agents and correspondents harmless from and against each and every claim, demand, action or suit which may arise against you or any of your agents or correspondents by reason of such transfer, sale, delivery, surrender or endorsement.

SECTION 11. INDEMNIFICATION. Except to the extent any of the following are caused by your lack of good faith, gross negligence, willful misconduct, failure to honor any Demand presented under any Credit when such Demand and its accompanying Documents appear on their face to comply strictly with the terms of such Credit, or honor of any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit, Applicant agrees, notwithstanding any other provision of this Agreement, to reimburse and indemnify you for (a) all amounts paid by you to any Beneficiary under or in connection with any guarantee or similar undertaking issued by such Beneficiary to a third party at Applicant’s request, whether such request is communicated directly by Applicant or through you to such Beneficiary; and (b) all damages, losses, liabilities, actions, claims, suits, penalties, judgments, obligations, costs or expenses, of any kind whatsoever and howsoever caused, including, without limitation, attorneys’ fees and interest, paid, suffered or incurred by, or imposed upon, you directly or indirectly arising out of or in connection with (i) any L/C Document, any Loan Document, any Document or any Property referred to in or related to any Credit; (ii) Applicant’s failure to comply with any of its obligations under this Agreement; (iii) the issuance of any Credit; (iv) the transfer of any Credit; (v) any guarantee or similar undertaking, or any transactions thereunder, issued by any Beneficiary to a third party at Applicant’s request, whether such request is communicated directly by Applicant or through you to such Beneficiary; (vi) any communication made by you, on Applicant’s instructions, to any Beneficiary requesting that such Beneficiary issue a guarantee or similar undertaking to a third party or the issuance of any such guarantee or similar undertaking; (vii) the collection of any amounts Applicant owes to you under or in connection with any L/C Document or any Loan Document; (viii) the foreclosure against, or other enforcement of, any Collateral; (ix) the protection, exercise or enforcement of your rights and remedies under or in connection with any L/C Document or any Loan Document; (x) any court decrees or orders, including, without limitation, temporary or permanent restraining orders, preliminary or permanent injunctions, or any other pretrial or permanent injunctive or similar relief, restraining, prohibiting or enjoining or seeking to restrain, prohibit or enjoin you, any of your correspondents or any advising, confirming, negotiating, paying or other bank from paying or negotiating any Demand or honoring any other obligation under or in connection with any Credit; or (xi) any Credit being governed by laws or rules other than the UCP in effect on the date such Credit is issued. The indemnity provided in this Section will survive the termination of this Agreement and the expiration or cancellation of any or all the Credits. Without limiting any provision of this Agreement, it is the express intention of the parties to this Agreement that the indemnity contained in this Section shall apply to each person to be indemnified without regard to the sole or contributory negligence of such person.

SECTION 12. LIMITATION OF LIABILITY. Notwithstanding any other provision of this Agreement, neither you nor any of your agents or correspondents will have any liability to Applicant for any action, neglect or omission under or in connection with any L/C Document, Loan Document or Credit, including, without limitation, the issuance or any amendment of any Credit, the failure to issue or amend any Credit, or the honoring or dishonoring of any Demand under any Credit, and such action or neglect or omission will bind Applicant, except to the extent any such action or neglect or omission is caused by, or arises from, your lack of good faith, gross negligence, willful misconduct, failure to honor any Demand presented under any Credit when such Demand and its accompanying Documents appear on their face to comply strictly with the terms of such Credit, or honor of any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit. Notwithstanding any other provision of any L/C Document, but without in any way affecting, except as specifically provided in this sentence, your obligation under this Agreement to honor any Demand presented under any Credit when such Demand and its accompanying Documents appear on their face to comply strictly with the terms of such Credit and to dishonor any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit, in no event shall you or your officers or directors be liable or responsible for the following, regardless of whether any claim is based on contract or tort: (a) any special, consequential, indirect or incidental damages, including, without limitation, lost profits, arising out of or in connection with the issuance of any Credit or any action taken or not taken by you in connection with any L/C Document, any Loan Document, or any Document or Property referred to in or related to any Credit; (b) the honoring of any Demand in accordance with any order or directive of any court or government or regulatory body or entity requiring such honor despite any temporary restraining order, restraining order, preliminary injunction, permanent injunction or any type of pretrial or permanent injunctive relief or any similar relief, however named, restraining, prohibiting or enjoining such honor; (c) the dishonoring of any Demand in accordance with any legal or other restriction in force at the time and in the place of presentment or payment; (d) verifying the existence or reasonableness of any act or condition referenced, or any statement made, in connection with any drawing or presentment under any Credit; (e) the use which may be made of any Credit; (f) the validity of any purported transfer of any Credit or the identity of any purported transferee of any Beneficiary; (g) any acts or omissions of any Beneficiary or any other user of any Credit; (h) the form, validity, sufficiency, correctness, genuineness or legal effect of any Demand or any Document, or of any signatures or endorsements on any Demand or Document, even if any Demand or any Document should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (i) payment by you of any Demand when the Demand and any accompanying Documents appear on their face to comply substantially with the terms of the Credit to which they relate or dishonor by you of any Demand when the Demand and any accompanying Documents do not strictly comply on their face with the terms of the Credit to which they relate; (j) the failure of any Demand or Document to bear any reference or adequate reference to the Credit to which it relates; (k) the failure of any Document to accompany any Demand; (l) the failure of any person or entity to note the amount of any Demand on the Credit to which it relates or on any Document; (m) the failure of any person or entity to surrender or take up any Credit; (n) the failure of any Beneficiary to comply with the terms of any Credit or to meet the obligations of such Beneficiary to Applicant; (o) the failure of any person or entity to send or forward Documents if and as required by the terms of any Credit; (p) any errors, inaccuracies, omissions, interruptions or delays in transmission or delivery of any messages, directions or correspondence by mail, cable, telegraph, wireless or otherwise, whether or not they are in cipher; (q) any notice of nonrenewal of a Credit sent by you not being received on time or at any time by the Beneficiary of such Credit; (r) any inaccuracies in the translation of any messages, directions or correspondence; (s) any Beneficiary’s use of the proceeds of any Demand; (t) any Beneficiary’s failure to repay to you or Applicant the proceeds of any Demand if the terms of any Credit require such repayment; or (u) any act, error, neglect, default, negligence, gross negligence, omission, willful misconduct, lack of good faith, insolvency or failure in business of any of your agents or correspondents or of any advising, confirming, negotiating, paying or other bank. Except to the extent caused by, or arising from, your lack of good faith, gross negligence, willful misconduct, failure to honor any Demand presented under any Credit when such Demand and its accompanying

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Documents appear on their face to comply strictly with the terms of such Credit, or honor of any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit, the occurrence of any one or more of the contingencies referred to in the preceding sentence shall not affect, impair or prevent the vesting of your rights or powers under this Agreement or any Loan Document or Applicant’s obligation to make reimbursement or payment to you under this Agreement or any Loan Document. The provisions of this Section will survive the termination of this Agreement and any Loan Documents and the expiration or cancellation of any or all the Credits.

SECTION 13. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: (a) Applicant’s or any Guarantor’s failure to pay any principal, interest, fee or other amount when due under or in connection with any L/C Document or any Loan Document; (b) Applicant’s failure to deliver to you Property of a value and character satisfactory to you at any time you have demanded security from Applicant pursuant to Section 10 of this Agreement; (c) the occurrence and continuance of any default or defined event of default under any Loan Document or any other agreement, document or instrument signed or made by Applicant or any Guarantor in your favor; (d) Applicant’s or any Guarantor’s failure to perform or observe any term, covenant or agreement contained in this Agreement or any Loan Document (other than those referred to in subsections (a), (b) and (c) of this Section), or the breach of any other obligation owed by Applicant or any Guarantor to you, and any such failure or breach shall be impossible to remedy or shall remain unremedied for thirty (30) calendar days after such failure or breach occurs; (e) any representation, warranty or certification made or furnished by Applicant or any Guarantor under or in connection with any L/C Document, any Loan Document or any Collateral, or as an inducement to you to enter into any L/C Document or Loan Document or to accept any Collateral, shall be materially false, incorrect or incomplete when made; (f) any material provision of this Agreement or any Loan Document shall at any time for any reason cease to be valid and binding on Applicant or any Guarantor or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by Applicant, any Guarantor or any government agency or authority, or Applicant or any Guarantor shall deny that it has any or further liability or obligation under this Agreement or any Loan Document; (g) Applicant’s or any Guarantor’s failure to pay or perform when due any indebtedness or other obligation Applicant or such Guarantor has to any person or entity other than you if such failure gives the payee of such indebtedness or the beneficiary of the performance of such obligation the right to accelerate the time of payment of such indebtedness or the performance of such obligation; (h) any guarantee of, or any security covering, any of Applicant’s indebtedness to you arising under or in connection with any L/C Document or any Loan Document fails to be in full force and effect at any time; (i) any material adverse change in Applicant’s or any Guarantor’s financial condition; (j) Applicant or any Guarantor suspends the transaction of its usual business or is expelled or suspended from any exchange; (k) Applicant or any Guarantor dies or is incapacitated; (l) Applicant or any Guarantor dissolves or liquidates; (m) Applicant or any Guarantor is not generally paying its debts as they become due; (n) Applicant or any Guarantor becomes insolvent, however such insolvency may be evidenced, or Applicant or any Guarantor makes any general assignment for the benefit of creditors; (o) a petition is filed by or against Applicant or any Guarantor seeking Applicant’s or such Guarantor’s liquidation or reorganization under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time, or a similar action is brought by or against Applicant or any Guarantor under any federal, state or foreign law; (p) a proceeding is instituted by or against Applicant or any Guarantor for any relief under any bankruptcy, insolvency or other law relating to the relief of debtors, reorganization, readjustment or extension of indebtedness or composition with creditors; (q) a custodian or a receiver is appointed for, or a writ or order of attachment, execution or garnishment is issued, levied or made against, any of Applicant’s or any Guarantor’s Property or assets; (r) an application is made by any of Applicant’s or any Guarantor’s judgment creditors for an order directing you to pay over money or to deliver other of Applicant’s or such Guarantor’s Property; or (s) any government authority or any court takes possession of any substantial part of Applicant’s or any Guarantor’s Property or assets or assumes control over Applicant’s or any Guarantor’s affairs.

SECTION 14. REMEDIES. Upon the occurrence and continuance of any Event of Default all amounts paid by you on any Demand which have not previously been repaid to you, together with all interest on such amounts, and the Unpaid and Undrawn Balance, if any, shall automatically be owing by Applicant to you and shall be due and payable by Applicant on demand without presentment or any other notice of any kind, including, without limitation, notice of nonperformance, notice of protest, protest, notice of dishonor, notice of intention to accelerate, or notice of acceleration, all of which are expressly waived by Applicant. Upon payment of the Unpaid and Undrawn Balance to you Applicant shall have no further legal or equitable interest therein, and you will not be required to segregate on your books or records the Unpaid and Undrawn Balance paid by Applicant. After you receive the Unpaid and Undrawn Balance, you agree to pay to Applicant, upon termination of all of your liability under all the Credits and Demands, a sum equal to the amount which has not been drawn under all the Credits less all amounts due and owing to you from Applicant under or in connection with the L/C Documents and the Loan Documents. Further, upon the occurrence and continuance of any Event of Default, you may sell immediately, without demand for payment, advertisement or notice to Applicant, all of which are hereby expressly waived, any and all Collateral, received or to be received, at private sale or public auction or at brokers’ board or upon any exchange or otherwise, at your option, in such parcel or parcels, at such times and places, for such prices and upon such terms and conditions as you may deem proper, and you may apply the net proceeds of each sale, together with any sums due from you to Applicant, to the payment of any and all obligations and liabilities due from Applicant to you under or in connection with the L/C Documents and the Loan Documents, all without prejudice to your rights against Applicant with respect to any and all such obligations and liabilities which may be or remain unpaid. If any such sale be at brokers’ board or at public auction or upon any exchange, you may yourself be a purchaser at such sale free from any right of redemption, which Applicant hereby expressly waive and release. All your rights and remedies existing under the L/C Documents and the Loan Documents are in addition to, and not exclusive of, any rights or remedies otherwise available to you under applicable law. In addition to any rights now or hereafter granted under applicable law, and not by way of limitation of any such rights, upon the occurrence and continuance of any Event of Default, Applicant hereby authorizes you at any time or from time to time, without notice to Applicant or to any other person (any such notice being hereby expressly waived by Applicant) and to the extent permitted by law, to appropriate and to apply any and all Applicant’s deposits (general or special, including, without limitation, indebtedness evidenced by certificates of deposit) with you or elsewhere, whether matured or unmatured, and any other indebtedness at any time held or owing by you to or for Applicant’s credit or its account, against and on account of Applicant’s obligations and liabilities to you under or in connection with any of the L/C Documents or the Loan Documents, irrespective of whether or not you shall have made any demand for payment of any or all such obligations and liabilities or declared any or all such obligations and liabilities to be due and payable, and although any or all such obligations and liabilities shall be contingent or unmatured.

SECTION 15. GENERAL WAIVERS. No delay, extension of time, renewal, compromise or other indulgence which may occur or be granted by you under any L/C Document or any Loan Document shall impair your rights or powers under this Agreement or any Application. You shall not be deemed to have waived any of your rights under this Agreement or any Application unless such waiver is in writing signed by your authorized representative. No such waiver, unless expressly provided therein, shall be effective as to any transactions which occur subsequent to the date of such waiver or as to the continuance of any Event of Default after such waiver.

SECTION 16. AMENDMENTS AND MODIFICATIONS TO THIS AGREEMENT AND THE CREDITS. No amendment or modification of this Agreement shall be effective unless it is in writing signed by Applicant’s and your authorized representative(s). At Applicant’s verbal or written request, or with Applicant’s verbal or written consent, and without extinguishing or otherwise affecting Applicant’s obligations under this Agreement or any Loan Document, you may with respect to any Credit, in writing or by any other action, but you will not be obligated to, (a) increase the amount of such Credit, (b) extend the time for, and amend or modify the terms and conditions governing, the making and honoring of any Demand or Document or any other terms and conditions of such Credit, or (c) waive the failure of any Demand or Document to comply with the terms of such Credit, and any Collateral pledged or granted to you in connection with such Credit will secure Applicant’s obligations to you with respect to such Credit as amended, modified or waived. No amendment to, or modification of, the terms of any Credit will become effective if the Beneficiary of such Credit or any confirming bank objects to such amendment or modification. If any Credit is amended or modified in accordance with this Section, Applicant shall be bound by, and obligated under, the provisions of this Agreement with respect to such Credit as so amended or modified, and any action taken by you or any advising, confirming, negotiating, paying or other bank in accordance with such amendment or modification.

SECTION 17. SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement and each Application shall bind Applicant’s heirs, executors, administrators, successors and assigns, and all rights, benefits and privileges conferred on you under or in connection with each L/C Document and each Loan Document shall be and hereby are extended to, conferred upon and may be enforced by your successors and assigns. Applicant will not assign this Agreement or Applicant’s obligations or liabilities to you under or in connection with any L/C Document or Loan Document to any person or entity without your prior written approval.

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SECTION 18. GOVERNING LAW. This Agreement and each Application, and Applicant’s and your performance under this Agreement and each Application, shall be governed by and be construed in accordance with the laws of the State of California. Unless you otherwise specifically agree in writing, each Credit, the opening of each Credit, the performance by you under each Credit, and the performance by the Beneficiary and any advising, confirming, negotiating, paying or other bank under each Credit, shall be governed by and be construed in accordance with the UCP in force on the date of the issuance of each Credit.

SECTION 19. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or proceeding against Applicant under or with respect to any L/C Document may, at your sole option, be brought in (a) the courts of the State of California, (b) the United States District Courts in California, (c) the courts of Applicant’s jurisdiction of incorporation or principal office, or (d) the courts of the jurisdiction where any Beneficiary, any advising, confirming, negotiating, paying or other bank, or any other person or entity has brought any suit, action or proceeding against you with respect to any Credit or any Demand, and Applicant hereby submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment and waives any other preferential jurisdiction by reason of domicile. Applicant will accept joinder in any suit, action or proceeding brought in any court or jurisdiction against you by any Beneficiary, any advising, confirming, negotiating, paying or other bank or any other person or entity with respect to any Credit or any Demand. Applicant irrevocably waives any objection, including, without limitation, any objection of the laying of venue or any objection based on the grounds of forum non conveniens, which Applicant may now or hereafter have to the bringing of any such action or proceeding. Applicant further waives any right to transfer or change the venue of any suit, action or proceeding brought against Applicant by you under or in connection with any L/C Document. Applicant irrevocably consents to the service of process in any action or proceeding in any court by the mailing of copies thereof by registered or certified mail, postage prepaid, to Applicant at its address specified next to its signature on this Agreement or at such other address as Applicant shall have notified to you in writing, such service to be effective ten (10) days after such mailing.

SECTION 20. GOVERNING LAW AND DISPUTES RESOLVED AS PROVIDED IN THE LOAN DOCUMENTS. Notwithstanding any provision to the contrary in this Agreement, if any Credit governed by this Agreement is issued under or pursuant to any Loan Document, the law governing such Loan Document will also govern this Agreement and each Application and Applicant’s and your performance under this Agreement and each Application, and all disputes arising between Applicant and you under or in connection with any L/C Document will be resolved as provided in such Loan Document, unless any such dispute is brought by, or involves, the Beneficiary of such Credit, or any advising, confirming, negotiating, paying, accepting or other bank, or any other person or entity other than Applicant, and results in legal action different from the form of action provided in such Loan Document. If pursuant to this Section Texas law governs this Agreement, the special Texas provisions at the end of this Agreement will apply.

SECTION 21. MULTIPLE APPLICANTS AND WAIVERS. If this Agreement is signed by more than one person and/or entity as an Applicant, this Agreement and the Applications of each such person and/or entity shall be the joint and several agreement of all such persons and/or entities and all references to “Applicant” or “Applicant’s” in this Agreement and the Applications shall refer to all such persons and/or entities jointly and severally. Whether this Agreement is signed by one Applicant or more than one Applicant, you shall have no obligation to disclose to any Applicant any information or material about any other Applicant or any other person which you acquire in any manner. Each Applicant waives any right to require you to proceed against any other Applicant or any other person, or marshal assets or proceed against or exhaust any security held from any other Applicant or any other person. Each Applicant waives any defense to its liability in connection with any Credit or this Agreement based upon or arising by reason of (a) any defense of any other Applicant or any other person; (b) the cessation or limitation from any cause whatsoever, other than payment in full of such Applicant’s obligations under this Agreement, of the liability of any other Applicant or of any other person in connection with any Credit or this Agreement; (c) any act or omission by you which directly or indirectly results in or aids the release or discharge of any other Applicant or any other person by operation of law or otherwise, or which in any way impairs or suspends any rights or remedies you may have against any other Applicant or any other person, including, without limitation, the release by you of any Guarantor or other person obligated in connection with any Credit or this Agreement; (d) the release of any security for any indebtedness owed to you in connection with any Credit or this Agreement; (e) the application of payments received by you from any other Applicant or any other person obligated in connection with any Credit or this Agreement to indebtedness of such other Applicant or other person to you other than indebtedness in connection with any Credit or this Agreement, and (f) any modification of the obligations or liabilities of any other Applicant or any other person in connection with any Credit or this Agreement. Each Applicant waives all rights and defenses it may have arising out of (A) any election of remedies by you, even though that election of remedies destroys such Applicant’s rights of subrogation or its rights to proceed against any other Applicant or any other person for reimbursement, or (B) any loss of rights such Applicant may suffer by reason of any rights, powers or remedies of any other Applicant or other person in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging any such other Applicant’s or other person’s indebtedness in connection with any Credit or this Agreement, whether by operation of law or otherwise. Until all indebtedness of each Applicant to you arising under or in connection with this Agreement or any Credit shall have been paid in full, each Applicant waives any right of subrogation and any right to enforce any remedy which you now have or may hereafter have against any other Applicant or any other person, and waives any benefit of, or any right to participate in, any security now or hereafter held by you. If any waiver in this Agreement is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law.

SECTION 22. SEVERABILITY. Any provision of any L/C Document which is prohibited or unenforceable in any jurisdiction shall be, only as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability, but all the remaining provisions of such L/C Document and all the other L/C Documents shall remain valid.

SECTION 23. HEADINGS. The headings used in this Agreement are for convenience of reference only and shall not define or limit the provisions of this Agreement.

SECTION 24. COMPLETE AGREEMENT. The entire agreement with respect to each Credit will consist of this Agreement and the Application for such Credit, together with any written document or instrument signed by Applicant and you, or signed by Applicant and approved by you, which specifically references such Credit, the Application for such Credit, or this Agreement. Except as specifically provided in this Agreement, in any Application or in any written document or instrument referred to in the preceding sentence, no statements or representations not contained in this Agreement, such Application or such written document or instrument shall have any force or effect on this Agreement, such Application or such written document or instrument.

UNLESS ANY CREDIT GOVERNED BY THIS AGREEMENT IS ISSUED UNDER OR PURSUANT TO A LOAN DOCUMENT WHICH DOES NOT HAVE TEXAS GOVERNING LAW, IF THE APPLICANT’S ADDRESS BELOW IS IN TEXAS, OR IF THE APPLICANT’S HEADQUARTERS OR PRINCIPAL PLACE OF BUSINESS IS IN TEXAS, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Texas 1. GOVERNING LAW. This Agreement and each Application, and Applicant’s and your performance under this Agreement and each Application, shall be governed by and be construed in accordance with the laws of the State of Texas.

Section Texas 2. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or proceeding against Applicant under or with respect to any L/C Document may, at your sole option, be brought in (a) the courts of the State of Texas, (b) the United States District Courts in Texas, (c) the courts of Applicant’s jurisdiction of incorporation or principal office, or (d) the courts of the jurisdiction where any Beneficiary, any advising, confirming, negotiating, paying or other bank, or any other person or entity has brought any suit, action or proceeding against you with respect to any Credit or any Demand, and Applicant hereby submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment and waives any other preferential jurisdiction by reason of domicile. The remaining provisions of Section 19 of this Agreement will apply.

Section Texas 3. CERTAIN TRI-PARTY ACCOUNTS. Applicant and you agree that Chapter 346 of the Texas Finance Code (which regulates certain revolving credit accounts and revolving tri-party accounts) shall not apply to any revolving loan accounts created under, or maintained in connection with, this Agreement, any other L/C Document, or any Loan Document.

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Section Texas 4. BUSINESS PURPOSE. Applicant represents and warrants that all its obligations and liabilities evidenced by the L/C Documents and the Loan Documents are for a business, commercial, investment, agricultural or other similar purpose and not primarily for a personal, family or household purpose.

Section Texas 5. COMPLIANCE WITH USURY LAWS. It is Applicant’s and your intention to comply strictly with applicable usury laws. Accordingly, notwithstanding any provision to the contrary in any L/C Document or in any Loan Document, in no event shall any L/C Document or any Loan Document require the payment or permit the payment, taking, reserving, receiving, collection or charging of any sums constituting interest under applicable laws that exceed the Maximum Rate permitted by such laws, as the same may be amended or modified from time to time. If any such excess interest is called for, contracted for, charged, taken, reserved or received in connection with any L/C Document or any Loan Document or in any communication by you or any other person to Applicant or to any other person, or in the event that all or part of the principal or interest owing to you under any L/C Document or any Loan Document shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved or received on the amount of principal actually outstanding from time to time under any L/C Document or any Loan Document exceeds the Maximum Rate, then in such event it is agreed that (i) the provisions of this Section shall govern and control, (ii) neither Applicant nor any other person or entity now or hereafter liable for the payments under any L/C Document or any Loan Document shall be obligated to pay the amount of such interest to the extent it is in excess of the Maximum Rate, (iii) any such excess interest which is or has been received by you, notwithstanding this Section, shall be credited against the then unpaid principal balance owing under any L/C Document or any Loan Document, or if all amounts outstanding under any L/C Document or any Loan Document have been or would be paid in full by such credit, refunded to Applicant, and (iv) the provisions of the L/C Documents and the Loan Documents, and any other communication by you or any other person to Applicant shall immediately be deemed reformed and such excess interest reduced to the Maximum Rate without the necessity of executing any other document. The right to accelerate the maturity of any amounts due under any L/C Document or any Loan Document does not include the right to accelerate, collect or charge unearned interest, but only such interest that has otherwise accrued as of the date of acceleration. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved or received in connection with any L/C Document or any Loan Document which are made for the purpose of determining whether such rate exceeds the Maximum Rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading, during the period of the full term of such L/C Document or such Loan Document, including, without limitation, all prior and subsequent renewals and extensions of such L/C Document or such Loan Document, all interest at any time contracted for, charged, taken, reserved or received by you. The terms of this Section shall be deemed to be incorporated into each L/C Document and each Loan Document . To the extent that either Chapter 303 or 306, or both, of the Texas Finance Code apply in determining the Maximum Rate, you hereby elect to determine the applicable rate ceiling by using the weekly ceiling from time to time in effect, subject to your right subsequently to change such method in accordance with applicable law, as the same may be amended or modified from time to time.

Section Texas 6. ALL THE L/C DOCUMENTS AND THE LOAN DOCUMENTS CONSTITUTE A WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE L/C DOCUMENTS OR THE LOAN DOCUMENTS OR THE INDEBTEDNESS EVIDENCED BY THE L/C DOCUMENTS OR THE LOAN DOCUMENTS.

IF THE APPLICANT’S ADDRESS BELOW IS IN OREGON OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF

BUSINESS IS IN OREGON, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Oregon 1. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.

IF THE APPLICANT’S ADDRESS BELOW IS IN WASHINGTON OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF

BUSINESS IS IN WASHINGTON, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Washington 1. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

IF THE APPLICANT’S ADDRESS BELOW IS IN NEBRASKA OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF

BUSINESS IS IN NEBRASKA, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Nebraska 1. ENFORCEABILITY OF WRITTEN TERMS ONLY. A CREDIT AGREEMENT MUST BE IN WRITING TO BE ENFORCEABLE UNDER NEBRASKA LAW. TO PROTECT THE PARTIES FROM ANY MISUNDERSTANDINGS OR DISAPPOINTMENTS, ANY CONTRACT, PROMISE, UNDERTAKING OR OFFER TO FOREBEAR REPAYMENT OF MONEY OR TO MAKE ANY OTHER FINANCIAL ACCOMMODATION IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, OR ANY AMENDMENT OF, CANCELLATION OF, WAIVER OF, OR SUBSTITUTION FOR ANY OR ALL OF THE TERMS OR PROVISIONS OF ANY INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, MUST BE IN WRITING TO BE EFFECTIVE.

IF THE APPLICANT’S ADDRESS BELOW IS IN IOWA OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF

BUSINESS IS IN IOWA, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Iowa 1. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.

Section Iowa 2. By signing this Agreement, Applicant acknowledges receipt of a copy of this Agreement.

This Agreement is signed by Applicant’s duly authorized representative or representatives on the date specified below.

Phoenix Footwear Group, Inc.	Penobscot Shoe Company
[APPLICANT’S NAME]	[APPLICANT’S NAME]
By:	By:
Title:	Title:
H.S Trask & Company	Chambers Belt Company
[APPLICANT’S NAME]	[APPLICANT’S NAME]
By:	By:
Title:	Title:

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Phoenix Delaware Acquisition, Inc.

[APPLICANT’S NAME]

By:

Title:

For each Applicant:

5840 El Camino Real, Suite 106

Carlsbad, CA 92008

[ADDRESS]

DATE: June 10, 2008

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EX-10.10

Exhibit 10.10

COMMERCIAL LETTER OF CREDIT AGREEMENT

To: WELLS FARGO BANK, NATIONAL ASSOCIATION

Applicant hereby requests that you, Wells Fargo Bank, National Association (“Wells Fargo”) issue yourself in your name, or at your option through Wells Fargo HSBC Trade Bank, National Association (“Trade Bank”) as your agent in the Trade Bank’s name, one or more commercial letters of credit pursuant to Applications for the issuance of such Credits and the terms and conditions of this Agreement. Each Credit will be issued at Applicant’s request and for its account, and, unless otherwise specifically provided in any Loan Document, at your option. Applicant agrees that the terms and conditions in this Agreement shall apply to each Application and the Credit issued pursuant to each Application, and to transactions under each Application, each Credit and this Agreement. Applicant further agrees that you may in your sole discretion, but without obligation to do so, use, and Applicant hereby authorizes you to use, the Trade Bank as your agent to issue any Credit or to perform any of your obligations or exercise any of your rights under any L/C Document or Loan Document, and if you do so (1) such agent will be your agent having obligations only to you and not to Applicant, (2) the Credits issued through such agent will be considered Credits issued by you pursuant to this Agreement, (3) any of your obligations performed or any of your rights exercised pursuant to, or in connection with, the L/C Documents or Loan Documents by such agent in your name or in such agent’s name shall be deemed obligations performed or rights exercised by you yourself pursuant to, or in connection with, the L/C Documents or Loan Documents, and (4) any collateral heretofore, now or at any time hereafter granted or pledged to you as security for any credit extended to Applicant will also secure all Applicant’s obligations to you under this Agreement and the other L/C Documents.

SECTION 1. DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth after each term: “Acceptance” means any time draft drawn or made, or purported to be drawn or made, under any Credit, and accepted for payment by you or by any other bank you specify to accept such time draft for payment. “Acceptance Fee” means the fee, computed at the acceptance fee rate specified by you or specified in any Loan Document, charged by you when each Acceptance is created on the amount of such Acceptance for the time period such Acceptance is to be outstanding. “Agreement” means this Commercial Letter of Credit Agreement as it may be revised or amended from time to time. “Applicant” means collectively each person and/or entity signing this Agreement as Applicant. “Application” means your printed form titled “Application For Commercial Letter of Credit” or any other form acceptable to you on which Applicant applies for the issuance by you of a Credit and/or an application for amendment of a Credit or any combination of such applications, as the context may require. “Beneficiary” means the person or entity named on an Application as the beneficiary or any transferee of such beneficiary. “Collateral” means the Property, together with the proceeds of such Property, securing any or all of Applicant’s obligations and liabilities at any time existing under or in connection with any L/C Document and/or any Loan Document. “Credit” means an instrument or document titled “Irrevocable Commercial Letter of Credit”, “Irrevocable Documentary Credit”, “Commercial Letter of Credit”, or “Documentary Letter of Credit”, or any instrument or document whatever it is titled or whether or not it is titled functioning as a commercial letter of credit, issued under or pursuant to an Application, and all renewals, extensions and amendments of such instrument or document. “Deferred Payment Fee” means the fee, computed at the deferred payment fee rate specified by you or specified in any Loan Document, charged by you on the amount of each Demand presented under a Credit providing for deferred payment of Demands which are not time drafts, which fee will be payable when the Demand is determined by you to comply with such Credit and cover the time period from the date of such determination to the date such Demand is payable. “Delivery Authorization” means any agreement, undertaking, guarantee, indemnity, release, bond, letter, document or authorization given or executed by you, at your option in each case, at Applicant’s or its agent’s request to or in favor of a carrier or other person or entity to permit delivery to Applicant or its agent of Property referred to in or shipped under any Credit. “Demand” means any sight or time draft (before it is accepted), electronic or telegraphic transmission or other written demand drawn or made, or purported to be drawn or made, under or in connection with any Credit. “Document” means any instrument, statement, certificate or other document, including, without limitation, shipping documents, warehouse receipts and policies or certificates of insurance, referred to in or related to any Credit or required by any Credit to be presented with any Demand. “Dollars” means the lawful currency at any time for the payment of public or private debts in the United States of America. “Event of Default” means any of the events set forth in Section 14 of this Agreement. “Expiration Date” means the date any Credit expires. “Guarantor” means any person or entity guaranteeing the payment and/or performance of any or all of Applicant’s obligations under or in connection with any L/C Document and/or any Loan Document. “Holding Company” means any company or other entity directly or indirectly controlling you. “Issuance Fee” means the fee, computed at the issuance fee rate specified by you or specified in any Loan Document, charged by you on the amount of each Credit and on the amount of each increase in a Credit at the time each Credit is issued or increased. “L/C Document” means this Agreement, each Application, each Credit, each Demand, and each Acceptance. “Loan Document” means each and any promissory note, loan agreement, security agreement, pledge agreement, guarantee or other agreement or document executed in connection with, or relating to, any extension of credit under which any Credit is issued. “Maximum Rate” means the maximum amount of interest (as defined by applicable laws), if any, permitted to be paid, taken, reserved, received, collected or charged under applicable laws, as the same may be amended or modified from time to time. “Negotiation Fee” means the fee, computed at the negotiation fee rate specified by you or specified in any Loan Document, charged by you on the amount of each Demand paid or accepted by you or any other bank specified by you when each Demand is paid or accepted. “Payment Office” means the office specified by you or specified in any Loan Document as the office where reimbursements and other payments under or in connection with any L/C Document are to be made by Applicant. “Prime Rate” means the rate of interest most recently announced within Wells Fargo at its principal office as its Prime Rate, with the understanding that the Prime Rate is one of Wells Fargo’s base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof after its announcement in such internal publication or publications as Wells Fargo may designate. “Property” means all forms of property, whether tangible or intangible, real, personal or mixed. “Rate of Exchange” means Wells Fargo’s then current selling rate of exchange in San Francisco, California for sales of the currency of payment of any Demand or Acceptance, or of any fees or expenses or other amounts payable under this Agreement, for cable transfer to the country of which such currency is the legal tender. “UCP” means the Uniform Customs and Practice for Documentary Credits, an International Chamber of Commerce publication, or any substitution therefor or replacement thereof. “Unpaid and Undrawn Balance” means at any time the entire amount which has not been paid by you under all the Credits issued for Applicant’s account, including, without limitation, the amount of each Demand and Acceptance on which you have not yet effected payment as well as the amount undrawn under all such Credits. “Wells Fargo & Company” means Wells Fargo & Company, a Delaware corporation.

SECTION 2. HONORING DEMANDS AND DOCUMENTS. You may receive, accept and honor, as complying with the terms of any Credit, any Demand and any Documents accompanying such Demand; provided, however, that such Demand and accompanying Documents appear on their face to comply substantially with the provisions of such Credit and are, or appear on their face to be, signed or issued by (a) a person or entity authorized under such Credit to draw, sign or issue such Demand and accompanying Documents, or (b) an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver or other legal representative or successor in interest by operation of law of any such person or entity. Notwithstanding the preceding sentence, (i) in consideration for you giving or executing a Delivery Authorization at your option at any time, you may, in your sole discretion, receive, accept and honor, as complying with the terms of the Credit related to the Delivery Authorization, any Demand and any accompanying Documents which are presented under such Credit and relate to any Property covered by such Delivery Authorization even if such Demand or Document does not conform to the requirements of such Credit, is not otherwise in order, or any other term or condition of such Credit has not been complied with, and (ii) in consideration for you issuing a Credit which, at Applicant’s request and at your option, contains provisions that (A) any Demand made under such Credit will be honored only if and when you receive written notice that the Property referred to in the Documents accompanying such Demand has been inspected and passed and/or released and/or approved by the United States Food and Drug Administration or by any other state or federal government agency or regulatory authority or by any other party or entity, and (B) the accompanying Documents are to be released by you to Applicant or its agent for the purpose of arranging such inspection against Applicant’s or its agent’s signing a receipt for such Documents, you may in your sole discretion honor and accept such Demand and Documents as complying with the terms of such Credit without having received written notice that such Property has been inspected and passed and/or released and/or approved as aforesaid (1) if such Demand and accompanying Documents appear on their face to comply substantially with all other terms of such Credit, or Applicant has waived any failure of such Demand or Documents to comply with the terms of such Credit, and (2) if neither Applicant nor its agent promptly signs such a receipt in form and substance acceptable to you, complies with all the terms of such receipt, and arranges such inspection of such Property.

SECTION 3. REIMBURSEMENT FOR PAYMENT OF DEMANDS AND ACCEPTANCES. Applicant shall reimburse you for all amounts paid by you on each Demand and on each Acceptance, including, without limitation, all such amounts paid by you to any paying, accepting, negotiating or other bank. If in connection with the issuance of any Credit, you agree to pay any other bank the amount of any payment or negotiation made by such other bank under such Credit upon your receipt of a cable, telex or other written telecommunication advising you of such payment or negotiation, or authorize any other bank to debit your account for the amount of such payment or negotiation, Applicant agrees to reimburse you for all such amounts paid by you, or debited to your account with such other bank, even if any Demand or Document specified in such Credit fails to arrive in whole or in part or if, upon the arrival of any such Demand or Document, the terms of such Credit have not been complied with or such Demand or Document does not conform to the requirements of such Credit or is not otherwise in order.

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SECTION 4. FEES AND EXPENSES. Applicant agrees to pay to you (a) all Issuance Fees, Negotiation Fees, Acceptance Fees, Deferred Payment Fees, cable fees, amendment fees, non-usance fees, and cancellation fees of, and all out-of-pocket expenses incurred by, you under or in connection with any L/C Document, and (b) all fees and charges of banks or other entities other than you under or in connection with any L/C Document if any Application (i) does not indicate who will pay such fees and charges, (ii) indicates that such fees and charges are to be paid by Applicant, or (iii) indicates that such fees and charges are to be paid by the Beneficiary and the Beneficiary does not, for any reason whatsoever, pay such fees or charges. If you give or execute a Delivery Authorization, Applicant agrees to pay your Delivery Authorization charges. There shall be no refund of any portion of any Issuance Fee in the event any Credit is used, reduced, amended, modified or terminated before its Expiration Date or of any portion of any Acceptance Fee or Deferred Payment Fee if any Acceptance or deferred payment Demand is reimbursed by Applicant before it matures.

SECTION 5. DEFAULT INTEREST. Unless otherwise specified in any Loan Document, or on an Application and agreed to by you, all amounts to be reimbursed by Applicant to you, and all fees and expenses to be paid by Applicant to you, and all other amounts due from Applicant to you under or in connection with any L/C Documents, will bear interest (to the extent permitted by law), payable on demand, from the date you paid the amounts to be reimbursed or the date such fees, expenses and other amounts were due until such amounts are paid in full, at a rate per annum (computed on the basis of a 360-day year, actual days elapsed) which is the lesser of (a) two percent (2%) above the Prime Rate in effect from time to time, or (b) the Maximum Rate.

SECTION 6. TIME AND METHOD OF REIMBURSEMENT AND PAYMENT. Unless otherwise specified in this Section, in any Loan Document, or on an Application and agreed to by you, all amounts to be reimbursed by Applicant to you, all fees and expenses to be paid by Applicant to you, and all interest and other amounts due to you from Applicant under or in connection with any L/C Documents will be reimbursed or paid at the Payment Office in Dollars in immediately available funds without setoff or counterclaim (i) on demand or, (ii) at your option by your debiting any of Applicant’s accounts with you, with each such debit being made without presentment, protest, demand for reimbursement or payment, notice of dishonor or any other notice whatsoever, all of which are hereby expressly waived by Applicant. Each such debit will be made at the time each Demand is paid by you or on the maturity of each Acceptance or, if earlier, at the time each amount is paid by you to any paying, accepting, negotiating or other bank, or at the time each fee and expense is to be paid or any interest or other amount is due under or in connection with any L/C Documents. If any Demand or Acceptance or any fee, expense, interest or other amount payable under or in connection with any L/C Documents is payable in a currency other than Dollars, Applicant agrees to reimburse you for all amounts paid by you on such Demand and on such Acceptance, and/or to pay you all such fees, expenses, interest and other amounts, in one of the three following ways, as determined by you in your sole discretion in each case: (a) at such place as you shall direct, in such other currency; or (b) at the Payment Office in the Dollar equivalent of the amount of such other currency calculated at the Rate of Exchange on the date determined by you in your sole discretion; or (c) at the Payment Office in the Dollar equivalent, as determined by you (which determination shall be deemed correct absent manifest error), of such fees, expenses, interest or other amounts or of the actual cost to you of paying such Demand or Acceptance. Applicant assumes all political, economic and other risks of disruptions or interruptions in any currency exchange.

SECTION 7. AGREEMENTS OF APPLICANT. Applicant agrees that (a) unless otherwise specifically provided in any Loan Document, you shall not be obligated at any time to issue any Credit for Applicant’s account; (b) unless otherwise specifically provided in any Loan Document, if any Credit is issued by you for Applicant’s account, you shall not be obligated to issue any further Credit for Applicant’s account or to make other extensions of credit to Applicant or in any other manner to extend any financial consideration to Applicant; (c) you have not given Applicant any legal or other advice with regard to any L/C Document or Loan Document; (d) if you at any time discuss with Applicant the wording for any Credit, any such discussion will not constitute legal or other advice by you or any representation or warranty by you that any wording or Credit will satisfy Applicant’s needs; (e) Applicant is responsible for the wording of each Credit, including, without limitation, any drawing conditions, and will not rely on you in any way in connection with the wording of any Credit or the structuring of any transaction related to any Credit; (f) Applicant, and not you, is responsible for entering into the contracts relating to the Credits between Applicant and the Beneficiaries and for causing Credits to be issued; (g) you may, as you deem appropriate, modify or alter and use in any Credit the terminology contained on the Application for such Credit; (h) unless the Application for a Credit specifies whether the Documents to be presented with a Demand under such Credit must be sent to you in one parcel or in two parcels or may be sent to you in any number of parcels, you may, if you so desire, make such determination and specify in the Credit whether such Documents must be sent in one parcel or two parcels or may be sent in any number of parcels; (i) you shall not be deemed Applicant’s agent or the agent of any Beneficiary or any other user of any Credit, and neither Applicant, nor any Beneficiary nor any other user of any Credit shall be deemed your agent; (j) Applicant will promptly examine all Documents and each Credit if and when they are delivered to Applicant and, in the event of any claim of noncompliance of any Documents or any Credit with Applicant’s instructions or any Application, or in the event of any other irregularity, Applicant will promptly notify you in writing of such noncompliance or irregularity, Applicant being conclusively deemed to have waived any such claim of noncompliance or irregularity unless such notice is promptly given; (k) all directions and correspondence relating to any L/C Document are to be sent at Applicant’s risk; (l) if any Credit has a provision concerning the automatic extension of its Expiration Date, you may, at your sole option, give notice of nonrenewal of such Credit and if Applicant does not at any time want such Credit to be renewed Applicant will so notify you at least fifteen (15) calendar days before you are to notify the Beneficiary of such Credit or any advising bank of such nonrenewal pursuant to the terms of such Credit; (m) Applicant will not seek to obtain, apply for, or acquiesce in any temporary or permanent restraining order, preliminary or permanent injunction, permanent injunction or any other pretrial or permanent injunctive or similar relief, restraining, prohibiting or enjoining you, any of your correspondents or any advising, confirming, negotiating, paying, accepting or other bank from paying or negotiating any Demand or creating or paying any Acceptance or honoring any other obligation under or in connection with any Credit; and (n) except for Applicant’s obligations specifically affected by those actions or failures to act referred to in subsections (ii) and (vii) of this Section 7(n) which you have performed or approved or accepted, Applicant’s obligations under or in connection with each L/C Document and Loan Document shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of each such L/C Document and Loan Document under all circumstances whatsoever, including, without limitation, the following circumstances, the circumstances listed in Section 13(b) through (dd) of this Agreement, and any other event or circumstance similar to such circumstances: (i) any lack of validity or enforceability of any L/C Document, any Loan Document, any Document or any agreement relating to any of the foregoing; (ii) any amendment of or waiver relating to, or any consent to or departure from, any L/C Document, any Loan Document or any Document; (iii) any release or substitution at any time of any Property held as Collateral; (iv) your failure to deliver to Applicant any Document you have received with a drawing under a Credit because doing so would, or is likely to, violate any law, rule or regulation of any government authority; (v) the existence of any claim, set-off, defense or other right which Applicant may have at any time against you or any Beneficiary (or any person or entity for whom any Beneficiary may be acting) or any other person or entity, whether under or in connection with any L/C Document, any Loan Document, any Document or any Property referred to in or related to any of the foregoing or under or in connection with any unrelated transaction; (vi) any breach of contract or other dispute between or among any two or more of you, Applicant, any Beneficiary, any transferee of any Beneficiary, any person or entity for whom any Beneficiary or any transferee of any Beneficiary may be acting, or any other person or entity; or (vii) any delay, extension of time, renewal, compromise or other indulgence granted or agreed to by you with or without notice to Applicant, or Applicant’s approval, in respect of any of Applicant’s indebtedness or other obligations to you under or in connection with any L/C Document or any Loan Document.

SECTION 8. COMPLIANCE WITH LAWS AND REGULATIONS. Applicant represents and warrants to you that no Application, Credit or transaction under any Application and/or Credit will contravene any law or regulation of the government of the United States or any state thereof. Applicant agrees (a) to comply with all federal, state and foreign exchange regulations and other government laws and regulations now or hereafter applicable to any L/C Document, to any payments under or in connection with any L/C Document, to each transaction under or in connection with any L/C Document, or to the import, export, shipping or financing of the Property referred to in or shipped under or in connection with any Credit, and (b) to reimburse you for such amounts as you may be required to expend as a result of such laws or regulations, or any change therein or in the interpretation thereof by any court or administrative or government authority charged with the administration of such laws or regulations.

SECTION 9. TAXES, RESERVES AND CAPITAL ADEQUACY REQUIREMENTS. In addition to, and notwithstanding any other provision of any L/C Document or any Loan Document, in the event that any law, treaty, rule, regulation, guideline, request, order, directive or determination (whether or not having the force of law) of or from any government authority, including, without limitation, any court, central bank or government regulatory authority, or any change therein or in the interpretation or application thereof, (a) does or shall subject you to any tax of any kind whatsoever with respect to the L/C Documents, or change the basis of taxation of payments to you of any amount payable thereunder (except for changes in the rate of tax on your net income); (b) does or shall impose, modify or hold applicable any reserve, special deposit, assessment, compulsory loan, Federal Deposit Insurance Corporation insurance or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances or loans by, other credit extended by or any other acquisition of funds by, any of your offices; (c) does or shall impose, modify or hold applicable any capital adequacy requirements (whether or not having the force of law); or (d) does or shall impose on you any other condition; and the result of any of the foregoing is (i) to increase the cost to you of issuing or maintaining any Credit or of performing any transaction under any L/C Document, (ii) to reduce any amount receivable by you under any L/C Document, or (iii) to reduce the rate of return on your capital or the capital of the Holding Company to a level below that which you or the Holding Company could have achieved but for any imposition, modification or application of any capital adequacy requirement (taking into consideration your policy and the policy of the Holding Company, as the case may be, with respect to capital adequacy), and any such increase or reduction is material (as determined by you or the Holding Company, as the case may be, in your or the Holding

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Company’s sole discretion); then, in any such case, Applicant agrees to pay to you or the Holding Company, as the case may be, such amount or amounts as may be necessary to compensate you or the Holding Company for (A) any such additional cost, (B) any reduction in the amount received by you under any L/C Document, or (C) to the extent allocable (as determined by you or the Holding Company, as the case may be, in your or the Holding Company’s sole discretion) to any L/C Document, any reduction in the rate of return on your capital or the capital of the Holding Company.

SECTION 10. COLLATERAL. In addition to, and not in substitution for, any Property delivered, conveyed, transferred or assigned to you under any Loan Document as security for any or all of Applicant’s obligations and liabilities to you at any time existing under or in connection with any L/C Document or any Loan Document, Applicant grants to you a security interest in and to the following Collateral, whether or not any such Collateral is in your possession or control or the possession or control of your agents or correspondents or in transit to, or set apart for, you or your agents or correspondents: (a) with respect to each Credit and until such time as all Applicant’s obligations and liabilities to you at any time existing under or in connection with each Credit and the L/C Documents and Loan Documents related to such Credit have been fully paid and discharged, all as security for such obligations and liabilities, (i) all Property referred to in, or at any time shipped under or pursuant to, or in any way related to, each Credit or to any Demand made or Acceptance created under each Credit, whether or not you receive the Documents covering such Property or release such Documents to Applicant on trust or bailee receipt or otherwise, (ii) all Documents accompanying any Demand made under each Credit, and (iii) all the proceeds of the Property and the Documents referred to in subsections (i) and (ii) of this Section 10(a), and (b) with respect to all the Credits and until such time as all Applicant’s obligations and liabilities to you at any time existing under or in connection with each L/C Document and each Loan Document have been fully paid and discharged, all as security for such obligations and liabilities, (i) all Applicant’s property, claims, demands, right, title and interest in and to the balance of each of Applicant’s deposit accounts with you now or at any time hereafter existing, and all evidences of such deposit accounts, (ii) all Property belonging to Applicant or in which it may have an interest, now or at any time hereafter delivered, conveyed, transferred, assigned, pledged or paid to you or your agents or correspondents in any manner whatsoever, whether as security or for safekeeping or otherwise, including, without limitation, any items received for collection or transmission, and the proceeds of such items, whether or not such Property is in whole or in part released to Applicant on trust or bailee receipt or otherwise, and (iii) where Applicant is more than one person or entity, all right, title and interest of each of Applicants in and to all the Property which any of Applicants may now or hereafter obtain as security for the obligations of any one or more of Applicants to one or more of the others of Applicants arising under or in connection with the transaction to which any Credit relates. Further, in addition to, and not in substitution for, any Property delivered, conveyed, transferred or assigned to you under any Loan Document as security for any or all of Applicant’s obligations and liabilities to you at any time existing under or in connection with any L/C Document or any Loan Document, Applicant agrees to deliver, convey, transfer and assign to you on demand, as security, Property of a value and character satisfactory to you, (A) if you at any time feel insecure about Applicant’s ability or willingness to repay any amounts which you have paid or may pay in the future on any Demand or Acceptance or in honoring any other of your obligations under or in connection with any Credit, or (B) without limiting the generality of the foregoing, if any temporary or permanent restraining order, preliminary or permanent injunction, or any other pretrial or permanent injunctive or similar relief is obtained restraining, prohibiting or enjoining you, any of your correspondents, or any advising, confirming, negotiating, paying, accepting or other bank from paying or negotiating any Demand or creating or paying any Acceptance or honoring any other obligation under or in connection with any Credit. Applicant agrees that the receipt by you or any of your agents or correspondents at any time of any kind of security, including, without limitation, cash, shall not be deemed a waiver of any of your rights or powers under this Agreement. Applicant agrees to sign and deliver to you on demand, all such deeds of trust, security agreements, financing statements and other documents as you shall at any time request which are necessary or desirable (in your sole opinion) to grant to you an effective and perfected security interest in and to any or all of the Collateral. Applicant agrees to pay all filing and recording fees related to the perfection of any security interest granted to you in accordance with this Section. Applicant hereby agrees that any or all of the Collateral may be held and disposed of as provided in this Agreement by you. Upon any transfer, sale, delivery, surrender or endorsement of any Document or Property which is or was part of the Collateral, Applicant will indemnify and hold you and your agents and correspondents harmless from and against each and every claim, demand, action or suit which may arise against you or any of your agents or correspondents by reason of such transfer, sale, delivery, surrender or endorsement.

SECTION 11. LICENSES AND INSURANCE FOR PROPERTY. Applicant shall (a) procure promptly any necessary import, export or other licenses for the import, export or shipping of the Property referred to in or shipped under, pursuant to or in connection with any Credit; (b) furnish such instruments, certificates and other documents as you may at any time require with respect to such import, export or other licenses and with respect to Applicant’s compliance with all federal, state and foreign government laws, regulations, guidelines, requests, directives and/or determinations with regard to the import, export, shipping and financing of the Property referred to in, or shipped under, pursuant to, or in connection with, any Credit; (c) keep such Property adequately covered by insurance in amounts, against risks, and with companies satisfactory to you; (d) make the loss or adjustment, if any, under these policies or certificates of insurance payable to you; (e) require the insurers under these policies or certificates of insurance to give you 30 days written notice of any change in, or termination of, the insurance; (f) assign the policies or certificates of insurance to you at your option; and (g) furnish to you, upon your demand, evidence of such insurance and/or evidence of acceptance by the insurers of the assignment of such policies or certificates of insurance. Should the insurance on any Property referred to in or shipped under, pursuant to or in connection with any Credit for any reason be unsatisfactory to you, you may, at Applicant’s expense, obtain insurance satisfactory to you.

SECTION 12. INDEMNIFICATION. Except to the extent any of the following are caused by your lack of good faith, gross negligence, willful misconduct, failure to honor any Demand presented under any Credit when such Demand and its accompanying Documents appear on their face to comply strictly with the terms of such Credit, or honor of any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit, Applicant agrees, notwithstanding any other provision of this Agreement, to reimburse and indemnify you for (a) all amounts paid by you to any person or entity under or in connection with any Delivery Authorization, and (b) all damages, losses, liabilities, actions, claims, suits, penalties, judgments, obligations, costs or expenses, of any kind whatsoever and howsoever caused, including, without limitation, attorneys’ fees and interest, paid, suffered or incurred by, or imposed upon, you directly or indirectly arising out of or in connection with (i) any L/C Document, any Loan Document, any Document or any Property referred to in or related to any Credit; (ii) Applicant’s failure to comply with any of its obligations under this Agreement; (iii) the issuance of any Credit; (iv) the transfer of any Credit; (v) any Delivery Authorization; (vi) the collection of any amounts Applicant owes to you under or in connection with any L/C Document or any Loan Document; (vii) the foreclosure against, or other enforcement of, any Collateral; (viii) the protection, exercise or enforcement of your rights and remedies under or in connection with any L/C Document or any Loan Document; (ix) any court decrees or orders, including, without limitation, temporary or permanent restraining orders, preliminary or permanent injunctions, or any other pretrial or permanent injunctive or similar relief, restraining, prohibiting or enjoining or seeking to restrain, prohibit or enjoin you, any of your correspondents or any advising, confirming, negotiating, paying, accepting or other bank from paying or negotiating any Demand or creating or paying any Acceptance or honoring any other obligation under or in connection with any Credit; or (x) any Credit being governed by laws or rules other than the UCP in effect on the date such Credit is issued. The indemnity provided in this Section will survive the termination of this Agreement and the expiration or cancellation of any or all the Credits. Without limiting any provision of this Agreement, it is the express intention of the parties to this Agreement that the indemnity contained in this Section shall apply to each person to be indemnified without regard to the sole or contributory negligence of such person.

SECTION 13. LIMITATION OF LIABILITY. Notwithstanding any other provision of this Agreement, neither you nor any of your agents or correspondents will have any liability to Applicant for any action, neglect or omission under or in connection with any L/C Document, Loan Document or Credit, including, without limitation, the issuance or any amendment of any Credit, the failure to issue or amend any Credit, or the honoring or dishonoring of any Demand under any Credit, and such action or neglect or omission will bind Applicant, except to the extent any such action or neglect or omission is caused by, or arises from, your lack of good faith, gross negligence, willful misconduct, failure to honor any Demand presented under any Credit when such Demand and its accompanying Documents appear on their face to comply strictly with the terms of such Credit, or honor of any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit. Notwithstanding any other provision of any L/C Document, but without in any way affecting, except as specifically provided in this sentence, your obligation under this Agreement to honor any Demand presented under any Credit when such Demand and its accompanying Documents appear on their face to comply strictly with the terms of such Credit and to dishonor any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit, in no event shall you or your officers or directors be liable or responsible for the following, regardless of whether any claim is based on contract or tort (a) any special, consequential, indirect or incidental damages, including, without limitation, lost profits, arising out of or in connection with the issuance of any Credit or any action taken or not taken by you in connection with any L/C Document, any Loan Document, or any Document or Property referred to in or related to any Credit; (b) the honoring of any Demand or Acceptance in accordance with any order or directive of any court or government or regulatory body or entity requiring such honor despite any temporary restraining order, restraining order, preliminary injunction, permanent injunction or any type of pretrial or permanent injunctive relief or any similar relief, however named, restraining, prohibiting

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or enjoining such honor; (c) the dishonoring of any Demand or Acceptance in accordance with any legal or other restriction in force at the time and in the place of presentment, payment or acceptance; (d) verifying the existence or reasonableness of any act or condition referenced, or any statement made, in connection with any drawing or presentment under any Credit; (e) the use which may be made of any Credit; (f) the validity of any purported transfer of any Credit or the identity of any purported transferee of any Beneficiary; (g) any acts or omissions of any Beneficiary or any other user of any Credit; (h) the existence, character, quality, quantity, condition, packing, value or delivery of the Property referred to in or related to any Credit or purporting to be represented by any Document; (i) any difference in the character, quality, quantity, condition or value of the Property referred to in or related to any Credit or purporting to be represented by any Document from that expressed in any Credit or any Document; (j) the time, place, manner or order in which shipment is made of, or the failure or omission to ship, or the partial or incomplete shipment of, any or all of the Property referred to in or related to any Credit or any Document; (k) the form, validity, sufficiency, correctness, genuineness or legal effect of any Demand or any Document, or of any signatures or endorsements on any Demand or Document, even if any Demand or any Document should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (l) any deviation from instructions, delay, default or fraud by the shipper or anyone else in connection with any Document or any Property referred to in or related to any Credit or the shipping of any such Property; (m) any delay in giving or failure to give any notice, including, without limitation, notice of arrival of any Property referred to in or related to any Credit or any Document; (n) any delay in arrival or failure to arrive of any Property referred to in or related to any Credit or any Document; (o) any breach of contract between the shippers or vendors and the consignees or buyers; (p) the character, adequacy, validity or genuineness of any insurance or the solvency or responsibility of any insurer of any risk; (q) the solvency of any person or entity issuing any Document or the responsibility of any such person or entity for, or the relationship of any such person or entity to, any Property referred to in or related to any Document; (r) payment or acceptance by you of any Demand when the Demand and any accompanying Documents appear on their face to comply substantially with the terms of the Credit to which they relate or dishonor by you of any Demand when the Demand and any accompanying Documents do not strictly comply on their face with the terms of the Credit to which they relate; (s) the failure of any Demand or Document to bear any reference or adequate reference to the Credit to which it relates; (t) the failure of any Document to accompany any Demand; (u) the failure of any person or entity to note the amount of any Demand on the Credit to which it relates or on any Document; (v) the failure of any person or entity to surrender or take up any Credit; (w) the failure of any Beneficiary to comply with the terms of any Credit or to meet the obligations of such Beneficiary to Applicant; (x) the failure of any person or entity to send or forward Documents if and as required by the terms of any Credit; (y) any errors, inaccuracies, omissions, interruptions or delays in transmission or delivery of any messages, directions or correspondence by mail, cable, telegraph, wireless or otherwise, whether or not they are in cipher; (z) any notice of nonrenewal of a Credit sent by you not being received on time or at any time by the Beneficiary of such Credit; (aa) any inaccuracies in the translation of any messages, directions or correspondence; (bb) any Beneficiary’s use of the proceeds of any Demand or Acceptance; (cc) any Beneficiary’s failure to repay to you or Applicant the proceeds of any Demand or Acceptance if the terms of any Credit require such repayment; or (dd) any act, error, neglect, default, negligence, gross negligence, omission, willful misconduct, lack of good faith, insolvency or failure in business of any of your agents or correspondents or of any advising, confirming, negotiating, paying, accepting or other bank. Except to the extent caused by, or arising from, your lack of good faith, gross negligence, willful misconduct, failure to honor any Demand presented under any Credit when such Demand and its accompanying Documents appear on their face to comply strictly with the terms of such Credit, or honor of any Demand under a Credit when such Demand and its accompanying Documents do not appear on their face to comply substantially with the terms of such Credit, the occurrence of any one or more of the contingencies referred to in the preceding sentence shall not affect, impair or prevent the vesting of your rights or powers under this Agreement or any Loan Document or Applicant’s obligation to make reimbursement or payment to you under this Agreement or any Loan Document. The provisions of this Section will survive the termination of this Agreement and any Loan Documents and the expiration or cancellation of any or all the Credits.

SECTION 14. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: (a) Applicant’s or any Guarantor’s failure to pay any principal, interest, fee or other amount when due under or in connection with any L/C Document or any Loan Document; (b) Applicant’s failure to deliver to you Property of a value and character satisfactory to you at any time you have demanded security from Applicant pursuant to Section 10 of this Agreement; (c) the occurrence and continuance of any default or defined event of default under any Loan Document or any other agreement, document or instrument signed or made by Applicant or any Guarantor in your favor; (d) Applicant’s or any Guarantor’s failure to perform or observe any term, covenant or agreement contained in this Agreement or any Loan Document (other than those referred to in subsections (a), (b) and (c) of this Section), or the breach of any other obligation owed by Applicant or any Guarantor to you, and any such failure or breach shall be impossible to remedy or shall remain unremedied for thirty (30) calendar days after such failure or breach occurs; (e) any representation, warranty or certification made or furnished by Applicant or any Guarantor under or in connection with any L/C Document, any Loan Document or any Collateral, or as an inducement to you to enter into any L/C Document or Loan Document or to accept any Collateral, shall be materially false, incorrect or incomplete when made; (f) any material provision of this Agreement or any Loan Document shall at any time for any reason cease to be valid and binding on Applicant or any Guarantor or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by Applicant, any Guarantor or any government agency or authority, or Applicant or any Guarantor shall deny that it has any or further liability or obligation under this Agreement or any Loan Document; (g) Applicant’s or any Guarantor’s failure to pay or perform when due any indebtedness or other obligation Applicant or such Guarantor has to any person or entity other than you if such failure gives the payee of such indebtedness or the beneficiary of the performance of such obligation the right to accelerate the time of payment of such indebtedness or the performance of such obligation; (h) any guarantee of, or any security covering, any of Applicant’s indebtedness to you arising under or in connection with any L/C Document or any Loan Document fails to be in full force and effect at any time; (i) any material adverse change in Applicant’s or any Guarantor’s financial condition; (j) Applicant or any Guarantor suspends the transaction of its usual business or is expelled or suspended from any exchange; (k) Applicant or any Guarantor dies or is incapacitated; (l) Applicant or any Guarantor dissolves or liquidates; (m) Applicant or any Guarantor is not generally paying its debts as they become due; (n) Applicant or any Guarantor becomes insolvent, however such insolvency may be evidenced, or Applicant or any Guarantor makes any general assignment for the benefit of creditors; (o) a petition is filed by or against Applicant or any Guarantor seeking Applicant’s or such Guarantor’s liquidation or reorganization under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended or recodified from time to time, or a similar action is brought by or against Applicant or any Guarantor under any federal, state or foreign law; (p) a proceeding is instituted by or against Applicant or any Guarantor for any relief under any bankruptcy, insolvency or other law relating to the relief of debtors, reorganization, readjustment or extension of indebtedness or composition with creditors; (q) a custodian or a receiver is appointed for, or a writ or order of attachment, execution or garnishment is issued, levied or made against, any of Applicant’s or any Guarantor’s Property or assets; (r) an application is made by any of Applicant’s or any Guarantor’s judgment creditors for an order directing you to pay over money or to deliver other of Applicant’s or such Guarantor’s Property; or (s) any government authority or any court takes possession of any substantial part of Applicant’s or any Guarantor’s Property or assets or assumes control over Applicant’s or any Guarantor’s affairs.

SECTION 15. REMEDIES. Upon the occurrence and continuance of any Event of Default all amounts paid by you on any Demand or Acceptance which have not previously been repaid to you, together with all interest on such amounts, and the Unpaid and Undrawn Balance, if any, shall automatically be owing by Applicant to you and shall be due and payable by Applicant on demand without presentment or any other notice of any kind, including, without limitation, notice of nonperformance, notice of protest, protest, notice of dishonor, notice of intention to accelerate, or notice of acceleration, all of which are expressly waived by Applicant. Upon payment of the Unpaid and Undrawn Balance to you Applicant shall have no further legal or equitable interest therein, and you will not be required to segregate on your books or records the Unpaid and Undrawn Balance paid by Applicant. After you receive the Unpaid and Undrawn Balance, you agree to pay to Applicant, upon termination of all of your liability under all the Credits, Demands and Acceptances, a sum equal to the amount which has not been drawn under all the Credits less all amounts due and owing to you from Applicant under or in connection with the L/C Documents and the Loan Documents. Further, upon the occurrence and continuance of any Event of Default, you may sell immediately, without demand for payment, advertisement or notice to Applicant, all of which are hereby expressly waived, any and all Collateral, received or to be received, at private sale or public auction or at brokers’ board or upon any exchange or otherwise, at your option, in such parcel or parcels, at such times and places, for such prices and upon such terms and conditions as you may deem proper, and you may apply the net proceeds of each sale, together with any sums due from you to Applicant, to the payment of any and all obligations and liabilities due from Applicant to you under or in connection with the L/C Documents and the Loan Documents, all without prejudice to your rights against Applicant with respect to any and all such obligations and liabilities which may be or remain unpaid. If any such sale be at brokers’ board or at public auction or upon any exchange, you may yourself be a purchaser at such sale free from any right of redemption, which Applicant hereby expressly waive and release. All your rights and remedies existing under the L/C Documents and the Loan Documents are in addition to, and not exclusive of, any rights or remedies otherwise available to you under applicable law. In addition to any rights now or hereafter granted under applicable law, and not by way of limitation of any such rights, upon the occurrence and continuance of any Event of Default, Applicant hereby authorizes you at any time or from time to time, without notice to Applicant or to any other person (any such notice being hereby expressly waived by Applicant) and to the extent permitted by law, to appropriate and to apply any and all Applicant’s deposits (general or special, including, without limitation, indebtedness evidenced by certificates of deposit) with you or elsewhere, whether matured or unmatured, and any other indebtedness at any time held or owing by you to or for Applicant’s credit

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or its account, against and on account of Applicant’s obligations and liabilities to you under or in connection with any of the L/C Documents or the Loan Documents, irrespective of whether or not you shall have made any demand for payment of any or all such obligations and liabilities or declared any or all such obligations and liabilities to be due and payable, and although any or all such obligations and liabilities shall be contingent or unmatured.

SECTION 16. GENERAL WAIVERS. No delay, extension of time, renewal, compromise or other indulgence which may occur or be granted by you under any L/C Document or any Loan Document shall impair your rights or powers under this Agreement or any Application. You shall not be deemed to have waived any of your rights under this Agreement or any Application unless such waiver is in writing signed by your authorized representative. No such waiver, unless expressly provided therein, shall be effective as to any transactions which occur subsequent to the date of such waiver or as to the continuance of any Event of Default after such waiver.

SECTION 17. AMENDMENTS AND MODIFICATIONS TO THIS AGREEMENT AND THE CREDITS. No amendment or modification of this Agreement shall be effective unless it is in writing signed by Applicant’s and your authorized representative(s). At Applicant’s verbal or written request, or with Applicant’s verbal or written consent, and without extinguishing or otherwise affecting Applicant’s obligations under this Agreement or any Loan Document, you may with respect to any Credit, in writing or by any other action, but you will not be obligated to, (a) increase the amount of such Credit, (b) extend the time for, and amend or modify the terms and conditions governing, the making and honoring of any Demand, Acceptance or Document or any other terms and conditions of such Credit, or (c) waive the failure of any Demand or Document to comply with the terms of such Credit, and any Collateral pledged or granted to you in connection with such Credit will secure Applicant’s obligations to you with respect to such Credit as amended, modified or waived. No amendment to, or modification of, the terms of any Credit will become effective if the Beneficiary of such Credit or any confirming bank objects to such amendment or modification. If any Credit is amended or modified in accordance with this Section, Applicant shall be bound by, and obligated under, the provisions of this Agreement with respect to such Credit as so amended or modified, and any action taken by you or any advising, confirming, negotiating, paying, accepting or other bank in accordance with such amendment or modification.

SECTION 18. SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement and each Application shall bind Applicant’s heirs, executors, administrators, successors and assigns, and all rights, benefits and privileges conferred on you under or in connection with each L/C Document and each Loan Document shall be and hereby are extended to, conferred upon and may be enforced by your successors and assigns. Applicant will not assign this Agreement or Applicant’s obligations or liabilities to you under or in connection with any L/C Document or Loan Document to any person or entity without your prior written approval.

SECTION 19. GOVERNING LAW. This Agreement and each Application, and Applicant’s and your performance under this Agreement and each Application, shall be governed by and be construed in accordance with the laws of the State of California. Unless you otherwise specifically agree in writing, each Credit, the opening of each Credit, the performance by you under each Credit, and the performance by the Beneficiary and any advising, confirming, negotiating, paying, accepting or other bank under each Credit, shall be governed by and be construed in accordance with the UCP in force on the date of the issuance of each Credit.

SECTION 20. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or proceeding against Applicant under or with respect to any L/C Document may, at your sole option, be brought in (a) the courts of the State of California, (b) the United States District Courts in California, (c) the courts of Applicant’s jurisdiction of incorporation or principal office, or (d) the courts of the jurisdiction where any Beneficiary, any advising, confirming, negotiating, paying, accepting or other bank, or any other person or entity has brought any suit, action or proceeding against you with respect to any Credit, any Demand or any Acceptance, and Applicant hereby submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment and waives any other preferential jurisdiction by reason of domicile. Applicant will accept joinder in any suit, action or proceeding brought in any court or jurisdiction against you by any Beneficiary, any advising, confirming, negotiating, paying, accepting or other bank or any other person or entity with respect to any Credit, any Demand or any Acceptance. Applicant irrevocably waives any objection, including, without limitation, any objection of the laying of venue or any objection based on the grounds of forum non conveniens, which Applicant may now or hereafter have to the bringing of any such action or proceeding. Applicant further waives any right to transfer or change the venue of any suit, action or proceeding brought against Applicant by you under or in connection with any L/C Document. Applicant irrevocably consents to the service of process in any action or proceeding in any court by the mailing of copies thereof by registered or certified mail, postage prepaid, to Applicant at its address specified next to its signature on this Agreement or at such other address as Applicant shall have notified to you in writing, such service to be effective ten (10) days after such mailing.

SECTION 21. GOVERNING LAW AND DISPUTES RESOLVED AS PROVIDED IN THE LOAN DOCUMENTS. Notwithstanding any provision to the contrary in this Agreement, if any Credit governed by this Agreement is issued under or pursuant to any Loan Document, the law governing such Loan Document will also govern this Agreement and each Application and Applicant’s and your performance under this Agreement and each Application, and all disputes arising between Applicant and you under or in connection with any L/C Document will be resolved as provided in such Loan Document, unless any such dispute is brought by, or involves, the Beneficiary of such Credit, or any advising, confirming, negotiating, paying, accepting or other bank, or any other person or entity other than Applicant, and results in legal action different from the form of action provided in such Loan Document. If pursuant to this Section Texas law governs this Agreement, the special Texas provisions at the end of this Agreement will apply.

SECTION 22. MULTIPLE APPLICANTS AND WAIVERS. If this Agreement is signed by more than one person and/or entity as an Applicant, this Agreement and the Applications of each such person and/or entity shall be the joint and several agreement of all such persons and/or entities and all references to “Applicant” or “Applicant’s” in this Agreement and the Applications shall refer to all such persons and/or entities jointly and severally. You shall have no obligation to disclose to any Applicant any information or material about any other Applicant or any other person which you acquire in any manner. Each Applicant waives any right to require you to proceed against any other Applicant or any other person, or marshal assets or proceed against or exhaust any security held from any other Applicant or any other person. Each Applicant waives any defense to its liability in connection with any Credit or this Agreement based upon or arising by reason of (a) any defense of any other Applicant or any other person; (b) the cessation or limitation from any cause whatsoever, other than payment in full of such Applicant’s obligations under this Agreement, of the liability of any other Applicant or of any other person in connection with any Credit or this Agreement; (c) any act or omission by you which directly or indirectly results in or aids the release or discharge of any other Applicant or any other person by operation of law or otherwise, or which in any way impairs or suspends any rights or remedies you may have against any other Applicant or any other person, including, without limitation, the release by you of any Guarantor or other person obligated in connection with any Credit or this Agreement; (d) the release of any security for any indebtedness owed to you in connection with any Credit or this Agreement; (e) the application of payments received by you from any other Applicant or any other person obligated in connection with any Credit or this Agreement to indebtedness of such other Applicant or other person to you other than indebtedness in connection with any Credit or this Agreement, and (f) any modification of the obligations or liabilities of any other Applicant or any other person in connection with any Credit or this Agreement. Each Applicant waives all rights and defenses it may have arising out of (A) any election of remedies by you, even though that election of remedies destroys such Applicant’s rights of subrogation or its rights to proceed against any other Applicant or any other person for reimbursement, or (B) any loss of rights such Applicant may suffer by reason of any rights, powers or remedies of any other Applicant or other person in connection with any anti-deficiency laws or any other laws limiting, qualifying or discharging any such other Applicant’s or other person’s indebtedness in connection with any Credit or this Agreement, whether by operation of law or otherwise. Until all indebtedness of each Applicant to you arising under or in connection with this Agreement or any Credit shall have been paid in full, each Applicant waives any right of subrogation and any right to enforce any remedy which you now have or may hereafter have against any other Applicant or any other person, and waives any benefit of, or any right to participate in, any security now or hereafter held by you. If any waiver in this Agreement is determined to be contrary to any applicable law or public policy, such waiver shall be effective only to the extent permitted by law.

SECTION 23. SEVERABILITY. Any provision of any L/C Document which is prohibited or unenforceable in any jurisdiction shall be, only as to such jurisdiction, ineffective to the extent of such prohibition or unenforceability, but all the remaining provisions of such L/C Document and all the other L/C Documents shall remain valid.

SECTION 24. HEADINGS. The headings used in this Agreement are for convenience of reference only and shall not define or limit the provisions of this Agreement.

SECTION 25. COMPLETE AGREEMENT. The entire agreement with respect to each Credit will consist of this Agreement and the Application for such Credit, together with any written document or instrument signed by Applicant and you, or signed by Applicant and approved by you, which specifically references such Credit, the Application for such Credit, or this Agreement. Except as specifically provided in this Agreement, in any Application or in any written document or instrument referred to in the preceding sentence, no statements or representations not contained in this Agreement, such Application or such written document or instrument shall have any force or effect on this Agreement, such Application or such written document or instrument.

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UNLESS ANY CREDIT GOVERNED BY THIS AGREEMENT IS ISSUED UNDER OR PURSUANT TO A LOAN DOCUMENT WHICH DOES NOT HAVE TEXAS GOVERNING LAW, IF THE APPLICANT’S ADDRESS BELOW IS IN TEXAS, OR IF THE APPLICANT’S HEADQUARTERS OR PRINCIPAL PLACE OF BUSINESS IS IN TEXAS, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Texas 1. GOVERNING LAW. This Agreement and each Application, and Applicant’s and your performance under this Agreement and each Application, shall be governed by and be construed in accordance with the laws of the State of Texas.

Section Texas 2. JURISDICTION AND SERVICE OF PROCESS. Any suit, action or proceeding against Applicant under or with respect to any L/C Document may, at your sole option, be brought in (a) the courts of the State of Texas, (b) the United States District Courts in Texas, (c) the courts of Applicant’s jurisdiction of incorporation or principal office, or (d) the courts of the jurisdiction where any Beneficiary, any advising, confirming, negotiating, paying or other bank, or any other person or entity has brought any suit, action or proceeding against you with respect to any Credit or any Demand, and Applicant hereby submits to the nonexclusive jurisdiction of such courts for the purpose of any such suit, action, proceeding or judgment and waives any other preferential jurisdiction by reason of domicile. The remaining provisions of Section 19 of this Agreement will apply.

Section Texas 3. CERTAIN TRI-PARTY ACCOUNTS. Applicant and you agree that Chapter 346 of the Texas Finance Code (which regulates certain revolving credit accounts and revolving tri-party accounts) shall not apply to any revolving loan accounts created under, or maintained in connection with, this Agreement, any other L/C Document, or any Loan Document.

Section Texas 4. BUSINESS PURPOSE. Applicant represents and warrants that all its obligations and liabilities evidenced by the L/C Documents and the Loan Documents are for a business, commercial, investment, agricultural or other similar purpose and not primarily for a personal, family or household purpose.

Section Texas 5. COMPLIANCE WITH USURY LAWS. It is Applicant’s and your intention to comply strictly with applicable usury laws. Accordingly, notwithstanding any provision to the contrary in any L/C Document or in any Loan Document, in no event shall any L/C Document or any Loan Document require the payment or permit the payment, taking, reserving, receiving, collection or charging of any sums constituting interest under applicable laws that exceed the Maximum Rate permitted by such laws, as the same may be amended or modified from time to time. If any such excess interest is called for, contracted for, charged, taken, reserved or received in connection with any L/C Document or any Loan Document or in any communication by you or any other person to Applicant or to any other person, or in the event that all or part of the principal or interest owing to you under any L/C Document or any Loan Document shall be prepaid or accelerated, so that under any of such circumstances or under any other circumstance whatsoever the amount of interest contracted for, charged, taken, reserved or received on the amount of principal actually outstanding from time to time under any L/C Document or any Loan Document exceeds the Maximum Rate, then in such event it is agreed that (i) the provisions of this Section shall govern and control, (ii) neither Applicant nor any other person or entity now or hereafter liable for the payments under any L/C Document or any Loan Document shall be obligated to pay the amount of such interest to the extent it is in excess of the Maximum Rate, (iii) any such excess interest which is or has been received by you, notwithstanding this Section, shall be credited against the then unpaid principal balance owing under any L/C Document or any Loan Document, or if all amounts outstanding under any L/C Document or any Loan Document have been or would be paid in full by such credit, refunded to Applicant, and (iv) the provisions of the L/C Documents and the Loan Documents, and any other communication by you or any other person to Applicant shall immediately be deemed reformed and such excess interest reduced to the Maximum Rate without the necessity of executing any other document. The right to accelerate the maturity of any amounts due under any L/C Document or any Loan Document does not include the right to accelerate, collect or charge unearned interest, but only such interest that has otherwise accrued as of the date of acceleration. Without limiting the foregoing, all calculations of the rate of interest contracted for, charged, taken, reserved or received in connection with any L/C Document or any Loan Document which are made for the purpose of determining whether such rate exceeds the Maximum Rate shall be made to the extent permitted by applicable laws by amortizing, prorating, allocating and spreading, during the period of the full term of such L/C Document or such Loan Document, including, without limitation, all prior and subsequent renewals and extensions of such L/C Document or such Loan Document, all interest at any time contracted for, charged, taken, reserved or received by you. The terms of this Section shall be deemed to be incorporated into each L/C Document and each Loan Document . To the extent that either Chapter 303 or 306, or both, of the Texas Finance Code apply in determining the Maximum Rate, you hereby elect to determine the applicable rate ceiling by using the weekly ceiling from time to time in effect, subject to your right subsequently to change such method in accordance with applicable law, as the same may be amended or modified from time to time.

Section Texas 6. ALL THE L/C DOCUMENTS AND THE LOAN DOCUMENTS CONSTITUTE A WRITTEN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE L/C DOCUMENTS OR THE LOAN DOCUMENTS OR THE INDEBTEDNESS EVIDENCED BY THE L/C DOCUMENTS OR THE LOAN DOCUMENTS.

IF THE APPLICANT’S ADDRESS BELOW IS IN OREGON OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF BUSINESS IS IN OREGON, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Oregon 1. UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY A LENDER AFTER OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER’S RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION, AND BE SIGNED BY THE LENDER TO BE ENFORCEABLE.

IF THE APPLICANT’S ADDRESS BELOW IS IN WASHINGTON OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF BUSINESS IS IN WASHINGTON, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Washington 1. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

IF THE APPLICANT’S ADDRESS BELOW IS IN NEBRASKA OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF BUSINESS IS IN NEBRASKA, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Nebraska 1. ENFORCEABILITY OF WRITTEN TERMS ONLY. A CREDIT AGREEMENT MUST BE IN WRITING TO BE ENFORCEABLE UNDER NEBRASKA LAW. TO PROTECT THE PARTIES FROM ANY MISUNDERSTANDINGS OR DISAPPOINTMENTS, ANY CONTRACT, PROMISE, UNDERTAKING OR OFFER TO FOREBEAR REPAYMENT OF MONEY OR TO MAKE ANY OTHER FINANCIAL ACCOMMODATION IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, OR ANY AMENDMENT OF, CANCELLATION OF, WAIVER OF, OR SUBSTITUTION FOR ANY OR ALL OF THE TERMS OR PROVISIONS OF ANY INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, MUST BE IN WRITING TO BE EFFECTIVE.

IF THE APPLICANT’S ADDRESS BELOW IS IN IOWA OR IF ITS HEADQUARTERS OR PRINCIPAL PLACE OF BUSINESS IS IN IOWA, THE FOLLOWING ADDITIONAL PROVISIONS WILL APPLY

Section Iowa 1. IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.

Section Iowa 2. By signing this Agreement, Applicant acknowledges receipt of a copy of this Agreement.

This Agreement is signed by Applicant’s duly authorized representative or representatives on the date specified below.

Phoenix Footwear Group, Inc.	Penobscot Shoe Company
[APPLICANT’S NAME]	[APPLICANT’S NAME]
By:	By:
Title:	Title:
H.S Trask & Company	Chambers Belt Company
[APPLICANT’S NAME]	[APPLICANT’S NAME]
By:	By:
Title:	Title:

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Phoenix Delaware Acquisition, Inc.

[APPLICANT’S NAME]

By:

Title:

For each Applicant:

5840 El Camino Real, Suite 106

Carlsbad, CA 92008

[ADDRESS]

DATE: June 10, 2008

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EX-10.11

Exhibit 10.11

PLEDGE AND ASSIGNMENT OF DEPOSIT ACCOUNT

New York

ACCOUNT NAME    Phoenix Footwear Group, Inc. (Pledge Restricted)                

ACCOUNT ADDRESS    5840 El Camino Real, Suite 106 Carlsbad, CA 92008

DEPOSITARY NAME: Manufacturers and Traders Trust Company

DEPOSITARY ADDRESS: 255 East Avenue, Rochester, New York 14604

Deposit Account #                    

Entire Account Assigned including today’s balance of $    0.00                 plus all future deposits or credits thereto.

BANK: Manufacturers and Traders Trust Company, a New York banking corporation with offices located at One M&T Plaza, Buffalo, New York 14203 Attention: Office of the General Counsel

DEBTOR/BORROWER: Phoenix Footwear Group, Inc., a Delaware corporation with an organization number of 15-0327010 and with its chief executive office located at 5840 El Camino Real, Suite 106, Carlsbad, California 92008.

THIS PLEDGE AND ASSIGNMENT OF DEPOSIT ACCOUNT (the “Assignment”) is granted to the Bank by Debtor. In consideration of the Bank’s continuing to grant Financial Accommodation(s) to Debtor or Borrower, for other valuable consideration, the receipt of which is acknowledged, and intending to be legally bound, each of the undersigned agrees with the Bank as follows:

1. DEFINITIONS.

Capitalized terms not defined below have the meanings assigned in the UCC.

(a) “Collateral” means (i) the Deposit Account and all funds now or in the future credited thereto, together with any interest on and Proceeds (as defined below) of such Collateral.

(b) “Costs” means all the Bank’s costs and expenses as described in Section 7.

(c) “Debtor” means the Person identified above as owner of the Deposit Account and as Debtor, in any capacity, and the legal representative, successor or assign of any of it.

(d) “Deposit Account” means, collectively, (i) the deposit account listed above, (ii) all other deposit accounts derived even indirectly from any account listed, (iii) all direct or indirect additions to, extensions, renewals and replacements of, increases in, interest, dividends, distributions and other income and payments on account of and proceeds of any release, surrender, discharge, assignment, sale, exchange, transfer, conversion or other disposition or collection of such accounts (the “Proceeds”) and (iv) all certificates of deposit, instruments, passbooks and other records evidencing such accounts and Proceeds. A Deposit Account may be but is not necessarily evidenced by a certificate of deposit, and for purposes of this Assignment, may include demand deposits, time deposits, savings accounts, shares in pooled funds, money market accounts, Eurodollar accounts, interests on trust accounts or any other form of deposit, property or account held at the Bank or any of its affiliates or subsidiaries. Debtor acknowledges and agrees that the definition of “Deposit Account” hereunder shall be deemed to include “Deposit Accounts” as defined in the UCC, it being the intention of Debtor that such property of Debtor be included in the foregoing description of “Deposit Account”, and that Debtor, pursuant to this Assignment, grants to the Bank a security interest in such Deposit Accounts.

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(e) “Depositary” means Manufacturers and Traders Trust Company.

(f) An “Event of Default” will have occurred if (i) Debtor defaults in the payment when due whether by acceleration or otherwise of any of the Obligations, or any part thereof, or if there occurs any event or condition which after notice or lapse of time will permit such acceleration; (ii) Debtor defaults in the performance when due of any covenant or other agreement in connection with this Assignment, any control agreement, the Obligations or any other agreement between Debtor and the Bank or any of its affiliates or subsidiaries (collectively, “Affiliates”); (iii) Debtor is dissolved, suspends its present business, agrees to a merger or other absorption or to transfer substantially all of its assets, dies, becomes incompetent or insolvent under any law, fails to pay, withhold or collect any tax as required by law, has served or filed against its assets any lien other than a Permitted Lien or any judgment, garnishment, order or award; (iv) a receiver or similar trustee is appointed for Debtor or its assets or the Depositary (if the Depositary is other than the Bank), or Debtor or such Depositary makes an assignment for the benefit of creditors or commences or has commenced against it a proceeding pursuant to any bankruptcy or insolvency statute, regulation or other law of any jurisdiction relating to the relief of debtors, including without limitation the readjustment, composition or extension of indebtedness, liquidation or reorganization; (v) any representation or warranty made in this Assignment, any control agreement or in related documents or Debtor’s financial statements proves to have been false or misleading in any material respect when made; (vi) the occurrence of any event described in paragraph 1(g) (ii), (iii), (iv) or (v) hereof with respect to any indorsor, guarantor or any other party liable for, or whose assets or any interest herein secures, payment of any of the Obligations; (vii) the Collateral is lost or destroyed or substantially declines in value; (viii) the Bank in good faith deems itself insecure with respect to payment or performance of any of the Obligations or realization on the Collateral; or (ix) any control agreement is terminated without the consent of the Bank.

(g) “Financial Accommodation” means Letter of Credit Number                  issued by the Bank in the original face amount of $3,000,000, and any extension, renewal, refinancing, modification or replacement thereof, or granting any waiver of or any forbearance or other indulgence relating to the Financial Accommodation.

(h) “Obligations” means collectively (i) all indebtedness, liabilities and obligations for the payment of money, now existing and hereafter arising, direct and indirect, absolute and contingent (including without limitation all Obligations arising by operation of law or as a result of any guarantee or other assurance, due or not due, contractual or tortious, liquidated or unliquidated, which are now or hereafter owing to the Bank by Debtor, (ii) all extensions, renewals, refinancings, modifications and replacements thereof and all interest and other charges with respect thereto, (iii) the Bank’s Costs, and (iv) reinstated Obligations described in Section 8(c).

(i) “Person” means (i) any individual, corporation, partnership, joint venture, trust, unincorporated association, government or political subdivision, (ii) any court, agency or other governmental authority or (iii) any other entity, body, organization or group.

(j) “UCC” means the Uniform Commercial Code as the same may be in effect in the State of New York, as amended from time to time.

2. SECURITY INTEREST.

(a) Grant of Security Interest. Debtor hereby grants a security interest in, and assigns, pledges and hypothecates the Collateral to the Bank, as security for payment and performance of the Obligations.

(b) Continuing and Unconditional Assignment. This Assignment is unconditional and shall continue until released in writing by the Bank.

(c) Control Agreement. Debtor agrees that the Bank is the Depositary and shall have sole and exclusive control and full dominion over the Collateral, none of which shall be released without the written consent of the Bank.

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3. REPRESENTATIONS, WARRANTIES AND COVENANTS.

(a) Debtor represents and warrants to the Bank as follows:

(i) Information Accurate. All financial and other information submitted to the Bank by Debtor including, without limitation, Debtor’s full legal name, address, state of registration and organizational identification number (if any), as provided herein, is true and correct as of the date of this Assignment.

(ii) No Violations. Debtor’s execution, delivery and performance of this Assignment does not and will not (A) violate or result in any violation of any statute, regulation or other law or any judgment, order or award of any court, agency or other governmental authority or of any arbitrator or (B) violate, result in any violation of, constitute (either immediately or after notice or lapse of time) any default under, or result in the creation of any lien on, any of its assets pursuant to Debtor’s certificate of incorporation or by-laws or resolution or any agreement to which Debtor is a party or by which Debtor or any of its assets is bound, other than this Assignment.

(iii) All Approvals Obtained. Debtor has obtained every authorization, approval, permit and consent and performed every registration and filing and given all declarations and notices (the “Approvals”) required by any Person as a condition to Debtor’s execution, delivery and performance of this Assignment. Each Approval is in full force and effect.

(iv) Fully Authorized. Execution, delivery and performance of this Assignment (A) will further Debtor’s legitimate purposes and are within its authority and capacity and (B) has been duly authorized by each necessary corporate action; and (C) this Assignment has been executed by a duly authorized representative of Debtor.

(v) Title. Debtor is sole owner of the Collateral and has full right and capacity to pledge and assign it to the Bank.

(vi) No Settlements or Compromises. Debtor has not extended, renewed, refinanced, modified, compounded, subordinated, accelerated, settled, adjusted or compromised, entered into any composition of, repriced, canceled, released, surrendered, abandoned, discharged, assigned, sold, exchanged, converted or otherwise transferred or disposed of, or waived any right or remedy relating to or otherwise terminated, impaired or otherwise affected any indebtedness, liability or obligation of any Person relating to any of the Obligations or the Collateral.

(vii) No Claims or Litigation. There exists no demand, claim, counterclaim, setoff, defense or pending legal proceeding which might materially impair any of Debtor’s rights in the Collateral.

(viii) No Prior Liens. There are no security interests in or other liens or encumbrances upon any portion of the Collateral. There is no presently effective financing statement on file in any public office relating to any of the Collateral.

(b) As long as this Assignment is in effect, Debtor represents and warrants to and agrees with the Bank as follows:

(i) Certificates Genuine. Each instrument, certificate, passbook and other document evidencing any of the Collateral is genuine, is in all respects what it purports to be and is enforceable in accordance with its terms.

(ii) No Other Liens. Debtor will not grant any security interest in or permit any liens or encumbrances to be placed on the Collateral, other than by this Assignment and any control agreement requested by the Bank.

(iii) No Withdrawals. Debtor will not withdraw, abandon, give away or transfer any of the Collateral, except to the Bank. Debtor will not execute or terminate any agreement or order relating to the Collateral without the Bank’s prior written consent.

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(iv) Delivery of Collateral. Debtor has delivered to the Bank every certificate of deposit included in the Collateral, duly endorsed in blank, and every passbook or other document evidencing the Collateral. Debtor will promptly deliver each replacement document duly endorsed, and do all other things deemed necessary or desirable by the Bank to perfect and protect its security interest in the Collateral. Debtor will not take any action that might impair the Bank’s interest in the Collateral.

(v) Financial Statements. Debtor shall provide to the Bank periodic financial statements in the form and number of copies satisfactory to the Bank.

(vi) Taxes to be Paid. Debtor shall pay when due every tax, assessment, fee and charge imposed by any taxing authority upon any of the Collateral or its assignment or transfer or the recording or filing of any documents evidencing this Assignment.

(vii) Defense. Debtor shall defend the Collateral against any demand, claim, counterclaim, setoff and defense asserted by any Person other than the Bank.

(viii) Notice of Changes.

(A) As soon as Debtor has reason to know of the occurrence of (1) any Event of Default, or (2) any event or condition which after notice or lapse of time will constitute an Event of Default or (3) any event or condition which may have a materially adverse effect on any of the Collateral or on the business or financial or other condition of Debtor or the Depositary, Debtor shall deliver notice of such occurrence or condition to the Bank.

(B) Debtor shall immediately notify the Bank of any change in (1) the location of (a) its state of registration, chief executive office or residence, (b) any portion of the Collateral or (c) any record concerning the Collateral, or (2) the name, identity or structure of Debtor.

(ix) Additional Collateral. If the Bank in good faith deems itself insecure with respect to any of the Obligations or is of the opinion that the Collateral is insufficient, Debtor shall upon notice provide to the Bank additional collateral satisfactory to the Bank.

(x) Further Assurances. Debtor shall execute and deliver to the Bank at closing, and upon request, from time to time thereafter, all financing statements, endorsements, instruments of assignment and other writings that the Bank deems necessary or desirable to perfect or protect its interest in the Collateral. A photographic copy of this Assignment and any control agreement or of any financing statement relating to the Collateral shall be sufficient as a financing statement.

4. AUTHORIZATION AND POWER OF ATTORNEY. Debtor irrevocably and unconditionally appoints the Bank as its attorney-in-fact with full power of substitution to perform in the name of Debtor each of Debtor’s obligations under this Assignment and any control agreement. This power of attorney is coupled with an interest in favor of the Bank. The Bank may without limitation endorse or execute and deliver all instruments of assignment, orders for withdrawal, certificates, drafts, financing statements and other writings and may receive, collect and open any mail addressed to Debtor, retain any enclosure relating to the Collateral and take any other action deemed necessary in the Bank’s sole discretion to perfect or protect the Bank’s interests pursuant to this Assignment and any control agreement. Debtor authorizes (both prospectively and retroactively) the Bank to file in any public office financing statements, and any continuations and amendments thereof, regarding any portion of the Collateral without the signature of Debtor. Debtor hereby revokes every power of attorney and authorization granted by Debtor to any other Person with respect to any of the Collateral.

5. BANK’S ADDITIONAL RIGHTS AND REMEDIES.

(a) UCC. The Bank shall have all of the rights and remedies of a secured party under the UCC and other applicable law and those stated herein.

(b) Verification. The Bank has the right to verify the Collateral.

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(c) Transfer to Bank. The Bank has the right to transfer any portion of the Collateral to an account in the name of the Bank or its nominee as assignee or as sole owner of record. The Bank has the right to take and retain possession of all certificates, passbooks and other documents evidencing the Collateral.

(d) Right to Cure. The Bank shall have the right to perform (at Debtor’s expense) any of Debtor’s obligations under this Assignment and any control agreement.

(e) Remedies Upon Default. At any time and from time to time after the occurrence or existence of any Event of Default:

(i) Acceleration. The Bank may declare all of the Obligations immediately due and payable, without notice, demand, presentment or protest of any kind. Nothing in this Section shall render any portion of the Obligations which is payable on demand to be payable otherwise than on demand.

(ii) Liquidation of Collateral. Without notice, the Bank may transfer, liquidate and realize upon its interest in all or any portion of the Collateral, without regard to any resulting early-withdrawal or other penalty imposed on the Collateral or Debtor. No such penalty shall cause the Bank’s disposition of the Collateral to be deemed to have been made in a manner which is not commercially reasonable.

(iii) Direct Payment. The Bank may notify the Depositary or any other Person obligated with respect to any of the Collateral to make payment and deliver certificates and passbooks directly to the Bank and may take possession of and apply to the Obligations all earnings and Proceeds as well as the principal of the Collateral.

(iv) Setoff. The Bank shall have the right but not the obligation to set off against the Obligations any amount owing by the Bank or any of its affiliates or subsidiaries in any capacity to Debtor in any capacity. Such set off shall be deemed to have been exercised immediately at the time the Bank or its affiliate or subsidiary elects to do so. Debtor consents to such setoff.

(v) Termination of Commitments. Any commitment of the Bank to grant any Financial Accommodation to Debtor shall terminate.

(vi) Application of Proceeds. The Bank may apply the proceeds from the Collateral in any manner in its sole discretion, but prior to default by the Borrower, shall apply the Collateral first to its Costs, second to the Obligations, and third to debt secured by subordinate security interests if demanded and proved pursuant to the UCC and if sufficient funds exist. Surplus, if any, will be remitted to Debtor.

(f) Remedies Cumulative; Non-Waiver. All rights and remedies of the Bank are cumulative, and no right or remedy shall be exclusive of any other right or remedy. No single, partial or delayed exercise by the Bank of any right or remedy shall preclude full and timely exercise at any time of any right or remedy of the Bank. No course of dealing or other conduct, oral agreement or representation, or usage of trade shall operate as a waiver of any right or remedy of the Bank. No notice, attempted notice or demand of any kind prior to exercising a right or remedy on one occasion shall operate as a waiver of Bank’s right to exercise any right or remedy on any future occasion without notice or demand of any kind. No waiver of any right or remedy shall be effective unless made in writing duly executed by the Bank.

6. STANDARD OF CARE. The Bank shall have only such duties of custody and due care of the Collateral as provided by the UCC. The Bank or its nominee shall be deemed to have exercised reasonable care in the custody and preservation of any portion of the Collateral which is in its possession or control if the Bank affords the Collateral treatment substantially equal to the treatment the Bank accords its own assets of a similar nature. The Bank does not have to (a) preserve any right or remedy of Debtor against any Depositary with respect to any of the Collateral, (b) ascertain any maturity or similar matter relating to any of the Collateral or provide notice of maturity, abandonment or any other matter to Debtor or (c) provide to Debtor any communication received by the Bank or its nominee.

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7. EXPENSES. Debtor shall pay to the Bank on demand all Costs and expenses (including without limitation all attorneys’ fees and disbursements) incurred by the Bank in searching public records or taking any other action to perfect the Bank’s interest in the Collateral, including fees for safekeeping of instruments or securing copies of financing statements, in performing any obligation of Debtor pursuant to this Assignment, in exercising any of the Bank’s rights or remedies, in realizing on the Collateral, or otherwise in custody, preservation or defense of the Collateral. Debtor shall pay interest at the highest legal rate on any Costs not paid on demand.

8. MISCELLANEOUS.

(a) Entire Agreement; Amendments. This Assignment and any control agreement contains the entire agreement between the Bank and Debtor with respect to the Collateral, and supersedes every course of dealing, other conduct, oral agreement and representation previously made by the Bank. No change can be made in this Assignment or any Control Agreement except in a writing duly signed by all parties specifically referring to each provision of this Assignment or Control Agreement being modified; provided, however, that the total amount of the Collateral may be reduced by a release signed by the Bank alone.

(b) Reinstated Obligations. The Obligations secured by the Collateral include without limitation any payments recovered from the Bank such as sums claimed as impermissible setoffs, trust funds, or as a preference or fraudulent transfer. Such sums shall be reinstated as Obligations of Debtor as of the date they arose, but for purposes of any statute limiting action by the Bank under this Assignment or relating to the Obligations, as of the date of recovery from the Bank.

(c) Debtor’s Consents and Waivers. Debtor consents without notice to everything that might otherwise impair the Bank’s rights pursuant to this Assignment or any control agreement. Such consent shall include without limitation any modification, refinancing, extension of credit or any other kind of Financial Accommodation relating to the Obligations, acceptance of any other obligor, any release, replacement, discharge or modification of any kind with relation to the Collateral, any exercise or delay or failure to exercise any right of Bank with respect to any part of the Collateral, regardless of value, any notice given by any Debtor to the Bank with respect to any other Debtor, the acceptance by the Bank or any other Person of any instrument or other writing intended by any other Person to create an accord and satisfaction with respect to the Obligations, the manner or order of any transfer or any other attempt to liquidate the Collateral, the manner or application of payment applied to the Obligations, or any change in location, name, ownership, or structure of any Debtor, Depositary or issuer of the Collateral. Each Debtor waives without notice all conditions precedent with respect to the Obligations, this Assignment and any control agreement, including without limitation, acceptance, demand, presentment, protest, notice of dishonor, default or protest and rights of redemption or appraisal.

(d) Governing Law and Jurisdiction. This Assignment has been delivered to and accepted by the Bank and will be deemed to be made in the State of New York. Except as otherwise provided under federal law, this Assignment will be interpreted in accordance with the laws of the State of New York excluding its conflict of laws rules. DEBTOR HEREBY IRREVOCABLY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT IN THE STATE OF NEW YORK IN A COUNTY OR JUDICIAL DISTRICT WHERE THE BANK MAINTAINS A BRANCH AND CONSENTS THAT THE BANK MAY EFFECT ANY SERVICE OF PROCESS IN THE MANNER AND AT DEBTOR’S ADDRESS SET FORTH ABOVE FOR PROVIDING NOTICE OR DEMAND; PROVIDED THAT NOTHING CONTAINED IN THIS ASSIGNMENT WILL PREVENT THE BANK FROM BRINGING ANY ACTION, ENFORCING ANY AWARD OR JUDGMENT OR EXERCISING ANY RIGHTS AGAINST DEBTOR INDIVIDUALLY, AGAINST ANY SECURITY OR AGAINST ANY PROPERTY OF DEBTOR WITHIN ANY OTHER COUNTY, STATE OR OTHER FOREIGN OR DOMESTIC JURISDICTION. Debtor acknowledges and agrees that the venue provided above is the most convenient forum for both the Bank and Debtor. Debtor waives any objection to venue and any objection based on a more convenient forum in any action instituted under this Assignment.

(e) Notices. Any demand or notice hereunder or under any applicable law pertaining hereto shall be in writing and duly given if delivered to Debtor (at its address on the Bank’s records) or to the Bank (at the address on page one and separately to the Bank officer responsible for Borrower’s relationship with the Bank). Such notice or demand shall be deemed sufficiently given for all purposes when delivered (i) by personal delivery and shall be deemed effective when delivered, or (ii) by mail or courier and shall be deemed effective three (3) business days after deposit in an official depository maintained by the United States Post Office for the collection

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of mail or one (1) business day after delivery to a nationally recognized overnight courier service (e.g., Federal Express). Notice by e-mail is not valid notice under this or any other agreement between Debtor and the Bank.

(f) Construction. This Assignment is a binding obligation enforceable against the Debtor and its legal representatives, assigns and successors, and shall inure to the benefit of and be enforceable by the Bank and its successors and assigns and transferees in any capacity and shall include the holder, assign or transferee of any portion of or participation in the Obligations, and the successor or assign of any of them, in any capacity. Each provision of this Assignment shall be interpreted as consistent with existing law and shall be deemed amended to the extent necessary to comply with any conflicting law or regulation. If a court deems any provision invalid, the remainder of the Assignment shall remain in effect. Section headings are for convenience only. Debtor agrees that in any legal proceeding, a copy of this Assignment kept in the Bank’s course of business may be admitted into evidence as an original. Grammatical gender and number in this Assignment shall be interpreted according to the identity of the parties. Neuter pronouns shall include the masculine and feminine gender as applicable, and singular forms shall be deemed plural and plural forms shall be deemed singular as required.

(g) Waiver of Jury Trial. DEBTOR AND THE BANK HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY DEBTOR AND THE BANK MAY HAVE IN ANY ACTION OR PROCEEDING, IN LAW OR IN EQUITY, IN CONNECTION WITH THIS ASSIGNMENT OR THE TRANSACTIONS RELATED HERETO. DEBTOR REPRESENTS AND WARRANTS THAT NO REPRESENTATIVE OR AGENT OF THE BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE BANK WILL NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THIS JURY TRIAL WAIVER. DEBTOR ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO ENTER INTO THIS ASSIGNMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION.

Dated: June 12, 2008

PHOENIX FOOTWEAR GROUP, INC.
By:	/s/ Scott Sporrer
Title:	CFO

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