Exclusive Distribution Agreement

EXCLUSIVE DISTRIBUTION AGREEMENT


This Exclusive Distribution Agreement (this "AGREEMENT") dated as of April 1, 2003 (the "EFFECTIVE DATE"), is entered into by and between FEDERATED MERCHANDISING GROUP ("FMG"), an unincorporated division of Federated Department Stores, Inc., a Delaware corporation ("FEDERATED"), and PRIVATE BRANDS, INC., a California corporation ("PB").


R E C I T A L S


A. FMG specializes in, among other things, the procurement and marketing
of private brand apparel, accessories and other merchandise for retail
sale by the operating subsidiaries of Federated (the "FEDERATED
STORES") and other third-party clients throughout the United States and
elsewhere.


B. PB specializes in the sourcing, development, procurement and
importation of apparel and accessories.


C. PB holds an exclusive license in and to the trademark "American Rag
CIE" (the "TRADEMARK"), for use in the manufacture, distribution,
promotion, marketing and sale of certain clothing and apparel in the
United States, Canada and Bermuda (the "TERRITORIES").


D. FMG desires to purchase from PB merchandise bearing the Trademark for
retail or wholesale sales and distribution on an exclusive basis in the
Territories and PB desires to sell such merchandise to FMG pursuant to
an exclusive arrangement, on the Terms set forth herein.


NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto agree as follows:


1. DEFINITIONS. Except as the context may otherwise require, the terms set
forth below shall have the meanings indicated below. Terms not defined
below shall have the meaning indicated elsewhere in the Agreement or,
if not defined in the Agreement, shall be given a definition most
appropriate to the context in which they appear.


1.1 DEFINED TERMS


o "AFFILIATE" means with respect to any Person, any
other Person that, directly or indirectly, through
one or more intermediaries, Controls, is Controlled
by or is under common Control with such specified
Person.


o "ANNUAL MINIMUM PURCHASE REQUIREMENTS" has the
meaning specified in SECTION 5.1.


o "AUTHORIZED SELLERS" has the meaning specified in
SECTION 2.6.


o "CONTRACT QUARTER" means, the period commencing on
the Effective Date and ending on April 30, 2003, and
each period of three (3) successive calendar months
thereafter during the Term.


o "CONTRACT YEAR" means, the period commencing on the
Effective Date and ending on January 31, 2005, and
each period of twelve (12) successive calendar months
thereafter during the Term.


o "CONTROL" means, with respect to any Person, the
possession, directly or indirectly, of the power to
direct or cause the direction of the management and
policies of such Person, whether through the
ownership of securities, partnership interests or
other ownership interests, by contract, by membership
or involvement in the board of directors or other
management structure of such Person or otherwise.


o "CUSTOMER" means any end user who purchases the
Merchandise from an Authorized Seller.


o "EFFECTIVE DATE" is the date specified in the
introductory paragraph of this Agreement.


o "FEDERATED" means Federated Department Stores, Inc.


o "FEDERATED STORES" has the meaning specified in
paragraph A of the Recitals.


o "FMG" means Federated Merchandising Group, an
unincorporated division of Federated and a party to
this Agreement.


o "INITIAL TERM" has the meaning specified in SECTION
4.1.


o "INTERNATIONAL TRADEMARK CLASS" means a
classification of goods and services listed in the
most current copy of the INTERNATIONAL CLASSIFICATION
OF GOODS AND SERVICES FOR THE PURPOSES OF THE
REGISTRATION OF MARKS published by the World
Intellectual Property Organization.


o "LICENSE TERM" means the period during which PB holds
the license for the trademark, including any renewal
terms thereof.


o "MERCHANDISE" means men's, women's and children's
clothing bearing the Trademark, namely, pants,
shirts, jackets, skirts, blouses, coveralls,
underwear, shoes, belts and hats.


o "ORDERED MERCHANDISE" has the meaning specified in
SECTION 2.1.


2


o "PB" means Private Brands, Inc., a California
corporation, a party to this Agreement.


o "PB LICENSE" means that certain exclusive license
agreement dated April1, 2003, between PB and the
Trademark Owner for the Trademark.


o "PERSON" means any individual, company (whether
general or limited), limited liability company,
corporation, trust, estate, association, nominee or
other entity.


o "RENEWAL TERM" has the meaning specified in SECTION
4.1.


o "SALES PROMOTION MATERIALS" means all advertisements,
in-store shop designs, fixture designs, packaging,
store signing, hangtags and any other artwork
associated with the Merchandise.


o "SEMI-ANNUAL PERIOD" means the period commencing on
the Effective Date and ending on July 31, 2004, and
each period of six (6) successive calendar months
thereafter during the Term.


o "TERM" has the meaning specified in SECTION 4.1, and
if the context requires, includes the Initial Term
and any Renewal Term.


o "TERRITORIES" means the United States, Canada and
Bermuda.


o "TRADEMARK" means "American Rag CIE" including the
correspondent U.S. trademark registration numbers and
trademark applications listed in EXHIBIT A attached
hereto and incorporated herein, and any Canada and
Bermuda common law trademark rights or future
registrations, if any, in each case exclusively
licensed by PB, as well as the right to utilize
derivations of "American Rag CIE" under the PB
License.


o "TRADEMARK OWNER" means American Rag CIE II, a
California corporation.


1.2 CONSTRUCTION. Except as the context may otherwise require, (i)
words of either gender include the other gender, (ii) words
using the singular or plural number also include the plural or
singular number, respectively, (iii) the terms "HEREOF",
"HEREIN", "HEREBY" and derivative or similar words refer to
this entire Agreement, (iv) the term "PARTY" means FMG or PB
as the context requires, and their respective officers,
directors, agents and representatives, (v) the term
"INCLUDING" means "INCLUDING, BUT NOT LIMITED TO", and (vi)
the term "THIS AGREEMENT" shall be deemed to include all
Attachments, Exhibits and Schedules attached hereto or
otherwise incorporated by reference, as such Attachments,
Exhibits and Schedules may be amended from time to time
through written agreement


3


signed by both parties hereto. Whenever this Agreement refers
to a number of days or months, such number shall refer to
calendar days or months unless otherwise specified.


2. SERVICES AND EXCLUSIVE DISTRIBUTION.


2.1 PURCHASE AND SALE OF MERCHANDISE. During the Term, PB shall
design, source, manufacture, purchase, import or otherwise
acquire each season (as such term is understood in the
clothing and apparel industries) a full assortment of
Merchandise, which it shall offer to sell to FMG at such price
as determined by PB. FMG shall issue FMG's standard purchase
order for such Merchandise that FMG desires to purchase from
PB (the "ORDERED MERCHANDISE"). All Ordered Merchandise
shipped by PB pursuant to this Agreement shall be ordered,
manufactured, shipped and delivered in compliance with and
subject to the standards and provisions set forth in EXHIBIT B
(the "FEDERATED FASST Manual"), which contains FMG's purchase
order terms and conditions as well as other terms and
conditions of sale and its terms of payment. The prices
payable by FMG for Ordered Merchandise shall be as set forth
on the initial purchase order issued by FMG to PB for such
Ordered Merchandise.


2.2 EXCLUSIVITY. Upon the terms and conditions contained in this
Agreement and during the Term, FMG shall have the exclusive
right to sell the Merchandise purchased by FMG from PB in the
Territories solely through Authorized Sellers (as defined in
SECTION 2.6 below) and through the websites operated by or on
behalf of Authorized Sellers. FMG's right to sell the
Merchandise through websites operated by the Authorized
Sellers shall be restricted to the right to fulfill orders
placed by Customers within the Territories. FMG shall have no
right to (i) design, source, or manufacture, or have any
Affiliate or third party design, source, or manufacture, the
Merchandise, or (ii) except as provided in SECTION 2.8 below,
distribute, promote, advertise, market or sell the Merchandise
through any third party or Affiliate which is not an
Authorized Seller. Except as provided in SECTION 2.7 below,
neither PB nor any of its Affiliates, shall sell, distribute
or otherwise make available to customers any Merchandise in
any part of the Territories or authorize, assist, support,
directly or indirectly, any other party to do so.


2.3 RIGHT OF FIRST REFUSAL. PB agrees that prior to engaging
itself or a third party to manufacture any merchandise bearing
the Trademark in an International Trademark Class other than
the International Trademark Class for the Merchandise, it
shall offer to FMG the right of first refusal for FMG to do so
on its own pursuant to a commercially reasonable sublicense or
other agreement. Should the parties fail to agree on a
reasonable sublicense or other agreement, PB may engage in
manufacturing such merchandise itself or through a third
party, but may not, without FMG's prior written approval, sell
such merchandise within the


4


Territories. Should the parties execute a sublicense or other
agreement according to the terms of this SECTION 2.3, all
costs and attorney's fees incurred by PB in obtaining
trademark registration under the laws of the Territories for
such additional classes of merchandise shall be borne equally
by the parties.


2.4 REPRESENTATIONS REGARDING THE TRADEMARK. PB represents,
warrants and covenants to and with FMG that PB:


(a) holds the PB License and will continue to do so for
the Term of this Agreement and that entering into
this Agreement does not violate or conflict with any
of the provisions of the PB License;


(b) has full right, power and authority to enter into
this Agreement and to perform all of its obligations
hereunder;


(c) has no knowledge of any act or instance of
infringement of the Trademark in regard to the
manufacture, marketing, advertising, distribution or
sale of Merchandise;


(d) has not granted any other existing license or
sub-license to use the Trademark in the Territories;
and


(e) will not grant any other license or sub-license to
use the Trademark on any Merchandise in the Territory
during the Term of this Agreement, except in
accordance with the provisions hereof.


(f) will undertake an aggressive strategy to obtain from
the Trademark Owner rights to the Trademark in
merchandise classifications not currently held but
contemplated herein.


2.5 GOODWILL. The parties to this Agreement acknowledge that great
value is placed on the Trademark and the goodwill associated
therewith, and any goodwill developed or created in the
Trademark pursuant to this Agreement shall inure to the
benefit of the Trademark Owner in accordance with the terms of
the PB License.


2.6 AUTHORIZED SELLERS. FMG acknowledges that the Trademark has
established prestige and goodwill, and that it is of great
importance to PB and FMG that, in the sale of the Merchandise,
the high standards and reputation that PB and the Trademark
Owner have established with respect to the Trademark be well
maintained. PB shall therefore have approval, which approval
PB may withhold in its reasonable discretion, over which FMG
Affiliates may carry and sell the Merchandise in the
Territories (the "AUTHORIZED SELLERS"). The list of
PB-approved Authorized Sellers is attached hereto and
incorporated herein as EXHIBIT C. PB and FMG may amend EXHIBIT
C from time to time during the Term only by


5


written agreement signed by both PB and FMG. Notwithstanding
the foregoing, any retailer which is acquired by or otherwise
becomes a subsidiary of Federated shall be deemed an
Authorized Seller without PB's approval. From time to time and
upon PB's request, FMG shall notify PB of such acquisitions or
subsidiaries and shall update EXHIBIT C accordingly.


2.7 PB RIGHTS.


(a) SALES OUTSIDE THE TERRITORIES. PB expressly reserves
the right to sell, or to grant sublicensees rights to
sell, the Merchandise outside the Territories.


(b) SALES WITHIN THE TERRITORIES. PB expressly reserves
the right to sell and promote the sale of the
Merchandise within the Territories at the two retail
stores listed on EXHIBIT D attached hereto and
incorporated herein, and up to an additional three
(3) stand-alone retail stores in the United States
and an additional two (2) stand-alone retail stores
in Canada operating under the "American Rag"
trademark (the "EXEMPTED RETAILERS"). Orders placed
by Exempted Retailers with PB for Merchandise shall
be applied (at the price set forth in the applicable
purchase order) against the Annual Minimum Purchase
Requirements during the period in which such orders
are placed. Furthermore, PB shall have the right to
sell damaged Merchandise and "seconds" on terms
mutually acceptable to PB and FMG.


(c) RESERVATION OF RIGHTS. Except as otherwise provided
in this Agreement, PB reserves any and all other
rights in and to the Trademark and the Merchandise.


2.8 NO OBLIGATION TO PURCHASE MERCHANDISE. Notwithstanding the
provisions of Section 5.1, PB acknowledges that except as set
forth in Section 5.3 FMG has no obligation to purchase any
Merchandise from PB under this Agreement. PB expressly
acknowledges that, except as set forth in Section 5.3, PB's
sole and exclusive remedy upon a failure by FMG to comply with
the provisions of Section 5.2 will be to terminate this
Agreement, including FMG's right to exclusivity as set forth
in Section 2.2 and FMG's right of first refusal, as set forth
in Section 2.3.


3. SALES PROMOTION MATERIALS.


3.1 GRANT OF SUBLICENSE. Upon the terms and conditions contained
in this Agreement, PB hereby grants and FMG hereby accepts the
exclusive (except as otherwise provided herein) sublicense to
use the Trademark and to sublicense the use of the Trademark
to Authorized Sellers solely in connection with the
development and manufacture o ...