Exhibit 10.2

 

EXECUTION VERSION

 

SECOND AMENDMENT TO CREDIT AGREEMENT

 

This SECOND AMENDMENT TO 364-DAY REVOLVING CREDIT AGREEMENT dated as of March
31, 2006 (the “Second Amendment”), is executed by and among WINMARK CORPORATION,
a Minnesota corporation (the “Company”), WINMARK CAPITAL CORPORATION, a
Minnesota corporation (“WCC”), WIRTH BUSINESS CREDIT, INC., (formerly known as
Winmark Business Solutions, Inc.), a Minnesota corporation (“WBC”), GROW BIZ
GAMES, INC., a Minnesota corporation (“Grow-Biz” and, together with the Company,
WCC and WBC, the “Loan Parties” and individually and without distinction, a
“Loan Party”), and LASALLE BANK NATIONAL ASSOCIATION, a national banking
association (the “Lender”).

 

RECITALS

 

A.            The Loan Parties and the Lender are parties to that certain
364-Day Revolving Credit  Agreement dated as of September 30, 2004, as amended
by that certain First Amendment to 364-Day Revolving Credit Agreement dated as
of August 26, 2005 (as amended, supplemented or modified, the “Credit
Agreement”).

 

B.            The Loan Parties and the Lender wish to amend the Credit Agreement
pursuant to the terms and conditions hereinafter set forth.

 

NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Loan Parties and the Lender hereby agree as follows:

 

AGREEMENTS

 

1.             DEFINITIONS.  Capitalized words and phrases used herein without
definition shall have the respective meanings ascribed to such words and phrases
in the Credit Agreement.

 

2.             AMENDMENTS.

 

2.1.          Amended Definitions.  Section 1.1 of the Credit Agreement is
hereby amended as follows:

 

2.1.1        Applicable Margin.  The definition of “Applicable Margin” is hereby
amended in its entirety to read as follows:

 

“Applicable Margin”:  For any day, a rate per annum of (i) for LIBOR Loans,
2.00%, (ii) for Base Rate Loans, 0.00% or (iii) for Fixed Rate Loans, 2.00%.

 

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2.1.2        Borrowing Base.  The definition of “Borrowing Base” is hereby
amended in its entirety to read as follows:

 

“Borrowing Base”:  (a) 90% of the net book value of the Eligible Leased Assets
of the Loan Parties, plus (b) as of the end of any month, an amount equal to
EBITDA of the Company’s franchising and corporate segments for the twelve
consecutive months ended or most recently ended on such month times two (2).

 

2.1.3        Commitment.  The definition of “Commitment” is hereby amended in
its entirety to read as follows:

 

“Commitment”:  The Lender’s commitment to make Loans, and to issue Letters of
Credit, under this Agreement, as reduced or increased from time to time pursuant
to Section 6.3 or Section 6.4, respectively.  The initial amount of the Lender’s
commitment to make Loans is $15,000,000.

 

2.1.4      Interest Expense.  The definition of “Interest Expense” is hereby
deleted in its entirety.

 

2.1.5      Interest Period.  The definition of “Interest Period” is hereby
amended (i) to include as to any LIBOR Loan, in addition to periods of one, two
or three months, a period of six months, and (ii) by adding the following new
sentence to the beginning of such definition:  “As to any Fixed Rate Loan, the
period commencing on the date such Loan is borrowed or continued as, or
converted into, a Fixed Rate Loan and ending on a date one, two, three or four
years thereafter as selected in writing by the Company.”

 

2.1.6      Termination Date.  The definition of “Termination Date” is hereby
amended to read in its entirety as follows:

 

“Termination Date”:  The earlier to occur of (a) March 31, 2010, and (b) such
other date on which the Commitment terminates pursuant to Section 13.

 

2.2           New Definitions.  The following definitions are hereby added in
the proper alphabetical order to Section 1.1 of the Credit Agreement:

 

“Account Debtor”:  As defined in the UCC.

 

“Capitalized Lease Obligations”:  As to any Person, all rental obligations of
such Person, as lessee under a Capital Lease which are or will be required to be
capitalized on the books of such Person.

 

“Cost of Funds Rate”:  The rate per annum provided from time to time by the
Lender in its sole discretion as its “cost of funds” and made available by the

 

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Lender at the Company’s request, which rate shall be fixed for a period equal to
the relevant Interest Period.

 

“Depreciation”:  The total amounts added to depreciation, amortization,
obsolescence, valuation and other proper reserves, as reflected on the Company’s
financial statements and determined in accordance with GAAP.

 

“Eligible Leased Assets”:  Each Account and all such Accounts (exclusive of
sales, excise or other similar taxes) owing to a Loan Party that arises solely
from the leasing of Equipment by such Loan Party and that meets each of the
following requirements:

 

(a)           it is genuine in all respects and has arisen in the ordinary
course of the Loan Party’s business from the sale or lease of Equipment by such
Loan Party;

 

(b)           it is subject to a perfected, first priority Lien in favor of the
Lender and is not subject to any other assignment, claim or Lien;

 

(c)           it is the valid, legally enforceable and unconditional obligation
of the Account Debtor with respect thereto, and is not subject to the
fulfillment of any condition whatsoever or any counterclaim, credit (except as
provided in subsection (h) of this definition), trade or volume discount,
allowance, discount, rebate or adjustment by the Account Debtor with respect
thereto, or to any claim by such Account Debtor denying liability thereunder in
whole or in part and the Account Debtor has not refused to accept and/or has not
returned or offered to return any of the Equipment or services which are the
subject of such Account;

 

(d)           the Account Debtor with respect thereto is a resident or citizen
of, and is located within, the United States, unless the lease of Equipment
giving rise to such Account is on letter of credit, banker’s acceptance or other
credit support terms reasonably satisfactory to the Lender;

 

(e)           it is not an Account with respect to which possession and/or
control of the Equipment leased giving rise thereto is held, maintained or
retained by the Loan Party (or by any agent or custodian of such Loan Party) for
the account of, or subject to, further and/or future direction from the Account
Debtor with respect thereto;

 

(f)            it has not arisen out of contracts with the United States or any
department, agency or instrumentality thereof, unless the Loan Party has
assigned its right to payment of such Account to the Lender pursuant to the
Assignment of Claims Act of 1940, and evidence (satisfactory to the Lender) of
such assignment has been delivered to the Lender, or any state, county, city or
other governmental body, or any department, agency or instrumentality thereof;

 

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(g)           if the Loan Party maintains a credit limit for an Account Debtor,
the aggregate dollar amount of Accounts due from such Account Debtor, including
such Account, does not exceed such credit limit;

 

(h)           if the Account is evidenced by chattel paper or an instrument, the
originals of such chattel paper or instrument shall have been endorsed and/or
assigned and delivered to the Lender or, in the case of electronic chattel
paper, shall be in the control of the Lender, in each case in a manner
satisfactory to the Lender;

 

(i)            such Account is evidenced by an invoice delivered to the related
Account Debtor and is not more than ninety (90) days past the due date thereof;

 

(j)            it is not an Account with respect to an Account Debtor that is
located in any jurisdiction which has adopted a statute or other requirement
with respect to which any Person that obtains business from within such
jurisdiction must file a notice of business activities report or make any other
required filings in a timely manner in order to enforce its claims in such
jurisdiction’s courts unless (i) such notice of business activities report has
been duly and timely filed or the Loan Party is exempt from filing such report
and has provided the Lender with satisfactory evidence of such exemption or (ii)
the failure to make such filings may be cured retroactively by such Loan Party
for a nominal fee;

 

(k)           the Account Debtor with respect thereto is not an Affiliate of the
Loan Party;

 

(l)            such Account does not arise out of a contract or order which, by
its terms, forbids or makes void or unenforceable the assignment thereof by the
Loan Party to the Lender and is not unassignable to the Lender for any other
reason;

 

(m)          there is no bankruptcy, insolvency or liquidation proceeding
pending by or against the Account Debtor with respect thereto, nor has the
Account Debtor suspended business, made a general assignment for the benefit of
creditors or failed to pay its debts generally as they come due, and/or no
condition or event has occurred having a Material Adverse Effect on the Account
Debtor which would require the Accounts of such Account Debtor to be deemed
uncollectible in accordance with GAAP;

 

(n)           it is not owed by an Account Debtor with respect to which twenty
five percent (25.00%) or more of the aggregate amount of outstanding Accounts
owed at such time by such Account Debtor is classified as ineligible under
clause (j) of this definition;

 

(o)           if the aggregate amount of all Accounts owed by the Account Debtor
thereon exceeds twenty five percent (25.00%) of the aggregate amount of

 

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all Accounts at such time, then all Accounts owed by such Account Debtor in
excess of such amount shall be deemed ineligible; and

 

(p)           it does not violate the negative covenants and does satisfy the
affirmative covenants of the Loan Party contained in this Agreement, and it is
otherwise not unacceptable to the Lender for any other reason;

 

provided, an Account which is at any time an Eligible Leased Asset, but which
subsequently fails to meet any of the foregoing requirements, shall forthwith
cease to be an Eligible Leased Asset, until such time that such Account meets
all of the foregoing requirements; provided further, that, with respect to any
Account, if the Lender at any time hereafter determine in its discretion that
the prospect of payment or performance by the Account Debtor with respect
thereto is materially impaired for any reason whatsoever, such Account shall
cease to be an Eligible Leased Asset after notice of such determination is given
to the relevant Loan Party; and provided further, that the Lender shall,
notwithstanding the foregoing, have the right, in the reasonable exercise of its
discretion, to establish reserves against the aggregate amount of the Eligible
Leased Assets.

 

“Eligible Leases”:  Leases of Equipment that generate Eligible Leased Assets.

 

“Equipment”:  As defined in the UCC.

 

“Fixed Rate Loan”:  A Loan which bears interest at or by reference to the Cost
of Funds Rate.

 

“Interest Charges”:  For any period, the sum of:  (a) all interest, charges and
related expenses payable with respect to that fiscal period to a lender in
connection with borrowed money or the deferred purchase price of assets that are
treated as interest in accordance with GAAP, plus (b) the portion of Capitalized
Lease Obligations with respect to that fiscal period that should be treated as
interest in accordance with GAAP, plus (c) all charges paid or payable (without
duplication) during that period with respect to any Hedging Agreements.

 

 

2.3           Loan Commitment.  The proviso to Section 2.1.1 is hereby amended
in its entirety to read as follows:  “provided that the Outstandings will not at
any time exceed Loan Availability.”

 

2.4           Various Types of Loans.  Section 2.2.1 of the Credit Agreement is
hereby amended in its entirety to read as follows:

 

2.2.1        Various Types of Loans.  Each Loan shall be divided into tranches
which are either a Base Rate Loan, a LIBOR Loan or a Fixed Rate Loan (each, a
“type” of Loan), as the Company shall specify in the related notice of borrower

 

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(with respect to Base Rate Loans or LIBOR Loans) or conversion (with respect to
all types of Loans) pursuant to Section 2.2.2 or 2.2.3.  LIBOR Loans and Fixed
Rate Loans having the same Interest Period are sometimes called a “Group” or,
collectively, “Groups”.  Base Rate Loans, LIBOR Loans and Fixed Rate Loans may
be outstanding at the same time, provided that no more than eight (8) different
Groups of LIBOR Loans shall be outstanding at any one time and no more than
twenty four (24) different Groups of Fixed Rate Loans may be outstanding at any
one time.

 

2.5           Borrowing Procedures.  Section 2.2.2 of the Credit Agreement is
hereby amended in its entirety to read as follows:

 

2.2.2        Borrowing Procedures.  The Company shall give written notice (each
such written notice, a “Notice of Borrowing”) substantially in the form of
Exhibit E or telephonic notice (followed immediately by a Notice of Borrowing)
to the Lender of each proposed borrowing not later than (a) in the case of a
Base Rate borrowing, 11:00 A.M., Minneapolis time, on the proposed date of such
borrowing, and (b) in the case of a LIBOR borrowing or a Cost of Funds Rate
borrowing, 11:00 A.M., Minneapolis time, at least two Business Days prior to the
proposed date of such borrowing.  Each such notice shall be effective upon
receipt by the Lender, shall be irrevocable, and shall specify the date, amount
and type of borrowing and, in the case of a LIBOR borrowing or a Cost of Funds
Rate borrowing, the initial Interest Period therefor.  So long as the Lender has
not received written notice that the conditions precedent set forth in
Section 11 with respect to such borrowing have not been satisfied, the Lender
shall pay over to the Company, in immediately available funds the amount of the
proposed borrowing on the requested borrowing date.  Each borrowing shall be on
a Business Day.  Each Base Rate borrowing shall be in an aggregate amount of at
least $100,000 or a higher integral multiple of $100,000.  Each LIBOR borrowing
shall be in an aggregate amount of at least $100,000 or a higher integral
multiple of $100,000.  Each Cost of Funds Rate borrowing shall be in an
aggregate amount of at least $200,000 or a higher integral multiple of $100,000;
provided, however, that the Loan Parties may not borrow, convert to, or
continue, more than six (6) Fixed Rate Loans, in the aggregate, in any calendar
year.

 

2.6           Conversion and Continuation Procedures.

 

(a)           The proviso to Section 2.2.3(a) of the Credit Agreement is hereby
amended in its entirety to read as follows:

 

provided that (i) the Loan Parties may not borrow, convert to, or continue, more
than six (6) Fixed Rate Loans, in the aggregate, in any calendar year, and (ii)
after giving effect to any prepayment, conversion or continuation, the aggregate
principal amount of each Group of LIBOR Loans shall be at least $100,000 or a
higher integral multiple of $100,000,

 

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and the aggregate principal amount of each Group of Fixed Rate Loans shall be at
least $200,000 or a higher integral multiple of $100,000.

 

(b)           Section 2.2.3(c) is hereby amended in its entirety to read as
follows:

 

(c)           If upon the expiration of any Interest Period applicable to LIBOR
Loans or Fixed Rate Loans, the Company has failed to select timely a new
Interest Period to be applicable to such LIBOR Loans or the Lender has failed to
approve a new Interest Period to be applicable to such Fixed Rate Loans, the
Company shall be deemed to have elected to convert such LIBOR Loans or Fixed
Rate Loans, as applicable, into Base Rate Loans effective on the last day of
such Interest Period.

 

(c)           Section 2.2.3(d) is hereby amended in its entirety to read as
follows:

 

(d)           Any conversion of a LIBOR Loan on a day other than the last date
of an Interest Period therefore shall be subject to Section 8.4 and any
conversion of a Fixed Rate Loan on a day other than the last date of an Interest
Period therefore shall be subject to Section 5.2(b).

 

2.7           Interest Rates.  Section 4.1 is hereby amended by adding the
following  new subsection (c) thereto:

 

(c)           at all times while such Loan is a Fixed Rate Loan, at a rate per
annum equal to the sum of the Fixed Rate applicable to each Interest Period for
such Loan plus the Applicable Margin;

 

2.8           Payment Dates.  Section 4.2 of the Credit Agreement is hereby
amended in its entirety to read as follows:

 

4.2           Interest Payment Dates.  Accrued interest on each Base Rate Loan
shall be payable in arrears on the first day of each calendar month and at
maturity.  Accrued interest on each LIBOR Loan and each Fixed Rate Loan shall be
payable on the last day of each Interest Period relating to such Loan (and, in
the case of a LIBOR Loan having a six-month Interest Period or a Fixed Rate Loan
having an Interest Period in excess of three months, on the three month
anniversary of the first day of such Interest Period), upon a prepayment of such
Loan, and at maturity.  After maturity, and at any time an Event of Default
exists, accrued interest on all Loans shall be payable on demand.

 

2.9           Fees.  Section 5.2 of the Credit Agreement is hereby amended in
its entirety to read as follows:

 

5.2           Other Fees.

 

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(a)           Non-Utilization Fee.  The Loan Parties, jointly and severally,
agree to pay to the Lender a non-utilization fee equal to 0.25% of the total of
(i) the Commitment, minus (ii) the daily average of the aggregate principal
amount of the Outstandings, which non-utilization fee shall be (X) calculated on
the basis of a year consisting of 360 days, (Y) paid for the actual number of
days elapsed, and (Z) payable monthly in arrears on the last day of each
calendar month and on the Termination Date.

 

(b)           Fixed Rate Loan Prepayment Fee.  The Loan Parties, jointly and
severally, agree to pay to the Lender, with respect to any prepayment made on a
Fixed Rate Loan prior to the last day of the Interest Period therefore, a
prepayment fee equal to 1.0% of the principal amount of such Fixed Rate Loan.

 

(c)           Increase Fee.  The Loan Parties, jointly and severally, agree to
pay to the Lender a fee equal to 0.30% of the amount by which the Commitment is
increased pursuant to Section 6.4.  Such fee shall be payable with respect to
each such increase and shall be fully earned when paid and shall not be
refundable for any reason whatsoever.

 

(d)           Lender’s Fees.  The Loan Parties, jointly and severally, agree to
pay to the Lender such other reasonable fees and expenses as are mutually agreed
to from time to time by the Company and the Lender, including the fees required
to be paid in accordance with Section 15.5.

 

2.10         Prepayments.  Section 6.1.3 of the Credit Agreement is hereby
amended in its entirety to read as follows:

 

6.1.3        Manner of Prepayments.  Each voluntary partial prepayment shall be
in a principal amount of $25,000 or a higher integral multiple of $5,000.  Any
partial prepayment of a Group of LIBOR Loans shall be subject to the proviso to
Section 2.2.3(a).  Any prepayment of a LIBOR Loan or a Fixed Rate Loan on a day
other than the last day of an Interest Period therefore shall include interest
on the principal amount being repaid and shall be subject to Section 8.4 or
Section 5.2(b), as applicable.  Except as otherwise provided by this Agreement,
all principal payments in respect of the Loans shall be applied first to repay
outstanding Base Rate Loans, then to repay outstanding Fixed Rate Loans in
direct order of Interest Period maturities and then to repay outstanding LIBOR
Rate Loans in direct order of Interest Period maturities.

 

2.11         Reduction and Increase of Commitment.  Section 6 of the Credit
Agreement is hereby amended by adding thereto the following new Sections 6.3 and
6.4:

 

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6.3           Reduction of Commitment.  The Loan Parties may, at any time, upon
not less than 30 days’ prior written notice from the Company to the Lender,
reduce the Commitment, with any such reduction in a minimum amount of
$1,000,000, or, if more, in an integral multiple of $500,000; provided, however,
that the Loan Parties may not at any time reduce the Commitment below the
Outstandings.

 

6.4           Increase of Commitment.

 

(a)           Provided no Unmatured Event of Default or Event of Default has
occurred and is continuing, upon written notice from the Company to the Lender,
the Loan Parties may from time to time request an increase in the Commitment by
an amount (for all such requests) not exceeding $10,000,000; provided that any
such request for an increase shall be in a minimum integral amounts of
$5,000,000.

 

(b)           The Company shall specify the time period within which the Lender
is requested to respond (which shall in no event be less than ten (10) Business
Days from the date of delivery of such notice to the Lender).  The Lender shall
notify the Company within such period whether or not it agrees to increase the
Commitment by the requested amount.  If the Lender has not responded within such
period, it shall be deemed to have declined such request to increase the
Commitment.

 

(c)           In the event the Lender agrees to increase the Commitment by the
requested amount, such increase shall become effective upon  (i) the delivery by
the Company to the Lender of a new Note duly executed by the Loan Parties
reflecting the increased Commitment, (ii) the delivery by the Company to the
Lender of evidence reasonably satisfactory to the Lender that the Loan Parties
have duly authorized such increase by all appropriate corporate action, and
(iii) the payment by the Company to the Lender of the fee specified in Section
5.2(c).

 

2.12         Inspections.  The proviso to the last sentence of Section 10.2 of
the Credit Agreement is hereby amended in its entirety to read as follows:

 

provided that so long as no Event of Default or Unmatured Event of Default
exists, the Company shall not be required to reimburse the Lender for
inspections or audits more frequently than once each Fiscal Year, except that,
in addition to any such annual inspection or audit at the Company’s expense,
upon the earlier to occur of (i) an increase in the Commitment pursuant to
Section 6.4 and (ii) the date on which the consolidated investments of the Loan
Parties in leasing operations is greater than $15,000,000, the Lender shall be
entitled at its option to perform a collateral examination at the Company’s
expense.

 

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2.13         Use of Proceeds.  Section 10.6 of the Credit Agreement is hereby
amended in its entirety to read as follows:

 

10.6         Use of Proceeds.  Use the proceeds of the Loans and the Letters of
Credit solely for working capital purposes, for Acquisitions permitted by
Section 11.5, for Capital Expenditures, for stock repurchases and for other
general business purposes; and not use or permit any proceeds of any Loan to be
used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of “purchasing or carrying” any Margin Stock.

 

2.14         Banking Relationship.  Section 10.11 of the Credit Agreement is
hereby amended in its entirety to read as follows:

 

10.11       Banking Relationship.  Not later than September 30, 2006, utilize
the Lender as its primary bank of account and depository for certain financial
services, including the majority of receipts, disbursements and cash management.

 

2.15         Financial Covenants.  Section 11 of the Credit Agreement is hereby
amended by amending and restating Section 11.13 to read as follows, and by
adding thereto the following new Sections 11.15, 11.16 and 11.17:

 

11.13       Tangible Net Worth.  Not permit the Tangible Net Worth of the
Company and the Subsidiaries to be:

 

(a)           as of March 31, 2006, less than Six Million Dollars ($6,000,000);
and

 

(b)           as of the last Business Day of each month subsequent to March 31,
2006, the sum of the minimum Tangible Net Worth from the immediately preceding
month plus fifty percent (50%) of the net income of the month then ended, if
positive.

 

11.15       Debt Service Coverage.  As of the end of each Fiscal Quarter,  not
fail to maintain a ratio of (i)(a) EBITDA, (b) minus capital expenditures, and
(c) minus cash taxes, divided by (ii) cash interest, of not less than 2.00 to
1.00.

 

11.16       Maximum Leverage.  As of the end of each Fiscal Quarter, not fail to
maintain a ratio of (i) Debt of the Loan Parties minus consolidated Subordinated
Debt minus non-recourse Debt of the Loan Parties in connection with discounting
activities of the Loan Parties to (ii) consolidated Tangible Net Worth that
shall not exceed 3.00 to 1.00.

 

11.17  Eligible Leases.  Not permit the product of (i) the net book value of the
Eligible Leased Assets times (ii) ninety percent (90%) to exceed, at any time,
the Equipment cost with respect to the Eligible Leases.

 

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2.16         Exhibits.

 

2.14.1      Compliance Certificate.  Exhibit B to the Credit Agreement is hereby
replaced with Exhibit B attached hereto.

 

2.14.2      Borrowing Base Certificate.  Exhibit C to the Credit Agreement is
hereby replaced with Exhibit C attached hereto.

 

2.14.3      Form of Notice of Borrowing.  Exhibit E to the Credit Agreement is
hereby replaced with Exhibit E attached hereto.

 

2.14.4      Notice of Conversion/Continuance.  Exhibit F to the Credit Agreement
is hereby replaced with Exhibit F attached hereto.

 

3.             CONDITIONS PRECEDENT.  This Second Amendment shall become
effective as of the date above first written after receipt by the Lender of, or
compliance by the Loan Parties with, the following:

 

3.1.          Second Amendment.  This Second Amendment duly executed by each
Loan Party.

 

3.2.          Authorization Documents.  For each Loan Party, (a) charter (or
similar formation document), certified by the appropriate governmental
authority; (b) good standing certificates in its state of incorporation (or
formation) and in each other state requested by the Lender; (c) bylaws (or
similar governing document), (d) resolutions of its board of directors (or
similar governing body) approving and authorizing each Loan Party’s execution,
delivery and performance of this Second Amendment and the related Loan Documents
to which it is a party and the transactions contemplated hereby, (e) signature
and incumbency certificates of its officers executing this Second Amendment and
the related Loan Documents, all certified by its secretary or an assistant
secretary or similar officer as being in full force and effect without
modification; provided that in the event the materials delivered to the Lender
in accordance with Section 12.1.2 of the Credit Agreement are sufficient (in the
reasonable discretion of the Lender) to satisfy the requirements of Section
3.2(a) and 3.2(c) hereof, the Loan Party shall deliver a certification of the
secretary or an assistant secretary that such materials remain unmodified and in
full force and effect as of the date hereof.

 

3.3           WBC Collateral.  An amendment to the UCC-1 Financing Statement
filed in respect of Winmark Business Solutions, Inc. pursuant to the Security
Agreement to reflect such Person’s name change to WBC (or, if reasonably
requested by the Lender, a new UCC-1 Financing Statement with respect to the
Collateral (as defined in the Security Agreement)).

 

3.4           Opinions of Counsel.  Opinions of counsel for each Loan Party,
satisfactory in form and substance to the Lender.

 

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3.5           Payment of Fees.  (a) Payment by the Company of a closing fee
equal to 0.30% of the Commitment, which fee shall be fully earned when paid and
shall not be refundable for any reason whatsoever, and (b) evidence of payment
by the Company of all other accrued and unpaid fees, costs and expenses to the
extent then due and payable, together with all reasonable Attorney Costs of the
Lender to the extent invoiced prior to the date hereof, plus such additional
amounts of reasonable Attorney Costs as shall constitute the Lender’s reasonable
estimate of Attorney Costs incurred or to be incurred by the Lender through the
closing of this Amendment.

 

3.6           Other Conditions.  The Loan Parties shall have satisfied such
other conditions as specified by the Lender, including the delivery of such
other documents, certificates and resolutions as the Lender may request.

 

4.             POST CLOSING CONDITIONS.  Not later than thirty (30) days after
the date hereof, the Loan Parties shall take such actions as reasonably
requested by the Lender in connection with the replacement of Capital Securities
issued to the Company by Winmark Business Solutions, Inc., and pledged to the
Lender pursuant to the Pledge Agreement.  The failure of the Loan Parties to
comply with this covenant shall be an Event of Default under the Credit
Agreement.

 

5.             REPRESENTATIONS AND WARRANTIES.  Each Loan Party hereby
certifies, represents and warrants to the Lender on the date hereof after giving
effect to this Amendment that:

 

5.1           Authorization.  Each Loan Party is duly authorized to execute and
deliver this Second Amendment and each other Loan Document executed by such Loan
Party in connection herewith (the “Amendment Documents”), and is and will
continue to be duly authorized to borrow monies under the Credit Agreement and
to perform its obligations under the Credit Agreement and each other Loan
Document.

 

5.2           No Conflicts; No Consent.  The execution and delivery of this
Second Amendment and the performance by any Loan Party of its obligations
hereunder and the Amendment Documents to which it is a party do not and will not
(a) require any consent or approval of any governmental agency or authority
(other than any consent or approval which has been obtained and is in full force
and effect), (b) conflict with (i) any provision of law,  (ii) the charter,
by-laws or other organizational documents of such Loan Party, or (iii) any
agreement, indenture, instrument or other document, or any judgment, order or
decree, which is binding upon such Loan Party or any of its properties, or (c)
require, or result in, the creation or imposition of any Lien on any asset of
any Loan Party (other than Liens in favor of the Lender created pursuant to the
Collateral Documents).

 

5.3           Validity and Binding Effect.  Each of the Second Amendment and
each Amendment Document is a legal, valid and binding obligation of each Loan
Party, enforceable against such Loan Party in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency or other similar laws
of general application

 

12

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affecting the enforcement of creditors’ rights or by general principles of
equity limiting the availability of equitable remedies.

 

5.4           Compliance with Credit Agreement.  The representation and
warranties set forth in Section 9 of the Credit Agreement are true and correct
with the same effect as if such representations and warranties had been made on
the date hereof, with the exception that all references to the financial
statements shall mean the financial statements most recently delivered to the
Lender and except for such changes as are specifically permitted under the
Credit Agreement.

 

5.5           No Event of Default.  No Unmatured Event of Default or Event of
Default has occurred and is continuing.

 

6.             AFFIRMATION OF CREDIT AGREEMENT; FURTHER REFERENCES; AFFIRMATION
OF SECURITY INTEREST.  The Lender and each Loan Party each acknowledge and
affirm that the Credit Agreement, as hereby amended, is hereby ratified and
confirmed in all respects and all terms, conditions and provisions of the Credit
Agreement, except as amended by this Amendment, shall remain unmodified and in
full force and effect.  All references in any document or instrument to the
Credit Agreement are hereby amended and shall refer to the Credit Agreement as
amended by this Amendment.  Each Loan Party confirms to the Lender that the
Obligations are and continue to be secured by the security interest granted by
the Loan Parties in favor of the Lender under the Collateral Documents, and all
of the terms, conditions, provisions, agreements, requirements, promises,
obligations, duties, covenants and representations of the Company or any other
Loan Party under such documents and any and all other documents and agreements
entered into with respect to the obligations under the Credit Agreement are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by each Loan Party.

 

13

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7.             GENERAL.

 

7.1           Governing Law; Severability.  This Second Amendment and each
Amendment Document shall be a contract made under and governed by the internal
laws of the State of Minnesota applicable to contracts made and to be performed
entirely within such state, without regard to conflict of laws principles.  The
provisions of Section 15.17 and 15.18 of the Credit Agreement are hereby
incorporated herein by reference.  Wherever possible each provision of this
Second Amendment and each Amendment Document shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Second Amendment or any Amendment Document shall be prohibited by or invalid
under such law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Second Amendment or such Amendment Document.

 

7.2           Successors and Assigns.  This Second Amendment shall be binding
upon each Loan Party, the Lender, and their respective successors and assigns,
and shall inure to the benefit of each Loan Party and the Lender, and the
successors and assigns of the Lender.

 

7.3           Expenses.  The Loan Parties, jointly and severally, shall pay all
reasonable costs and expenses in connection with the preparation of this Second
Amendment and the Amendment Documents including, without limitation, reasonable
attorneys’ fees and time charges of attorneys who may be employees of the Lender
or any affiliate or parent of the Lender.  The Loan Parties shall pay any and
all stamp and other taxes, UCC search fees, filing fees and other reasonable
costs and expenses in connection with the execution and delivery of this Second
Amendment and the Amendment Documents, and agrees to save the Lender harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such costs and expenses.

 

7.4           Counterparts.  This Second Amendment may be executed in any number
of counterparts, all of which shall constitute one and the same agreement.

 

[The next page is the signature page.]

 

14

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IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of
the date first above written.

 

 

WINMARK CORPORATION,

 

a Minnesota corporation

 

 

 

 

By:

/s/ Brett D. Heffes

 

 

Name: Brett D. Heffes

 

Title: Chief Financial Officer and Treasurer

 

 

 

 

 

 

 

WIRTH BUSINESS CREDIT, INC.,

 

formerly known as Winmark Business Solutions,
Inc., a Minnesota corporation

 

 

 

 

By:

/s/ Brett D. Heffes

 

 

Name: Brett D. Heffes

 

Title: Chief Financial Officer and Treasurer

 

 

 

 

 

 

 

WINMARK CAPITAL CORPORATION,

 

a Minnesota corporation

 

 

 

 

By:

/s/ Brett D. Heffes

 

 

Name: Brett D. Heffes

 

Title: Chief Financial Officer and Treasurer

 

 

 

 

 

 

 

GROW BIZ GAMES, INC.,

 

a Minnesota corporation

 

 

 

 

By:

/s/ Mark T. Hooley

 

 

Name: Mark T. Hooley

 

Title: Vice President and General Counsel

 

 

 

 

 

 

 

LASALLE BANK NATIONAL ASSOCIATION,

 

a national banking association

 

 

 

 

By:

/s/ Peter N. Pricco

 

 

Name:

Peter N. Pricco

 

Title:

Vice President

 

--------------------------------------------------------------------------------

 

EXHIBIT B

 

FORM OF COMPLIANCE CERTIFICATE

 

To:                                  LaSalle Bank National Association (the
“Lender”)

 

Please refer to the Credit Agreement dated as of September 30, 2004, as amended
by that certain First Amendment dated as of August 26, 2005 and that certain
Second Amendment dated as of March 31, 2006 (as amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”) among Winmark
Corporation (the “Company”) and its subsidiaries (together with the Company, the
“Loan Parties”) and the Lender.  Terms used but not otherwise defined herein are
used herein as defined in the Credit Agreement.

 

I.                                                         Reports.  Enclosed
herewith is a copy of the monthly report of the Company as at
                         ,              (the “Computation Date”), which report
fairly presents in all material respects the financial condition and results of
operations of the Company as of the Computation Date and has been prepared in
accordance with GAAP consistently applied.

 

II.                                                     Tangible Net Worth.  The
Company hereby certifies and warrants to you that the following is a true and
correct computation of the Tangible Net Worth requirement set forth in Section
11.13 of the Credit Agreement, which is equal to or greater than the sum of the
minimum Tangible Net Worth from the immediately preceding month plus fifty
percent (50%) of the net income of the month then ended, if positive:

 

Section 11.13 – Tangible Net Worth

 

A.

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

$

 

 

 

 

Other comprehensive income

 

$

 

 

 

 

Retained earnings

 

$

 

 

 

 

 

 

 

 

 

 

 

Total Shareholders’ Equity

 

 

 

$

 

 

 

 

 

 

 

B.

 

Subordinated Debt

 

 

 

$

 

 

 

 

 

 

 

C.

 

Intangible Items:

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

 

 

 

 

Trademarks

 

$

 

 

 

 

Trade names

 

$

 

 

 

 

Service marks

 

$

 

 

 

 

Copyrights

 

$

 

 

 

 

Patents

 

$

 

 

 

 

Licenses

 

$

 

 

 

 

Deferred items

 

$

 

 

 

 

Unamortized Debt discount

 

$

 

 

 

 

Prepaid Expenses(1)

 

$

 

 

 

 

Other intangible items

 

$

 

 

 

--------------------------------------------------------------------------------

(1)           Excludes Income Tax Refund Receivable

 

--------------------------------------------------------------------------------

 

 

 

Total Intangible Items

 

 

 

$

 

 

 

 

 

 

 

D.

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Tomsten, Inc.

 

$

 

 

 

 

Investment in Bridge Funds Limited

 

$

 

 

 

 

Investment in Commercial Credit Group

 

$

 

 

 

 

Additional Investments

 

$

 

 

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

$

 

 

 

 

 

 

 

E.

 

Tangible Net Worth [(A+B) – (C + D)]

 

 

 

$

 

 

 

 

 

 

 

F.

 

Minimum Tangible Net Worth from prior month end

 

$

 

 

 

 

plus 50% of positive current month end net income

 

$

 

 

 

 

 

 

 

 

 

 

 

New Minimum Tangible Net Worth

 

$

 

 

 

 

 

 

 

 

 

 

 

Covenant Ratio [E/F]

 

$

 

 

 

III.                                                 Debt Service Coverage.  The
Company hereby certifies and warrants to you that the following is a true and
correct computation of the Debt Service Coverage requirement set forth in
Section 11.15 of the Credit Agreement, which is not less than 2.00 to 1.00:

 

A.

 

TTM EBITDA:

 

 

 

 

 

 

 

 

 

 

 

 

 

TTM Income from Operations

 

$

 

 

 

 

TTM Depreciation

 

$

 

 

 

 

TTM Amortization

 

$

 

 

 

 

TTM Compensation Related to Stock Options

 

$

 

 

 

 

 

 

 

 

 

 

 

TTM EBITDA

 

$

 

 

 

 

 

 

 

 

 

B.

 

Cash Flow Available for Debt Service:

 

 

 

 

 

 

 

 

 

 

 

 

 

(i) TTM EBITDA

 

$

 

 

 

 

(ii) TTM Capital Expenditures

 

$

 

 

 

 

(iii) TTM Cash Taxes

 

$

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Available for Debt Service (i –(ii + iii))

 

$

 

 

 

 

 

 

 

 

 

C.

 

Debt Service:

 

 

 

 

 

 

 

 

 

 

 

 

 

TTM Interest Expense

 

$

 

 

 

 

 

 

 

 

 

Debt Service Coverage Ratio [B/C]:

 

 

 

 

Covenant Level

 

 

 

2.00x

 

 

B-2

--------------------------------------------------------------------------------

 

IV.                                                 Maximum Senior Leverage. 
The Company hereby certifies and warrants to you that the following is a true
and correct computation of the Total Leverage requirement set forth in Section
11.16 of the Credit Agreement, which is not less greater than 3.00 to 1.00:

 

A.

 

Recourse Senior Debt:

 

$

 

 

 

 

 

 

 

 

 

B.

 

Tangible Net Worth:

 

$

 

 

 

 

 

 

 

 

 

Total Leverage Ratio [A/B]:

 

 

 

 

Covenant Level

 

 

3.00x

 

 

The Company further certifies to you that no Event of Default or Unmatured Event
of Default has occurred and is continuing.

 

The Company has caused this Certificate to be executed and delivered by its duly
authorized officer on                  ,       .

 

 

WINMARK CORPORATION

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

B-3

--------------------------------------------------------------------------------

 

EXHIBIT C

 

FORM OF BORROWING BASE CERTIFICATE

 

To:          LaSalle Bank National Association (the “Lender”)

 

Please refer to the Credit Agreement dated as of September 30, 2004, as amended
by that certain First Amendment dated as of August 26, 2005 and that certain
Second Amendment dated as of March 31, 2006 (as amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”) among Winmark
Corporation (the “Company”) and its subsidiaries (together with the Company, the
“Loan Parties”) and the Lender.  This certificate (this “Certificate”), together
with supporting calculations attached hereto, is delivered to you pursuant to
the terms of the Credit Agreement.  Capitalized terms used but not otherwise
defined herein shall have the same meanings herein as in the Credit Agreement.

 

The Company hereby certifies and warrants to the Lender that at the close of
business on                           ,               (the “Calculation Date”),
the Borrowing Base was $                    , computed as set forth on the
schedule attached hereto.

 

The Company has caused this Certificate to be executed and delivered by its
officer thereunto duly authorized on                 ,             .

 

 

WINMARK CORPORATION

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

SCHEDULE TO BORROWING BASE CERTIFICATE

 

Dated as of [                   ]

 

A.

 

Availability Created by Eligible Equipment Leases

 

 

 

 

 

 

 

 

 

 

 

 

 

Net book value of Eligible Leased Assets

 

$

 

 

 

 

Advance Rate

 

0.90

 

 

 

 

Availability created by Eligible Leased Assets

 

$

 

 

 

 

 

 

 

 

 

 

 

Availability created by Eligible Equipment Leases

 

$

 

 

 

 

 

 

 

 

 

B.

 

Availability Created by Income from Operation of Franchising and Corporate
Segments

 

 

 

 

 

 

 

 

 

 

 

TTM EBITDA of Franchising Segment

 

$

 

 

 

 

TTM EBITDA of Corporate Segment

 

$

 

 

 

 

Total

 

$

 

 

 

 

Advance Rate

 

2.00

 

 

 

 

Availability created by EBITDA of Franchising and Corporate Segments

 

$

 

 

 

 

 

 

 

 

 

Total Availability: Lesser of (A+B) and $15,000,000

 

$

 

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstandings

 

$

 

 

 

 

Issued Letters of Credit

 

$

 

 

 

 

 

 

 

 

 

Excess Availability

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

C-2

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EXHIBIT E

 

FORM OF NOTICE OF BORROWING

 

To:                          LaSalle Bank National Association (the “Lender”)

 

Please refer to the Credit Agreement dated as of September 30, 2004 as amended
by that certain First Amendment dated as of August 26, 2005 and that certain
Second Amendment dated as of March 31, 2006 (as amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”) among Winmark
Corporation (the “Company”) and its subsidiaries (together with the Company, the
“Loan Parties”) and the Lender.  Capitalized terms used but not otherwise
defined herein shall have the same meanings herein as in the Credit Agreement.

 

The undersigned hereby gives irrevocable notice, pursuant to Section 2.2.2 of
the Credit Agreement, of a request hereby for a borrowing as follows:

 

(i)            The requested borrowing date for the proposed borrowing (which is
a Business Day) is                        ,           .

 

(ii)           The aggregate amount of the proposed borrowing is
$                       .

 

(iii)          The type of Revolving Loans comprising the proposed borrowing are
[Base Rate] [LIBOR] [Fixed Rate] Loans.

 

(iv)          The duration of the Interest Period for each LIBOR Loan made as
part of the proposed borrowing, if applicable, is                        
month(s) (which shall be 1, 2, 3 or 6 months).

 

(v)           The duration of the Interest Period for each Fixed Rate Loan made
as part of the proposed borrowing, if applicable, is                     
year(s) (which shall be 1, 2, 3 or 4 years).

 

The undersigned hereby certifies that on the date hereof and on the date of
borrowing set forth above, and immediately after giving effect to the borrowing
requested hereby: (i) there exists and there shall exist no Unmatured Event of
Default or Event of Default under the Credit Agreement; and (ii) each of the
representations and warranties contained in the Credit Agreement and the other
Loan Documents is true and correct as of the date hereof, except to the extent
that such representation or warranty expressly relates to another date and
except for changes therein expressly permitted or expressly contemplated by the
Credit Agreement, and (iii) no more than six (6) borrowings or continuations of,
or conversions to, Fixed Rate Loans have been made in the current calendar year.

 

The Company has caused this Notice of Borrowing to be executed and delivered by
its officer thereunto duly authorized on                ,             .

 

 

WINMARK CORPORATION

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

--------------------------------------------------------------------------------

 

EXHIBIT F

 

FORM OF NOTICE OF CONVERSION/CONTINUATION

 

To:                          LaSalle Bank National Association (the “Lender”)

 

Please refer to the Credit Agreement dated as of September 30, 2004, as amended
by that certain First Amendment dated as of August 26, 2005 and that certain
Second Amendment dated as of March 31, 2006 (as amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”) among Winmark
Corporation (the “Company”) and its subsidiaries (together with the Company, the
“Loan Parties”) and the Lender.  Capitalized terms used but not otherwise
defined herein shall have the same meanings herein as in the Credit Agreement.

 

The undersigned hereby gives irrevocable notice, pursuant to Section 2.2.3 of
the Credit Agreement, of its request to:

 

(a)           on [date] convert $[                 ] of the aggregate
outstanding principal amount of the [              ] Loan, into a(n)
[                  ] Loan [and, in the case of a LIBOR Loan, having an Interest
Period of [       ] month(s)][and, in the case of a Fixed Rate Loan, having an
Interest Period of [           ] years(s)];

 

[(b)          on [date] continue $[             ] of the aggregate outstanding
principal amount of the [LIBOR Loan, as a LIBOR Loan having an Interest Period
of [             ] month(s)][Fixed Rate Loan, as a Fixed Rate Loan having an
Interest Period of [               ] year(s)].

 

The undersigned hereby represents and warrants that all of the conditions
contained in Section 12.2 of the Credit Agreement have been satisfied on and as
of the date hereof, and will continue to be satisfied on and as of the date of
the conversion/continuation requested hereby, before and after giving effect
thereto[and, with respect to the conversion or continuance of any LIBOR Loan,
after giving effect to such conversion or continuance, no more than eight (8)
different Groups of LIBOR Loans are outstanding and the aggregate principal
amount of each Group of LIBOR Loans is at least $100,000 or a higher integral
multiple of $100,000][, and, with respect to the conversion or continuance of
any Fixed Rate Loan, after giving effect to such conversion or continuance,(i)
no more than six (6) borrowings of, conversions to or continuances of Fixed Rate
Loans have been made this calendar year, (ii) no more than twenty four (24)
different Groups of Fixed Rate Loans are currently outstanding and (iii) the
aggregate principal amount of each Group of Fixed Rate Loans is at least
$200,000 or a higher integral multiple of $100,000].

 

 

The Company has caused this Notice of Conversion/Continuation to be executed and
delivered by its officer thereunto duly authorized on                    ,
          .

 

 

WINMARK CORPORATION

 

 

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

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