Exhibit 10.34

 

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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

by and among

SHARPER IMAGE CORPORATION

as Borrower,

THE LENDERS THAT ARE SIGNATORIES HERETO

as the Lenders,

and

WELLS FARGO RETAIL FINANCE, LLC

as the Arranger and Administrative Agent

Dated as of May 25, 2007

 

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TABLE OF CONTENTS

 

1.

   DEFINITIONS AND CONSTRUCTION    1    1.1    Definitions    1    1.2   
Accounting Terms    30    1.3    Code    30    1.4    Construction    30    1.5
   Schedules and Exhibits    31

2.

   LOAN AND TERMS OF PAYMENT    31    2.1    Revolver Advances    31    2.2   
Capital Expenditures Loans    32    2.3    Borrowing Procedures and Settlements
   32    2.4    Payments    39    2.5    Overadvances    42    2.6    Interest
Rates and Letter of Credit Fee: Rates, Payments, and Calculations    42    2.7
   Cash Management    44    2.8    Crediting Payments    46    2.9    Designated
Account    46    2.10    Maintenance of Loan Account; Statements of Obligations
   47    2.11    Fees    47    2.12    Letters of Credit    48    2.13    LIBOR
Option    51    2.14    Capital Requirements    54

3.

   CONDITIONS; TERM OF AGREEMENT    55    3.1    Conditions Precedent to the
Initial Extension of Credit    55    3.2    Conditions Subsequent to the Initial
Extension of Credit    56    3.3    Conditions Precedent to all Extensions of
Credit    57    3.4    Term    57    3.5    Effect of Termination    57    3.6
   Early Termination by Borrower    58

4.

   CREATION OF SECURITY INTEREST    59    4.1    Grant of Security Interest   
59    4.2    Negotiable Collateral    59    4.3    Collection of Accounts,
General Intangibles, and Negotiable Collateral    59

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TABLE OF CONTENTS

 

   4.4    Filing of Financing Statements; Commercial Tort Claims; Delivery of
Additional Documentation Required    59    4.5    Power of Attorney    60    4.6
   Right to Inspect    61    4.7    Control Agreements    61

5.

   REPRESENTATIONS AND WARRANTIES    62    5.1    No Encumbrances    62    5.2
   Eligible Accounts    62    5.3    Eligible Inventory    62    5.4   
Equipment    62    5.5    Location of Inventory and Equipment    62    5.6   
Inventory Records    63    5.7    State of Incorporation; Location of Chief
Executive Office; FEIN; Organizational ID Number; Commercial Tort Claims    63
   5.8    Due Organization and Qualification; Subsidiaries    63    5.9    Due
Authorization; No Conflict    64    5.10    Litigation    65    5.11    No
Material Adverse Change    65    5.12    Fraudulent Transfer    65    5.13   
Employee Benefits    65    5.14    Environmental Condition    65    5.15   
Brokerage Fees    66    5.16    Intellectual Property    66    5.17    Leases   
66    5.18    Deposit Accounts and Securities Accounts    66    5.19    Complete
Disclosure    66    5.20    Indebtedness    67    5.21    Credit Card Receipts
   67    5.22    Margin Stock    67

6.

   AFFIRMATIVE COVENANTS    67    6.1    Accounting System    67    6.2   
Collateral Reporting    67    6.3    Financial Statements, Reports, Certificates
   67

 

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TABLE OF CONTENTS

 

   6.4    Guarantor Reports    69    6.5    Returns    70    6.6    Maintenance
of Properties    70    6.7    Taxes    70    6.8    Insurance    70    6.9   
Location of Inventory and Equipment    72    6.10    Compliance with Laws    72
   6.11    Leases    72    6.12    Existence    72    6.13    Environmental   
72    6.14    Disclosure Updates    73    6.15    Formation of Subsidiaries   
73

7.

   NEGATIVE COVENANTS    73    7.1    Indebtedness    73    7.2    Liens    74
   7.3    Restrictions on Fundamental Changes    74    7.4    Disposal of Assets
   75    7.5    Change Name    75    7.6    Nature of Business    75    7.7   
[Intentionally Omitted]    75    7.8    Change of Control    75    7.9   
Consignments    75    7.10    Distributions    75    7.11    Accounting Methods
   75    7.12    Investments    75    7.13    Transactions with Affiliates    76
   7.14    Suspension    76    7.15    [Intentionally Omitted]    76    7.16   
Use of Proceeds    76    7.17    Inventory and Equipment Storage    76    7.18
   Financial Covenants    76

 

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TABLE OF CONTENTS

 

8.

   EVENTS OF DEFAULT    77

9.

   THE LENDER GROUP’S RIGHTS AND REMEDIES    79      9.1    Rights and Remedies
   79      9.2    Remedies Cumulative    82

10.

   TAXES AND EXPENSES    82

11.

   WAIVERS; INDEMNIFICATION    82    11.1    Demand; Protest; etc    82    11.2
   The Lender Group’s Liability for Borrower Collateral    83    11.3   
Indemnification    83

12.

   NOTICES.    83

13.

   CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER    84

14.

   ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS    85    14.1    Assignments and
Participations    85    14.2    Successors    88

15.

   AMENDMENTS; WAIVERS    88    15.1    Amendments and Waivers    88    15.2   
Replacement of Holdout Lender    89    15.3    No Waivers; Cumulative Remedies
   90

16.

   AGENT; THE LENDER GROUP    90    16.1    Appointment and Authorization of
Agent    90    16.2    Delegation of Duties    91    16.3    Liability of Agent
   91    16.4    Reliance by Agent    91    16.5    Notice of Default or Event
of Default    92    16.6    Credit Decision    92    16.7    Costs and Expenses;
Indemnification    93    16.8    Agent in Individual Capacity    93    16.9   
Successor Agent    94    16.10    Lender in Individual Capacity    94    16.11
   Withholding Taxes    95    16.12    Collateral Matters    98    16.13   
Restrictions on Actions by Lenders; Sharing of Payments    98

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TABLE OF CONTENTS

 

   16.14    Agency for Perfection    99    16.15    Payments by Agent to the
Lenders    99    16.16    Concerning the Collateral and Related Loan Documents
   99    16.17    Field Audits and Examination Reports; Confidentiality;
Disclaimers by Lenders; Other Reports and Information    100    16.18    Several
Obligations; No Liability    101    16.19    Legal Representation of Agent   
101

17.

   GENERAL PROVISIONS    101    17.1    Effectiveness    101    17.2    Section
Headings    101    17.3    Interpretation    101    17.4    Severability of
Provisions    102    17.5    Amendments in Writing    102    17.6   
Counterparts; Telefacsimile Execution    102    17.7    Revival and
Reinstatement of Obligations    102    17.8    Confidentiality    102    17.9   
Integration    103

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TABLE OF CONTENTS

 

EXHIBITS AND SCHEDULES Exhibit A-1    Form of Assignment and Acceptance
Exhibit C-1    Form of Compliance Certificate Exhibit L-1    Form of LIBOR
Notice Schedule A-1    Agent’s Account Schedule A-2    Authorized Persons
Schedule C-1    Commitments Schedule D-1    Designated Account Schedule E-1   
Eligible Inventory Locations Schedule P-1    Permitted Liens Schedule 2.7(a)   
Cash Management Banks Schedule 5.5    Locations of Inventory and Equipment
Schedule 5.7(a)    States of Organization Schedule 5.7(b)    Chief Executive
Offices Schedule 5.7(c)    FEINs Schedule 5.7(d)    Commercial Tort Claims
Schedule 5.8(b)    Capitalization of Borrower Schedule 5.8(c)    Capitalization
of Borrower’s Subsidiaries Schedule 5.10    Litigation Schedule 5.14   
Environmental Matters Schedule 5.16    Intellectual Property Schedule 5.18   
Deposit Accounts and Securities Accounts Schedule 5.20    Permitted Indebtedness
Schedule 5.21    Credit Card Processors Schedule 6.2    Collateral Reporting

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AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Agreement”), is
entered into as of May 25, 2007, by and among, on the one hand, the lenders
identified on the signature pages hereof (such lenders, together with their
respective successors and permitted assigns, are referred to hereinafter each
individually as a “Lender” and collectively as the “Lenders”) and WELLS FARGO
RETAIL FINANCE, LLC, a Delaware limited liability company, as the arranger and
administrative agent for the Lenders (“Agent”), and, on the other hand, SHARPER
IMAGE CORPORATION, a Delaware corporation (“Borrower”).

WHEREAS, Borrower, Agent and certain financial institutions are party to a Loan
and Security Agreement dated as of October 31, 2003 (as amended or otherwise
modified as of the date hereof, the “Prior Credit Agreement”); and

WHEREAS, Borrower, Agent and the Lenders have agreed to amend and restate the
Prior Credit Agreement on the Restatement Date, subject to the terms and
conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual agreements herein contained, the
parties agree that the Prior Credit Agreement is hereby amended and restated in
its entirety as follows:

 

1. DEFINITIONS AND CONSTRUCTION.

1.1 Definitions. As used in this Agreement, the following terms shall have the
following definitions:

“Account” means an account (as that term is defined in the Code), and any and
all supporting obligations in respect thereof.

“Account Debtor” means any Person who is obligated under, with respect to, or on
account of, an Account, chattel paper, or a General Intangible.

“ACH Transactions” means any cash management or related services (including the
Automated Clearing House processing of electronic fund transfers through the
direct Federal Reserve Fedline system) provided by a Bank Product Provider for
the account of Borrower or its Subsidiaries.

“Additional Documents” has the meaning set forth in Section 4.4(c).

“Adjusted Letter of Credit Usage” means, as of the date of determination, the
sum of (a) with respect to Qualified Import Letters of Credit issued for the
purpose of purchasing Eligible Inventory, the Adjusted Qualified Import L/C
Amount, plus (b) 100% of the undrawn amount of all other outstanding Letters of
Credit, plus (c) 100% of the amount of outstanding time drafts accepted by the
Underlying Issuer as a result of drawings under Underlying Letters of Credit.

 

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“Adjusted Qualified Import L/C Amount” means, as of any date of determination
with respect to all outstanding Qualified Import Letters of Credit issued for
the purpose of purchasing Eligible Inventory, an amount equal to 100% of the
undrawn amount of such Qualified Import Letters of Credit.

“Adjusted Revolver Usage” means, as of any date of determination, the sum of
(a) the then extant amount of outstanding Advances, plus (b) the then extant
amount of the Adjusted Letter of Credit Usage.

“Advances” has the meaning set forth in Section 2.1(a).

“Affiliate” means, as applied to any Person, any other Person who, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person. For purposes of this definition,
“control” means the possession, directly or indirectly through one or more
intermediaries, of the power to direct the management and policies of a Person,
whether through the ownership of Stock, by contract, or otherwise; provided,
however, that, for purposes of the definition of Eligible Accounts and
Section 7.13 hereof: (a) any Person which owns directly or indirectly 10% or
more of the Stock having ordinary voting power for the election of directors or
other members of the governing body of a Person or 10% or more of the
partnership or other ownership interests of a Person (other than as a limited
partner of such Person) shall be deemed an Affiliate of such Person, (b) each
director (or comparable manager) of a Person shall be deemed to be an Affiliate
of such Person, and (c) each partnership or joint venture in which a Person is a
partner or joint venturer shall be deemed an Affiliate of such Person.

“Agent” means WFRF, in its capacity as arranger and administrative agent
hereunder, and any successor thereto.

“Agent Advances” has the meaning set forth in Section 2.3(e)(i).

“Agent-Related Persons” means Agent, together with its Affiliates, officers,
directors, employees, attorneys, and agents.

“Agent’s Account” means the Deposit Account of Agent identified on Schedule A-1.

“Agent’s Liens” means the Liens granted by Borrower or its Subsidiaries to Agent
under this Agreement or the other Loan Documents.

“Agreement” has the meaning set forth in the preamble to this Agreement.

“Applicable Margin” means the rates for Base Rate Loans, LIBOR Rate Loans,
Documentary Letters of Credit and Standby Letters of Credit set forth below:

 

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Level

  

Average

Availability

   Base Rate
Loans     LIBOR Rate
Loans     Documentary
Letters of
Credit     Standby
Letters of
Credit  

I

   Greater than or equal to $40,000,000    0 %   1.50 %   1.00 %   1.50 %

II

   Greater than or equal to $20,000,000 but less than $40,000,000    0 %   1.75
%   1.25 %   1.75 %

III

   Less than $20,000,000    0.25 %   2.00 %   1.50 %   2.00 %

The Applicable Margin shall be adjusted quarterly as of the first day of each
calendar quarter, based upon the Average Availability for the immediately
preceding calendar quarter.

“Applicable Prepayment Premium” means, (i) from the Restatement Date through and
including the first anniversary of the Restatement Date, .50% times the Maximum
Revolver Prepayment Amount; (ii) from the day following the first anniversary of
the Restatement Date through and including the second anniversary of the
Restatement date, .25% times the Maximum Revolver Prepayment Amount at such time
and (iii) any time following the second anniversary of the Restatement Date, 0%.

“Assignee” has the meaning set forth in Section 14.1(a).

“Assignment and Acceptance” means an Assignment and Acceptance Agreement
substantially in the form of Exhibit A-1.

“Authorized Person” means any of (i) the chief executive officer of the
Borrower, (ii) chief financial officer of the Borrower, (iii) the treasurer of
the Borrower, or (iv) any other executive officer of Borrower identified by the
Borrower to the Agent in writing.

“Availability” means, as of any date of determination, the amount that Borrower
is entitled to borrow as Advances hereunder (after giving effect to all then
outstanding Obligations (other than Bank Product Obligations) and all sublimits
and reserves then applicable hereunder).

“Average Availability” means for any calendar quarter an amount equal to the sum
of the -Availability for each day of such calendar quarter divided by the actual
number of days in such calendar quarter, as determined by Agent, which
determination shall be conclusive absent manifest error.

 

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“Bank Product” means any financial accommodation extended to Borrower or its
Subsidiaries by a Bank Product Provider (other than pursuant to this Agreement)
including: (a) credit cards, (b) credit card processing services, (c) debit
cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including
controlled disbursement, accounts or services, or (g) transactions under Hedge
Agreements.

“Bank Product Agreements” means those agreements entered into from time to time
by Borrower or its Subsidiaries with a Bank Product Provider in connection with
the obtaining of any of the Bank Products.

“Bank Product Obligations” means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by Borrower or its
Subsidiaries to any Bank Product Provider pursuant to or evidenced by the Bank
Product Agreements and irrespective of whether for the payment of money, whether
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, and including all such amounts that Borrower or its
Subsidiaries are obligated to reimburse to Agent or any member of the Lender
Group as a result of Agent or such member of the Lender Group purchasing
participations from, or executing indemnities or reimbursement obligations to, a
Bank Product Provider with respect to the Bank Products provided by such Bank
Product Provider to Borrower or its Subsidiaries.

“Bank Product Provider” means Wells Fargo or any of its Affiliates.

“Bank Product Reserve” means, as of any date of determination, the lesser of
(a) $3,000,000, and (b) the amount of reserves that Agent has established (based
upon the Bank Product Providers’ reasonable determination of the credit exposure
in respect of then extant Bank Products) in respect of Bank Products then
provided or outstanding.

“Bankruptcy Code” means title 11 of the United States Code, as in effect from
time to time.

“Base LIBOR Rate” means the rate per annum, determined by Agent in accordance
with its customary procedures, and utilizing such electronic or other quotation
sources as it considers appropriate in its Permitted Discretion (rounded
upwards, if necessary, to the next 1/100%), to be the rate at which Dollar
deposits (for delivery on the first day of the requested Interest Period) are
offered to major banks in the London interbank market at approximately 11 a.m.
(London time) 2 Business Days prior to the commencement of the requested
Interest Period, for a term and in an amount comparable to the Interest Period
and the amount of the LIBOR Rate Loan requested (whether as an initial LIBOR
Rate Loan or as a continuation of an extant LIBOR Rate Loan or as a conversion
of a Base Rate Loan to a LIBOR Rate Loan) by Borrower in accordance with this
Agreement, which determination shall be conclusive in the absence of manifest
error.

“Base Rate” means, the rate of interest announced, from time to time, within
Wells Fargo at its principal office in San Francisco as its “prime rate”, with
the understanding that the “prime rate” is one of Wells Fargo’s base rates (not
necessarily the

 

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lowest of such 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
publications as Wells Fargo may designate.

“Base Rate Loan” means the portion of the Advances that bears interest at a rate
determined by reference to the Base Rate.

“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of
ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of Borrower has
been an “employer” (as defined in Section 3(5) of ERISA) within the past six
years.

“Board of Directors” means the board of directors (or comparable managers) of
Borrower or any committee thereof duly authorized to act on behalf of the board
of directors (or comparable managers).

“Books” means Borrower’s and its Subsidiaries’ now owned or hereafter acquired
books and records (including all of their Records indicating, summarizing, or
evidencing their assets (including the Collateral) or liabilities, all of
Borrower’s or its Subsidiaries’ Records relating to their business operations or
financial condition, and all of their goods or General Intangibles related to
such information).

“Borrower” has the meaning set forth in the preamble to this Agreement.

“Borrower Collateral” means all of Borrower’s now owned or hereafter acquired
right, title, and interest in and to each of the following:

(a) all of its Accounts,

(b) all of its Books,

(c) all of its Deposit Accounts,

(d) all of its Equipment,

(e) all of its General Intangibles,

(f) all of its Inventory,

(g) all of its Investment Property (including all of its securities and
Securities Accounts),

(h) all of its Negotiable Collateral,

(i) money or other assets of Borrower that now or hereafter come into the
possession, custody, or control of any member of the Lender Group, and

(j) the proceeds and products, whether tangible or intangible, of any of the
foregoing, including proceeds of insurance covering any or all of the foregoing,

 

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and any and all Accounts, Books, Deposit Accounts, Equipment, General
Intangibles, Inventory, Investment Property, Negotiable Collateral, Real
Property, money, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.

Notwithstanding anything to the contrary contained in this definition, the term
“Borrower Collateral” shall not include the Excluded Collateral.

“Borrowing” means a borrowing hereunder consisting of Advances made on the same
day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case
of a Swing Loan, or by Agent in the case of an Agent Advance.

“Borrowing Base” means, as of any date of determination, the result of:

(a) the sum of :

(i) 90% of the amount of Eligible Accounts consisting of Credit Card
Receivables, plus

(ii) 85% of the amount of Eligible Accounts (other than Credit Card
Receivables), less the amount if any, of the Dilution Reserve, plus

(b) 97.5% times the then extant Net Liquidation Percentage times the book value
of Borrower’s Eligible Landed Inventory, plus

(c) the lowest of

(i) 85% times the then extant Net Liquidation Percentage times the book value of
Borrower’s Eligible Refurbished Inventory, and

(ii) $10,000,000, plus

(d) the lowest of

(i) 85% times the then extant Net Liquidation Percentage times the book value of
Borrower’s Eligible In-Transit Inventory, and

(ii) $15,000,000, minus

(e) the sum of (i) the Bank Product Reserve, (ii) the Minimum Availability
Reserve, (iii) the Landlord Lien Reserves, (iv) the Customer Liability Reserves,
(v) the Inventory Reserves, and (vi) the aggregate amount of such additional
reserves, if any, established by Agent under Section 2.1(b).”

 

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“Borrowing Base Availability” means, as of any date of determination, the
Borrowing Base, less the Adjusted Letter of Credit Usage, less the then extant
amount of outstanding Advances.

“Business Day” means any day that is not a Saturday, Sunday, or other day on
which banks are authorized or required to close in the state of California,
except that, if a determination of a Business Day shall relate to a LIBOR Rate
Loan, the term “Business Day” also shall exclude any day on which banks are
closed for dealings in Dollar deposits in the London interbank market.

“Capital Expenditures” means, with respect to any Person for any period, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period that are capital expenditures as determined in accordance with GAAP,
whether such expenditures are paid in cash or financed.

“Capital Lease” means a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.

“Capitalized Lease Obligation” means that portion of the obligations under a
Capital Lease that is required to be capitalized in accordance with GAAP.

“Cash Equivalents” means (a) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within 18 months from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 18 months from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor’s Rating Group (“S&P”), Moody’s Investors Service, Inc.
(“Moody’s”) or Fitch IBCA, (c) commercial paper maturing no more than 270 days
from the date of creation thereof and, at the time of acquisition, having a
rating of at least A-2 from S&P, at least P-2 from Moody’s or at least F-2 from
Fitch IBCA, (d) certificates of deposit or bankers’ acceptances or time deposits
maturing within 18 months from the date of acquisition thereof issued by, or
unconditionally guaranteed by or placed with, any bank organized under the laws
of the United States or any state thereof having at the date of acquisition
thereof combined capital and surplus of not less than $250,000,000, (e) demand
Deposit Accounts maintained with any bank organized under the laws of the United
States or any state thereof so long as the amount maintained with any individual
bank is less than or equal to $100,000 and is insured by the Federal Deposit
Insurance Corporation, (f) auction rate notes, floating rate notes, corporate
notes/bonds or asset-backed securities, in each case having, at the time of
acquisition, a rating of at least AA from S&P, at least P-1/MIG-1 from Moody’s
or at least F-1/A from Fitch IBCA and in each case having such maturities, not
to exceed 18 months, as may be customary for investments of such types (based on
maturities of similar investments as offered by a Bank Product Provider),
(g) Investments in money market funds substantially all of whose assets are
invested in the types of assets described in clauses (a) through (f) above,
(h) Investments in repurchase agreements maturing (as to any repurchase
obligation)

 

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within 90 days from the date of acquisition thereof, involving only assets of
the types described in clauses (a) through (f) above, and entered into with a
financial institution (acting through a branch or agency in the United States)
having total assets in excess of $250,000,000, (i) any Bank Products obtained
from a Bank Product Provider and (j) any Investments of a Subsidiary organized
under the laws of Canada substantially similar to Investments of the types set
forth in clauses (a) through (i) above.

“Cash Management Accounts” has the meaning set forth in Section 2.7(a).

“Cash Management Agreements” means those certain cash management agreements, in
form and substance reasonably satisfactory to Agent, each of which is among
Borrower or one of its Subsidiaries, Agent, and one of the Cash Management
Banks.

“Cash Management Bank” has the meaning set forth in Section 2.7(a).

“Change of Control” means that any “person” or “group” (within the meaning of
Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 40%,
or more, of the Stock of Borrower having the right to vote for the election of
members of the Board of Directors.

“Check Clearance Collection Account” has the meaning set forth in
Section 2.7(b).

“Closing Date” means October 31, 2003.

“Code” means the New York Uniform Commercial Code, as in effect from time to
time.

“Collateral” means all assets and interests in assets and proceeds thereof now
owned or hereafter acquired by Borrower or its Subsidiaries in or upon which a
Lien is granted under any of the Loan Documents.

“Collateral Access Agreement” means a landlord waiver, bailee letter,
or acknowledgement agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in Borrower’s or its Subsidiaries’ Books, Equipment, or Inventory, in
each case, in form and substance satisfactory to Agent.

“Collection Accounts” has the meaning set forth in Section 2.7(a).

“Collections” means all cash, checks, notes, instruments, and other items of
payment (including insurance proceeds, proceeds of cash sales, rental proceeds,
license related payments, and tax refunds).

“Commercial Tort Claim Assignment” has the meaning set forth in Section 4.4(b).

 

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“Commitment” means, with respect to each Lender, its Revolver Commitment, and,
with respect to all Lenders, their Revolver Commitments, as such Dollar amounts
are set forth beside such Lender’s name under the applicable heading on Schedule
C-1 or in the Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder in accordance with the provisions of Section 14.1.

“Compliance Certificate” means a certificate substantially in the form of
Exhibit C-1 delivered by the chief financial officer or VP of Finance of
Borrower to Agent.

“Concentration Accounts” has the meaning set forth in Section 2.7(a).

“Consumer Installment Sales Receivables” means, on any date of determination,
Accounts consisting of rights of Borrower to payment under consumer installment
sales agreements where reasonable credit scoring criteria (that has been
approved by Agent in its Permitted Discretion) has been utilized.

“Control Agreement” means a control agreement, in form and substance
satisfactory to Agent in its Permitted Discretion, executed and delivered by
Borrower or one of its Subsidiaries, Agent, and the applicable securities
intermediary (with respect to a Securities Account) or bank (with respect to a
Deposit Account).

“Control Exercise Notice” has the meaning set forth in Section 2.7(c).

“Corporate Wholesale Receivables” means, on any date of determination, corporate
wholesale Accounts that have been approved in writing by Agent in its Permitted
Discretion (and as to which such approval remains in effect).

“Credit Card Agreements” means those certain credit card receipts agreements,
each in form and substance reasonably satisfactory to Agent, and each of which
is among Agent, Borrower, and one of Borrower’s Credit Card Processors, whereby,
among other things, such Credit Card Processor is irrevocably directed and
agrees to transfer all proceeds of credit card charges for sales by Borrower
received by it (or other amounts payable by such Credit Card Processor) into a
designated Concentration Account on a daily basis or such other periodic basis
as Agent may otherwise direct.

“Credit Card Processor” means any Person (including an issuer of a credit card)
that acts as a credit card clearinghouse or remits payments due to Borrower with
respect to credit card charges accepted by Borrower.

“Credit Card Receivables” means, on any date of determination thereof, Accounts
consisting of rights of Borrower to payment by any Credit Card Processor in
connection with consumer retail sales for which Borrower has accepted payment by
means of charges to major credit cards (MasterCard, VISA, American Express,
Discover, Diner’s Club, and such other bank or non-bank credit or debit cards as
may be approved by Agent in its Permitted Discretion).

 

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“Customer Liabilities” means the Borrower and its Subsidiaries’ potential
liabilities to their customers, including in connection with merchandise
deposits, returns, merchandise credits, gift certificates and frequent shopper
programs.

“Customer Liabilities Reserve” means an amount equal to the lesser of (a) 25%
times the amount of reserves established by Borrower on its financial statements
in accordance with GAAP with respect to Customer Liabilities and (b) other such
amount as the Agent determines by taking into account other factors that may
reduce the probability that such Customer Liabilities may be redeemed including
the historic redemption rate, the aging of the Customer Liabilities and the
purposes and consideration for the issuance of the Customer Liability.

“Customs Broker” means V. Alexander & Co, Inc., or such other Persons as may be
selected by Borrower after the date hereof who are reasonably acceptable to
Agent to perform port of entry services to accept and process Inventory imported
by Borrower and who have executed and delivered a Customs Broker Agreement.

“Customs Broker Agreement” means a custom broker agreement in form and substance
satisfactory to Agent in its Permitted Discretion, duly executed and delivered
to Agent by a Customs Broker and Borrower.

“Daily Balance” means, as of any date of determination and with respect to any
Obligation, the amount of such Obligation owed at the end of such day.

“Default” means an event, condition, or default that, with the giving of notice,
the passage of time, or both, would be an Event of Default.

“Defaulting Lender” means any Lender that fails to make any Advance (or other
extension of credit) that it is required to make hereunder on the date that it
is required to do so hereunder.

“Defaulting Lender Rate” means (a) for the first 3 days from and after the date
the relevant payment is due, the Base Rate, and (b) thereafter, the interest
rate then applicable to Advances that are Base Rate Loans (inclusive of the
Applicable Margin for Base Rate Loans).

“Deferred Compensation Account” means any Deposit Account or Securities Account
maintained and used by Borrower exclusively for deposit of Deferred Compensation
Amounts pending payment thereof as deferred compensation.

“Deferred Compensation Amounts” means such amounts as may be reserved from time
to time by Borrower as reasonably contemplated or required pursuant to
Borrower’s deferred compensation program as in effect from time to time for use
exclusively as deferred compensation for Borrower’s officers or directors.

 

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“Deferred Compensation Life Insurance” means life insurance policies with
respect to Borrower’s officers or directors maintained by Borrower pursuant to
its deferred compensation program.

“Deposit Account” means any deposit account (as that term is defined in the
Code).

“Designated Account” means the Deposit Account of Borrower identified on
Schedule D-1.

“Designated Account Bank” has the meaning ascribed thereto on Schedule D-1.

“Dilution” means, as of any date of determination, a percentage, based upon the
experience of the immediately prior 360 consecutive days, that is the result of
dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising
allowances, credits, or such other dilutive items as may be identified by
Borrower or Agent (in its Permitted Discretion) with respect to Borrower’s
Accounts during such period, by (b) Borrower’s billings with respect to Accounts
during such period.

“Dilution Reserve” means, as of any date of determination, an amount sufficient
to reduce the advance rate against Eligible Accounts by 1 percentage point for
each percentage point by which Dilution is in excess of 5%.

“Disbursement Letter” means an instructional letter executed and delivered by
Borrower to Agent regarding the extensions of credit to be made on the
Restatement Date, the form and substance of which is satisfactory to Agent in
its Permitted Discretion.

“Dollars” or “$” means United States dollars.

“Due Diligence Letter” means the due diligence letter sent by Agent’s counsel to
Borrower, together with Borrower’s completed responses to the inquiries set
forth therein, the form and substance of such responses to be satisfactory to
Agent.

“Eligible Accounts” means those Accounts consisting of (1) Credit Card
Receivables, (2) Corporate Wholesale Receivables, and (3) Consumer Installment
Sales Receivables, in each case (for all such Accounts) that are created by
Borrower in the ordinary course of its business, that arise out of Borrower’s
sale of goods or rendition of services, that comply with each of the
representations and warranties respecting Eligible Accounts made in the Loan
Documents, and that are not excluded as ineligible by virtue of one or more of
the excluding criteria set forth below; provided, however, that reserves may be
imposed from time to time by Agent in Agent’s Permitted Discretion to address
the results of any audit performed by Agent from time to time after the Closing
Date. In determining the amount to be included, Eligible Accounts shall be
calculated net of customer deposits and unapplied cash. Eligible Accounts shall
not include the following:

(a)(i) Credit Card Receivables that the applicable Credit Card Processor has
failed to pay within 5 days after the applicable sale date, (ii) Corporate
Wholesale Receivables that the Account Debtor has failed to pay within 60 days
of original invoice date or Corporate Wholesale Receivables with selling terms
of more than 30 days, or (iii) Consumer Installment Sales Receivables as to
which the Account Debtor has failed to pay within 150 days of purchase;

 

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(b) Accounts owed by an Account Debtor (or its Affiliates) where 50% or more of
all Accounts owed by that Account Debtor (or its Affiliates) are deemed
ineligible under clause (a) above,

(c) Accounts with respect to which the Account Debtor is an Affiliate of
Borrower or an employee or agent of Borrower or any Affiliate of Borrower,

(d) Accounts arising in a transaction wherein goods are placed on consignment or
are sold pursuant to a guaranteed sale, a sale or return, a sale on approval, a
bill and hold, or any other terms by reason of which the payment by the Account
Debtor may be conditional,

(e) Accounts that are not payable in Dollars or Canadian Dollars,

(f) Accounts with respect to which the Account Debtor either (i) does not
maintain its residence or chief executive office in the United States or Canada,
or (ii) in the case of Account Debtors that are not natural persons, is not
organized under the laws of the United States, Canada or any state or province
thereof, or (iii) is the government of any foreign country or sovereign state,
or of any state, province, municipality, or other political subdivision thereof,
or of any department, agency, public corporation, or other instrumentality
thereof, unless (y) the Account is supported by an irrevocable letter of credit
satisfactory to Agent in its Permitted Discretion (as to form, substance, and
issuer or domestic confirming bank) that has been delivered to Agent and is
directly drawable by Agent, or (z) the Account is covered by credit insurance in
form, substance, and amount, and by an insurer, satisfactory to Agent in its
Permitted Discretion,

(g) Accounts with respect to which the Account Debtor is either (i) the United
States or any department, agency, or instrumentality of the United States
(exclusive, however, of Accounts with respect to which Borrower has complied, to
the reasonable satisfaction of Agent, with the Assignment of Claims Act, 31 USC
§ 3727), or (ii) any state of the United States,

(h) Accounts with respect to which the Account Debtor is a creditor of Borrower,
has or has asserted a right of setoff, or has disputed its obligation to pay all
or any portion of the Account, to the extent of such claim, right of setoff, or
dispute,

(i) Accounts (other than Credit Card Receivables) with respect to an Account
Debtor whose total obligations owing to Borrower exceed 10% of all Eligible
Accounts, to the extent of the obligations owing by such Account Debtor in
excess of such percentage, unless such obligations are backed by an irrevocable
letter of credit satisfactory

 

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to Agent in its Permitted Discretion (as to form, substance and issuer) that has
been delivered to Agent and is directly drawable by Agent; provided, however,
that, in each case, the amount of Eligible Accounts that are excluded because
they exceed the foregoing percentage shall be determined by Agent based on all
of the otherwise Eligible Accounts prior to giving effect to any eliminations
based upon the foregoing concentration limit,

(j) Accounts with respect to which the Account Debtor is subject to an
Insolvency Proceeding, is not Solvent, or as to which Borrower has received
notice of an imminent Insolvency Proceeding or a material impairment of the
financial condition of such Account Debtor,

(k) Accounts with respect to which the Account Debtor is located in a state or
jurisdiction (e.g., New Jersey, Minnesota, and West Virginia) that requires, as
a condition to access to the courts of such jurisdiction, that a creditor
qualify to transact business, file a business activities report or other report
or form, or take one or more other actions, unless Borrower has so qualified,
filed such reports or forms, or taken such actions (and, in each case, paid any
required fees or other charges), except to the extent that Borrower may qualify
subsequently as a foreign entity authorized to transact business in such state
or jurisdiction and gain access to such courts, without incurring any cost or
penalty viewed by Agent to be significant in amount, and such later
qualification cures any access to such courts to enforce payment of such
Account,

(l) Accounts, the collection of which, Agent, in its Permitted Discretion,
believes to be doubtful by reason of the Account Debtor’s financial condition,

(m) Accounts that are not subject to a valid and perfected first priority
Agent’s Lien, and, with respect to Credit Card Receivables, are not subject to a
Credit Card Agreement,

(n) Accounts with respect to which (i) the goods giving rise to such Account
have not been shipped and billed to the Account Debtor, or (ii) the services
giving rise to such Account have not been performed and billed to the Account
Debtor,

(o) Accounts that represent the right to receive progress payments or other
advance billings that are due prior to the completion of performance by Borrower
of the subject contract for goods or services, or

(p) Accounts owed under Consumer Installment Sales Contracts that are not
currently due and payable or that are due and payable as a result of a default
thereunder.

“Eligible In-Transit Inventory” means those items of Inventory that do not
qualify as Eligible Landed Inventory solely because they are not in a location
set forth on Schedule E-1 or in transit among such locations, but as to which
(a) such Inventory currently is, and has been for a period not exceeding
forty-five (45) days, in transit (whether by vessel, air, or land) from a
location outside of the United States to a location set forth on Schedule E-1,
(b) title to such Inventory has passed to a Credit Party, (c) such Inventory is
insured

 

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against types of loss, damage, hazards, and risks, and in amounts, satisfactory
to Agent in its Permitted Discretion, (d) such Inventory is in the possession or
control of a Freight Forwarder then subject to a Freight Forwarder Agreement
and, to the extent such Inventory is the subject of a bill of lading or other
document of title, the same (1) is consigned to a Credit Party (either directly
or by means of endorsements) and (2) is either (x) in the possession of a Credit
Party, a Freight Forwarder then subject to a Freight Forwarder Agreement or a
Customs Broker then subject to a Customs Broker Agreement, or (y) the subject of
a telefacsimile copy that a Credit Party has received from the Underlying Issuer
which issued the Underlying Letter of Credit and as to which a Credit Party also
has received a confirmation from such Underlying Issuer that such document is
in-transit by air-courier to a Credit Party or a Customs Broker then subject to
a Customs Broker Agreement (in each case, in the United States) and (e) such
Credit Party has certified to Agent (pursuant to an applicable borrowing base
certificate delivered pursuant to Schedule 6.2(a)) that certifies that, to the
knowledge of such Credit Party, such Inventory meets all of such Credit Party’s
representations and warranties contained in the Loan Documents concerning
Eligible Inventory, that to the knowledge of such Credit Party there is no
reason why such Inventory would not be accepted by a Credit Party when it
arrives in the State of California, and that the shipment as evidenced by the
documents conforms to the related order documents. Delivery of each borrowing
base certificate pursuant to Schedule 6.2(a) shall constitute a representation
and warranty by such Credit Party that the Inventory listed (or otherwise
treated) therein as being Eligible In-Transit Inventory satisfies the foregoing
definition. Notwithstanding the foregoing, Inventory being shipped by Panalpina
within the period from the Restatement Date through the thirtieth day following
the Restatement Date which would be Eligible In-Transit Inventory but for the
lack of a Freight Forwarder Agreement shall be deemed to be Eligible In-Transit
Inventory.

“Eligible Inventory” means Eligible Landed Inventory, Eligible Refurbished
Inventory or Eligible In-Transit Inventory.

“Eligible Landed Inventory” means Inventory consisting of first quality
(including as a result of refurbishing or repackaging) finished goods held for
sale in the ordinary course of Borrower’s business that complies with each of
the representations and warranties respecting Eligible Inventory made in the
Loan Documents, and that is not excluded as ineligible by virtue of the one or
more of the excluding criteria set forth below; provided, however, that reserves
may be imposed from time to time by Agent in Agent’s Permitted Discretion to
address the results of any audit or appraisal performed by Agent from time to
time after the Closing Date. In determining the amount to be so included,
Inventory shall be valued at the lower of cost or market on a basis consistent
with Borrower’s historical accounting practices, but excluding, for purposes of
any such determination, the value of any capitalized costs unrelated to the
acquisition of Inventory. An item of Inventory shall not be included in Eligible
Landed Inventory if:

(a) Borrower does not have good, valid, and marketable title thereto,

 

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(b) it is not located at one of the locations in the United States set forth on
Schedule E-1, as such schedule may be amended from time to time by notice from
Borrower to Agent (or in transit from one such location to another such
location),

(c) it is located on real property leased or owned by Borrower or in a contract
warehouse, unless it is segregated or otherwise separately identifiable from
goods of others, if any, stored on the premises,

(d) it is not subject to a valid and perfected first priority Agent’s Lien,

(e) it consists of goods returned or rejected by Borrower’s customers, unless
such goods have been fully refurbished (if necessary) and are packaged and ready
for sale in the ordinary course of Borrower’s business, or

(f) it consists of goods that are obsolete or slow moving, restrictive or custom
items, work-in-process, raw materials, or goods that constitute spare parts,
packaging and shipping materials, supplies used or consumed in Borrower’s
business, bill and hold goods, defective goods, “seconds” or Inventory acquired
on consignment.

“Eligible Refurbished Inventory” means Inventory consisting of refurbished goods
that is packaged and ready for sale in the ordinary course of Borrower’s
business and that does not qualify as Eligible Landed Inventory solely because
it is located at the Refurbishing Facility. In determining the amount to be so
included, Inventory shall be valued at the lower of cost or market on a basis
consistent with Borrower’s historical accounting practices, but excluding, for
purposes of any such determination, the value of any capitalized costs unrelated
to the acquisition of Inventory.

“Eligible Transferee” means (a) a commercial bank organized under the laws of
the United States, or any state thereof, and having total assets in excess of
$250,000,000, (b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development or a political subdivision of any such country and which has total
assets in excess of $250,000,000, provided that such bank is acting through a
branch or agency located in the United States, (c) a finance company, insurance
company, or other financial institution or fund that is engaged in making,
purchasing, or otherwise investing in commercial loans in the ordinary course of
its business and having (together with its Affiliates) total assets in excess of
$250,000,000, (d) any Affiliate (other than individuals) of a Lender, (e) so
long as no Event of Default has occurred and is continuing, any other Person
approved by Agent and Borrower (which approval of Borrower shall not be
unreasonably withheld, delayed, or conditioned), and (f) during the continuation
of an Event of Default, any other Person approved by Agent.

“Environmental Actions” means any complaint, summons, citation, notice,
directive, order, claim, litigation, investigation, judicial or administrative
proceeding, judgment, letter, or other communication, each, by or from any
Governmental Authority, or any third party involving (x) violations of
Environmental Laws or (y) releases of Hazardous

 

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Materials (a) from any assets, properties, or businesses of Borrower, its
Subsidiaries, or any of their predecessors in interest, (b) from adjoining
properties or businesses, or (c) from or onto any facilities which received
Hazardous Materials generated by Borrower, its Subsidiaries, or any of their
predecessors in interest.

“Environmental Law” means any applicable federal, state, provincial, foreign or
local statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy, or rule of common law now or
hereafter in effect and in each case as amended, or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, in each case, to the extent binding on
Borrower or its Subsidiaries, relating to the environment, the effect of the
environment on employee health and safety, or Hazardous Materials, including
CERCLA, 42 USC. § 9601 et seq.; RCRA, 42 USC. § 6901 et seq.; the Federal Water
Pollution Control Act, 33 USC § 1251 et seq.; the Toxic Substances Control Act,
15 USC § 2601 et seq.; the Clean Air Act, 42 USC § 7401 et seq.; the Safe
Drinking Water Act, 42 USC § 300f et seq.; the Oil Pollution Act of 1990, 33 USC
§ 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of
1986, 42 USC § 11001 et seq.; the Hazardous Material Transportation Act, 49 USC
§ 5101 et seq.; and the Occupational Safety and Health Act, 29 USC §651 et seq.
(to the extent it regulates occupational exposure to Hazardous Materials); any
state and local or foreign counterparts or equivalents, in each case as amended
from time to time.

“Environmental Liabilities and Costs” means all liabilities, monetary
obligations, losses, damages, punitive damages, consequential damages, treble
damages, costs and expenses (including all reasonable fees, disbursements and
expenses of counsel, experts, or consultants, and costs of investigation and
feasibility studies), fines, penalties, sanctions, and interest incurred as a
result of any claim or demand, or Remedial Actions required, by any Governmental
Authority or any third party, and which relate to any Environmental Action.

“Environmental Lien” means any Lien in favor of any Governmental Authority for
Environmental Liabilities and Costs.

“Equipment” means equipment (as that term is defined in the Code) and includes
machinery, machine tools, motors, furniture, furnishings, fixtures, vehicles
(including motor vehicles), computer hardware, tools, parts, and goods (other
than consumer goods, farm products, or Inventory), wherever located, including
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute thereto.

“ERISA Affiliate” means (a) any Person subject to ERISA whose employees are
treated as employed by the same employer as the employees of Borrower or its
Subsidiaries under IRC Section 414(b), (b) any trade or business subject to
ERISA whose employees are treated as employed by the same employer as the
employees of Borrower or

 

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its Subsidiaries under IRC Section 414(c), (c) solely for purposes of
Section 302 of ERISA and Section 412 of the IRC, any organization subject to
ERISA that is a member of an affiliated service group of which Borrower or any
of its Subsidiaries is a member under IRC Section 414(m), or (d) solely for
purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject
to ERISA that is a party to an arrangement with Borrower or any of its
Subsidiaries and whose employees are aggregated with the employees of Borrower
or its Subsidiaries under IRC Section 414(o).

“Event of Default” has the meaning set forth in Section 8.

“Exchange Act” means the Securities Exchange Act of 1934, as in effect from time
to time.

“Excluded Collateral” means (a) any lease, license, contract, or agreement to
which Borrower is a party or any of its rights or interests thereunder if and
for so long as the grant of a Lien to Agent shall constitute or result in
(i) the abandonment, invalidation, or unenforceability of any right, title or
interest of Borrower therein or (ii) a breach or termination pursuant to the
terms of, or a default under, any such lease, license, contract or agreement (in
each case, other than to the extent that the restrictive terms of any such
lease, license, contract, or agreement would be rendered ineffective pursuant to
Sections 9-406, 9-407, 9-408 or 9-409 of the Code (or any successor provision or
provisions) of any relevant jurisdiction or any other applicable law (including
the Bankruptcy Code) or principles of equity), provided, however, that such Lien
shall attach immediately at such time as the condition causing such abandonment,
invalidation, unenforceability, breach, or termination shall be remedied and
shall attach immediately to the products and proceeds of such lease, license,
contract, or agreement and, to the extent severable, to any portion of such
lease, license, contract, or agreement that does not result in any of the
consequences specified in clauses (i) or (ii) above; (b) motor vehicles owned by
Borrower, but only until such time as the aggregate net book value (net of any
Purchase Money Indebtedness relating to such vehicles) of such motor vehicles
first exceeds $500,000 (it being understood that, from and after such time, all
Borrower’s motor vehicles shall be included in the Borrower Collateral), and
provided, that Agent’s Lien shall attach immediately to the products and
proceeds of all such motor vehicles; and (c) any Deferred Compensation Life
Insurance.

“Existing Lender” means The CIT Group/Business Credit, Inc.

“Fee Letter” means that certain fee letter, dated as of even date herewith,
between Borrower and Agent, in form and substance satisfactory to Agent.

“FEIN” means Federal Employer Identification Number.

“Freight Forwarder” means Panalpina, Inc., or such other Persons as may be
selected by Borrower after the date hereof who are reasonably acceptable to
Agent to perform freight forwarding or international transportation of Inventory
imported by Borrower and who have executed and delivered a Freight Forwarder
Agreement.

 

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“Freight Forwarder Agreement” means a freight forwarder agreement in form and
substance satisfactory to Agent in its Permitted Discretion, duly executed and
delivered to Agent by a Freight Forwarder and Borrower.

“Funding Date” means the date on which a Borrowing occurs.

“Funding Losses” has the meaning set forth in Section 2.13(b)(ii).

“GAAP” means generally accepted accounting principles as in effect from time to
time in the United States, consistently applied.

“General Intangibles” means general intangibles (as that term is defined in the
Code), including payment intangibles, contract rights, rights to payment, rights
arising under common law, statutes, or regulations, choses or things in action,
goodwill, patents, trade names, trade secrets, trademarks, servicemarks,
copyrights, blueprints, drawings, purchase orders, customer lists, monies due or
recoverable from pension funds, route lists, rights to payment and other rights
under any royalty or licensing agreements, infringement claims, computer
programs, information contained on computer disks or tapes, software,
literature, reports, catalogs, insurance premium rebates, tax refunds, and tax
refund claims, and any and all supporting obligations in respect thereof, and
any other personal property other than Accounts, Deposit Accounts, goods,
Investment Property, and Negotiable Collateral.

“Governing Documents” means, with respect to any Person, the certificate or
articles of incorporation, by-laws, or other organizational documents of such
Person.

“Governmental Authority” means any federal, state, local, or other governmental
or administrative body, instrumentality, department, or agency or any court,
tribunal, administrative hearing body, arbitration panel, commission, or other
similar dispute-resolving panel or body.

“Guarantor” means any Person that from time to time may become a guarantor of
the Obligations.

“Guarantor Security Agreement” means one or more security agreements executed
and delivered by each Guarantor in favor of Agent, in each case, in form and
substance satisfactory to Agent in its Permitted Discretion.

“Guaranty” means on or more general continuing guaranties executed and delivered
by each Guarantor in favor of Agent, for the benefit of the Lender Group and the
Bank Product Providers, in form and substance satisfactory to Agent.

“Hazardous Materials” means (a) substances that are defined or listed in, or
otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic
substances,” or any other formulation intended to define, list, or classify a
substance by reason of such substance’s ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or “EP (Extraction Procedure) toxicity”,
(b) oil, petroleum, or petroleum derived substances, natural gas, natural

 

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gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of crude oil,
natural gas, or geothermal resources, (c) any flammable substances or explosives
or any radioactive materials, and (d) asbestos in any form or electrical
equipment that contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.

“Hedge Agreement” means any and all agreements or documents now existing or
hereafter entered into by Borrower or its Subsidiaries that provide for an
interest rate, credit, commodity or equity swap, cap, floor, collar, forward
foreign exchange transaction, currency swap, cross currency rate swap, currency
option, or any combination of, or option with respect to, these or similar
transactions, for the purpose of hedging Borrower’s or its Subsidiaries’
exposure to fluctuations in interest or exchange rates, loan, credit exchange,
security, or currency valuations or commodity prices.

“Holdout Lender” has the meaning set forth in Section 15.2(a).

“Indebtedness” means (a) all obligations for borrowed money, (b) all obligations
evidenced by bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products, (c) all
obligations as a lessee under Capital Leases, (d) all obligations or liabilities
of others secured by a Lien on any asset of a Person or its Subsidiaries,
irrespective of whether such obligation or liability is assumed, (e) all
obligations to pay the deferred purchase price of assets (other than trade
payables incurred in the ordinary course of business and repayable in accordance
with customary trade practices), and (f) all obligations owing under Hedge
Agreements (provided that the amount of such obligations shall be calculated
based on the net termination value), and (g) any obligation guaranteeing or
intended to guarantee (whether directly or indirectly guaranteed, endorsed,
co-made, discounted, or sold with recourse) any obligation of any other Person
that constitutes Indebtedness under any of clauses (a) through (f) above.

“Indemnified Liabilities” has the meaning set forth in Section 11.3.

“Indemnified Person” has the meaning set forth in Section 11.3.

“Initial Business Plan” means the Projections of Borrower for its fiscal year
ending January 31, 2004, as delivered to Agent prior to the date hereof.

“Insolvency Proceeding” means any proceeding commenced by or against any Person
under any provision of the Bankruptcy Code or under any other state or federal
bankruptcy or insolvency law, assignments for the benefit of creditors, formal
or informal moratoria, compositions, or proceedings seeking reorganization,
arrangement, or other similar relief.

“Interest Period” means, with respect to each LIBOR Rate Loan, a period
commencing on the date of the making of such LIBOR Rate Loan (or the
continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a
LIBOR Rate Loan) and ending 1, 2, 3 or 6 months thereafter, as elected by the
Borrower pursuant to Section 2.13 and

 

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subject to Section 2.13(d)(ii)(y); provided, however, that (a) if any Interest
Period would end on a day that is not a Business Day, such Interest Period shall
be extended (subject to clauses (c)-(e) below) to the next succeeding Business
Day, (b) interest shall accrue at the applicable rate based upon the LIBOR Rate
from and including the first day of each Interest Period to, but excluding, the
day on which any Interest Period expires, (c) any Interest Period that would end
on a day that is not a Business Day shall be extended to the next succeeding
Business Day unless such Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding Business Day, (d) with
respect to an Interest Period that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period), the Interest Period shall
end on the last Business Day of the calendar month that is 1, 2, 3, or 6 months
after the date on which the Interest Period began, as applicable, and
(e) Borrower may not elect an Interest Period which will end after the Maturity
Date.

“Inventory” means inventory (as that term is defined in the Code).

“Inventory Reserves” means reserves (determined from time to time by Agent in
its Permitted Discretion) for the estimated costs relating to unpaid freight
charges, warehousing or storage charges, taxes, duties, and other similar unpaid
costs associated with the acquisition of Eligible In-Transit Inventory by
Borrower.

“Investment” means, with respect to any Person, any investment by such Person in
any other Person (including Affiliates) in the form of loans, guarantees,
advances, or capital contributions (excluding (a) commission, travel, and
similar advances to officers and employees of such Person made in the ordinary
course of business, and (b) bona fide Accounts arising in the ordinary course of
business consistent with past practice), purchases or other acquisitions of
Indebtedness, Stock, or all or substantially all of the assets of such other
Person (or of any division or business line of such other Person), and any other
items that are or would be classified as investments on a balance sheet prepared
in accordance with GAAP.

“Investment Property” means investment property (as that term is defined in the
Code), and any and all supporting obligations in respect thereof.

“IRC” means the Internal Revenue Code of 1986, as in effect from time to time.

“Issuing Lender” means WFRF or any other Lender that, at the request of Borrower
and with the consent of Agent, agrees, in such Lender’s sole discretion, to
become an Issuing Lender for the purpose of issuing L/Cs or L/C Undertakings
pursuant to Section 2.12.

“Landlord Lien Reserve” means, without limitation of Section 2.1(b), with
respect to any Leased Store Location a reserve for rent for one month for full
rental obligations in any Landlord Lien State as may be established by Agent.

“Landlord Lien State” means each of Pennsylvania, Virginia and Washington.

 

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“L/C” has the meaning set forth in Section 2.12(a).

“L/C Disbursement” means a payment made by the Issuing Lender pursuant to a
Letter of Credit.

“L/C Undertaking” has the meaning set forth in Section 2.12(a).

“Leased Store Location” means any Sharper Image store for which Borrower has a
leasehold interest, and any related kiosk location leased by Borrower and
serviced from any such store.

“Lender” and “Lenders” have the respective meanings set forth in the preamble to
this Agreement, and shall include any other Person made a party to this
Agreement in accordance with the provisions of Section 14.1.

“Lender Group” means, individually and collectively, each of the Lenders
(including the Issuing Lender) and Agent.

“Lender Group Expenses” means all (a) costs or expenses (including taxes, and
insurance premiums) required to be paid by Borrower or its Subsidiaries under
any of the Loan Documents that are paid, advanced, or incurred by the Lender
Group, (b) fees or charges paid or incurred by Agent in connection with the
Lender Group’s transactions with Borrower or its Subsidiaries, including, fees
or charges for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien, litigation, and
UCC searches and including searches with the patent and trademark office, the
copyright office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic collateral appraisals or business
valuations to the extent of the fees and charges (and up to the amount of any
limitation) contained in this Agreement), real estate surveys, real estate title
policies and endorsements, and environmental audits, (c) costs and expenses
incurred by Agent in the disbursement of funds to Borrower or other members of
the Lender Group (by wire transfer or otherwise), (d) charges paid or incurred
by Agent resulting from the dishonor of checks, (e) reasonable costs and
expenses paid or incurred by the Lender Group to correct any default or enforce
any provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated, (f) audit fees and expenses of Agent related to
audit examinations of the Books to the extent of the fees and charges (and up to
the amount of any limitation) contained in this Agreement, (g) reasonable costs
and expenses of third party claims or any other suit paid or incurred by the
Lender Group in enforcing or defending the Loan Documents or in connection with
the transactions contemplated by the Loan Documents or the Lender Group’s
relationship with Borrower or any its Subsidiaries, (h) Agent’s reasonable costs
and expenses (including attorneys fees) incurred in advising, structuring,
drafting, reviewing, administering, syndicating, or amending the Loan Documents,
and (i) Agent’s and each Lender’s reasonable costs and expenses (including
attorneys, accountants, consultants, and other advisors fees and expenses)
incurred in terminating, enforcing (including attorneys, accountants,
consultants, and other advisors fees

 

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and expenses incurred in connection with a “workout,” a “restructuring,” or an
Insolvency Proceeding concerning Borrower or its Subsidiaries or in exercising
rights or remedies under the Loan Documents), or defending the Loan Documents,
irrespective of whether suit is brought, or in taking any Remedial Action
concerning the Collateral.

“Lender-Related Person” means, with respect to any Lender, such Lender, together
with such Lender’s Affiliates, officers, directors, employees, attorneys, and
agents.

“Letter of Credit” means an L/C or an L/C Undertaking, as the context requires.

“Letter of Credit Usage” means, as of any date of determination, the aggregate
undrawn amount of all outstanding Letters of Credit.

“LIBOR Deadline” has the meaning set forth in Section 2.13(b)(i).

“LIBOR Notice” means a written notice in the form of Exhibit L-1.

“LIBOR Rate” means, for each Interest Period for each LIBOR Rate Loan, the rate
per annum determined by Agent (rounded upwards, if necessary, to the next
1/100%) by dividing (a) the Base LIBOR Rate for such Interest Period, by
(b) 100% minus the Reserve Percentage. The LIBOR Rate shall be adjusted on and
as of the effective day of any change in the Reserve Percentage.

“LIBOR Rate Loan” means each portion of an Advance that bears interest at a rate
determined by reference to the LIBOR Rate.

“Lien” means any interest in an asset securing an obligation owed to, or a claim
by, any Person other than the owner of the asset, irrespective of whether
(a) such interest is based on the common law, statute, or contract, (b) such
interest is recorded or perfected, and (c) such interest is contingent upon the
occurrence of some future event or events or the existence of some future
circumstance or circumstances. Without limiting the generality of the foregoing,
the term “Lien” includes the lien or security interest arising from a mortgage,
deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, security agreement, conditional sale or trust receipt, or from a
lease, consignment, or bailment for security purposes and also includes
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, and other title exceptions and encumbrances
affecting Real Property.

“Loan Account” has the meaning set forth in Section 2.10.

“Loan Documents” means this Agreement, the Bank Product Agreements, the Cash
Management Agreements, the Control Agreements, the Credit Card Agreements, the
Customs Broker Agreements, Disbursement Letter, the Due Diligence Letter, the
Fee Letter, the Letters of Credit, the Officers’ Certificate, the Patent
Security Agreement, the Trademark Security Agreement, any note or notes executed
by Borrower in connection with this Agreement and payable to a member of the
Lender Group, and any other agreement entered into, now or in the future, by
Borrower and the Lender Group in connection with this Agreement.

 

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“Material Adverse Change” means (a) a material adverse change in the business,
operations, results of operations, assets, liabilities or condition (financial
or otherwise) of Borrower and its Subsidiaries, taken as a whole, (b) a material
impairment of Borrower’s and its Subsidiaries ability to perform their
obligations under the Loan Documents to which they are parties or of the Lender
Group’s ability to enforce the Obligations or realize upon the Collateral, or
(c) a material impairment of the enforceability or priority of the Agent’s Liens
with respect to the Collateral as a result of an action or failure to act on the
part of Borrower or its Subsidiaries.

“Maturity Date” has the meaning set forth in Section 3.4.

“Maximum Revolver Amount” means, (i) during the period from January 1st through
July 31st of each year, $85,000,000, (ii) during the period from August 1st
through September 30th of each year, $100,000,000 and (iii) during the period
from October 1st through December 31st of each year, $120,000,000.

“Maximum Revolver Prepayment Amount” means $120,000,000.

“Minimum Availability Reserve” means an amount equal to the product of the then
applicable Maximum Revolver Amount times 7.5%.

“Multicurrency Collection Account” has the meaning set forth in Section 2.7(b).

“Negotiable Collateral” means letters of credit, letter of credit rights,
instruments, promissory notes, drafts, documents, and chattel paper (including
electronic chattel paper and tangible chattel paper), and any and all supporting
obligations in respect thereof.

“Net Liquidation Percentage” means the percentage of the book value of
Borrower’s Inventory that is estimated to be recoverable in an orderly
liquidation of such Inventory, such percentage to be as determined from time to
time by a qualified appraisal company selected by Agent.

“Non-Owned Storage Facility” means any distribution center or warehouse facility
leased by Borrower, together with any other location where Inventory or
Equipment of Borrower is stored or held pursuant to a lease, bailment,
warehousing or similar arrangement, which location (a) is not owned by Borrower,
and (b) is not a Leased Store Location.

“Obligations” means (a) all loans, Advances, debts, principal, interest
(including any interest that, but for the commencement of an Insolvency
Proceeding, would have accrued), contingent reimbursement obligations with
respect to outstanding Letters of Credit, premiums, liabilities (including all
amounts charged to Borrower’s Loan Account

 

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pursuant hereto), obligations (including indemnification obligations), fees
(including the fees provided for in the Fee Letter), charges, costs, Lender
Group Expenses (including any fees or expenses that, but for the commencement of
an Insolvency Proceeding, would have accrued), lease payments, guaranties,
covenants, and duties of any kind and description owing by Borrower to the
Lender Group pursuant to or evidenced by the Loan Documents and irrespective of
whether for the payment of money, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, and
including all interest not paid when due and all Lender Group Expenses that
Borrower is required to pay or reimburse by the Loan Documents, and (b) all Bank
Product Obligations. Any reference in this Agreement or in the Loan Documents to
the Obligations shall include all extensions, modifications, renewals, or
alterations thereof, both prior and subsequent to any Insolvency Proceeding.

“Officers’ Certificate” means the representations and warranties of officers
form submitted by Agent to Borrower, together with Borrower’s completed
responses to the inquiries set forth therein, the form and substance of such
responses to be satisfactory to Agent in its Permitted Discretion.

“Originating Lender” has the meaning set forth in Section 14.1(e).

“Overadvance” has the meaning set forth in Section 2.5.

“Participant” has the meaning set forth in Section 14.1(e).

“Patent Security Agreement” means a patent security agreement executed and
delivered by Borrower and Agent, the form and substance of which is satisfactory
to Agent in its Permitted Discretion.

“Pay-Off Letter” means a letter, in form and substance satisfactory to Agent in
its Permitted Discretion, from Existing Lender to Agent respecting the amount
necessary to repay in full all of the obligations of Borrower owing to Existing
Lender and obtain a release of all of the Liens existing in favor of Existing
Lender in and to the assets of Borrower.

“Permitted Discretion” means a determination made in the exercise of reasonable
(from the perspective of a secured asset-based lender) business judgment.

“Permitted Dispositions” means (a) sales or other dispositions of Equipment that
is substantially worn, damaged, or obsolete in the ordinary course of business,
(b) sales of Inventory to buyers in the ordinary course of business, (c) the use
or transfer of money or Cash Equivalents in a manner that is not prohibited by
the terms of this Agreement or the other Loan Documents, (d) the licensing of
patents, trademarks, copyrights, and other intellectual property rights in the
ordinary course of business provided that any such license is subject to the
Lien and other rights of the Agent in such patents, trademarks, copyrights and
other intellectual property rights, (e) in connection with any store closing,
the subleasing of the applicable store space for the remainder of the then
current term of the applicable lease(s), (f) dispositions of Equipment in the
ordinary course of business in connection with the remodeling or refurbishing or
closing of stores in an aggregate amount (based on the

 

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aggregate consideration, calculated as of the date of each such disposition) not
in excess of $5,000,000 in any fiscal year, and (g) dispositions not otherwise
permitted in clauses (a) through (f) of assets other than Accounts, or the trade
name “Sharper Image”, so long as (i) no Default or Event of Default has occurred
or is continuing or would result therefrom, (ii) each such disposition is
consummated at fair value, in good faith, and pursuant to an arm’s length
transaction, (iii) both immediately before and immediately after giving effect
to any such disposition, Borrowing Base Availability shall be in excess of
$15,000,000, and (iv) the aggregate amount of all such dispositions (based on
the aggregate consideration, calculated as of the date of each such disposition)
under this clause does not exceed $5,000,000 in any fiscal year.

“Permitted Investments” means (a) Investments in cash and Cash Equivalents,
(b) Investments in negotiable instruments for collection, (c) advances made in
connection with purchases of goods or services in the ordinary course of
business, (d) Investments received in settlement of amounts due to Borrower or
any of its Subsidiaries effected in the ordinary course of business or owing to
Borrower or any of its Subsidiaries as a result of Insolvency Proceedings
involving an Account Debtor or upon the foreclosure or enforcement of any Lien
in favor of Borrower or its Subsidiaries, (e) Investments consisting of
guarantees constituting Indebtedness permitted under Section 7.1,
(f) Investments in Deferred Compensation Life Insurance to the extent permitted
in Section 6.8(d), and (g) Investments not otherwise permitted in clauses
(a) through (f) so long as (i) no Default or Event of Default has occurred or is
continuing or would result therefrom, (ii) both immediately before and
immediately after giving effect to any such Investment, Borrowing Base
Availability shall be in excess of $15,000,000, and (iii) the aggregate amount
of all such Investments at any one time outstanding would not exceed
$15,000,000.

“Permitted Liens” means (a) Liens held by Agent, (b) Liens for unpaid taxes that
either (i) are not yet delinquent, or (ii) do not constitute an Event of Default
hereunder and are the subject of Permitted Protests, (c) Liens set forth on
Schedule P-1, (d) the interests of lessors under operating leases, (e) purchase
money Liens or the interests of lessors under Capital Leases to the extent that
such Liens or interests secure Permitted Purchase Money Indebtedness and so long
as such Lien attaches only to the asset purchased or acquired and the proceeds
thereof, (f) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business and not in connection with the borrowing of
money, and which Liens either (i) are for sums not overdue by more than 30 days,
so long as Agent is satisfied that, during such overdue period, such Liens will
not impair the enforceability, validity or priority of any of the Agent’s Liens,
or (ii) are the subject of Permitted Protests, (g) Liens arising from deposits
made in connection with obtaining worker’s compensation or other unemployment
insurance, (h) Liens or deposits to secure performance of bids, tenders, or
leases incurred in the ordinary course of business and not in connection with
the borrowing of money, (i) Liens granted as security for surety or appeal
bonds, performance bonds and other obligations of a like nature in connection
with obtaining such bonds in the ordinary course of business, (j) inchoate and
unperfected Liens for escheat or use taxes that are not the subject of any
judgment or other asserted claim for the payment of money, and any Liens
resulting from any judgment or other asserted claim for the payment of money
that is not an

 

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Event of Default pursuant to Section 8.7, (k) with respect to any Real Property,
easements, rights of way, zoning restrictions, and similar encumbrances that do
not materially interfere with or impair the use or operation thereof, (m) Liens
on assets other than Inventory, Accounts, Real Property, Cash Management
Accounts, Deferred Compensation Accounts, or patents, trademarks, copyrights, or
other intellectual property rights, and securing Indebtedness or other
obligations permitted hereunder in an aggregate amount not exceeding $5,000,000
and (n) Liens on insurance policies held by Borrower or any of its Subsidiaries
and securing Indebtedness permitted pursuant to Section 7.1(i).

“Permitted Protest” means the right of Borrower or any of its Subsidiaries to
protest any Lien (other than any Lien that secures the Obligations), taxes
(other than payroll taxes), or rental payment, provided that (a) a reserve with
respect to such obligation is established on the Books in such amount as is
required under GAAP, (b) any such protest is instituted promptly and prosecuted
diligently by Borrower or its Subsidiary, as applicable, in good faith, and
(c) Agent is satisfied that, while any such protest is pending, there will be no
impairment of the enforceability, validity, or priority of any of the Agent’s
Liens.

“Permitted Purchase Money Indebtedness” means, as of any date of determination,
Purchase Money Indebtedness in an aggregate principal amount outstanding at any
one time not in excess of $10,000,000.

“Person” means natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships,
joint ventures, trusts, land trusts, business trusts, or other organizations,
irrespective of whether they are legal entities, and governments and agencies
and political subdivisions thereof.

“Projections” means Borrower’s forecasted (a) balance sheets, (b) profit and
loss statements, and (c) cash flow statements, all prepared on a basis
consistent with Borrower’s historical financials, together with appropriate
supporting details and a statement of underlying assumptions.

“Pro Rata Share” means, as of any date of determination,:

(a) with respect to a Lender’s obligation to make advances and receive payments
of principal, interest, fees, costs, and expenses with respect thereto,
(i) prior to the Revolver Commitments being terminated or reduced to zero, the
percentage obtained by dividing (y) such Lender’s Revolver Commitment, by
(z) the aggregate Revolver Commitments of all Lenders, and (ii) from and after
the time that the Revolver Commitments have been terminated or reduced to zero,
the percentage obtained by dividing (y) the aggregate outstanding principal
amount of such Lender’s Advances by (z) the aggregate outstanding principal
amount of all Advances,

(b) with respect to a Lender’s obligation to participate in Letters of Credit,
to reimburse the Issuing Lender, and to receive payments of fees with respect
thereto, (i) prior to the Revolver Commitments being terminated or reduced to
zero, the percentage obtained by dividing (y) such Lender’s Revolver Commitment,
by (z) the aggregate Revolver

 

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Commitments of all Lenders, and (ii) from and after the time that the Revolver
Commitments have been terminated or reduced to zero, the percentage obtained by
dividing (y) the aggregate outstanding principal amount of such Lender’s
Advances by (z) the aggregate outstanding principal amount of all Advances, and

(c) with respect to all other matters as to a particular Lender (including the
indemnification obligations arising under Section 16.7), the percentage obtained
by dividing (i) such Lender’s Revolver Commitment plus the outstanding principal
amount of such Lender’s portion of the Advances, by (ii) the aggregate amount of
Revolver Commitments of all Lenders plus the aggregate outstanding principal
amount of all Advances; provided, however, that in the event the Revolver
Commitments have been terminated or reduced to zero, Pro Rata Share under this
clause shall be the percentage obtained by dividing (A) the outstanding
principal amount of such Lender’s Advances plus such Lender’s ratable portion of
the Risk Participation Liability with respect to outstanding Letters of Credit,
by (B) the outstanding principal amount of all Advances plus the aggregate
amount of the Risk Participation Liability with respect to outstanding Letters
of Credit.

“Purchase Money Indebtedness” means Indebtedness (other than the Obligations,
but including Capitalized Lease Obligations), incurred at the time of, or within
90 days after, the acquisition of any fixed assets for the purpose of financing
all or any part of the acquisition cost thereof (together with any refinancings
thereof permitted under Section 7.1(c)).

“Qualified Cash” means, as of any date of determination, the amount of
unrestricted cash and Cash Equivalents of Borrower and its Subsidiaries that is
in Deposit Accounts or in Securities Accounts, or any combination thereof, and
which such Deposit Account or Securities Account is the subject of a Control
Agreement and is maintained by a branch office of the bank or securities
intermediary located within the United States.

“Qualified Import Letter of Credit” means a Letter of Credit that (a) is issued
to facilitate the purchase by Borrower of Eligible Inventory, (b) has an expiry
date of less than 120 days and is otherwise in form and substance acceptable to
Agent in its Permitted Discretion, and (c) is issued to support an Underlying
Letter of Credit that only is drawable by the beneficiary thereof by the
presentation of, among other documents, such applicable documents satisfactory
to Agent as evidencing Borrower’s title to the subject Inventory.

“Real Property” means any estates or interests in real property now owned or
hereafter acquired by Borrower or its Subsidiaries and the improvements thereto.

“Record” means information that is inscribed on a tangible medium or which is
stored in an electronic or other medium and is retrievable in perceivable form.

“Refurbishing Facility” means that certain Proactive Solutions facility located
at 350 Wainwright Drive, Northbrook, IL 60062.

“Remedial Action” means all actions taken to (a) clean up, remove, remediate,
contain, treat, monitor, assess, evaluate, or in any way address Hazardous
Materials in the

 

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indoor or outdoor environment, (b) prevent or minimize a release or threatened
release of Hazardous Materials so they do not migrate or endanger or threaten to
endanger public health or welfare or the indoor or outdoor environment,
(c) perform any pre-remedial studies, investigations, or post-remedial operation
and maintenance activities, each, in connection with a release of Hazardous
Materials, or (d) conduct any other removal or remedial actions authorized by 42
USC § 9601.

“Replacement Lender” has the meaning set forth in Section 15.2(a).

“Report” has the meaning set forth in Section 16.17.

“Required Lenders” means, at any time, Lenders whose aggregate Pro Rata Shares
(calculated under clause (c) of the definition of Pro Rata Shares) equal or
exceed 50.1%.

“Reserve Percentage” means, on any day, for any Lender, the maximum percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor Governmental Authority) for determining the reserve requirements
(including any basic, supplemental, marginal, or emergency reserves) that are in
effect on such date with respect to eurocurrency funding (currently referred to
as “eurocurrency liabilities”) of that Lender, but so long as such Lender is not
required or directed under applicable regulations to maintain such reserves, the
Reserve Percentage shall be zero.

“Revolver Commitment” means, with respect to each Lender, its Revolver
Commitment, and, with respect to all Lenders, their Revolver Commitments, in
each case as such Dollar amounts are set forth beside such Lender’s name under
the applicable heading on Schedule C-1 and in each case for the relevant period
of the year specified on such Schedule C-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder in accordance with the
provisions of Section 14.1.

“Revolver Usage” means, as of any date of determination, the sum of (a) the then
extant amount of outstanding Advances, plus (b) the then extant amount of the
Letter of Credit Usage.

“Risk Participation Liability” means, as to each Letter of Credit, all
reimbursement obligations of Borrower to the Issuing Lender with respect to an
L/C Undertaking, consisting of (a) the amount available to be drawn or which may
become available to be drawn, (b) all amounts that have been paid by the Issuing
Lender to the Underlying Issuer to the extent not reimbursed by Borrower,
whether by the making of an Advance or otherwise, and (c) all accrued and unpaid
interest, fees, and expenses payable with respect thereto.

“SEC” means the United States Securities and Exchange Commission and any
successor thereto.

“Securities Account” means a securities account (as that term is defined in the
Code).

 

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“Settlement” has the meaning set forth in Section 2.3(f)(i).

“Settlement Date” has the meaning set forth in Section 2.3(f)(i).

“Special Account and Securities Investments” means, at any time, (a) Deferred
Compensation Amounts in the Deferred Compensation Account, and (b) Permitted
Investments of Borrower and its Subsidiaries (other than Deferred Compensation
Amounts in the Deferred Compensation Account), in an aggregate amount not in
excess of $1,500,000, that at such time, both (i) consist of (x) Permitted
Investments held in a Deposit Account or Securities Account, or (y) securities
or other Investment Property, and (ii) are not (x) in a Cash Management Account,
(y) in a Deposit Account or Securities Account then subject to a Control
Agreement, or (z) otherwise subject to the control of Agent in accordance with
Sections 9-104 or 9-106 of the Code.

“Solvent” means, with respect to any Person on a particular date, that, at fair
valuations, the sum of such Person’s assets is greater than all of such Person’s
debts.

“Stock” means all shares, options, warrants, interests, participations, or other
equivalents (regardless of how designated) of or in a Person, whether voting or
nonvoting, including common stock, preferred stock, or any other “equity
security” (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act).

“Store Account” means, for each of Borrower’s stores, the Collection Account
maintained by Borrower for deposit of Collections received at such store.

“Subsidiary” of a Person means a corporation, partnership, limited liability
company, or other entity in which that Person directly or indirectly owns or
controls the shares of Stock having ordinary voting power to elect a majority of
the board of directors (or appoint other comparable managers) of such
corporation, partnership, limited liability company, or other entity.

“Swing Lender” means WFRF or any other Lender that, at the request of Borrower
and with the consent of Agent agrees, in such Lender’s sole discretion, to
become the Swing Lender under Section 2.3(d).

“Swing Loan” has the meaning set forth in Section 2.3(d)(i).

“Taxes” has the meaning set forth in Section 16.11.

“Trademark Security Agreement” means a trademark security agreement executed and
delivered by Borrower and Agent, the form and substance of which is satisfactory
to Agent in its Permitted Discretion.

“Triggering Period” means (A) the period from (i) the Restatement Date through
(ii) the first date on which Availability shall have been in excess of
$15,000,000 for a period of six continuous months (the “Initial Triggering
Period” and (B) after the Initial

 

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Triggering Period, the period commencing on the earlier to occur of either
(i) the occurrence and continuation of an Event of Default, or (ii) the first
date on which Availability shall fail to be in excess of $15,000,000 and
terminating on the first date on which Availability shall have been in excess of
$15,000,000 for a period of six continuous months. Agent will endeavor to notify
Borrower within five (5) days of the Agent becoming aware of the occurrence of
any Triggering Period occurring after the Initial Triggering Period.

“UCC Filing Authorization Letter” means a letter duly executed by Borrower
authorizing Agent to file appropriate financing statements on Form UCC-1
(without the signature of Borrower), in such office or offices as may be
necessary or, in the opinion of Agent, desirable to perfect the security
interests purported to be created by the Loan Documents.

“United States” means the United States of America.

“Underlying Issuer” means a third Person which is the beneficiary of an L/C
Undertaking and which has issued a letter of credit at the request of the
Issuing Lender for the benefit of Borrower.

“Underlying Letter of Credit” means a letter of credit that has been issued by
an Underlying Issuer.

“Voidable Transfer” has the meaning set forth in Section 17.7.

“Wells Fargo” means Wells Fargo Bank, National Association, a national banking
association.

“WFRF” means Wells Fargo Retail Finance, LLC, a Delaware limited liability
company.

1.2 Accounting Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP; provided that, in the event of any change
to GAAP or the application thereof occurring after the Restatement Date, at the
request of Agent or Borrower, the parties shall in good faith consider
appropriate amendments to adjust financial covenant levels herein to offsite the
effects (if any) of such change. When used herein, the term “financial
statements” shall include the notes and schedules thereto. Whenever the term
“Borrower” is used in respect of a financial covenant or a related definition,
it shall be understood to mean Borrower and its Subsidiaries on a consolidated
basis unless the context clearly requires otherwise.

1.3 Code. Any terms used in this Agreement that are defined in the Code shall be
construed and defined as set forth in the Code unless otherwise defined herein.

1.4 Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term “including” is
not limiting, and the term “or” has, except where otherwise indicated, the
inclusive meaning represented by the phrase “and/or.”

 

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The words “hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this
Agreement or any other Loan Document refer to this Agreement or such other Loan
Document, as the case may be, as a whole and not to any particular provision of
this Agreement or such other Loan Document, as the case may be. Section,
subsection, clause, schedule, and exhibit references herein are to this
Agreement unless otherwise specified. Any reference in this Agreement or in the
other Loan Documents to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). Any reference herein to the
repayment in full or satisfaction in full of the Obligations shall mean the
repayment in full in cash (or cash-collaterization in accordance with the terms
hereof) of all Obligations other than contingent indemnification Obligations and
other than any Bank Product Obligations that, at such time, are allowed by the
applicable Bank Product Provider to remain outstanding and are not required to
be repaid or cash collateralized pursuant to the provisions of this Agreement.
Any reference herein to any Person shall be construed to include such Person’s
successors and assigns. Any requirement of a writing contained herein or in the
other Loan Documents shall be satisfied by the transmission of a Record and any
Record transmitted shall constitute a representation and warranty as to the
accuracy and completeness of the information contained therein.

1.5 Schedules and Exhibits. All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference.

 

2. LOAN AND TERMS OF PAYMENT.

2.1 Revolver Advances.

(a) Subject to the terms and conditions of this Agreement, and during the term
of this Agreement, each Lender agrees (severally, not jointly or jointly and
severally) to make advances (“Advances”) to Borrower in an amount at any one
time outstanding not to exceed such Lender’s Pro Rata Share of an amount equal
to the lesser of (i) the Maximum Revolver Amount less the Letter of Credit
Usage, or (ii) the Borrowing Base less the Adjusted Letter of Credit Usage.

(b) Anything to the contrary in this Section 2.1 notwithstanding, Agent shall
have the right to establish and modify reserves (including all reserves
referenced in the definition of Borrowing Base) in such amounts, and with
respect to such matters, as Agent in its Permitted Discretion shall deem
necessary or appropriate, against the Borrowing Base, including reserves with
respect to (i) shrinkage (so as to bring perpetual records in line with
historical levels), (ii) sums that Borrower is required to pay (such as taxes,
assessments, insurance premiums, or, in the case of leased assets, rents or
other amounts payable under such leases) and has failed to pay under any Section
of this Agreement or any other Loan Document, and (iii) amounts owing by
Borrower or its Subsidiaries to any Person to the extent secured by a Lien on,
or trust over, any of the Collateral (other than any existing Permitted Lien set
forth on Schedule P-1 which is specifically identified thereon as entitled

 

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to have priority over the Agent’s Liens), which Lien or trust, in the Permitted
Discretion of Agent likely would have a priority superior to the Agent’s Liens
(such as Liens or trusts in favor of landlords, warehousemen, carriers,
mechanics, materialmen, laborers, or suppliers, or Liens or trusts for ad
valorem, excise, sales, or other taxes where given priority under applicable
law) in and to such item of the Collateral. In addition to the foregoing (and
subject to Section 2.11 as to costs and expenses), Agent shall have the right to
have the Borrower’s Inventory reappraised by a qualified appraisal company
selected by Agent from time to time after the Restatement Date for the purpose
of re-determining the Net Liquidation Percentage of the Eligible Inventory and,
as a result, re-determining the Borrowing Base.

(c) The Lenders shall have no obligation to make additional Advances hereunder
to the extent such additional Advances would cause the Revolver Usage to exceed
the Maximum Revolver Amount.

(d) Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to
the terms and conditions of this Agreement, reborrowed at any time during the
term of this Agreement.

2.2 Intentionally Omitted.

2.3 Borrowing Procedures and Settlements.

(a) Procedure for Borrowing. Each Borrowing shall be made by an irrevocable
written request by an Authorized Person delivered to Agent (which notice must be
received by Agent no later than 10:00 a.m. (California time) on the Business Day
prior to the date that is the requested Funding Date (subject to
Section 2.13(b)(i) in the case of any LIBOR Rate Loan) specifying (i) the amount
of such Borrowing, and (ii) the requested Funding Date, which shall be a
Business Day; provided, however, that in the case of a request for Swing Loan in
an amount of $20,000,000, or less, such notice will be timely received if it is
received by Agent no later than 10:00 a.m. (California time) on the Business Day
that is the requested Funding Date) specifying (i) the amount of such Borrowing,
and (ii) the requested Funding Date, which shall be a Business Day. At Agent’s
election, in lieu of delivering the above-described written request, any
Authorized Person may give Agent telephonic notice of such request by the
required time. In such circumstances, Borrower agrees that any such telephonic
notice will be confirmed in writing within 24 hours of the giving of such notice
and the failure to provide such written confirmation shall not affect the
validity of the request.

(b) Agent’s Election. Promptly after receipt of a request for a Borrowing
pursuant to Section 2.3(a), Agent shall elect, in its discretion, (i) to have
the terms of Section 2.3(c) apply to such requested Borrowing, or (ii) if the
Borrowing is for an Advance to request Swing Lender to make a Swing Loan
pursuant to the terms of Section 2.3(d) in the amount of the requested
Borrowing; provided, however, that (i) if Swing Lender declines in its sole
discretion to make a Swing Loan pursuant to Section 2.3(d), Agent shall elect to
have the terms of Section 2.3(c) apply to such requested Borrowing, and (ii) if
a notice requesting a LIBOR Rate Loan has been timely delivered per
Section 2.13(b)(i), Agent shall not have the option to request Swing Line Lender
to make such Borrowing as a Swing Line Loan.

 

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(c) Making of Loans.

(i) In the event that Agent shall elect to have the terms of this Section 2.3(c)
apply to a requested Borrowing as described in Section 2.3(b), then promptly
after receipt of a request for a Borrowing pursuant to Section 2.3(a), Agent
shall notify the Lenders, not later than 1:00 p.m. (California time) on the
Business Day immediately preceding the Funding Date applicable thereto, by
telecopy, telephone, or other similar form of transmission, of the requested
Borrowing. Each Lender shall make the amount of such Lender’s Pro Rata Share of
the requested Borrowing available to Agent in immediately available funds, to
Agent’s Account, not later than 10:00 a.m. (California time) on the Funding Date
applicable thereto. After Agent’s receipt of the proceeds of such Advances,
Agent shall make the proceeds thereof available to Borrower on the applicable
Funding Date by transferring immediately available funds equal to such proceeds
received by Agent to Borrower’s Designated Account; provided, however, that,
subject to the provisions of Section 2.3(i), Agent shall not request any Lender
to make, and no Lender shall have the obligation to make, any Advance if Agent
shall have actual knowledge that (1) one or more of the applicable conditions
precedent set forth in Section 3 will not be satisfied on the requested Funding
Date for the applicable Borrowing unless such condition has been waived, or
(2) the requested Borrowing would exceed the Availability on such Funding Date.

(ii) Unless Agent receives notice from a Lender on or prior to the Restatement
Date or, with respect to any Borrowing after the Restatement Date, prior to 9:00
a.m. (California time) on the date of such Borrowing, that such Lender will not
make available as and when required hereunder to Agent for the account of
Borrower the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may
assume that each Lender has made or will make such amount available to Agent in
immediately available funds on the Funding Date and Agent may (but shall not be
so required), in reliance upon such assumption, make available to Borrower on
such date a corresponding amount. If and to the extent any Lender shall not have
made its full amount available to Agent in immediately available funds and Agent
in such circumstances has made available to Borrower such amount, that Lender
shall on the Business Day following such Funding Date make such amount available
to Agent, together with interest at the Defaulting Lender Rate for each day
during such period. A notice submitted by Agent to any Lender with respect to
amounts owing under this subsection shall be conclusive, absent manifest error.
If such amount is so made available, such payment to Agent shall constitute such
Lender’s Advance on the date of Borrowing for all purposes of this Agreement. If
such amount is not made available to Agent on the Business Day following the
Funding Date, Agent will notify Borrower of such failure to

 

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fund and, upon demand by Agent, Borrower shall pay such amount to Agent for
Agent’s account, together with interest thereon for each day elapsed since the
date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Advances composing such Borrowing. The failure of
any Lender to make any Advance on any Funding Date shall not relieve any other
Lender of any obligation hereunder to make an Advance on such Funding Date, but
no Lender shall be responsible for the failure of any other Lender to make the
Advance to be made by such other Lender on any Funding Date.

(iii) Agent shall not be obligated to transfer to a Defaulting Lender any
payments made by Borrower to Agent for the Defaulting Lender’s benefit, and, in
the absence of such transfer to the Defaulting Lender, Agent shall transfer any
such payments to each other non-Defaulting Lender member of the Lender Group
ratably in accordance with their Commitments (but only to the extent that such
Defaulting Lender’s Advance was funded by the other members of the Lender Group)
or, if so directed by Borrower and if no Default or Event of Default had
occurred and is continuing (and to the extent such Defaulting Lender’s Advance
was not funded by the Lender Group), retain same to be re-advanced to Borrower
as if such Defaulting Lender had made Advances to Borrower. Subject to the
foregoing, Agent may hold and, in its Permitted Discretion, re-lend to Borrower
for the account of such Defaulting Lender the amount of all such payments
received and retained by Agent for the account of such Defaulting Lender. Solely
for the purposes of voting or consenting to matters with respect to the Loan
Documents, such Defaulting Lender shall be deemed not to be a “Lender” and such
Lender’s Commitment shall be deemed to be zero. This Section shall remain
effective with respect to such Lender until (x) the Obligations under this
Agreement shall have been declared or shall have become immediately due and
payable, (y) the non-Defaulting Lenders, Agent, and Borrower shall have waived
such Defaulting Lender’s default in writing, or (z) the Defaulting Lender makes
its Pro Rata Share of the applicable Advance and pays to Agent all amounts owing
by Defaulting Lender in respect thereof. The operation of this Section shall not
be construed to increase or otherwise affect the Commitment of any Lender, to
relieve or excuse the performance by such Defaulting Lender or any other Lender
of its duties and obligations hereunder, or to relieve or excuse the performance
by Borrower of its duties and obligations hereunder to Agent or to the Lenders
other than such Defaulting Lender. Any such failure to fund by any Defaulting
Lender shall constitute a material breach by such Defaulting Lender of this
Agreement and shall entitle Borrower at its option, upon written notice to
Agent, to arrange for a substitute Lender to assume the Commitment of such
Defaulting Lender, such substitute Lender to be acceptable to Agent. In
connection with the arrangement of such a substitute Lender, the Defaulting
Lender shall have no right to refuse to be replaced hereunder, and agrees to
execute and deliver a completed form of Assignment and Acceptance in favor

 

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of the substitute Lender (and agrees that it shall be deemed to have executed
and delivered such document if it fails to do so) subject only to being repaid
its share of the outstanding Obligations (other than Bank Product Obligations,
but including an assumption of its Pro Rata Share of the Risk Participation
Liability) without any premium or penalty of any kind whatsoever; provided,
however, that any such assumption of the Commitment of such Defaulting Lender
shall not be deemed to constitute a waiver of any of the Lender Groups’ or
Borrower’s rights or remedies against any such Defaulting Lender arising out of
or in relation to such failure to fund.

(d) Making of Swing Loans.

(i) In the event Agent shall elect, with the consent of Swing Lender, as a
Lender, to have the terms of this Section 2.3(d) apply to a requested Borrowing
as described in Section 2.3(b), Swing Lender as a Lender shall make such Advance
in the amount of such Borrowing (any such Advance made solely by Swing Lender as
a Lender pursuant to this Section 2.3(d) being referred to as a “Swing Loan” and
such Advances being referred to collectively as “Swing Loans”) available to
Borrower on the Funding Date applicable thereto by transferring immediately
available funds to Borrower’s Designated Account. Each Swing Loan shall be
deemed to be an Advance hereunder and shall be subject to all the terms and
conditions applicable to other Advances except that no such Swing Loan shall be
eligible to be a LIBOR Rate Loan and all payments on any Swing Loan shall be
payable to Swing Lender as a Lender solely for its own account (and for the
account of the holder of any participation interest with respect to such Swing
Loan). Subject to the provisions of Section 2.3(i), Agent shall not request
Swing Lender as a Lender to make, and Swing Lender as a Lender shall not make,
any Swing Loan if Agent has actual knowledge that (i) one or more of the
applicable conditions precedent set forth in Section 3 will not be satisfied on
the requested Funding Date for the applicable Borrowing unless such condition
has been waived, or (ii) the requested Borrowing would exceed the Availability
on such Funding Date. Swing Lender as a Lender shall not otherwise be required
to determine whether the applicable conditions precedent set forth in Section 3
have been satisfied on the Funding Date applicable thereto prior to making, in
its sole discretion, any Swing Loan.

(ii) The Swing Loans shall be secured by the Agent’s Liens, constitute
Obligations hereunder, and bear interest at the rate applicable from time to
time to Advances that are Base Rate Loans.

(e) Agent Advances.

(i) Agent hereby is authorized by Borrower and the Lenders, from time to time in
Agent’s sole discretion, (1) after the occurrence and during the continuance of
a Default or an Event of Default, or (2) at any time that any of

 

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the other applicable conditions precedent set forth in Section 3 have not been
satisfied, to make Advances to Borrower on behalf of the Lenders that Agent, in
its Permitted Discretion deems necessary or desirable (A) to preserve or protect
the Collateral, or any portion thereof, (B) to enhance the likelihood of
repayment of the Obligations (other than the Bank Product Obligations), or
(C) to pay any other amount chargeable to Borrower pursuant to the terms of this
Agreement, including Lender Group Expenses and the costs, fees, and expenses
described in Section 10 (any of the Advances described in this Section 2.3(e)
shall be referred to as “Agent Advances”). Each Agent Advance shall be deemed to
be an Advance hereunder, except that no such Agent Advance shall be eligible to
be a LIBOR Rate Loan and all payments thereon shall be payable to Agent solely
for its own account.

(ii) The Agent Advances shall be repayable on demand, secured by the Agent’s
Liens granted to Agent under the Loan Documents, constitute Obligations
hereunder, and bear interest at the rate applicable from time to time to
Advances that are Base Rate Loans.

(f) Settlement. It is agreed that each Lender’s funded portion of the Advances
is intended by the Lenders to equal, at all times, such Lender’s Pro Rata Share
of the outstanding Advances. Such agreement notwithstanding, Agent, Swing
Lender, and the other Lenders agree (which agreement shall not be for the
benefit of or enforceable by Borrower) that in order to facilitate the
administration of this Agreement and the other Loan Documents, settlement among
them as to the Advances, the Swing Loans, and the Agent Advances shall take
place on a periodic basis in accordance with the following provisions:

(i) Agent shall request settlement (“Settlement”) with the Lenders on a weekly
basis, or on a more frequent basis if so determined by Agent, (1) on behalf of
Swing Lender, with respect to each outstanding Swing Loan, (2) for itself, with
respect to each Agent Advance, and (3) with respect to Borrower’s or its
Subsidiaries’ Collections received by Agent, as to each by notifying the Lenders
by telecopy, telephone, or other similar form of transmission, of such requested
Settlement, no later than 2:00 p.m. (California time) on the Business Day
immediately prior to the date of such requested Settlement (the date of such
requested Settlement being the “Settlement Date”). Such notice of a Settlement
Date shall include a summary statement of the amount of outstanding Advances,
Swing Loans, and Agent Advances for the period since the prior Settlement Date.
Subject to the terms and conditions contained herein (including
Section 2.3(c)(iii)): (y) if a Lender’s balance of the Advances (in each case,
including Swing Loans and Agent Advances) exceeds such Lender’s Pro Rata Share
of the Advances (in each case, including Swing Loans and Agent Advances) as of a
Settlement Date, then Agent shall, by no later than 12:00 p.m. (California time)
on the Settlement Date, transfer in immediately available funds to a Deposit
Account of such Lender (as such Lender may designate), an amount such that each
such Lender shall, upon receipt of such amount, have as of the Settlement Date,
its

 

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Pro Rata Share of the Advances (in each case, including Swing Loans and Agent
Advances), and (z) if a Lender’s balance of the Advances (including Swing Loans
and Agent Advances) is less than such Lender’s Pro Rata Share of the Advances
(in each case, including Swing Loans and Agent Advances) as of a Settlement
Date, such Lender shall no later than 12:00 p.m. (California time) on the
Settlement Date transfer in immediately available funds to the Agent’s Account,
an amount such that each such Lender shall, upon transfer of such amount, have
as of the Settlement Date, its Pro Rata Share of the Advances (in each case,
including Swing Loans and Agent Advances). Such amounts made available to Agent
under clause (z) of the immediately preceding sentence shall be applied against
the amounts of the applicable Swing Loans or Agent Advances and, together with
the portion of such Swing Loans or Agent Advances representing Swing Lender’s
Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such
amount is not made available to Agent by any Lender on the Settlement Date
applicable thereto to the extent required by the terms hereof, Agent shall be
entitled to recover for its account such amount on demand from such Lender
together with interest thereon at the Defaulting Lender Rate.

(ii) In determining whether a Lender’s balance of the Advances, Swing Loans, and
Agent Advances is less than, equal to, or greater than such Lender’s Pro Rata
Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date,
Agent shall, as part of the relevant Settlement, apply to such balance the
portion of payments actually received in good funds by Agent with respect to
principal, interest, fees payable by Borrower and allocable to the Lenders
hereunder, and proceeds of Collateral. To the extent that a net amount is owed
to any such Lender after such application, such net amount shall be distributed
by Agent to that Lender as part of such next Settlement.

(iii) Between Settlement Dates, Agent, to the extent no Agent Advances or Swing
Loans are outstanding, may pay over to Swing Lender any payments received by
Agent, that in accordance with the terms of this Agreement would be applied to
the reduction of the Advances for application to Swing Lender’s Pro Rata Share
of the Advances. If, as of any Settlement Date, Collections of Borrower or its
Subsidiaries received by Agent since the then immediately preceding Settlement
Date have been applied to Swing Lender’s Pro Rata Share of the Advances other
than to Swing Loans, as provided for in the previous sentence, Swing Lender
shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the
Lenders, to be applied to the outstanding Advances of such Lenders, an amount
such that each Lender shall, upon receipt of such amount, have, as of such
Settlement Date, its Pro Rata Share of the Advances. During the period between
Settlement Dates, Swing Lender with respect to Swing Loans, Agent with respect
to Agent Advances, and each Lender (subject to the effect of letter agreements
between Agent and individual Lenders) with respect to the Advances other than
Swing

 

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Loans and Agent Advances, shall be entitled to interest at the applicable rate
or rates payable under this Agreement on the daily amount of funds employed by
Swing Lender, Agent, or the Lenders, as applicable.

(g) Notation. Agent shall record on its books the principal amount of the
Advances owing to each Lender, including the Swing Loans owing to Swing Lender,
and Agent Advances owing to Agent, and the interests therein of each Lender,
from time to time and such records shall, absent manifest error, conclusively be
presumed to be correct and accurate. In addition, each Lender is authorized, at
such Lender’s option, to note the date and amount of each payment or prepayment
of principal of such Lender’s Advances in its books and records, including
computer records.

(h) Lenders’ Failure to Perform. All Advances (in each case, other than Swing
Loans and Agent Advances) shall be made by the Lenders contemporaneously and in
accordance with their Pro Rata Shares. It is understood that (i) no Lender shall
be responsible for any failure by any other Lender to perform its obligation to
make any Advance (or other extension of credit) hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligations hereunder, and (ii) no failure by
any Lender to perform its obligations hereunder shall excuse any other Lender
from its obligations hereunder.

(i) Optional Overadvances. Any contrary provision of this Agreement
notwithstanding, the Lenders hereby authorize Agent or Swing Lender, as
applicable, and Agent or Swing Lender, as applicable, may, but is not obligated
to, knowingly and intentionally, continue to make Advances (including Swing
Loans) to Borrower notwithstanding that an Overadvance exists or thereby would
be created, so long as (i) after giving effect to such Advances, the outstanding
Adjusted Revolver Usage does not exceed the Borrowing Base by more than
$5,000,000, (ii) after giving effect to such Advances, the outstanding Revolver
Usage (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) does not exceed the Maximum Revolver
Amount, and (iii) at the time of the making of any such Advance, Agent does not
believe, in good faith, that the Overadvance created by such Advance will be
outstanding for more than 90 days. The foregoing provisions are for the
exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended
to benefit Borrower in any way. The Advances and Swing Loans, as applicable,
that are made pursuant to this Section 2.3(i) shall be subject to the same terms
and conditions as any other Advance or Swing Loan, as applicable, except that
they shall not be eligible for the LIBOR Option and the rate of interest
applicable thereto shall be the rate applicable to Advances that are Base Rate
Loans under Section 2.6(c) hereof without regard to the presence or absence of a
Default or Event of Default.

(A) In the event Agent obtains actual knowledge that the Revolver Usage exceeds
the amounts permitted by the preceding paragraph, regardless of the amount of,
or reason for, such excess, Agent shall notify the Lenders as soon as
practicable (and prior to making any (or any additional) intentional
Overadvances (except for and excluding amounts charged to the Loan Account for
interest, fees,

 

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or Lender Group Expenses) unless Agent determines that prior notice would result
in imminent harm to the Collateral or its value), and the Lenders with Revolver
Commitments thereupon shall, together with Agent, jointly determine the terms of
arrangements that shall be implemented with Borrower intended to reduce, within
a reasonable time, the outstanding principal amount of the Advances to Borrower
to an amount permitted by the preceding paragraph. In the event Agent or any
Lender disagrees over the terms of reduction or repayment of any Overadvance,
the terms of reduction or repayment thereof shall be implemented according to
the determination of the Required Lenders.

(B) Each Lender with a Revolver Commitment shall be obligated to settle with
Agent as provided in Section 2.3(f) for the amount of such Lender’s Pro Rata
Share of any unintentional Overadvances by Agent reported to such Lender, any
intentional Overadvances made as permitted under this Section 2.3(i), and any
Overadvances resulting from the charging to the Loan Account of interest, fees,
or Lender Group Expenses.

2.4 Payments.

(a) Payments by Borrower.

(i) Except as otherwise expressly provided herein, all payments by Borrower
shall be made to Agent’s Account for the account of the Lender Group and shall
be made in immediately available funds, no later than 11:00 a.m. (California
time) on the date specified herein. Any payment received by Agent later than
11:00 a.m. (California time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day. If any payment by Borrower hereunder
becomes due and payable on a day other than a Business Day, except to the extent
the amount thereof is charged to the Loan Account pursuant to Section 2.10 on or
as of such due date, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.

(ii) Unless Agent receives notice from Borrower prior to the date on which any
payment is due to the Lenders that Borrower will not make such payment in full
as and when required, Agent may assume that Borrower has made (or will make)
such payment in full to Agent on such date in immediately available funds and
Agent may (but shall not be so required), in reliance upon such assumption,
distribute to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent Borrower does not make such payment in
full to Agent on the date when due, each Lender severally shall repay to Agent
on demand such amount distributed

 

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to such Lender, together with interest thereon at the Defaulting Lender Rate for
each day from the date such amount is distributed to such Lender until the date
repaid.

(b) Apportionment and Application of Payments.

(i) Except as otherwise provided with respect to Defaulting Lenders and except
as otherwise provided in the Loan Documents (including letter agreements between
Agent and individual Lenders), aggregate principal and interest payments shall
be apportioned ratably among the Lenders (according to the unpaid principal
balance of the Obligations to which such payments relate held by each Lender)
and payments of fees and expenses (other than fees or expenses that are for
Agent’s separate account, after giving effect to any letter agreements between
Agent and individual Lenders) shall be apportioned ratably among the Lenders
having a Pro Rata Share of the type of Commitment or Obligation to which a
particular fee relates. All payments shall be remitted to Agent and all such
payments, and all proceeds of Collateral received by Agent, shall be applied as
follows:

(A) first, to pay any Lender Group Expenses then due to Agent under the Loan
Documents, until paid in full,

(B) second, to pay any Lender Group Expenses then due to the Lenders under the
Loan Documents, on a ratable basis, until paid in full,

(C) third, to pay any fees then due to Agent (for its separate account, after
giving effect to any letter agreements between Agent and individual Lenders)
under the Loan Documents until paid in full,

(D) fourth, to pay any fees then due to any or all of the Lenders (after giving
effect to any letter agreements between Agent and individual Lenders) under the
Loan Documents, on a ratable basis, until paid in full,

(E) fifth, to pay interest due in respect of all Agent Advances until paid in
full,

(F) sixth, ratably to pay interest due in respect of the Advances (other than
Agent Advances) and the Swing Loans until paid in full,

(G) seventh, to pay the principal of all Agent Advances until paid in full,

(H) eighth, to pay the principal of all Swing Loans until paid in full,

 

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(I) ninth, so long as no Event of Default has occurred and is continuing, and at
Agent’s election (which election Agent agrees will not be made if an Overadvance
would be created thereby), to pay amounts then due and owing by Borrower or its
Subsidiaries in respect of Bank Products until paid in full,

(J) tenth, so long as no Event of Default has occurred and is continuing,
ratably to pay the principal of all Advances until paid in full,

(K) eleventh, if an Event of Default has occurred and is continuing, ratably
(i) to ratably pay the principal of all Advances until paid in full, (ii) to
Agent, to be held by Agent, for the ratable benefit of Issuing Lender and those
Lenders having a Revolver Commitment, as cash collateral in an amount up to 105%
of the then extant Letter of Credit Usage until paid in full, and (iii) to
Agent, to be held by Agent, for the benefit of the Bank Product Providers, as
cash collateral in an amount up to the amount of the Bank Product Reserve
established prior to the occurrence of, and not in contemplation of, the subject
Event of Default until Borrower’s and its Subsidiaries’ obligations in respect
of the then extant Bank Products have been paid in full or the cash collateral
amount has been exhausted,

(L) twelfth, if an Event of Default has occurred and is continuing, to pay any
other Obligations (including the provision of amounts to Agent, to be held by
Agent, for the benefit of the Bank Product Providers, as cash collateral in an
amount up to the amount determined by Agent in its Permitted Discretion as the
amount necessary to secure Borrower’s and its Subsidiaries’ obligations in
respect of the then extant Bank Products), and

(M) thirteenth, to Borrower (to be wired to the Designated Account) or such
other Person entitled thereto under applicable law.

(ii) Agent promptly shall distribute to each Lender, pursuant to the applicable
wire instructions received from each Lender in writing, such funds as it may be
entitled to receive, subject to a Settlement delay as provided in
Section 2.3(f).

(iii) In each instance, so long as no Event of Default has occurred and is
continuing, this Section 2.4(b) shall not be deemed to apply to any payment by
Borrower specified by Borrower to be for the payment of specific Obligations
then due and payable (or prepayable) under any provision of this Agreement.

 

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(iv) For purposes of the foregoing, “paid in full” means payment of all amounts
owing under the Loan Documents according to the terms thereof, including loan
fees, service fees, professional fees, interest (and specifically including
interest accrued after the commencement of any Insolvency Proceeding), default
interest, interest on interest, and expense reimbursements, whether or not any
of the foregoing would be or is allowed or disallowed in whole or in part in any
Insolvency Proceeding.

(v) In the event of a direct conflict between the priority provisions of this
Section 2.4 and other provisions contained in any other Loan Document, it is the
intention of the parties hereto that such priority provisions in such documents
shall be read together and construed, to the fullest extent possible, to be in
concert with each other. In the event of any actual, irreconcilable conflict
that cannot be resolved as aforesaid, the terms and provisions of this
Section 2.4 shall control and govern.

2.5 Overadvances. If, at any time or for any reason, the amount of Obligations
(other than Bank Product Obligations) owed by Borrower to the Lender Group
pursuant to Section 2.1, Section 2.2 or Section 2.12 is greater than either the
Dollar or percentage limitations set forth in Section 2.1, Section 2.2 or
Section 2.12, as applicable (an “Overadvance”), Borrower immediately shall pay
to Agent, in cash, the amount of such excess, which amount shall be used by
Agent to reduce the Obligations in accordance with the priorities set forth in
Section 2.4(b). In addition, Borrower hereby promises to pay the Obligations
(including principal, interest, fees, costs, and expenses) in Dollars in full as
and when due and payable under the terms of this Agreement and the other Loan
Documents.

2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.

(a) Interest Rates. Except as provided in clause (c) below, all Obligations
(except for undrawn Letters of Credit and Bank Product Obligations) that have
been charged to the Loan Account pursuant to the terms hereof shall bear
interest on the Daily Balance thereof as follows (i) if the relevant Obligation
is an Advance that is a LIBOR Rate Loan, at a per annum rate equal to the LIBOR
Rate plus the Applicable Margin for LIBOR Rate Loans and (ii) otherwise, at a
per annum rate equal to the Base Rate plus the Applicable Margin for Base Rate
Loans.

(b) Letter of Credit Fees. Borrower shall pay Agent (for the ratable benefit of
the Lenders), Letter of Credit fees (in addition to the charges, commissions,
fees, and costs set forth in Section 2.12(e)) (i) with respect to standby
Letters of Credit, which shall accrue at a rate equal to the Applicable Margin
then in effect for standby Letters of Credit times the Daily Balance of the
undrawn amount of all such outstanding standby Letters of Credit, and (ii) with
respect to documentary Letters of Credit, which shall accrue at a rate equal to
the Applicable Margin then in effect for documentary Letters of Credit times the
Daily Balance of the undrawn amount of all such outstanding documentary Letters
of Credit.

 

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(c) Default Rate. Upon (x) the occurrence and during the continuation of an
Event of Default (and at the election of Agent or the Required Lenders),
(y) Agent having given Borrower written notice of such Event of Default
(provided, that no such notice is required if the Event of Default is an Event
of Default under Section 8.4 or 8.5 hereof), and (z) Borrower having failed to
cure such Event of Default within 15 days after delivery of such notice (no such
period being applicable in the case of an Event of Default under Section 8.4 or
8.5),

(i) all Obligations (except for undrawn Letters of Credit and except for Bank
Product Obligations) that have been charged to the Loan Account pursuant to the
terms hereof shall bear interest on the Daily Balance thereof at a per annum
rate equal to 2 percentage points above the per annum rate otherwise applicable
hereunder, and

(ii) the Letter of Credit fee provided for above shall be increased to 2
percentage points above the per annum rate otherwise applicable hereunder.

(d) Payment. Except as provided to the contrary in Section 2.13(a), interest,
Letter of Credit fees, and all other fees payable hereunder shall be due and
payable, in arrears, on the first day of each month at any time that Obligations
or Commitments are outstanding. Borrower hereby authorizes Agent, from time to
time without prior notice to Borrower, to charge such interest and fees, all
Lender Group Expenses (as and when incurred), the charges, commissions, fees,
and costs provided for in Section 2.12(e) (as and when accrued or incurred), the
fees and costs provided for in Section 2.11 (as and when accrued or incurred),
and all other payments as and when due and payable under any Loan Document
(including any amounts due and payable to the Bank Product Providers in respect
of Bank Products up to the amount of the then extant Bank Product Reserve) to
Borrower’s Loan Account, which amounts thereafter shall constitute Advances
hereunder and shall accrue interest at the rate then applicable to Advances
hereunder. Any interest not paid when due shall be compounded by being charged
to Borrower’s Loan Account and shall thereafter constitute Advances hereunder
and shall accrue interest at the rate then applicable to Advances that are Base
Rate Loans hereunder.

(e) Computation. All interest and fees chargeable under the Loan Documents shall
be computed on the basis of a 360 day year for the actual number of days
elapsed. In the event the Base Rate is changed from time to time hereafter, the
rates of interest hereunder based upon the Base Rate automatically and
immediately shall be increased or decreased by an amount equal to such change in
the Base Rate.

(f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the
interest rate or rates payable under this Agreement, plus any other amounts paid
in connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable. Borrower and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or

 

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manner of payment exceeds the maximum allowable under applicable law, then, ipso
facto, as of the date of this Agreement, Borrower is and shall be liable only
for the payment of such maximum as allowed by law, and payment received from
Borrower in excess of such legal maximum, whenever received, shall be applied to
reduce the principal balance of the Obligations to the extent of such excess.

2.7 Cash Management. In each case subject to the timing contemplated in Sections
3.1 and 3.2 with respect to the Cash Management Agreements referenced in such
Sections:

(a) Borrower shall and shall cause each of its Subsidiaries to establish and
maintain cash management services of a type and on terms satisfactory to Agent
at one or more of the banks set forth on Schedule 2.7(a) (each, a “Cash
Management Bank”), and, in connection therewith, establish and maintain at such
Cash Management Banks pursuant to the terms hereof (i) one or more accounts
designated (either in Schedule 2.7(a) or pursuant to Section 2.7(e)) as
concentration accounts (the “Concentration Accounts”) and (ii) additional
accounts designated (either in Schedule 2.7(a) or pursuant to Section 2.7(e)) as
collection accounts (the “Collection Accounts”, and together with the
Concentration Accounts, the “Cash Management Accounts”).

(b) Borrower shall, and shall cause each of its Subsidiaries to, (1) request in
writing and otherwise take such reasonable steps to ensure that all of its and
its Subsidiaries’ Account Debtors forward payment of the amounts owed by them
directly to a Cash Management Bank for deposit into a Concentration Account,
(2) deposit or cause to be deposited promptly, and in any event no later than
the first Business Day after the date of receipt thereof (and subject to
Section 2.7(d) with respect to payments from Credit Card Processors), all such
Collections from Account Debtors (including those sent directly to a Cash
Management Bank) into a Concentration Account, or, with respect to checks, into
the Collection Account designated (in Schedule 2.7(a) or pursuant to
Section 2.7(e)) as the Check Clearance Collection Account (the “Check Clearance
Collection Account”), or, with respect to receivables denominated in a foreign
currency, into the Collection Account designated (either in Schedule 2.7(a) or
pursuant to Section 2.7(e)) as the Multicurrency Collection Account (the
“Multicurrency Collection Account”), and (3) deposit or cause to be deposited
promptly, and in any event no later than the first Business Day after the date
of receipt thereof, all other Collections (including cash, checks, drafts and
all other forms of daily store receipts or other similar items of payment)
received by or otherwise under its control into a Cash Management Account.
Borrower further agrees that with respect to each Collection Account, it shall,
and shall cause each of its Subsidiaries to, at all times require each
applicable Cash Management Bank to forward, by automatic periodic transfers not
less frequently than once in any period of three (3) Business Days, all amounts
in each such Collection Account into a Concentration Account; provided, however,
that (w) with respect to the Check Clearance Collection Account, so long as all
funds in such Check Clearance Collection Account represent checks received by
Borrower or its Subsidiaries, such automatic transfers of funds therein shall be
required only at any time the balance thereof should exceed $400,000, but in no
event less frequently than once in any ten (10) day period, (x) immediately
after giving effect to each such transfer from such Check Clearance

 

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Collection Account into a Concentration Account, Borrower may maintain an amount
not to exceed $200,000 in such Check Clearance Collection Account,
(y) immediately after giving effect to each such transfer from any Collection
Account (other than the Check Clearance Collection Account) into a Concentration
Account, Borrower may maintain an amount not to exceed $1,000 in any such
Collection Account, and (z) so long as no Triggering Period shall have occurred
and be continuing, Agent shall permit all funds in any Concentration Account to
be forwarded, by daily sweeps, to the Designated Account.

(c) With respect to each Cash Management Account, each Cash Management Bank
shall establish and maintain Cash Management Agreements with Agent and Borrower,
in form and substance acceptable to Agent in its Permitted Discretion; provided;
however, that, with respect to Store Accounts only, Borrower’s obligations
hereunder with respect to establishing any such Cash Management Agreement shall
be limited to use of reasonable best efforts to deliver the form of Cash
Management Agreement to each such Cash Management Bank. Each Cash Management
Agreement shall provide, among other things, that (i) all items of payment
deposited in such Cash Management Account and proceeds thereof are subject to
the control of Agent, (ii) the Cash Management Bank has no rights of setoff or
recoupment or any other claim against the applicable Cash Management Account
other than for payment of its service fees and other charges directly related to
the administration of such Cash Management Account and for returned checks or
other items of payment, and (iii) from and after the date that it receives
written notification from Agent (a “Control Exercise Notice”), it immediately
will forward by daily sweep all amounts in the applicable Cash Management
Account to the Agent’s Account or as otherwise directed by Agent. Anything
contained herein into the contrary notwithstanding, Agent agrees that it shall
not provide a Control Exercise Notice to the Cash Management Banks except during
a Triggering Period. At any time during a Triggering Period, Agent shall be free
to exercise its right to issue a Control Exercise Notice and such Control
Exercise Notice will be deemed to have been delivered within five (5) days of
any Triggering Period unless Agent otherwise elects. Agent shall deliver to
Borrower a copy of any such Control Exercise Notice promptly after delivery
thereof to the applicable Cash Management Bank; provided, however that a
non-willful failure to so do shall not affect the validity of any such Control
Exercise Notice or otherwise limit Agent’s right to send any other Control
Exercise Notice. Upon the subsequent termination of such Triggering Period,
Agent shall withdraw such Control Exercise Notice and permit funds to be
transferred as set forth in Section 2.7(b) above, including as to Borrower
access to funds in any Concentration Account (and daily sweeps thereof into the
Designated Account), but subject in all events to the right of Agent to deliver
a Control Exercise Notice during any subsequent Triggering Period.

(d) Borrower shall establish and maintain Credit Card Agreements with Agent and
each Credit Card Processor. Each such Credit Card Agreement shall provide, among
other things, that each such Credit Card Processor shall transfer all proceeds
of credit card charges for sales by Borrower received by it (or other amounts
payable by such Credit Card Processor) into a designated Concentration Account
on a daily basis or such other periodic basis as Agent may otherwise direct.
Borrower shall not change any direction or designation set forth in the Credit
Card Agreements regarding payment of charges without the prior written consent
of Agent.

 

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(e) So long as no Event of Default has occurred and is continuing, Borrower may
amend Schedule 2.7(a) to add or replace a Cash Management Bank or Cash
Management Account; provided, however, that (i) such prospective Cash Management
Bank shall be reasonably satisfactory to Agent and Agent shall have consented in
writing in advance to the opening of such Cash Management Account with the
prospective Cash Management Bank (which consent shall not be required with
respect to any additional Cash Management Account at an existing Cash Management
Bank and otherwise shall not be unreasonably withheld), and (ii) subject to
Section 2.7(c), prior to the time of the opening of any Cash Management Account,
Borrower (or its Subsidiary, as applicable) and such prospective Cash Management
Bank shall have executed and delivered to Agent a Cash Management Agreement.
Borrower (or its Subsidiaries, as applicable) shall close any of its Cash
Management Accounts (and establish replacement cash management accounts in
accordance with the foregoing sentence) promptly and in any event within 45 days
of notice from Agent (or such longer period as Borrower and Agent may agree)
that the creditworthiness of any Cash Management Bank is no longer acceptable in
Agent’s reasonable judgment, or as promptly as practicable and in any event
within 60 days of notice from Agent (or such longer period as Borrower and Agent
may agree) that the operating performance, funds transfer, or availability
procedures or performance of the Cash Management Bank with respect to Cash
Management Accounts or Agent’s liability under any Cash Management Agreement
with such Cash Management Bank is no longer acceptable in Agent’s reasonable
judgment.

(f) The Cash Management Accounts shall be cash collateral accounts, with all
cash, checks and similar items of payment in such accounts securing payment of
the Obligations, and in which Borrower hereby grants a Lien to Agent.

2.8 Crediting Payments. The receipt of any payment item by Agent (whether from
transfers to Agent by the Cash Management Banks pursuant to the Cash Management
Agreements or otherwise) shall not be considered a payment on account unless
such payment item is a wire transfer of immediately available federal funds made
to the Agent’s Account or unless and until such payment item is honored when
presented for payment. Should any payment item not be honored when presented for
payment, then Borrower shall be deemed not to have made such payment and
interest shall be calculated accordingly. Anything to the contrary contained
herein notwithstanding, any payment item shall be deemed received by Agent only
if it is received into the Agent’s Account on a Business Day on or before
11:00 a.m. (California time). If any payment item is received into the Agent’s
Account on a non-Business Day or after 11:00 a.m. (California time) on a
Business Day, it shall be deemed to have been received by Agent as of the
opening of business on the immediately following Business Day.

2.9 Designated Account. Agent is authorized to make the Advances and Issuing
Lender is authorized to issue the Letters of Credit, under this Agreement based
upon telephonic or other instructions received from anyone purporting to be an
Authorized Person or, without instructions, if pursuant to Section 2.6(d).
Borrower agrees to establish and maintain the Designated Account with the
Designated Account Bank for the purpose of receiving the proceeds of the
Advances requested by Borrower and made by Agent or the

 

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Lenders hereunder. Unless otherwise agreed by Agent and Borrower, any Advance,
Agent Advance, or Swing Loan requested by Borrower and made by Agent or the
Lenders hereunder shall be made to the Designated Account.

2.10 Maintenance of Loan Account; Statements of Obligations. Agent shall
maintain an account on its books in the name of Borrower (the “Loan Account”) on
which Borrower will be charged with all Advances (including Agent Advances and
Swing Loans) made by Agent, Swing Lender, or the Lenders to Borrower or for
Borrower’s account, the Letters of Credit issued by Issuing Lender for
Borrower’s account, and with all other payment Obligations hereunder or under
the other Loan Documents (except for Bank Product Obligations), including,
accrued interest, fees and expenses, and Lender Group Expenses. In accordance
with Section 2.8, the Loan Account will be credited with all payments received
by Agent from Borrower or for Borrower’s account, including all amounts received
in the Agent’s Account from any Cash Management Bank. Agent shall render
statements regarding the Loan Account to Borrower, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Lender Group Expenses owing, and such statements, absent manifest
error, shall be conclusively presumed to be correct and accurate and constitute
an account stated between Borrower and the Lender Group unless, within 30 days
after receipt thereof by Borrower, Borrower shall deliver to Agent written
objection thereto describing the error or errors contained in any such
statements.

2.11 Fees. Borrower shall pay to Agent the following fees and charges, which
fees and charges shall be non-refundable when paid (irrespective of whether this
Agreement is terminated thereafter) and shall be apportioned among the Lenders
in accordance with the terms of letter agreements between Agent and individual
Lenders:

(a) Unused Line Fee. On the first day of each month during the term of this
Agreement, an unused line fee in an amount equal to 0.20% per annum times the
result of (i) the Maximum Revolver Amount at such time, less (ii) the sum of
(A) the average Daily Balance of Advances that were outstanding during the
immediately preceding month, plus (B) the average Daily Balance of the Letter of
Credit Usage during the immediately preceding month,

(b) Fee Letter Fees. As and when due and payable under the terms of the Fee
Letter, the fees set forth in the Fee Letter, and

(c) Audit, Appraisal, and Valuation Charges. Audit, appraisal, and valuation
fees and charges as follows (i) a fee of $950 per day, per auditor, plus
out-of-pocket transportation and lodging expenses for each financial audit of
Borrower performed by personnel employed by Agent, (ii) if implemented, a fee of
$950 per day, per applicable individual, plus out-of-pocket expenses for the
one-time establishment of electronic collateral reporting systems, (iii) a fee
of $1,500 per day per appraiser, plus out-of-pocket expenses, for each appraisal
of the Collateral, or any portion thereof, performed by personnel employed by
Agent, and (iv) a fee of $1,500 per day per appraiser, or $950 per day per
auditor or other individual, as applicable, plus additional out-of-pocket
transportation and lodging expenses, and such additional out-of-pocket
non-personnel related expenses, as

 

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applicable, if Agent elects to employ the services of one or more third Persons
to perform financial audits of Borrower or its Subsidiaries, to appraise the
Collateral, or any portion thereof, or to assess Borrower’s or its Subsidiaries’
business valuation. The foregoing notwithstanding, from and after the
Restatement Date, Borrower shall not be required to pay for more than 2
financial audits and 1 inventory appraisal during any 12 consecutive month
period so long as no Event of Default has occurred and is continuing, it being
understood that, for any audit or appraisal conducted (or commenced) at a time
when an Event of Default shall have occurred and be continuing, Borrower shall
pay all fees as specified above for Agent’s employees and all expenses and costs
paid or incurred by Agent.

2.12 Letters of Credit.

(a) Subject to the terms and conditions of this Agreement, the Issuing Lender
agrees to issue letters of credit for the account of Borrower (each, an “L/C”)
or to purchase participations or execute indemnities or reimbursement
obligations (each such undertaking, an “L/C Undertaking”) with respect to
letters of credit issued by an Underlying Issuer (as of the Restatement Date,
the prospective Underlying Issuer is to be Wells Fargo) for the account of
Borrower. To request the issuance of an L/C or an L/C Undertaking (or the
amendment, renewal, or extension of an outstanding L/C or L/C Undertaking),
Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Lender) to the Issuing Lender and Agent (reasonably in advance of the requested
date of issuance, amendment, renewal, or extension) a notice requesting the
issuance of an L/C or L/C Undertaking, or identifying the L/C or L/C Undertaking
to be amended, renewed, or extended, specifying the date of issuance, amendment,
renewal, or extension (which shall be a Business Day), the date on which such
L/C or L/C Undertaking is to expire, the amount of such L/C or L/C Undertaking,
the name and address of the beneficiary thereof (or the beneficiary of the
Underlying Letter of Credit, as applicable), and such other information as shall
be necessary to prepare, amend, renew, or extend such L/C or L/C Undertaking. If
requested by the Issuing Lender, Borrower also shall be an applicant under the
application with respect to any Underlying Letter of Credit that is to be the
subject of an L/C Undertaking. The Issuing Lender shall have no obligation to
issue a Letter of Credit if any of the following would result after giving
effect to the issuance of such requested Letter of Credit:

(i) the Adjusted Letter of Credit Usage would exceed the Borrowing Base less the
then extant amount of outstanding Advances, or

(ii) the Letter of Credit Usage would exceed $40,000,000, or

(iii) the Letter of Credit Usage would exceed the Maximum Revolver Amount less
the then extant amount of outstanding Advances.

Borrower and the Lender Group acknowledge and agree that certain Underlying
Letters of Credit may be issued to support letters of credit that already are
outstanding as of the Restatement Date. Each Letter of Credit (and corresponding
Underlying Letter of Credit) shall be in form and substance acceptable to the
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(in the exercise of its Permitted Discretion), including the requirement that
the amounts payable thereunder must be payable in Dollars. If Issuing Lender is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such L/C Disbursement to Issuing Lender by paying to Agent an amount
equal to such L/C Disbursement not later than 11:00 a.m., California time, on
the date that such L/C Disbursement is made or such other date as written or
telephonic notice thereof is first received by Borrower, if Borrower shall have
received such written or telephonic notice of such L/C Disbursement prior to
9:00 a.m., California time, on such date, or, if such notice has not been
received by Borrower prior to such time on such date, then not later than 11:00
a.m., California time, on the immediately succeeding Business Day, and, in the
absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans
under Section 2.6. To the extent an L/C Disbursement is deemed to be an Advance
hereunder, Borrower’s obligation to reimburse such L/C Disbursement shall be
discharged and replaced by the resulting Advance. Promptly following receipt by
Agent of any payment from Borrower pursuant to this paragraph, Agent shall
distribute such payment to the Issuing Lender or, to the extent that Lenders
have made payments pursuant to Section 2.12(c) to reimburse the Issuing Lender,
then to such Lenders and the Issuing Lender as their interests may appear.

(b) Promptly following receipt of a notice of L/C Disbursement pursuant to
Section 2.12(a), each Lender with a Revolver Commitment agrees to fund its Pro
Rata Share of any Advance deemed made pursuant to the foregoing subsection on
the same terms and conditions as if Borrower had requested such Advance and
Agent shall promptly pay to Issuing Lender the amounts so received by it from
the Lenders. By the issuance of a Letter of Credit (or an amendment to a Letter
of Credit increasing the amount thereof) and without any further action on the
part of the Issuing Lender or the Lenders with Revolver Commitments, the Issuing
Lender shall be deemed to have granted to each Lender with a Revolver
Commitment, and each Lender with a Revolver Commitment shall be deemed to have
purchased, a participation in each Letter of Credit, in an amount equal to its
Pro Rata Share of the Risk Participation Liability of such Letter of Credit, and
each such Lender agrees to pay to Agent, for the account of the Issuing Lender,
such Lender’s Pro Rata Share of any payments made by the Issuing Lender under
such Letter of Credit. In consideration and in furtherance of the foregoing,
each Lender with a Revolver Commitment hereby absolutely and unconditionally
agrees to pay to Agent, for the account of the Issuing Lender, such Lender’s Pro
Rata Share of each L/C Disbursement made by the Issuing Lender and not
reimbursed by Borrower on the date due as provided in clause (a) of this
Section, or of any reimbursement payment required to be refunded to Borrower for
any reason. Each Lender with a Revolver Commitment acknowledges and agrees that
its obligation to deliver to Agent, for the account of the Issuing Lender, an
amount equal to its respective Pro Rata Share of each L/C Disbursement made by
the Issuing Lender pursuant to this Section 2.12(b) shall be absolute and
unconditional and such remittance shall be made notwithstanding the occurrence
or continuation of an Event of Default or Default or the failure to satisfy any
condition set forth in Section 3 hereof. If any such Lender fails to make
available to Agent the amount of such Lender’s Pro Rata Share of each L/C
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Lender in respect of such Letter of Credit as provided in this Section, such
Lender shall be deemed to be a Defaulting Lender and Agent (for the account of
the Issuing Lender) shall be entitled to recover such amount on demand from such
Lender together with interest thereon at the Defaulting Lender Rate until paid
in full.

(c) Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group
harmless from any loss, cost, expense, or liability, and reasonable attorneys
fees incurred by the Lender Group arising out of or in connection with any
Letter of Credit; provided, however, that Borrower shall not be obligated
hereunder to indemnify for any loss, cost, expense, or liability to the extent
that it is caused by the gross negligence or willful misconduct of the Issuing
Lender or any other member of the Lender Group. Borrower agrees to be bound by
the Underlying Issuer’s regulations and interpretations of any Underlying Letter
of Credit or by Issuing Lender’s interpretations of any L/C issued by Issuing
Lender to or for Borrower’s account, even though this interpretation may be
different from Borrower’s own, and Borrower understands and agrees that the
Lender Group shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrower’s instructions or those
contained in the Letter of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that the L/C Undertakings may require
Issuing Lender to indemnify the Underlying Issuer for certain costs or
liabilities arising out of claims by Borrower against such Underlying Issuer.
Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group
harmless with respect to any loss, cost, expense (including reasonable attorneys
fees), or liability incurred by the Lender Group under any L/C Undertaking as a
result of the Lender Group’s indemnification of any Underlying Issuer; provided,
however, that Borrower shall not be obligated hereunder to indemnify for any
loss, cost, expense, or liability to the extent that it is caused by the gross
negligence or willful misconduct of the Issuing Lender or any other member of
the Lender Group.

(d) Borrower hereby authorizes and directs any Underlying Issuer to deliver to
the Issuing Lender all instruments, documents, and other writings and property
received by such Underlying Issuer pursuant to such Underlying Letter of Credit
and to accept and rely upon the Issuing Lender’s instructions with respect to
all matters arising in connection with such Underlying Letter of Credit and the
related application.

(e) Any and all charges, commissions, fees, and costs incurred by the Issuing
Lender relating to Underlying Letters of Credit shall be Lender Group Expenses
for purposes of this Agreement and immediately shall be reimbursable by Borrower
to Agent for the account of the Issuing Lender.

(f) If by reason of (i) any change after the Closing Date in any applicable law,
treaty, rule, or regulation or any change in the interpretation or application
thereof by any Governmental Authority, or (ii) compliance by the Underlying
Issuer or the Lender Group with any direction, request, or requirement
(irrespective of whether having the force of law) of any Governmental Authority
or monetary authority including, Regulation D of the Federal Reserve Board as
from time to time in effect (and any successor thereto):

(i) any reserve, deposit, or similar requirement is or shall be imposed or
modified in respect of any Letter of Credit issued hereunder, or

 

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(ii) there shall be imposed on the Underlying Issuer or the Lender Group any
other condition regarding any Underlying Letter of Credit or any Letter of
Credit issued pursuant hereto,

and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter
of Credit or to reduce the amount receivable in respect thereof by the Lender
Group (and, as to any Lender, except (x) any costs relating to payments on
account of Taxes and additional amounts required to be paid pursuant to, or
explicitly excluded from payment under, Section 16.11, and (y) any such cost or
reduction as a result of a change of general applicability in (1) taxes imposed
on or measured by the Lender’s net income, or (2) franchise taxes imposed on the
Lender, in lieu of net income taxes, by the jurisdiction, or any political
subdivision thereof, under the laws of which it is organized or otherwise
resides for tax purposes or maintains any lending office), then, and in any such
case, Agent may, at any time within 270 days after the additional cost is
incurred or the amount received is reduced, notify Borrower, and Borrower shall
pay on demand such amounts as Agent may specify to be necessary to compensate
the Lender Group for such additional cost or reduced receipt, together with
interest on such amount from the date of such demand until payment in full
thereof at the rate then applicable to Base Rate Loans hereunder. The
determination by Agent of any amount due pursuant to this Section, as set forth
in a certificate setting forth the calculation thereof in reasonable detail,
shall, in the absence of manifest or demonstrable error, be final and conclusive
and binding on all of the parties hereto.

(g) Borrower acknowledges and agrees that certain of the Qualified Import
Letters of Credit may provide for the presentation of time drafts to the
Underlying Issuer. If an Underlying Issuer accepts such a time draft that is
presented under an Underlying Letter of Credit, it is acknowledged and agreed
that (i) the Letter of Credit will require the Issuing Lender to reimburse the
Underlying Issuer for amounts paid on account of such time draft on or after the
maturity date thereof, (ii) the pricing provisions hereof (including Sections
2.6(b) and 2.12(e)) shall continue to apply, until payment of such time draft on
or after the maturity date thereof, as if the Underlying Letter of Credit were
still outstanding, and (iii) on the date on which Issuing Lender makes payment
to the Underlying Issuer of the amounts paid on account of such time draft,
Borrower immediately shall reimburse such amount to Issuing Lender and such
amount shall constitute an L/C Disbursement hereunder.

2.13 LIBOR Option.

(a) Interest and Interest Payment Dates. In lieu of having interest charged at
the rate based upon the Base Rate, Borrower shall have the option (the “LIBOR
Option”) to have interest on all or a portion of the Advances be charged at a
rate of interest based upon the LIBOR Rate. Interest on LIBOR Rate Loans shall
be payable on the earliest of (i) the last day of the Interest Period applicable
thereto, (ii) the date that is 3 months after the commencement of the applicable
Interest Period, (iii) the occurrence of an Event of

 

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Default in consequence of which the Required Lenders or Agent on behalf thereof
elect to accelerate the maturity of all or any portion of the Obligations, or
(iv) termination of this Agreement pursuant to the terms hereof. On the last day
of each applicable Interest Period in respect of a LIBOR Rate Loan, unless
Borrower properly has exercised the LIBOR Option with respect thereto, the
interest rate applicable to such LIBOR Rate Loan automatically shall convert to
the rate of interest then applicable to Base Rate Loans of the same type
hereunder. At any time that an Event of Default has occurred and is continuing,
upon written notice from Agent to Borrower of its election to deny access to the
LIBOR Option, Borrower no longer shall have the option to request that Advances
bear interest at a rate based upon the LIBOR Rate and, at the end of the
Interest Period applicable thereto, Agent shall have the right to convert the
interest rate on all outstanding LIBOR Rate Loans to the rate then applicable to
Base Rate Loans hereunder.

(b) LIBOR Election.

(i) Borrower may, at any time and from time to time, so long as no Event of
Default has occurred and is continuing, elect to exercise the LIBOR Option by
notifying Agent prior to 11:00 a.m. (California time) at least 3 Business Days
prior to the commencement of the proposed Interest Period (the “LIBOR
Deadline”). Notice of Borrower’s election of the LIBOR Option for a permitted
portion of the Advances and an Interest Period pursuant to this Section shall be
made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR
Deadline, or by telephonic notice received by Agent before the LIBOR Deadline
(to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior
to 5:00 p.m. (California time) on the same day). Promptly upon its receipt of
each such LIBOR Notice, Agent shall provide a copy thereof to each of the
Lenders having a Revolver Commitment.

(ii) Each LIBOR Notice shall be irrevocable and binding on Borrower. In
connection with each LIBOR Rate Loan, Borrower shall indemnify, defend, and hold
Agent and the Lenders harmless against any loss, cost, or expense incurred by
Agent or any Lender as a result of (a) the payment of any principal of any LIBOR
Rate Loan other than on the last day of an Interest Period applicable thereto
(including as a result of an Event of Default), (b) the conversion of any LIBOR
Rate Loan other than on the last day of the Interest Period applicable thereto,
or (c) the failure to borrow (for a reason other than or a result of the failure
of such Lender to make the applicable requested Advance notwithstanding the
satisfaction of all conditions precedent relating thereto), convert, continue or
prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice or other
notices of prepayment delivered pursuant hereto (such losses, costs, and
expenses, collectively, “Funding Losses”). Funding Losses shall, with respect to
Agent or any Lender, be deemed to equal the amount determined by Agent or such
Lender to be the excess, if any, of (i) the amount of interest that would have
accrued on the principal amount of such LIBOR Rate Loan had such event not
occurred, at the LIBOR Rate that would have been applicable thereto, for the
period from

 

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the date of such event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert, or continue, for the
period that would have been the Interest Period therefor), minus (ii) the amount
of interest that would accrue on such principal amount for such period at the
interest rate which Agent or such Lender would be offered were it to be offered,
at the commencement of such period, Dollar deposits of a comparable amount and
period in the London interbank market. A certificate of Agent or a Lender
delivered to Borrower setting forth any amount or amounts that Agent or such
Lender is entitled to receive pursuant to this Section 2.13 shall be conclusive
absent manifest error.

(iii) Borrower shall have not more than 8 LIBOR Rate Loans in effect at any
given time. Borrower only may exercise the LIBOR Option for LIBOR Rate Loans of
at least $1,000,000 and integral multiples of $500,000 in excess thereof.

(c) Prepayments. Borrower may prepay LIBOR Rate Loans at any time; provided,
however, that in the event that LIBOR Rate Loans are prepaid on any date that is
not the last day of the Interest Period applicable thereto, including as a
result of any automatic prepayment through the required application by Agent of
proceeds of Borrower’s and its Subsidiaries’ Collections in accordance with
Section 2.4(b) or for any other reason, including early termination of the term
of this Agreement or acceleration of all or any portion of the Obligations
pursuant to the terms hereof, Borrower shall indemnify, defend, and hold Agent
and the Lenders and their Participants harmless against any and all Funding
Losses in accordance with clause (b)(ii) above.

(d) Special Provisions Applicable to LIBOR Rate.

(i) The LIBOR Rate may be adjusted by Agent, in consultation with Borrower, with
respect to any Lender on a prospective basis to take into account any additional
or increased costs to such Lender of maintaining or obtaining any eurodollar
deposits or increased costs due to changes in applicable law occurring
subsequent to the commencement of the then applicable Interest Period, including
changes in tax laws (except, for any Lender, (x) any costs relating to payments
on account of Taxes and additional amounts required to be paid pursuant to, or
explicitly excluded from payment under, Section 16.11, and (y) changes of
general applicability in (1) taxes imposed on or measured by the Lender’s net
income, or (2) franchise taxes imposed on the Lender, in lieu of net income
taxes, by the jurisdiction, or any political subdivision thereof, under the laws
of which it is organized or otherwise resides for tax purposes or maintains any
lending office) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage, which additional or increased costs would increase the cost
of funding loans bearing interest at the LIBOR Rate. In any such event, the
affected Lender shall give Borrower and Agent notice of such a determination and
adjustment

 

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and Agent promptly shall transmit the notice to each other Lender and, upon its
receipt of the notice from the affected Lender, Borrower may, by notice to such
affected Lender (y) require such Lender to furnish to Borrower a statement
setting forth the basis for adjusting such LIBOR Rate and the method for
determining the amount of such adjustment, or (z) repay the LIBOR Rate Loans
with respect to which such adjustment is made (together with any amounts due
under clause (b)(ii) above).

(ii) In the event that any change in market conditions or any law, regulation,
treaty, or directive, or any change therein or in the interpretation of
application thereof, shall at any time after the date hereof, in the reasonable
opinion of any Lender, make it unlawful or impractical for such Lender to fund
or maintain LIBOR Rate Loans or to continue such funding or maintaining, or to
determine or charge interest rates at the LIBOR Rate, such Lender shall (x) give
notice of such changed circumstances to Agent and Borrower and Agent promptly
shall transmit the notice to each other Lender and (y) in the case of any LIBOR
Rate Loans of such Lender that are outstanding, the date specified in such
Lender’s notice shall be deemed to be the last day of the Interest Period of
such LIBOR Rate Loans, and interest upon the LIBOR Rate Loans of such Lender
thereafter shall accrue interest at the rate then applicable to Base Rate Loans,
and (z) Borrower shall not be entitled to elect the LIBOR Option until such
Lender determines that it would no longer be unlawful or impractical to do so.
Each Lender at such time having as its lending office an office outside the
United States agrees to use reasonable efforts to designate a different lending
office if such designation will avoid the need for such a notice of changed
circumstances and would not, in the good faith judgment of such Lender,
otherwise be disadvantageous to such Lender.

(e) No Requirement of Matched Funding. Anything to the contrary contained herein
notwithstanding, neither Agent, nor any Lender, nor any of their Participants,
is required actually to acquire eurodollar deposits to fund or otherwise match
fund any Obligation as to which interest accrues at the LIBOR Rate. The
provisions of this Section shall apply as if each Lender or its Participants had
match funded any Obligation as to which interest is accruing at the LIBOR Rate
by acquiring eurodollar deposits for each Interest Period in the amount of the
LIBOR Rate Loans.

2.14 Capital Requirements. If, after the date hereof, any Lender determines that
(i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental
Authority charged with the administration thereof, or (ii) compliance by such
Lender or its parent bank holding company with any guideline, request, or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Lender’s or
such holding company’s capital as a consequence of such Lender’s Commitments
hereunder to a level below that which such Lender or such holding company could
have achieved but for such

 

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adoption, change, or compliance (taking into consideration such Lender’s or such
holding company’s then existing policies with respect to capital adequacy and
assuming the full utilization of such entity’s capital) by any amount deemed by
such Lender to be material, then such Lender may notify Borrower and Agent
thereof. Following receipt of such notice, Borrower agrees to pay such Lender on
demand the amount of such reduction of return of capital as and when such
reduction is determined, payable within 90 days after presentation by such
Lender of a statement in the amount and setting forth in reasonable detail such
Lender’s calculation thereof and the assumptions upon which such calculation was
based (which statement shall be deemed true and correct absent manifest error).
Notwithstanding anything to the contrary in this Section, Borrower will not be
required to compensate any Lender pursuant to this Section for any reduction
incurred more than 270 days before such Lender notified Borrower of the change
in law (or other circumstance) giving rise to such reduction. In determining
such amount, such Lender may use any reasonable averaging and attribution
methods.

 

3. CONDITIONS; TERM OF AGREEMENT.

3.1 Conditions Precedent to the Restatement Date. The obligation of the Lender
Group (or any member thereof) to make the initial Advance under the Credit
Agreement on the Restatement Date (or otherwise to extend any credit provided
for hereunder), is subject to the fulfillment, to the satisfaction of Agent, of
each of the conditions precedent set forth below:

(a) the Restatement Date shall occur on or before May 25, 2007;

(b) Agent shall have received each of the following documents, in form and
substance satisfactory to Agent, duly executed, and each such document shall be
in full force and effect:

(i) Reaffirmation of Collateral Documents,

(ii) the Disbursement Letter,

(iii) the Fee Letter, and

(iv) the Officers’ Certificate,

(c) Agent shall have received a certificate from the Secretary of Borrower
attesting to the resolutions of Borrower’s Board of Directors authorizing its
execution, delivery, and performance of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific officers of
Borrower to execute the same;

(d) Agent shall have received copies of Borrower’s Governing Documents, as
amended, modified, or supplemented to the Restatement Date, certified by the
Secretary of Borrower;

 

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(e) Agent shall have received a certificate of status with respect to Borrower,
dated within 10 days of the Restatement Date, such certificate to be issued by
the appropriate officer of the jurisdiction of organization of Borrower, which
certificate shall indicate that Borrower is in good standing in such
jurisdiction;

(f) Agent shall have received certificates of status with respect to Borrower,
each dated within 30 days of the Restatement Date, such certificates to be
issued by the appropriate officer of the jurisdictions (other than the
jurisdiction of organization of Borrower) in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change, which
certificates shall indicate that Borrower is in good standing in such
jurisdictions;

(g) [Intentionally Omitted];

(h) [Intentionally Omitted];

(i) [Intentionally Omitted];

(j) Agent shall have received an opinion of Borrower’s counsel in form and
substance satisfactory to Agent;

(k) Borrower shall have the Borrowing Base Availability of not less than
$10,000,000 after giving effect to the initial extensions of credit hereunder
and the payment of all fees and expenses required to be paid by Borrower on the
Restatement Date under this Agreement or the other Loan Documents;

(l) Borrower shall have paid all documented and invoiced Lender Group Expenses
incurred in connection with the transactions evidenced by this Agreement;

(m) [Intentionally Omitted];

(n) [Intentionally Omitted]; and

(o) all other documents and legal matters in connection with the transactions
contemplated by this Agreement shall have been delivered, executed, or recorded
and shall be in form and substance satisfactory to Agent.

3.2 Conditions Subsequent to the Initial Extension of Credit. The obligation of
the Lender Group (or any member thereof) to continue to make Advances (or
otherwise extend credit hereunder) is subject to the fulfillment, on or before
the date applicable thereto, of each of the conditions subsequent set forth
below (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):

(a) Agent shall have received an updated appraisal of Borrower’s inventory, the
results of which shall be satisfactory to Agent within sixty (60) days of the
Restatement Date; and

 

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(b) Borrower shall use its commercially reasonable efforts to deliver to Agent
Collateral Access Agreements for each of Borrower’s distribution centers within
sixty (60) days of the Restatement Date.

3.3 Conditions Precedent to all Extensions of Credit. The obligation of the
Lender Group (or any member thereof) to make any Advances hereunder at any time
(or to extend any other credit hereunder) shall be subject to the following
conditions precedent:

(a) the representations and warranties contained in this Agreement and the other
Loan Documents shall be true and correct in all material respects on and as of
the date of such extension of credit, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date);

(b) no Default or Event of Default shall have occurred and be continuing on the
date of such extension of credit, nor shall either result from the making
thereof;

(c) no injunction, writ, restraining order, or other order of any nature
restricting or prohibiting, directly or indirectly, the extending of such credit
shall have been issued and remain in force by any Governmental Authority against
Borrower, Agent, any Lender, or any of their Affiliates; and

(d) no Material Adverse Change shall have occurred.

3.4 Term. This Agreement shall continue in full force and effect for a term
ending on May 25, 2012 (the “Maturity Date”). The foregoing notwithstanding, the
Lender Group, upon the election of the Required Lenders, shall have the right to
terminate its obligations under this Agreement immediately and without notice
upon the occurrence and during the continuation of an Event of Default in
accordance with Section 9.1.

3.5 Effect of Termination. On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations of Borrower with
respect to outstanding Letters of Credit) immediately shall become due and
payable without notice or demand (including either (i) providing cash collateral
to be held by Agent for the benefit of those Lenders with a Revolver Commitment
in an amount equal to 105% of the then extant Letter of Credit Usage, or
(ii) causing the original Letters of Credit to be returned to the Issuing
Lender). Notwithstanding the foregoing, Bank Product Obligations shall be
subject to the terms and conditions (including as to termination) set forth in
the applicable Bank Product Agreements, and, in connection with any termination
of this Agreement, such termination and the release of any applicable Agent’s
Liens shall be subject to the provision by Borrower of cash collateral (in an
amount determined by Agent as sufficient to satisfy the reasonably estimated
credit exposure) to be held by Agent for the benefit of the Bank Product
Providers with respect to the then extant Bank Product Obligations. No
termination of this Agreement, however, shall relieve or discharge Borrower or
its Subsidiaries of their duties, Obligations, or covenants hereunder and the
Agent’s Liens in the Collateral shall remain in effect until all Obligations
have been paid in full (including by the provision of cash collateral as set
forth above) and the Lender Group’s obligations to provide additional

 

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credit hereunder have been terminated. When this Agreement has been terminated
and all of the Obligations have been paid in full (including by the provision of
cash collateral as set forth above) and the Lender Group’s obligations to
provide additional credit under the Loan Documents have been terminated
irrevocably, Agent will, at Borrower’s sole expense, execute and deliver any UCC
termination statements, lien releases, mortgage releases, re-assignments of
trademarks, discharges of security interests, and other similar discharge or
release documents (and, if applicable, in recordable form) as are reasonably
necessary to release, as of record, the Agent’s Liens and all notices of
security interests and liens previously filed by Agent with respect to the
Obligations.

3.6 Early Termination by Borrower. Borrower has the option, at any time upon 30
days prior written notice to Agent, to terminate this Agreement by paying to
Agent, in cash, the Obligations (including (a) either (i) providing cash
collateral to be held by Agent for the benefit of those Lenders with a Revolver
Commitment in an amount equal to 105% of the then extant Letter of Credit Usage,
or (ii) causing the original Letters of Credit to be returned to the Issuing
Lender, and (b) providing cash collateral (in an amount determined by Agent as
sufficient to satisfy the reasonably estimated credit exposure) to be held by
Agent for the benefit of the Bank Product Providers with respect to the then
extant Bank Product Obligations), in full, together with the Applicable
Prepayment Premium (to be allocated based upon letter agreements between Agent
and individual Lenders). If Borrower has sent a notice of termination pursuant
to the provisions of this Section, then the Commitments shall terminate and
Borrower shall be obligated to repay the Obligations (including (a) either
(i) providing cash collateral to be held by Agent for the benefit of those
Lenders with a Revolver Commitment in an amount equal to 105% of the then extant
Letter of Credit Usage, or (ii) causing the original Letters of Credit to be
returned to the Issuing Lender, and (b) providing cash collateral (in an amount
determined by Agent as sufficient to satisfy the reasonably estimated credit
exposure) to be held by Agent for the benefit of the Bank Product Providers with
respect to the then extant Bank Product Obligations), in full, together with the
Applicable Prepayment Premium, on the date set forth as the date of termination
of this Agreement in such notice; provided that any such notice may be
conditioned on the effectiveness of any refinancing. In the event of the
termination of this Agreement and repayment of the Obligations at any time prior
to the Maturity Date, for any other reason, including (a) termination upon the
election of the Required Lenders to terminate after the occurrence and during
the continuation of an Event of Default, (b) foreclosure and sale of Collateral,
(c) sale of the Collateral in any Insolvency Proceeding, or (d) restructure,
reorganization, or compromise of the Obligations by the confirmation of a plan
of reorganization or any other plan of compromise, restructure, or arrangement
in any Insolvency Proceeding, then, in view of the impracticability and extreme
difficulty of ascertaining the actual amount of damages to the Lender Group or
profits lost by the Lender Group as a result of such early termination, and by
mutual agreement of the parties as to a reasonable estimation and calculation of
the lost profits or damages of the Lender Group, Borrower shall pay the
Applicable Prepayment Premium to Agent (to be allocated based upon letter
agreements between Agent and individual Lenders), measured as of the date of
such termination. The foregoing (and the definition of “Applicable Prepayment
Premium” set forth in Section 1.1) to the contrary notwithstanding, in the event
that Borrower repays

 

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the Obligations in full and terminates this Agreement pursuant to the first
sentence of this Section 3.6 and if such repayment occurs with the proceeds of a
refinancing provided by Wells Fargo or any Affiliate thereof, then the
Applicable Prepayment Premium shall equal zero.

 

4. CREATION OF SECURITY INTEREST.

4.1 Grant of Security Interest. Borrower hereby grants to Agent, for the benefit
of the Lender Group and the Bank Product Providers, a continuing security
interest in all of its right, title, and interest in all currently existing and
hereafter acquired or arising Borrower Collateral in order to secure prompt
repayment of any and all of the Obligations in accordance with the terms and
conditions of the Loan Documents and in order to secure prompt performance by
Borrower of each of its covenants and duties under the Loan Documents. The
Agent’s Liens in and to the Borrower Collateral shall attach to all Borrower
Collateral without further act on the part of Agent or Borrower. Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrower and its
Subsidiaries have no authority, express or implied, to dispose of any item or
portion of the Collateral (it being understood, with respect to any such
Permitted Disposition of Borrower Collateral, Agent’s Liens in and to such
Borrower Collateral shall be released automatically upon consummation of such
Permitted Disposition, and the proceeds and products of such Permitted
Disposition shall be subject to Agent’s Liens).

4.2 Negotiable Collateral. In the event that any Borrower Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to
the extent that Agent determines in its Permitted Discretion that perfection or
priority of Agent’s security interest is dependent on or enhanced by possession,
Borrower, promptly following the request of Agent, shall endorse and deliver
physical possession of such Negotiable Collateral to Agent.

4.3 Collection of Accounts, General Intangibles, and Negotiable Collateral. At
any time after the occurrence and during the continuation of an Event of
Default, Agent or Agent’s designee may (a) notify Account Debtors of Borrower
that Borrower’s Accounts, chattel paper, or General Intangibles have been
assigned to Agent or that Agent has a security interest therein, or (b) collect
Borrower’s Accounts, chattel paper, or General Intangibles directly and charge
the collection costs and expenses to the Loan Account. Borrower agrees that it
will hold in trust for the Lender Group, as the Lender Group’s trustee, any of
its or its Subsidiaries’ Collections that it receives and immediately will
deliver such Collections to Agent or a Cash Management Bank in their original
form as received by Borrower or its Subsidiaries.

4.4 Filing of Financing Statements; Commercial Tort Claims; Delivery of
Additional Documentation Required.

(a) Borrower authorizes Agent to file any financing statement necessary or
desirable to effectuate the transactions contemplated by the Loan Documents, and
any continuation statement or amendment with respect thereto, in any appropriate
filing office without the signature of Borrower where permitted by applicable
law.

 

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(b) At any time when an Event of Default has occurred and has continued for at
least 10 days, Borrower shall, upon request of Agent, promptly deliver to Agent
a written description of each commercial tort claim, to the extent individually
or in the aggregate for an amount in excess of $50,000, then held by Borrower or
any Subsidiary thereof (and not yet subject to a Commercial Tort Claim
Assignment) and shall deliver a written agreement, in form and substance
satisfactory to Agent in its Permitted Discretion, pursuant to which Borrower or
its Subsidiary, as applicable, shall pledge and collaterally assign all of its
right, title and interest in and to each such commercial tort claim to Agent, as
security for the Obligations (a “Commercial Tort Claim Assignment”). The
subsequent cure or waiver of the applicable Event of Default shall not affect
the enforceability of any executed and delivered Commercial Tort Claim
Assignment.

(c) At any time upon the request of Agent, Borrower shall execute or deliver to
Agent, and shall cause its Subsidiaries to execute or deliver to Agent, any and
all financing statements, original financing statements in lieu of continuation
statements, fixture filings, security agreements, pledges, assignments,
Commercial Tort Claim Assignments, endorsements of certificates of title, and
all other documents (collectively, the “Additional Documents”) that Agent may
request in its Permitted Discretion, in form and substance satisfactory to Agent
in its Permitted Discretion, to create, perfect, and continue perfected or to
better perfect the Agent’s Liens in the assets of Borrower and its Subsidiaries
(whether now owned or hereafter arising or acquired, tangible or intangible,
real or personal) (except as otherwise expressly permitted under this
Agreement), to create and perfect Liens in favor of Agent in any Real Property
owned on the Closing Date or in any Real Property acquired after the Closing
Date, and in order to fully consummate all of the transactions contemplated
hereby and under the other Loan Documents. To the maximum extent permitted by
applicable law, Borrower authorizes Agent to execute any such Additional
Documents in Borrower’s name and authorizes Agent to file such executed
Additional Documents in any appropriate filing office. In addition, on such
periodic basis as Agent shall require in its Permitted Discretion (but no more
frequently than quarterly), Borrower shall (i) provide Agent with a report of
all new material patentable, copyrightable, or trademarkable materials acquired
or generated by Borrower or its Subsidiaries during the prior period, (ii) cause
all material patents, copyrights, and trademarks acquired or generated by
Borrower or its Subsidiaries that are not already the subject of a registration
with the appropriate filing office (or an application therefor diligently
prosecuted) to be registered with such appropriate filing office in a manner
sufficient to impart constructive notice of Borrower’s or the applicable
Subsidiary’s ownership thereof, and (iii) cause to be prepared, executed, and
delivered to Agent supplemental schedules to the applicable Loan Documents to
identify such patents, copyrights, and trademarks as being subject to the
security interests created thereunder.

4.5 Power of Attorney. Borrower hereby irrevocably makes, constitutes, and
appoints Agent (and any of Agent’s officers, employees, or agents designated by
Agent) as Borrower’s true and lawful attorney, with power (in each case, to the
maximum extent permitted by law) to (a) if Borrower refuses to, or fails timely
to execute and deliver any of

 

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the documents described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) at any time that an Event of Default has
occurred and is continuing, sign Borrower’s name on any invoice or bill of
lading relating to the Borrower Collateral, drafts against Account Debtors, or
notices to Account Debtors, (c) send requests for verification of Borrower’s or
its Subsidiaries’ Accounts, (d) endorse Borrower’s name on any of its payment
items (including all of its Collections) that may come into the Lender Group’s
possession, (e) at any time that an Event of Default has occurred and is
continuing, make, settle, and adjust all claims under Borrower’s policies of
insurance and make all determinations and decisions with respect to such
policies of insurance, and (f) at any time that an Event of Default has occurred
and is continuing, settle and adjust disputes and claims respecting Borrower’s
or its Subsidiaries’ Accounts, chattel paper, or General Intangibles directly
with Account Debtors, for amounts and upon terms that Agent determines to be
reasonable, and Agent may cause to be executed and delivered any documents and
releases that Agent determines to be necessary. The appointment of Agent as
Borrower’s attorney, and each and every one of its rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully and finally repaid and performed and the Lender Group’s obligations to
extend credit hereunder are terminated.

4.6 Right to Inspect. Agent and each Lender (through any of their respective
officers, employees, or agents) shall have the right, from time to time
hereafter to inspect the Books and make copies or abstracts thereof and to
check, test, and appraise the Collateral, or any portion thereof, in order to
verify Borrower’s and its Subsidiaries’ financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.

4.7 Control Agreements.

(a) Borrower agrees that it will not, and will not permit its Subsidiaries to,
transfer assets out of any of their Deposit Accounts (other than as specified in
Section 2.7 with respect to Cash Management Accounts) or Securities Accounts;
provided, however, that so long as no Event of Default has occurred and is
continuing or would result therefrom, Borrower and its Subsidiaries may use such
assets (and the proceeds thereof) to the extent not prohibited by this Agreement
or the other Loan Documents and, if the transfer is to another bank or
securities intermediary, so long as Borrower (or its Subsidiary, as applicable),
Agent, and the substitute bank or securities intermediary have entered into a
Control Agreement (subject to Section 7.12 hereof). No arrangement contemplated
hereby or by any Control Agreement in respect of any Securities Accounts or
other Investment Property shall be modified by Borrower without the prior
written consent of Agent. Upon the occurrence and during the continuance of an
Event of Default, Agent may notify any bank or securities intermediary to
liquidate the applicable Deposit Account (including pursuant to Section 2.7(c)
with respect to Cash Management Accounts) or Securities Account or any related
Investment Property maintained or held thereby and remit the proceeds thereof to
the Agent’s Account or as otherwise directed by Agent.

(b) Borrower agrees that, subject to Section 2.7 (with respect to Cash
Management Accounts) and Section 7.12 with respect to all other Deposit Accounts
and Securities Accounts, it will and will cause its Subsidiaries to take any or
all reasonable steps

 

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that Agent requests in order for Agent to obtain control in accordance with
Sections 9-104, 9-105, 9-106, and 9-107 of the Code with respect to any of
(i) its or their Securities Accounts, Deposit Accounts, electronic chattel
paper, Investment Property, and (ii) only during a Triggering Period, pursuant
to any such reasonable (in Agent’s Permitted Discretion) request, its or their
letter-of-credit rights; provided, however, that Borrower shall not be so
required to cause Agent to obtain such control with respect to the Special
Account and Securities Investments.

 

5. REPRESENTATIONS AND WARRANTIES.

In order to induce the Lender Group to enter into this Agreement, Borrower makes
the following representations and warranties to the Lender Group which shall be
true, correct, and complete, in all material respects, as of the date hereof,
and shall be true, correct, and complete, in all material respects, as of the
Closing Date, the Restatement Date and at and as of the date of the making of
each Advance (or other extension of credit) made thereafter, as though made on
and as of the date of such Advance (or other extension of credit) (except to the
extent that such representations and warranties relate solely to an earlier
date) and such representations and warranties shall survive the execution and
delivery of this Agreement:

5.1 No Encumbrances. Borrower and its Subsidiaries have good and indefeasible
title to their personal property assets and good and marketable title to their
Real Property (subject to exceptions that do not, in the aggregate, materially
impair the use, value or marketability or any such Real Property), in each case,
free and clear of Liens except for Permitted Liens.

5.2 Eligible Accounts. The Eligible Accounts are bona fide existing payment
obligations of Account Debtors created by the sale and delivery of Inventory or
the rendition of services to such Account Debtors in the ordinary course of
Borrower’s business, owed to Borrower without any known defenses, disputes,
offsets, counterclaims, or rights of return or cancellation. As to each Account
that is identified by Borrower as an Eligible Account in a borrowing base report
submitted to Agent, such Account is not excluded as ineligible by virtue of one
or more of the excluding criteria set forth in the definition of Eligible
Accounts.

5.3 Eligible Inventory. All Eligible Inventory is of good and merchantable
quality, free from known defects. As to each item of Inventory that is
identified by Borrower as Eligible Inventory in a borrowing base report
submitted to Agent, such Inventory is not excluded as ineligible by virtue of
one or more of the excluding criteria set forth in the definition of Eligible
Inventory.

5.4 Equipment. All of the Equipment of Borrower and its Subsidiaries is used or
held for use in their business and is fit for such purposes.

5.5 Location of Inventory and Equipment. The Inventory and Equipment of Borrower
and its Subsidiaries are located only at, or in-transit between, the locations
identified on Schedule 5.5 (as such Schedule may be updated pursuant to
Section 6.9).

 

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Schedule 5.5 separately identifies each Leased Store Location and each Non-Owned
Storage Facility, and sets forth the owners and operators thereof. Except as
permitted in Sections 6.9 and 7.17, the Inventory and Equipment of Borrower and
its Subsidiaries are not stored with a bailee, warehouseman, or similar party,
unless such party has entered into a Collateral Access Agreement with Borrower
and Lender.

5.6 Inventory Records. Borrower keeps correct and accurate records itemizing and
describing the type, quality, and quantity of its and its Subsidiaries’
Inventory and the book value thereof.

5.7 State of Incorporation; Location of Chief Executive Office; FEIN;
Organizational ID Number; Commercial Tort Claims.

(a) As of the Restatement Date, the jurisdiction of organization of Borrower and
each of its Subsidiaries is set forth on Schedule 5.7(a).

(b) The chief executive office of Borrower and each of its Subsidiaries is
located at the address indicated on Schedule 5.7(b) (as such Schedule may be
updated pursuant to Section 6.9).

(c) Borrower’s and each of its Subsidiaries’ FEIN and organizational
identification number, if any, are identified on Schedule 5.7(c).

(d) As of the Restatement Date, Borrower and its Subsidiaries do not hold any
commercial tort claims involving a claim for more than $500,000, except as set
forth on Schedule 5.7(d).

5.8 Due Organization and Qualification; Subsidiaries.

(a) Borrower is duly organized and existing and in good standing under the laws
of the jurisdiction of its organization and qualified to do business in any
state where the failure to be so qualified reasonably could be expected to have
a Material Adverse Change.

(b) Set forth on Schedule 5.8(b), is a complete and accurate description of the
authorized capital Stock of Borrower, by class, and, as of the Restatement Date,
a description of the number of shares of each such class that are issued and
outstanding. Other than as described on Schedule 5.8(b), there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower’s
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Borrower is not subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock except as permitted in Section 7.10.

(c) Set forth on Schedule 5.8(c), is a complete and accurate list of Borrower’s
direct and indirect Subsidiaries, showing: (i) the jurisdiction of their
organization, (ii) the number of shares of each class of common and preferred
Stock authorized for each of such Subsidiaries, and (iii) the number and the
percentage of the

 

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outstanding shares of each such class owned directly or indirectly by Borrower.
All of the outstanding capital Stock of each such Subsidiary has been validly
issued and is fully paid and non-assessable.

(d) Except as set forth on Schedule 5.8(c), there are no subscriptions, options,
warrants, or calls relating to any shares of Borrower’s Subsidiaries’ capital
Stock, including any right of conversion or exchange under any outstanding
security or other instrument. Neither Borrower nor any of its Subsidiaries is
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of Borrower’s Subsidiaries’ capital Stock or any
security convertible into or exchangeable for any such capital Stock.

5.9 Due Authorization; No Conflict.

(a) The execution, delivery, and performance by Borrower of this Agreement and
the Loan Documents to which it is a party have been duly authorized by all
necessary action on the part of Borrower.

(b) The execution, delivery, and performance by Borrower of this Agreement and
the other Loan Documents to which it is a party do not and will not (i) violate
any provision of federal, state, or local law or regulation applicable to
Borrower, the Governing Documents of Borrower, or any order, judgment, or decree
of any court or other Governmental Authority binding on Borrower, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of Borrower,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower, other than Permitted
Liens, or (iv) require any approval of Borrower’s interestholders or any
approval or consent of any Person under any material contractual obligation of
Borrower, other than (x) consents or approvals that have been obtained and that
are still in force and effect, or (y) consents or approvals from suppliers,
customers or other contractual counterparties of Borrower or its Subsidiaries
required for any foreclosure or other exercise of remedies.

(c) Other than the filing of financing statements, the execution, delivery, and
performance by Borrower of this Agreement and the other Loan Documents to which
Borrower is a party do not and will not require any registration with, consent,
or approval of, or notice to, or other action with or by, any Governmental
Authority, other than (x) consents or approvals that have been obtained and that
are still in force and effect and (y) consents or approvals from any
Governmental Authority required by Lender for any foreclosure or other exercise
of remedies.

(d) This Agreement and the other Loan Documents to which Borrower is a party,
and all other documents contemplated hereby and thereby, when executed and
delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to
or limiting creditors’ rights generally.

 

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(e) The Agent’s Liens are validly created, perfected (except for Deposit
Accounts and Securities Accounts for which no Cash Management Agreement nor
Control Agreement is required under this Agreement), and first priority Liens,
subject only to Permitted Liens.

5.10 Litigation. Other than those matters disclosed on Schedule 5.10, there are
no actions, suits, or proceedings pending or, to the best knowledge of Borrower,
threatened against Borrower, or any of its Subsidiaries, as applicable, except
for (a) matters that are fully covered by insurance (subject to customary
deductibles), and (b) matters that, to the extent having a reasonable risk of
being decided adversely to Borrower or any of its Subsidiaries, as applicable,
if so decided adversely, reasonably could not be expected to result in a
Material Adverse Change.

5.11 No Material Adverse Change. All financial statements relating to Borrower
and its Subsidiaries that have been delivered by Borrower to the Lender Group
have been prepared in accordance with GAAP (except, in the case of unaudited
financial statements, for the lack of footnotes and being subject to year-end
audit adjustments) and present fairly in all material respects, Borrower’s and
its Subsidiaries’ financial condition as of the date thereof and results of
operations for the period then ended. There has not been a Material Adverse
Change with respect to Borrower and its Subsidiaries since the date of the
latest audited financial statements submitted to the Lender Group on or before
the Restatement Date.

5.12 Fraudulent Transfer.

(a) Borrower is Solvent.

(b) No transfer of property is being made by Borrower or its Subsidiaries and no
obligation is being incurred by Borrower or its Subsidiaries in connection with
the transactions contemplated by this Agreement or the other Loan Documents with
the intent to hinder, delay, or defraud either present or future creditors of
Borrower or its Subsidiaries.

5.13 Employee Benefits. None of Borrower, any of its Subsidiaries, or any of
their ERISA Affiliates maintains or contributes to any Benefit Plan.

5.14 Environmental Condition. Except as set forth on Schedule 5.14 or except for
matters that could not reasonably be expected to result in a Material Adverse
Change, (a) to Borrower’s knowledge, none of Borrower’s or its Subsidiaries’
assets has ever been used by Borrower, its Subsidiaries, or by previous owners
or operators in the disposal of, or to produce, store, handle, treat, release,
or transport, any Hazardous Materials, where such production, storage, handling,
treatment, release or transport was in violation of applicable Environmental
Law, (b) to Borrower’s knowledge, none of Borrower’s or its Subsidiaries’
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a Hazardous Materials
disposal site, (c) neither Borrower nor any of its Subsidiaries has received
notice that a Lien arising under any Environmental Law has attached to any
revenues or to any Real Property owned or operated by Borrower or its
Subsidiaries, and (d) neither Borrower nor its Subsidiaries has received a
summons,

 

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citation, notice, or directive from the U.S. Environmental Protection Agency or
any other federal or state governmental agency concerning any action or omission
by Borrower or its Subsidiaries resulting in the releasing or disposing of
Hazardous Materials into the environment.

5.15 Brokerage Fees. Neither Borrower nor any of its Subsidiaries has utilized
the services of any broker or finder in connection with Borrower’s obtaining
financing from the Lender Group under this Agreement and no brokerage commission
or finders fee is payable by Borrower or its Subsidiaries in connection
herewith.

5.16 Intellectual Property. Borrower and its Subsidiaries own, or hold licenses
in, all trademarks, trade names, copyrights, patents, patent rights, and
licenses that are necessary to the conduct of its business as currently
conducted. Attached hereto as Schedule 5.16 (as updated from time to time) is a
true, correct, and complete listing of all material patents, patent
applications, trademarks, trademark applications, copyrights, and copyright
registrations as to which Borrower or one of its Subsidiaries is the owner or is
an exclusive licensee.

5.17 Leases. Borrower and its Subsidiaries enjoy peaceful and undisturbed
possession under all leases material to their business and to which they are
parties or under which they are operating. All of such leases are valid and
subsisting and no material default by Borrower or its Subsidiaries exists under
any of them.

5.18 Deposit Accounts and Securities Accounts. Set forth on Schedule 5.18
(including by reference to Section 2.7(a)) are all of Borrower’s and its
Subsidiaries Deposit Accounts and Securities Accounts as of the Restatement
Date, including, with respect to each bank or securities intermediary (i) the
name and address of such Person, and (ii) the account numbers of the Deposit
Accounts or Securities Accounts maintained with such Person. Schedule 2.7(a)
separately identifies each Store Account, setting forth, for such Store Account,
the applicable store(s) relating thereto.

5.19 Complete Disclosure. All factual information (taken as a whole) furnished
by or on behalf of Borrower or its Subsidiaries in writing to Agent or any
Lender (including all information contained in the Schedules hereto or in the
other Loan Documents) for purposes of or in connection with this Agreement, the
other Loan Documents, or any transaction contemplated herein or therein is, and
all other such factual information (taken as a whole) hereafter furnished by or
on behalf of Borrower or its Subsidiaries in writing to Agent or any Lender will
be, true and accurate, in all material respects, on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided. On the Restatement Date, with respect to the Initial
Business Plan, and as of the date on which any other Projections are prepared
for delivery to Agent, with respect to such additional Projections, the Borrower
represents and warrants that such Projections were prepared in good faith based
on assumptions believed to be reasonable at the time of the preparation thereof,
it being understood that (without limiting Borrower’s obligations hereunder
relating

 

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to or based on such projections) such projections are subject to significant
uncertainties and contingencies, many of which are beyond the Borrower’s
control, such that no warranty can be given that the projections will be
realized.

5.20 Indebtedness. Set forth on Schedule 5.20 is a true and complete list of all
Indebtedness of Borrower and its Subsidiaries outstanding immediately prior to
the Restatement Date that is to remain outstanding after the Restatement Date
and such Schedule accurately reflects the aggregate principal amount of such
Indebtedness and the principal terms thereof.

5.21 Credit Card Receipts. Schedule 5.21 sets forth Borrower’s Credit Card
Processors and all material arrangements to which Borrower is a party with
respect to the payment to Borrower of the proceeds of credit card charges for
sales by Borrower as of the Restatement Date.

5.22 Margin Stock. Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying margin stock (as defined in Regulation
U of the Board of Governors of the Federal Reserve System), and no proceeds of
any Advance or drawings under any Letter of Credit will be used to purchase or
carry any margin stock or to extend credit to others for the purpose of
purchasing or carrying any margin stock.

 

6. AFFIRMATIVE COVENANTS.

Borrower covenants and agrees that, until termination of all of the Commitments
and payment in full of the Obligations, Borrower shall and shall cause each of
its Subsidiaries to do all of the following:

6.1 Accounting System. Maintain a system of accounting that enables Borrower to
produce financial statements in accordance with GAAP and maintain records
pertaining to the Collateral that contain information as from time to time
reasonably may be requested by Agent. Borrower also shall keep an inventory
reporting system that shows all additions, sales, claims, returns, and
allowances with respect to its and its Subsidiaries’ Inventory.

6.2 Collateral Reporting. Provide Agent (and if so requested by Agent, with
copies for each Lender) with the documents set forth on Schedule 6.2 in
accordance with the delivery schedule set forth thereon.

6.3 Financial Statements, Reports, Certificates. Deliver to Agent, with copies
to each Lender:

(a) as soon as available, but in any event within 30 days (60 days in the case
of a month that is the end of one of Borrower’s fiscal quarters) after the end
of each month during each of Borrower’s fiscal years,

(i) a company prepared consolidated balance sheet, income statement, and
statement of cash flow covering Borrower’s and its Subsidiaries’ operations
during such period,

 

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(ii) a Compliance Certificate signed by the chief financial officer or VP of
Finance of Borrower to the effect that:

(A) the financial statements delivered hereunder have been prepared in
accordance with GAAP (except for the lack of footnotes and being subject to
year-end audit adjustments) and fairly present in all material respects the
financial condition of Borrower and its Subsidiaries,

(B) the representations and warranties of Borrower contained in this Agreement
and the other Loan Documents are true and correct in all material respects on
and as of the date of such certificate, as though made on and as of such date
(except to the extent that such representations and warranties relate solely to
an earlier date), and

(C) there does not exist any condition or event that constitutes a Default or
Event of Default (or, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto), and

(iii) for each month that is the date on which a financial covenant in
Section 7.18 is to be tested, a Compliance Certificate demonstrating, in
reasonable detail, compliance at the end of such period with the applicable
financial covenants contained in Section 7.18,

(b) as soon as available, but in any event within 120 days after the end of each
of Borrower’s fiscal years, financial statements of Borrower and its
Subsidiaries for each such fiscal year, audited by independent certified public
accountants reasonably acceptable to Agent and certified, with only such
qualifications as may be satisfactory to Agent in its sole discretion, by such
accountants to have been prepared in accordance with GAAP (such audited
financial statements to include a balance sheet, income statement, and statement
of cash flow and, if prepared, such accountants’ letter to management),

(c) as soon as available, but in any event within 45 days after the start of the
Borrower’s 2008 fiscal year, and 30 days after the start of each of Borrower’s
fiscal years thereafter, copies of Borrower’s Projections, in form and substance
(including as to scope and underlying assumptions) satisfactory to Agent, in its
sole discretion, for the forthcoming fiscal year, month by month, certified by
the chief financial officer or VP of Finance of Borrower as being prepared in
good faith based on assumptions believed to be reasonable at the time of
preparation thereof,

(d) if and when filed by Borrower (or promptly thereafter),

(i) Form 10-Q quarterly reports, Form 10-K annual reports, and Form 8-K current
reports, and any other filings made by Borrower with the SEC, it being
understood that, as to any such filings, Borrower may deliver the

 

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same by electronic mail (to such email address(es) as may be provided for such
purpose from time to time by Agent), including any such electronic mail
specifying the applicable filing, and

(ii) any other information that is provided by Borrower to its shareholders
generally,

(e) upon request by Agent, satisfactory evidence of payment, and extent of
nonpayment (if applicable), by Borrower and its Subsidiaries of applicable
excise taxes in each jurisdiction in which (i) Borrower or its Subsidiaries
conducts business or is required to pay any such excise tax, (ii) where
Borrower’s or its Subsidiaries’ failure to pay any such applicable excise tax
would result in a Lien on the properties or assets of Borrower or its
Subsidiaries, or (iii) where Borrower’s or its Subsidiaries’ failure to pay any
such applicable excise tax reasonably could be expected to result in a Material
Adverse Change,

(f) Intentionally Omitted,

(g) promptly after Borrower has knowledge of any event or condition that
constitutes a Default or an Event of Default, notice thereof and a statement of
the curative action that Borrower proposes to take with respect thereto,

(h) promptly after the commencement thereof, but in any event within 5 Business
Days after the service of process with respect thereto on Borrower or any of its
Subsidiaries, notice of all actions, suits, or proceedings brought by or against
Borrower or any of its Subsidiaries before any Governmental Authority which, if
determined adversely to Borrower or such Subsidiary, reasonably could be
expected to result in a Material Adverse Change, and

(i) upon the request of Agent, any other report reasonably requested relating to
the financial condition of Borrower or its Subsidiaries.

In addition to the financial statements referred to above, Borrower agrees
(if and when it has any Subsidiaries) to deliver financial statements prepared
on both a consolidated and consolidating basis and agrees that no Subsidiary of
Borrower will have a fiscal year different from that of Borrower. Borrower
agrees to cooperate with Agent to allow Agent to consult with its independent
certified public accountants if Agent reasonably requests the right to do so
(and Agent shall notify Borrower as to the timing of such consultations and
permit Borrower an opportunity to be present thereat or to otherwise participate
therein) and that, in such connection, its independent certified public
accountants are authorized to communicate with Agent and to release to Agent
whatever financial information concerning Borrower or its Subsidiaries Agent
reasonably may request.

6.4 Guarantor Reports. Cause each Guarantor (if any) to deliver its annual
financial statements at the time when Borrower provides its audited financial
statements to Agent, but only to the extent such Guarantor’s financial
statements are not consolidated with Borrower’s financial statements, and copies
of all federal income tax returns as soon as the same are available and in any
event no later than 30 days after the same are required to be filed by law.

 

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6.5 Returns. Cause returns and allowances, as between Borrower and its
Subsidiaries and their Account Debtors, to be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement.

6.6 Maintenance of Properties. Maintain and preserve all of its properties which
are necessary or useful in the proper conduct to its business in good working
order and condition, ordinary wear and tear excepted, and comply at all times
with the provisions of all leases to which it is a party as lessee so as to
prevent any loss or forfeiture thereof or thereunder, except (subject to
Section 6.11 with respect to leases) for any non-compliance therewith and/or any
loss or forfeiture thereunder that could not, individually or in the aggregate,
reasonably be expected to result in a Lien (other than Permitted Liens) on all
or any portion of the Borrower Collateral or otherwise result in a Material
Adverse Change.

6.7 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower,
its Subsidiaries, or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period, except (a) to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest, (b) as to any sales taxes (but not use taxes) or state or
federal income taxes, to the extent the aggregate unpaid past due (taking into
account any applicable extension) amount of all such taxes at all times is less
than $1,000,000, and (c) as to any assessments or taxes (other than with respect
to sales taxes or state or federal income taxes), to the extent that such
failure to pay such assessments or taxes, could not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Change.
Subject to the foregoing, Borrower will and will cause its Subsidiaries to make
timely payment or deposit of all tax payments and withholding taxes required of
it and them by applicable laws, including those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Agent with proof reasonably satisfactory to Agent
indicating that Borrower and its Subsidiaries have made such payments or
deposits.

6.8 Insurance.

(a) At Borrower’s expense, maintain insurance respecting its and its
Subsidiaries’ assets wherever located, covering loss or damage by fire, theft,
explosion, and all other hazards and risks as ordinarily are insured against by
other Persons engaged in the same or similar businesses. Borrower also shall
maintain business interruption, public liability, and product liability
insurance, as well as insurance against larceny, embezzlement, and criminal
misappropriation. All such policies of insurance shall be in such amounts and
with such insurance companies as are reasonably satisfactory to Agent. Subject
to Section 3.2 as to timing, Borrower shall deliver copies of all such policies
to Agent with a satisfactory lender’s loss payable endorsement (subject to
Section 6.8(d) with respect to Deferred Compensation Life Insurance) naming
Agent as sole loss payee (or, to the extent

 

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required by the applicable insurer, naming Borrower as loss payee provided, that
in each such case Borrower shall at all times maintain instructions in effect
with such insurer (which instructions Borrower shall not change without Agent’s
prior written consent) directing payment of all amounts to Borrower as such loss
payee, directly to the Concentration Account) or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Agent in the event of cancellation of the policy for any reason whatsoever.

(b) Borrower shall give Agent prompt notice of any loss in excess of $100,000
covered by such insurance. Agent shall have the exclusive right to adjust any
losses claimed under any such insurance policies (subject to Section 6.8(d) with
respect to Deferred Compensation Life Insurance) in excess of $1,000,000 (or in
any amount after the occurrence and during the continuation of an Event of
Default), without any liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss under any insurance
policy mentioned above (other than liability insurance policies, and subject to
Section 6.8(d) with respect to Deferred Compensation Life Insurance) or as
payment of any award or compensation for condemnation or taking by eminent
domain, shall be made or forwarded, as applicable, to the Concentration Account
(and Agent shall permit the applicable insurer to make such payment directly to
the Concentration Account); provided, however that, any such payments relating
to (or based on any loss with respect to) Inventory and any such payments made
or received during a Triggering Period shall, in each case at the option of the
Required Lenders, (i) be paid by the applicable insurer directly to Agent
(pursuant to such instructions as Agent may deliver), and/or (ii) upon any such
payment to the Concentration Account or directly to Agent, be applied directly
to the prepayment of the Obligations.

(c) Borrower will not and will not suffer or permit its Subsidiaries to take out
separate insurance concurrent in form or contributing in the event of loss with
that required to be maintained under this Section 6.8, unless subject to the
standard set forth in Section 6.8(a) Agent is included thereon as named insured
with the loss payable to Agent under a lender’s loss payable endorsement or its
equivalent or, as applicable with payments made to the Concentration Account.
Borrower promptly shall notify Agent whenever such separate insurance is taken
out, specifying the insurer thereunder and full particulars as to the policies
evidencing the same, and copies of such policies promptly shall be provided to
Agent.

(d) Notwithstanding the foregoing, solely with respect to Deferred Compensation
Life Insurance, Borrower shall not be required to name Agent as sole loss payee
or additional insured (or to deliver an endorsement) and shall have the right to
adjust claims and receive and distribute proceeds with respect thereto;
provided, however, that in no event shall Borrower (i) make aggregate payments
with respect to obtaining and maintaining all such Deferred Compensation Life
Insurance in excess of $5,000,000 in any fiscal year, or (ii) cause or permit
any such Deferred Compensation Life Insurance to be subject to any Lien.

 

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6.9 Location of Inventory and Equipment. Keep Borrower’s and its Subsidiaries’
Inventory and Equipment only at the locations identified on Schedule 5.5 and
their chief executive offices only at the locations identified on Schedule
5.7(b); provided, however, that Borrower may amend Schedule 5.5 and Schedule 5.7
so long as such amendment occurs by written notice to Agent not less than 30
days prior to the date on which such Inventory or Equipment is moved to such new
location or such chief executive office is relocated, and (a) with respect to
any new chief executive office, such new location is within the United States
and at the time of such written notification, Borrower provides Agent a
Collateral Access Agreement with respect thereto, and (b) except as expressly
permitted in Section 7.17 with respect to locations outside the United States,
(i) with respect to any new Non-Owned Storage Facility, Borrower uses
commercially reasonable best efforts to obtain and deliver to Agent a Collateral
Access Agreement with respect thereto, and (ii) with respect to any other such
new location, Borrower uses commercially reasonable efforts to obtain and
deliver to Agent a Collateral Access Agreement with respect thereto.

6.10 Compliance with Laws. Comply with the requirements of all applicable laws,
rules, regulations, and orders of any Governmental Authority, including the Fair
Labor Standards Act and the Americans With Disabilities Act, except where
failure to so comply individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Change.

6.11 Leases. Pay when due all rents and other amounts payable under any leases
to which Borrower or any of its Subsidiaries is a party or by which Borrower’s
or any such Subsidiaries’ properties and assets are bound, except (a) to the
extent such payments are the subject of a Permitted Protest or (b) lease
payments in an aggregate amount at all times less than (i) $8,000,000 with
respect to Leased Store Locations, and (ii) $1,000,000 with respect to all other
leased locations (including all Non-Owned Storage Facilities).

6.12 Existence. At all times preserve and keep in full force and effect
Borrower’s and its Subsidiaries valid existence and good standing and any rights
and franchises material to their businesses.

6.13 Environmental. Except for such Environmental Liens, failures to comply,
releases, Environmental Actions, notices, citations or orders which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change, (a) keep any property either owned or operated by
Borrower or its Subsidiaries free of any Environmental Liens or post bonds or
other financial assurances sufficient to satisfy the obligations or liability
evidenced by such Environmental Liens, (b) comply with all applicable
Environmental Laws and provide to Agent documentation of such compliance which
Agent reasonably requests, (c) promptly notify Agent of any release of a
Hazardous Material in any reportable quantity from or onto property owned or
operated by Borrower or its Subsidiaries and take any Remedial Actions required
to abate said release or otherwise to come into compliance with applicable
Environmental Law, and (d) promptly, but in any event within 10 days of its
receipt thereof, provide Agent with written notice of any of the following:
(i) notice that an Environmental Lien has been filed against any of the real or
personal property of Borrower or its Subsidiaries, (ii) commencement of any
Environmental

 

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Action, or notice that an Environmental Action will be filed, against Borrower
or its Subsidiaries, and (iii) notice of any environmental violation, citation,
or other administrative order received by Borrower or its Subsidiaries.

6.14 Disclosure Updates. Promptly and in no event later than 5 Business Days
after obtaining knowledge thereof, notify Agent if any written information,
exhibit, or report furnished to the Lender Group contained any untrue statement
of a material fact or, when taken together with all written information,
exhibits and reports so furnished, omitted to state any material fact necessary
to make the statements contained therein not misleading in light of the
circumstances in which made. The foregoing to the contrary notwithstanding, any
notification pursuant to the foregoing provision will not cure or remedy the
effect of the prior untrue statement of a material fact or omission of any
material fact nor shall any such notification have the affect of amending or
modifying this Agreement or any of the Schedules hereto. The Borrower will
notify Agent of any change in Credit Card Processor, which Credit Card Processor
will be reasonably acceptable to Agent.

6.15 Formation of Subsidiaries. At the time that Borrower or any Guarantor forms
any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary
after the Restatement Date, Borrower or such Guarantor shall (a) cause such new
Subsidiary to provide to Agent a Guaranty (or joinder to an existing Guaranty)
and a Guarantor Security Agreement (or joinder to an existing Guarantor Security
Agreement), together with such other security documents, as well as appropriate
UCC-1 financing statements, all in form and substance satisfactory to Agent
(including being sufficient to grant Agent a first priority Lien (subject to
Permitted Liens) in and to the assets of such newly formed or acquired
Subsidiary (other than any such assets that would not be required to be subject
to Agent’s Liens if they were assets of the Borrower), (b) provide to Agent a
pledge agreement and appropriate certificates and powers or UCC-1 financing
statements, hypothecating all of the direct or beneficial ownership interest in
such new Subsidiary, in form and substance satisfactory to Agent, and
(c) provide to Agent all other documentation, including one or more opinions of
counsel satisfactory to Agent, which in its opinion is appropriate with respect
to the execution and delivery of the applicable documentation referred to above.
Any document, agreement, or instrument executed or issued pursuant to this
Section 6.15 shall be a Loan Document. Notwithstanding the foregoing, the Hong
Kong Subsidiary shall not be required to execute a joinder to the Guaranty or
Guarantor Security Agreement or take the other actions required by this
Section 6.15.

 

7. NEGATIVE COVENANTS.

Borrower covenants and agrees that, until termination of all of the Commitments
and payment in full of the Obligations, Borrower will not and will not permit
any of its Subsidiaries to do any of the following:

7.1 Indebtedness. Create, incur, assume, suffer to exist, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:

(a) Indebtedness evidenced by this Agreement and the other Loan Documents,
together with Indebtedness owed to Underlying Issuers with respect to Underlying
Letters of Credit and any other Obligations that constitute Indebtedness,

 

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(b) Indebtedness set forth on Schedule 5.20,

(c) Permitted Purchase Money Indebtedness, and any refinancings, renewals or
extensions thereof (and continuance or renewals of the Permitted Liens
associated therewith) that do not result in an increase in the then extant
principal amount of the Indebtedness so refinanced, renewed or extended.

(d) unsecured Indebtedness not otherwise permitted under this Section 7.1, in an
aggregate amount not to exceed $20,000,000 at any time,

(e) Indebtedness secured exclusively by Permitted Liens described in clause
(m) of the definition of Permitted Liens, in an aggregate amount not to exceed
$5,000,000 at any time,

(f) endorsement of instruments or other payment items for deposit,

(g) Indebtedness composing Permitted Investments,

(h) Indebtedness in connection with Hedge Agreements entered into in the
ordinary course of business and not for speculative purposes; and

(i) Indebtedness owing to any insurance company providing insurance to the
Borrower and its Subsidiaries in an aggregate amount not to exceed the premiums
owed to such insurance company by Borrower and such Subsidiaries.

7.2 Liens. Create, incur, assume, or suffer to exist, directly or indirectly,
any Lien on or with respect to any of its assets, of any kind, whether now owned
or hereafter acquired, or any income or profits therefrom, except for Permitted
Liens (including Liens that are replacements of Permitted Liens to the extent
that the original Indebtedness is refinanced, renewed, or extended under
Section 7.1(c) and so long as the replacement Liens only encumber those assets
that secured the refinanced, renewed, or extended Indebtedness).

7.3 Restrictions on Fundamental Changes.

(a) Enter into any merger (other than in connection with a Permitted Investment
where Borrower is the surviving entity), consolidation, reorganization,
or recapitalization.

(b) Liquidate, wind up, or dissolve itself (or suffer any liquidation or
dissolution).

(c) Convey, sell, lease, license, assign, transfer, or otherwise dispose of, in
one transaction or a series of transactions, all or any substantial part of its
assets.

 

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7.4 Disposal of Assets. Other than Permitted Dispositions, convey, sell, lease,
license, assign, transfer, or otherwise dispose of any of Borrower’s or its
Subsidiaries assets.

7.5 Change Name. Change Borrower’s or any of its Subsidiaries’ names, FEINs,
organizational identification number, state of organization or organizational
identity; provided, however, that Borrower or any of its Subsidiaries may change
their names upon at least 30 days prior written notice to Agent of such change
and so long as, at the time of such written notification, Borrower or its
Subsidiary provides any financing statements necessary to perfect and continue
perfected the Agent’s Liens.

7.6 Nature of Business. Make any material change in the principal nature of its
or their business.

7.7 [Intentionally Omitted].

7.8 Change of Control. Cause, permit, or suffer, directly or indirectly, any
Change of Control.

7.9 Consignments. Consign any of its or their Inventory or sell any of its or
their Inventory on bill and hold, sale or return, sale on approval, or other
conditional terms of sale.

7.10 Distributions. Make any distribution or declare or pay any dividends (in
cash or other property, other than common Stock) on, or purchase, acquire,
redeem, or retire any of Borrower’s Stock, of any class, whether now or
hereafter outstanding, except:

(a) the purchase or redemption of Borrower’s stock in connection with and
pursuant to the terms of employee benefit and stock option plans.

(b) additional purchases or redemptions of Borrower’s stock approved by
Borrower’s board of directors so long as (i) no Default or Event of Default has
occurred and is continuing or would result therefrom; and (ii) both immediately
before and for a six month period following such repurchase or redemption on a
pro forma projected basis after giving effect to such repurchase or redemption,
Availability would be greater than or equal to $40,000,000 as evidenced by the
delivery by the Borrower of a certificate to Agent two (2) days prior to such
repurchase or redemption certifying to and demonstrating such projected
Availability (or, in the case of projected pro forma Availability, certifying
that such projections were prepared on the basis of assumptions believed by the
Borrower to be reasonable at the time of delivery).

7.11 Accounting Methods. Modify or change its fiscal year or its method of
accounting (other than as may be required to conform to GAAP).

7.12 Investments. Except for Permitted Investments, directly or indirectly, make
or acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that,
Borrower shall not and shall not permit its Subsidiaries to, except with respect
to Special Account and Securities Investments and subject to Section 3.2 (as to
initial delivery of Control Agreements), (a) have Permitted

 

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Investments in Deposit Accounts (other than Cash Management Accounts) or
Securities Accounts unless Borrower or its Subsidiary, as applicable, and the
applicable securities intermediary or bank have entered into Control Agreements
governing such Permitted Investments in order to perfect (and further establish)
the Agent’s Liens in such Permitted Investments, or (b) establish or maintain
any Deposit Account (other than a Cash Management Account) or Securities Account
unless Agent shall have received a Control Agreement in respect of such Deposit
Account or Securities Account.

7.13 Transactions with Affiliates. Directly or indirectly enter into or permit
to exist any transaction with any Affiliate of Borrower except for transactions
(a) that are in the ordinary course of Borrower’s business, upon fair and
reasonable terms, and that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-Affiliate, (b) that consist
of officer or director compensation or employee benefit programs, in each case
that are in the ordinary course of Borrower’s business and upon fair and
reasonable terms to Borrower, or (c) that consist of repurchases or redemptions
permitted under Sections 7.10.

7.14 Suspension. Suspend or go out of a substantial portion of its or their
business.

7.15 [Intentionally Omitted].

7.16 Use of Proceeds. Use (a) the proceeds of the Advances for any purpose other
than (i) to pay transactional fees, costs, and expenses incurred in connection
with this Agreement, the other Loan Documents, and the transactions contemplated
hereby and thereby, and (ii) thereafter, consistent with the terms and
conditions hereof, for its lawful and permitted purposes.

7.17 Inventory and Equipment Storage. Store the Inventory or Equipment of
Borrower or its Subsidiaries at any time now or hereafter with a bailee,
warehouseman, or similar party without Agent’s prior written consent, unless
such storage arrangement is subject to a Collateral Access Agreement; provided,
however, that the foregoing shall not apply to (i) Inventory at that certain
Vitesse Warehousing facility (in Rotterdam, The Netherlands) identified in
Schedule 5.5 so long as the aggregate value of the Inventory stored at such
location at all times is less than $2,500,000, (ii) Inventory at other locations
outside the United States, so long as the aggregate value of the Inventory
stored at such other locations at all times is less than $1,000,000,
(iii) Equipment at locations outside the United States, so long as the aggregate
value of all such Equipment stored at such locations at all times is less than
$5,000,000, and (iv) Inventory at a Non-Owned Storage Facility in the United
States for which a Collateral Access Agreement has not been obtained
notwithstanding Borrower’s compliance with its obligations with respect thereto
under Sections 3.2 and 6.9.

 

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8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an event of default
(each, an “Event of Default”) under this Agreement:

8.1 If Borrower fails to pay when due and payable, or when declared due and
payable, all or any portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the Bankruptcy Code,
would have accrued on such amounts), fees and charges due the Lender Group,
reimbursement of Lender Group Expenses, or other amounts constituting
Obligations) other than Bank Product Obligations; provided, however that in the
case of Overadvances that are caused by the charging of interest, fees, or
Lender Expenses to the Loan Account, such event shall not constitute an Event of
Default if, within 3 Business Days of its receipt of telephonic notice of such
Overadvance, Borrower eliminates such Overadvance;

8.2 If Borrower:

(a) fails to perform, keep, or observe any term, provision, condition, covenant,
or agreement contained in Sections 3.2, 4.6, 6.8(a), 6.11, 6.12, and 7.1 through
7.17 of this Agreement;

(b) fails or neglects to perform, keep, or otherwise observe any term,
provision, condition, covenant, or agreement contained in Sections 2.7(b),
2.7(c), 2.7(d), 2.7(e) or 4.7(a) of this Agreement and such failure continues
for a period of 2 Business Days; or

(c) fails or neglects to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in Sections 6.2, 6.7, 6.8(b),
6.8(c), 6.9, 6.10, 6.14, and 6.15 of this Agreement and such failure continues
for a period of 5 Business Days; or

(d) fails or neglects to perform, keep, or observe any other term, provision,
condition, covenant, or agreement contained in this Agreement, or in any of the
other Loan Documents (giving effect to any grace periods, cure periods, or
required notices, if any, expressly provided for in such Loan Documents), in
each case, other than any such term, provision, covenant, or agreement that is
the subject of another provision of this Section 8 (in which event such other
provision of this Section 8 shall govern), and such failure continues for a
period of 10 Business Days;

provided that, during any period of time that any such failure or neglect
referred to in this paragraph exists, even if such failure or neglect is not yet
an Event of Default, the Lender Group shall be relieved of its obligation to
extend credit hereunder;

8.3 If any material portion of Borrower’s or any of its Subsidiaries’ assets is
attached, seized, subjected to a writ or distress warrant, levied upon, or comes
into the possession of any third Person and the same is not discharged before
the earlier of 30 days after the date it first arises or 5 days prior to the
date on which such property or asset is subject to forfeiture by Borrower or
such Subsidiary;

 

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8.4 If an Insolvency Proceeding is commenced by Borrower or any of its
Subsidiaries, or Borrower admits in writing its inability to, or is generally
unable to, pay its debts as such debts become due;

8.5 If an Insolvency Proceeding is commenced against Borrower, or any of its
Subsidiaries, and any of the following events occur: (a) Borrower or such
Subsidiary consents to the institution of such Insolvency Proceeding against it,
(b) the petition commencing the Insolvency Proceeding is not timely
controverted; provided, however, that, during the pendency of such period from
the commencement of such Insolvency Proceeding until it is so
controverted/dismissed, each member of the Lender Group shall be relieved of its
obligations to extend credit hereunder, (c) the petition commencing the
Insolvency Proceeding is not dismissed within 45 calendar days of the date of
the filing thereof; provided, however, that, during the pendency of such period
from the commencement of such Insolvency Proceeding until it is so
controverted/dismissed, each member of the Lender Group shall be relieved of its
obligations to extend credit hereunder, (d) an interim trustee is appointed to
take possession of all or any substantial portion of the properties or assets
of, or to operate all or any substantial portion of the business of, Borrower or
any of its Subsidiaries, or (e) an order for relief shall have been entered
therein;

8.6 If Borrower or any of its Subsidiaries is enjoined, restrained, or in any
way prevented by court order from continuing to conduct all or any material part
of its business affairs;

8.7 If one or more judgments or other asserted claims for the payment of money
(including pursuant to any notice of Lien, levy, assessment or other asserted
claim with respect to taxes or debts owing to United States, or any department,
agency, or instrumentality thereof, or by any state, county, municipal, or
governmental agency) involving an aggregate amount of $2,000,000, or more (not
including any amount thereof covered by insurance or, with respect to escheat or
use taxes, any amount to the extent the applicable Lien is excluded pursuant to
the first proviso below to this subsection), becomes a Lien upon any of
Borrower’s or any of its Subsidiaries’ assets and the same is not released,
discharged, bonded against, or stayed pending appeal before the earlier of 30
days after the date it first arises or 5 days prior to the date on which such
asset is subject to being forfeited by Borrower or such Subsidiary; provided,
however, that, with respect to any such Lien for escheat or use taxes, the same
shall not be an Event of Default under this subsection so long as (a) such Lien
does not have priority over Agent’s Liens in the subject assets, (b) Borrower or
such Subsidiary is diligently and in good faith contesting such escheat or use
taxes by applicable proceedings and has established a reserve on the Books in
such amount as is required under GAAP, and (c) such Lien is released,
discharged, bonded against, or stayed pending appeal before 5 days prior to the
date on which such asset is subject to being forfeited by Borrower or such
Subsidiary;

8.8 [Intentionally Omitted.]

 

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8.9 If there is a default in one or more agreements to which Borrower or any of
its Subsidiaries is a party relative to Borrower’s or such Subsidiary’s
Indebtedness involving an aggregate amount of $2,500,000, or more, and such
default (i) occurs at the final maturity of obligations thereunder, or
(ii) results in a right by the other party thereto, irrespective of whether
exercised, to accelerate the maturity of Borrower’s or its Subsidiaries’
obligations thereunder; or

8.10 If Borrower or any of its Subsidiaries makes any payment on account of
Indebtedness that has been contractually subordinated in right of payment to the
payment of the Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such Indebtedness;

8.11 If any material misstatement or misrepresentation exists now or hereafter
in any warranty, representation, statement, or Record made to the Lender Group
by Borrower, its Subsidiaries, or any officer, employee, agent, or director of
Borrower or any of its Subsidiaries;

8.12 If the obligation of any Guarantor under any Guaranty or Guarantor Security
Agreement is limited (other than as expressly contemplated thereby) or
terminated by operation of law or by such Guarantor thereunder; or

8.13 If this Agreement or any other Loan Document that purports to create a
Lien, shall, for any reason, fail or cease to create a valid and, except to the
extent permitted by the terms hereof or thereof, perfected first priority Lien
on or security interest in the Collateral covered hereby or thereby; or

8.14 Any provision of any Loan Document shall at any time for any reason (except
as expressly permitted hereby or thereby) be declared to be null and void, or
the validity or enforceability thereof shall be contested by Borrower or its
Subsidiaries, or a proceeding shall be commenced by Borrower or its
Subsidiaries, or by any Governmental Authority having jurisdiction over Borrower
or its Subsidiaries, seeking to establish the invalidity or unenforceability
thereof, or Borrower or its Subsidiaries shall deny that Borrower or its
Subsidiaries has any liability or obligation purported to be created under any
Loan Document, or

 

9. THE LENDER GROUP’S RIGHTS AND REMEDIES.

9.1 Rights and Remedies. Upon the occurrence, and during the continuation, of an
Event of Default, the Required Lenders (at their election but without notice of
their election and without demand except as set forth below) may authorize and
instruct Agent to do any one or more of the following on behalf of the Lender
Group (and Agent, acting upon the instructions of the Required Lenders, shall do
the same on behalf of the Lender Group), all of which are authorized by
Borrower:

(a) Upon notice to Borrower (except with respect to an Event of Default under
Sections 8.4 or 8.5, in which case no such notice shall be required, or in the
event Agent determines, in its Permitted Discretion, that exigent circumstances
(such as, without

 

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limitation, fraud, concealment, conversion, waste, or abscondment) require
immediate action prior to delivery of such notice in order to preserve, protect,
or obtain possession or control over the Collateral or any portion thereof, in
which case Agent shall deliver such notice as soon as reasonably practicable
under the circumstances), declare all Obligations (other than Bank Product
Obligations), whether evidenced by this Agreement, by any of the other Loan
Documents, or otherwise, immediately due and payable;

(b) Cease advancing money or extending credit to or for the benefit of Borrower
under this Agreement, under any of the Loan Documents (other than Bank Product
Agreements), or under any other agreement between Borrower and the Lender Group;

(c) Upon notice to Borrower (except with respect to an Event of Default under
Sections 8.4 or 8.5, in which case no such notice shall be required), terminate
this Agreement and any of the other Loan Documents (other than Bank Product
Agreements) as to any future liability or obligation of the Lender Group, but
without affecting any of the Agent’s Liens in the Collateral and without
affecting the Obligations;

(d) Settle or adjust disputes and claims directly with Borrower’s Account
Debtors for amounts and upon terms which Agent considers advisable, and in such
cases, Agent will credit Borrower’s Loan Account with only the net amounts
received by Agent in payment of such disputed Accounts after deducting all
Lender Group Expenses incurred or expended in connection therewith;

(e) Cause Borrower to hold all of its returned Inventory in trust for the Lender
Group and segregate all such Inventory from all other assets of Borrower or in
Borrower’s possession;

(f) Without notice to or demand upon Borrower, make such payments and do such
acts as Agent considers necessary or reasonable to protect its security
interests in the Collateral. Borrower agrees to assemble the Collateral if Agent
so requires, and to make the Collateral available to Agent at a place that Agent
may designate which is reasonably convenient to both parties. Borrower
authorizes Agent to enter the premises where the Collateral is located, to take
and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest, or compromise any Lien that in Agent’s determination appears
to conflict with the Agent’s Liens in and to the Collateral and to pay all
expenses incurred in connection therewith and to charge Borrower’s Loan Account
therefor. With respect to any of Borrower’s owned or leased premises, Borrower
hereby grants Agent a license to enter into possession of such premises and to
occupy the same, without charge, in order to exercise any of the Lender Group’s
rights or remedies provided herein, at law, in equity, or otherwise;

(g) Without notice to Borrower (such notice being expressly waived), and without
constituting an acceptance of any collateral in full or partial satisfaction of
an obligation (within the meaning of the Code), set off and apply to the
Obligations, to the full extent permitted by law, any and all (i) balances and
deposits of Borrower held by the Lender Group (including any amounts received in
the Cash Management Accounts), or (ii) Indebtedness at any time owing to or for
the credit or the account of Borrower held by the Lender Group;

 

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(h) Hold, as cash collateral, any and all balances and deposits of Borrower held
by the Lender Group, and any amounts received in the Cash Management Accounts,
to secure the full and final repayment of all of the Obligations;

(i) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell (in the manner provided for herein) the Borrower
Collateral. Borrower hereby grants to Agent a license or other right to use,
without charge, Borrower’s labels, patents, copyrights, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Borrower Collateral, in completing
production of, advertising for sale, and selling any Borrower Collateral and
Borrower’s rights under all licenses and all franchise agreements shall inure to
the Lender Group’s benefit;

(j) Sell the Borrower Collateral at either a public or private sale, or both, by
way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower’s premises) as Agent determines is
commercially reasonable. It is not necessary that the Borrower Collateral be
present at any such sale;

(k) Agent shall give notice of the disposition of the Borrower Collateral as
follows:

(i) Agent shall give Borrower a notice in writing of the time and place of
public sale, or, if the sale is a private sale or some other disposition other
than a public sale is to be made of the Borrower Collateral, the time on or
after which the private sale or other disposition is to be made; and

(ii) The notice shall be personally delivered or mailed, postage prepaid, to
Borrower as provided in Section 12, at least 10 days before the earliest time of
disposition set forth in the notice; no notice needs to be given prior to the
disposition of any portion of the Borrower Collateral that is perishable or
threatens to decline speedily in value or that is of a type customarily sold on
a recognized market;

(l) Agent, on behalf of the Lender Group, may credit bid and purchase at any
public sale;

(m) Agent may seek the appointment of a receiver or keeper to take possession of
all or any portion of the Borrower Collateral or to operate same and, to the
maximum extent permitted by law, may seek the appointment of such a receiver
without the requirement of prior notice or a hearing; and

(n) The Lender Group shall have all other rights and remedies available at law
or in equity or pursuant to any other Loan Document;

 

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provided, however, that upon the occurrence of any Event of Default described in
Section 8.4 or Section 8.5, in addition to the remedies set forth above, without
any notice to Borrower or any other Person or any act by the Lender Group, the
Commitments shall automatically terminate and the Obligations (other than Bank
Product Obligations) then outstanding, together with all accrued and unpaid
interest thereon and all fees and all other amounts due under this Agreement and
the other Loan Documents, shall automatically and immediately become due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are expressly waived by Borrower.

9.2 Remedies Cumulative. The rights and remedies of the Lender Group under this
Agreement, the other Loan Documents, and all other agreements shall be
cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.

 

10. TAXES AND EXPENSES.

If Borrower fails to pay when due any monies (whether taxes, assessments,
insurance premiums, or, in the case of leased properties or assets, rents or
other amounts payable under such leases) due to third Persons, or fails to make
any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, Agent, in its sole discretion
and without prior notice to Borrower, may do any or all of the following:
(a) make payment of the same or any part thereof (except to the extent the same
is subject to a Permitted Protest expressly permitted pursuant to this
Agreement), (b) set up such reserves in Borrower’s Loan Account as Agent deems
necessary to protect the Lender Group from the exposure created by such failure,
or (c) in the case of the failure to comply with Section 6.8 hereof, obtain and
maintain insurance policies of the type described in Section 6.8 and take any
action with respect to such policies as Agent deems prudent. Any such amounts
paid by Agent shall constitute Lender Group Expenses and any such payments shall
not constitute an agreement by the Lender Group to make similar payments in the
future or a waiver by the Lender Group of any Event of Default under this
Agreement. Agent need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.

 

11. WAIVERS; INDEMNIFICATION.

11.1 Demand; Protest; etc. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of documents,
instruments, chattel paper, and guarantees at any time held by the Lender Group
on which Borrower may in any way be liable.

 

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11.2 The Lender Group’s Liability for Borrower Collateral. Borrower hereby
agrees that: (a) so long as Agent complies with its obligations, if any, under
the Code, the Lender Group shall not in any way or manner be liable or
responsible for: (i) the safekeeping of the Borrower Collateral, (ii) any loss
or damage thereto occurring or arising in any manner or fashion from any cause,
(iii) any diminution in the value thereof, or (iv) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other Person, except, in
each case, to the extent such liability arises from the Agent’s gross negligence
or willful misconduct, and (b) except as otherwise provided in (a), all risk of
loss, damage, or destruction of the Borrower Collateral shall be borne by
Borrower.

11.3 Indemnification. Borrower shall pay, indemnify, defend, and hold the
Agent-Related Persons, the Lender-Related Persons, and each Participant (each,
an “Indemnified Person”) harmless (to the fullest extent permitted by law) from
and against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all reasonable attorneys fees and disbursements
and other costs and expenses actually incurred in connection therewith (as and
when they are incurred and irrespective of whether suit is brought), at any time
asserted against, imposed upon, or incurred by any of them (a) in connection
with or as a result of or related to the execution, delivery, enforcement,
performance, or administration (including any restructuring or workout with
respect hereto) of this Agreement, any of the other Loan Documents, or the
transactions contemplated hereby or thereby or the monitoring of Borrower’s and
its Subsidiaries’ compliance with the terms of the Loan Documents, and (b) with
respect to any investigation, litigation, or proceeding related to this
Agreement, any other Loan Document, or the use of the proceeds of the credit
provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event, or circumstance in any manner related
thereto (all the foregoing, collectively, the “Indemnified Liabilities”). The
foregoing to the contrary notwithstanding, Borrower shall have no obligation to
any Indemnified Person under this Section 11.3 with respect to any Indemnified
Liability that a court of competent jurisdiction finally determines to have
resulted from the gross negligence or willful misconduct of such Indemnified
Person. This provision shall survive the termination of this Agreement and the
repayment of the Obligations. If any Indemnified Person makes any payment to any
other Indemnified Person with respect to an Indemnified Liability as to which
Borrower was required to indemnify the Indemnified Person receiving such
payment, the Indemnified Person making such payment is entitled to be
indemnified and reimbursed by Borrower with respect thereto. WITHOUT LIMITATION,
THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO
INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF
ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

 

12. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by Borrower
or Agent to the other relating to this Agreement or any other Loan Document
shall be in writing and (except for financial statements and other informational
documents which may be sent by first-class mail, postage prepaid) shall be
personally delivered or sent by

 

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registered or certified mail (postage prepaid, return receipt requested),
overnight courier, electronic mail (at such email addresses as Borrower or
Agent, as applicable, may designate to each other in accordance herewith), or
telefacsimile to Borrower or Agent, as the case may be, at its address set forth
below:

 

If to Borrower:

   SHARPER IMAGE CORPORATION    350 The Embarcadero, 6th Floor    San Francisco,
California 94105    Attn: Chief Financial Officer    Fax No.

If to Agent:

   WELLS FARGO RETAIL FINANCE, LLC    One Boston Place, 18th floor    Boston,
Massachusetts 02108    Attn: Shaper Image Account Manager    Fax No.

with copies to:

   WINSTON & STRAWN LLP    35 West Wacker Drive    Suite 4200    Chicago,
Illinois 60601    Attn:    Fax No.

Agent and Borrower may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other
party. All notices or demands sent in accordance with this Section 12, other
than notices by Agent in connection with enforcement rights against the Borrower
Collateral under the provisions of the Code, shall be deemed received on the
earlier of the date of actual receipt or 3 Business Days after the deposit
thereof in the mail. Borrower acknowledges and agrees that notices sent by the
Lender Group in connection with the exercise of enforcement rights against
Borrower Collateral under the provisions of the Code shall be deemed sent when
deposited in the mail or personally delivered, or, where permitted by law,
transmitted by telefacsimile or any other method set forth above.

 

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH
OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF
AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL
BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.

 

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(b) THE PARTIES AGREE THAT, TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE
LAW, ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN NEW YORK COUNTY, STATE OF NEW YORK, PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY BORROWER COLLATERAL OR OTHER
PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH BORROWER COLLATERAL OR
OTHER PROPERTY MAY BE FOUND. BORROWER AND THE LENDER GROUP WAIVE, TO THE EXTENT
PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE
OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS
BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).

(c) BORROWER AND THE LENDER GROUP HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED
BY LAW, THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER
AND THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

14.1 Assignments and Participations.

(a) Any Lender may assign and delegate to one or more assignees (each an
“Assignee”) that are Eligible Transferees all, or any ratable part of all, of
the Obligations, the Commitments and the other rights and obligations of such
Lender, in each case hereunder and under the other Loan Documents, in a minimum
amount of $5,000,000; provided however that, so long as no Event of Default has
occurred and is continuing, Borrower shall have approved such Eligible
Transferee (which approval shall not be unreasonably withheld, delayed or
conditioned); provided, further, that Borrower and Agent may continue to deal
solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses, and related information with respect to the
Assignee, have been given to Borrower

 

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and Agent by such Lender and the Assignee, (ii) such Lender and its Assignee
have delivered to Borrower and Agent a fully executed Assignment and Acceptance,
and (iii) the assignor Lender or Assignee has paid to Agent for Agent’s separate
account a processing fee in the amount of $5,000. Anything contained herein to
the contrary notwithstanding, the payment of any fees shall not be required and
the Assignee need not be an Eligible Transferee if such assignment is in
connection with any merger, consolidation, sale, transfer, or other disposition
of all or any substantial portion of the business or loan portfolio of the
assigning Lender.

(b) From and after the date that Agent notifies the assignor Lender (with a copy
to Borrower) that it has received an executed Assignment and Acceptance and
payment of the above-referenced processing fee, (i) the Assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, shall have
the rights and obligations of a Lender under the Loan Documents, and (ii) the
assignor Lender shall, to the extent that rights and obligations hereunder and
under the other Loan Documents have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights (except with respect to
Section 11.3 hereof) and be released from any future obligations under this
Agreement (and in the case of an Assignment and Acceptance covering all or the
remaining portion of an assigning Lender’s rights and obligations under this
Agreement and the other Loan Documents, such Lender shall cease to be a party
hereto and thereto), and such assignment shall effect a novation between
Borrower and the Assignee; provided, however, that nothing contained herein
shall release any assigning Lender from obligations that survive the termination
of this Agreement, including such assigning Lender’s obligations under Article
16 and Section 17.8 of this Agreement.

(c) By executing and delivering an Assignment and Acceptance, the assigning
Lender thereunder and the Assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (1) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document furnished pursuant hereto,
(2) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or the
performance or observance by Borrower of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto, (3) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance,
(4) such Assignee will, independently and without reliance upon Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement, (5) such
Assignee appoints and authorizes Agent to take such actions and to exercise such
powers under this Agreement as are delegated to Agent, by the terms hereof,
together with such powers as are reasonably incidental thereto, and (6) such
Assignee agrees that it will perform all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.

 

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(d) Immediately upon Agent’s receipt of the required processing fee payment and
the fully executed Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.

(e) Any Lender may at any time, with the written consent of Agent, sell to one
or more commercial banks, financial institutions, or other Persons not
Affiliates of such Lender (a “Participant”) participating interests in its
Obligations, the Commitment, and the other rights and interests of that Lender
(the “Originating Lender”) hereunder and under the other Loan Documents
(provided that no written consent of Agent shall be required in connection with
any sale of any such participating interests by a Lender to an Eligible
Transferee); provided, however, that (i) the Originating Lender shall remain a
“Lender” for all purposes of this Agreement and the other Loan Documents and the
Participant receiving the participating interest in the Obligations, the
Commitments, and the other rights and interests of the Originating Lender
hereunder shall not constitute a “Lender” hereunder or under the other Loan
Documents and the Originating Lender’s obligations under this Agreement shall
remain unchanged, (ii) the Originating Lender shall remain solely responsible
for the performance of such obligations, (iii) Borrower, Agent, and the Lenders
shall continue to deal solely and directly with the Originating Lender in
connection with the Originating Lender’s rights and obligations under this
Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant
any participating interest under which the Participant has the right to approve
any amendment to, or any consent or waiver with respect to, this Agreement or
any other Loan Document, except to the extent such amendment to, or consent or
waiver with respect to this Agreement or of any other Loan Document would
(A) extend the final maturity date of the Obligations hereunder in which such
Participant is participating, (B) reduce the interest rate applicable to the
Obligations hereunder in which such Participant is participating, (C) release
all or substantially all of the Collateral or guaranties (except to the extent
expressly provided herein or in any of the Loan Documents) supporting the
Obligations hereunder in which such Participant is participating, (D) postpone
the payment of, or reduce the amount of, the interest or fees payable to such
Participant through such Lender, or (E) change the amount or due dates of
scheduled principal repayments or prepayments or premiums, and (v) all amounts
payable by Borrower hereunder shall be determined as if such Lender had not sold
such participation, except that, if amounts outstanding under this Agreement are
due and unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall, to the
extent permitted by law, be deemed to have the right of set-off in respect of
its participating interest in amounts owing under this Agreement to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under this Agreement. The rights of any Participant only shall be
derivative through the Originating Lender with whom such Participant
participates and no Participant shall have any rights under this Agreement or
the other Loan Documents or any direct rights as to the other

 

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Lenders, Agent, Borrower, the Collections of Borrower or its Subsidiaries, the
Collateral, or otherwise in respect of the Obligations. No Participant shall
have the right to participate directly in the making of decisions by the Lenders
among themselves.

(f) In connection with any such assignment or participation or proposed
assignment or participation, a Lender may, subject to the provisions of
Section 17.8, disclose all documents and information which it now or hereafter
may have relating to Borrower and its Subsidiaries and their respective
businesses.

(g) Any other provision in this Agreement notwithstanding, any Lender may at any
time create a security interest in, or pledge, all or any portion of its rights
under and interest in this Agreement in favor of any Federal Reserve Bank in
accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury
Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce such pledge
or security interest in any manner permitted under applicable law.

14.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without the Lenders’ prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release Borrower from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 14.1 hereof and, except as expressly required pursuant to
Section 14.1 hereof, no consent or approval by Borrower is required in
connection with any such assignment.

 

15. AMENDMENTS; WAIVERS.

15.1 Amendments and Waivers. No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Required Lenders (or by Agent at the written request
of the Required Lenders) and Borrower and then any such waiver or consent shall
be effective only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all of the Lenders affected thereby and
Borrower, do any of the following:

(a) increase or extend any Commitment of any Lender,

(b) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees, or other amounts due
hereunder or under any other Loan Document,

(c) reduce the principal of, or the rate of interest on, any loan or other
extension of credit hereunder, or reduce any fees or other amounts payable
hereunder or under any other Loan Document,

 

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(d) change the percentage of the Commitments that is required to take any action
hereunder,

(e) amend or modify this Section or any provision of the Agreement providing for
consent or other action by all Lenders,

(f) release Collateral other than as permitted by Section 16.12,

(g) change the definition of “Required Lenders” or “Pro Rata Share”,

(h) contractually subordinate any of the Agent’s Liens,

(i) release Borrower or any Guarantor from any obligation for the payment of
money, or

(j) change the definition of Borrowing Base or the definitions of Eligible
Accounts, Eligible Inventory, Eligible In-Transit Inventory, Eligible Landed
Inventory, Eligible Refurbished Inventory, Maximum Revolver Amount, Capital
Expenditures Sublimit, in each case in any manner that would cause the Borrowing
Base to be increased, or change Section 2.1(b), or

(k) amend any of the provisions of Section 16.

and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, Issuing Lender, or Swing Lender, as
applicable, affect the rights or duties of Agent, Issuing Lender, or Swing
Lender, as applicable, under this Agreement or any other Loan Document. The
foregoing notwithstanding, any amendment, modification, waiver, consent,
termination, or release of, or with respect to, any provision of this Agreement
or any other Loan Document that relates only to the relationship of the Lender
Group among themselves, and that does not affect the rights or obligations of
Borrower, shall not require consent by or the agreement of Borrower.

15.2 Replacement of Holdout Lender.

(a) If any action to be taken by the Lender Group or Agent hereunder requires
the unanimous consent, authorization, or agreement of all Lenders, and a Lender
(“Holdout Lender”) fails to give its consent, authorization, or agreement, then
Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout
Lender, may permanently replace the Holdout Lender with one or more substitute
Lenders (each, a “Replacement Lender”), and the Holdout Lender shall have no
right to refuse to be replaced hereunder. Such notice to replace the Holdout
Lender shall specify an effective date for such replacement, which date shall
not be later than 15 Business Days after the date such notice is given.

(b) Prior to the effective date of such replacement, the Holdout Lender and each
Replacement Lender shall execute and deliver an Assignment and Acceptance,
subject only to the Holdout Lender being repaid its share of the outstanding
Obligations (including

 

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an assumption of its Pro Rata Share of the Risk Participation Liability) without
any premium or penalty of any kind whatsoever. If the Holdout Lender shall
refuse or fail to execute and deliver any such Assignment and Acceptance prior
to the effective date of such replacement, the Holdout Lender shall be deemed to
have executed and delivered such Assignment and Acceptance. The replacement of
any Holdout Lender shall be made in accordance with the terms of Section 14.1.
Until such time as the Replacement Lenders shall have acquired all of the
Obligations, the Commitments, and the other rights and obligations of the
Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender
shall remain obligated to make the Holdout Lender’s Pro Rata Share of Advances
and to purchase a participation in each Letter of Credit, in an amount equal to
its Pro Rata Share of the Risk Participation Liability of such Letter of Credit.

15.3 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to
exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by Agent or any Lender in exercising the same, will operate
as a waiver thereof. No waiver by Agent or any Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion shall affect or diminish Agent’s and each
Lender’s rights thereafter to require strict performance by Borrower of any
provision of this Agreement. Agent’s and each Lender’s rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy that Agent or any Lender may have.

 

16. AGENT; THE LENDER GROUP.

16.1 Appointment and Authorization of Agent. Each Lender hereby designates and
appoints WFRF as its representative under this Agreement and the other Loan
Documents and each Lender hereby irrevocably authorizes Agent to execute and
deliver each of the other Loan Documents on its behalf and to take such other
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to Agent by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to
act as such on the express conditions contained in this Section 16. The
provisions of this Section 16 (other than Section 16.11) are solely for the
benefit of Agent, and the Lenders, and Borrower and its Subsidiaries shall have
no rights as a third party beneficiary of any of the provisions contained
herein. Any provision to the contrary contained elsewhere in this Agreement or
in any other Loan Document notwithstanding, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise exist
against Agent; it being expressly understood and agreed that the use of the word
“Agent” is for convenience only, that WFRF is merely the representative of the
Lenders, and only has the contractual duties set forth herein. Except as
expressly otherwise provided in this Agreement, Agent shall have and may use its
sole discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions that Agent
expressly is entitled to take or assert under or pursuant to this Agreement and
the other Loan

 

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Documents. Without limiting the generality of the foregoing, or of any other
provision of the Loan Documents that provides rights or powers to Agent, Lenders
agree that Agent shall have the right to exercise the following powers as long
as this Agreement remains in effect: (a) maintain, in accordance with its
customary business practices, ledgers and records reflecting the status of the
Obligations, the Collateral, the Collections of Borrower and its Subsidiaries,
and related matters, (b) execute or file any and all financing or similar
statements or notices, amendments, renewals, supplements, documents,
instruments, proofs of claim, notices and other written agreements with respect
to the Loan Documents, (c) make Advances for itself or on behalf of Lenders as
provided in the Loan Documents, (d) exclusively receive, apply, and distribute
the Collections of Borrower and its Subsidiaries as provided in the Loan
Documents, (e) open and maintain such bank accounts and cash management
arrangements as Agent deems necessary and appropriate in accordance with the
Loan Documents for the foregoing purposes with respect to the Collateral and the
Collections of Borrower and its Subsidiaries, (f) perform, exercise, and enforce
any and all other rights and remedies of the Lender Group with respect to
Borrower, the Obligations, the Collateral, the Collections of Borrower and its
Subsidiaries, or otherwise related to any of same as provided in the Loan
Documents, and (g) incur and pay such Lender Group Expenses as Agent may deem
necessary or appropriate for the performance and fulfillment of its functions
and powers pursuant to the Loan Documents.

16.2 Delegation of Duties. Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made in good faith, and without gross negligence or
willful misconduct.

16.3 Liability of Agent. None of the Agent-Related Persons shall (i) be liable
for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except to the extent of its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by Borrower or any
Subsidiary or Affiliate of Borrower, or any officer or director thereof,
contained in this Agreement or in any other Loan Document, or in any
certificate, report, statement or other document referred to or provided for in,
or received by Agent under or in connection with, this Agreement or any other
Loan Document, or the validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document, or for any failure of
Borrower or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the Books or properties of Borrower or the
books or records or properties of any of Borrower’s Subsidiaries or Affiliates.

16.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter,

 

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telegram, facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent, or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to Borrower or counsel to any Lender),
independent accountants and other experts selected by Agent. Agent shall be
fully justified in failing or refusing to take any action under this Agreement
or any other Loan Document unless Agent shall first receive such advice or
concurrence of the Lenders as it deems appropriate and until such instructions
are received, Agent shall act, or refrain from acting, as it deems advisable. If
Agent so requests, it shall first be indemnified to its reasonable satisfaction
by the Lenders against any and all liability and expense that may be incurred by
it by reason of taking or continuing to take any such action. Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of
the requisite Lenders and such request and any action taken or failure to act
pursuant thereto shall be binding upon all of the Lenders.

16.5 Notice of Default or Event of Default. Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of the Lenders and, except
with respect to Events of Default of which Agent has actual knowledge, unless
Agent shall have received written notice from a Lender or Borrower referring to
this Agreement, describing such Default or Event of Default, and stating that
such notice is a “notice of default.” Agent promptly will notify the Lenders of
its receipt of any such notice or of any Event of Default of which Agent has
actual knowledge. If any Lender obtains actual knowledge of any Event of
Default, such Lender promptly shall notify the other Lenders and Agent of such
Event of Default. Each Lender shall be solely responsible for giving any notices
to its Participants, if any. Subject to Section 16.4, Agent shall take such
action with respect to such Default or Event of Default as may be requested by
the Required Lenders in accordance with Section 9; provided, however, that
unless and until Agent has received any such request, Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable.

16.6 Credit Decision. Each Lender acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that no act by Agent
hereinafter taken, including any review of the affairs of Borrower and its
Subsidiaries or Affiliates, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Lender. Each Lender represents to
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of
Borrower and any other Person party to a Loan Document, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to Borrower. Each
Lender also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other

 

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Loan Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of Borrower and any other Person party to a Loan
Document. Except for notices, reports, and other documents expressly herein
required to be furnished to the Lenders by Agent, Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of Borrower and any other Person party to a Loan
Document that may come into the possession of any of the Agent-Related Persons.

16.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender Group
Expenses to the extent Agent reasonably deems necessary or appropriate for the
performance and fulfillment of its functions, powers, and obligations pursuant
to the Loan Documents, including court costs, attorneys fees and expenses, fees
and expenses of financial accountants, advisors, consultants, and appraisers,
costs of collection by outside collection agencies, auctioneer fees and
expenses, and costs of security guards or insurance premiums paid to maintain
the Collateral, whether or not Borrower is obligated to reimburse Agent or
Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is
authorized and directed to deduct and retain sufficient amounts from the
Collections of Borrower and its Subsidiaries received by Agent to reimburse
Agent for such out-of-pocket costs and expenses prior to the distribution of any
amounts to Lenders. In the event Agent is not reimbursed for such costs and
expenses from the Collections of Borrower and its Subsidiaries received by
Agent, each Lender hereby agrees that it is and shall be obligated to pay to or
reimburse Agent for the amount of such Lender’s Pro Rata Share thereof. Whether
or not the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by
or on behalf of Borrower and without limiting the obligation of Borrower to do
so), according to their Pro Rata Shares, from and against any and all
Indemnified Liabilities; provided, however, that no Lender shall be liable for
the payment to any Agent-Related Person of any portion of such Indemnified
Liabilities resulting solely from such Person’s gross negligence or willful
misconduct nor shall any Lender be liable for the obligations of any Defaulting
Lender in failing to make an Advance or other extension of credit hereunder.
Without limitation of the foregoing, each Lender shall reimburse Agent upon
demand for such Lender’s Pro Rata Share of any costs or out-of-pocket expenses
(including attorneys, accountants, advisors, and consultants fees and expenses)
incurred by Agent in connection with the preparation, execution, delivery,
administration, modification, amendment, or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that Agent is
not reimbursed for such expenses by or on behalf of Borrower. The undertaking in
this Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of Agent.

16.8 Agent in Individual Capacity. WFRF and its Affiliates may make loans to,
issue letters of credit for the account of, accept deposits from, acquire equity
interests in, and generally engage in any kind of banking, trust, financial
advisory, underwriting, or other business with Borrower and its Subsidiaries and
Affiliates and any other Person party to any Loan Documents as though WFRF were
not Agent hereunder, and, in each case, without

 

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notice to or consent of the other members of the Lender Group. The other members
of the Lender Group acknowledge that, pursuant to such activities, WFRF or its
Affiliates may receive information regarding Borrower or its Affiliates and any
other Person party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrower or such other Person and that prohibit the
disclosure of such information to the Lenders, and the Lenders acknowledge that,
in such circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver Agent will use its reasonable best efforts to obtain),
Agent shall not be under any obligation to provide such information to them. The
terms “Lender” and “Lenders” include WFRF in its individual capacity.

16.9 Successor Agent. Agent may resign as Agent upon 45 days notice to the
Lenders and the Borrower. If Agent resigns under this Agreement, the Required
Lenders shall, in consultation with the Borrower, appoint a successor Agent for
the Lenders. If no successor Agent is appointed and shall have accepted such
appointment prior to the effective date of the resignation of Agent, Agent may
appoint, after consulting with the Lenders and the Borrower, a successor Agent.
If Agent has materially breached or failed to perform any material provision of
this Agreement or of applicable law, the Required Lenders may agree in writing
to remove and replace Agent with a successor Agent from among the Lenders,
chosen in consultation with the Borrower. In any such event (whether an
appointment by Agent or by the Required Lenders) described in the two
immediately preceding sentences, upon the acceptance of its appointment as
successor Agent hereunder, such successor Agent shall succeed to all the rights,
powers, and duties of the retiring Agent and the term “Agent” shall mean such
successor Agent and, upon such acceptance, the retiring Agent’s appointment,
powers, and duties as Agent shall be terminated. After any retiring Agent’s
resignation hereunder as Agent, the provisions of this Section 16 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this Agreement. If no successor Agent has accepted appointment as
Agent by the date which is 45 days following a retiring Agent’s notice of
resignation, the retiring Agent’s resignation shall nevertheless thereupon
become effective and the Lenders shall perform all of the duties of Agent
hereunder until such time, if any, as the Lenders appoint a successor Agent as
provided for above.

16.10 Lender in Individual Capacity. Any Lender and its respective Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with Borrower and its
Subsidiaries and Affiliates and any other Person party to any Loan Documents as
though such Lender were not a Lender hereunder without notice to or consent of
the other members of the Lender Group. The other members of the Lender Group
acknowledge that, pursuant to such activities, such Lender and its respective
Affiliates may receive information regarding Borrower or its Affiliates and any
other Person party to any Loan Documents that is subject to confidentiality
obligations in favor of Borrower or such other Person and that prohibit the
disclosure of such information to the Lenders, and the Lenders acknowledge that,
in such circumstances (and in the absence of a waiver of such confidentiality
obligations, which waiver such Lender will use its reasonable best efforts to
obtain), such Lender not shall be under any obligation to provide such
information to them. With respect to the Swing Loans and Agent Advances, Swing
Lender shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not the sub-agent of Agent.

 

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16.11 Withholding Taxes.

(a) If any Lender is a “foreign person” within the meaning of the IRC and such
Lender is eligible to claim an exemption from, or a reduction of, U.S.
withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with
and in favor of Agent and Borrower, to deliver to Agent and Borrower:

(i) if such Lender claims an exemption from withholding tax pursuant to its
portfolio interest exception, (A) a statement of the Lender, signed under
penalty of perjury, that it is not a (I) a “bank” as described in
Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of Borrower (within the
meaning of Section 871(h)(3)(B) of the IRC), or (III) a controlled foreign
corporation related to Borrower within the meaning of Section 864(d)(4) of the
IRC, and (B) a properly completed and executed IRS Form W-8BEN, before the first
payment of any interest under this Agreement and at any other time reasonably
requested by Agent or Borrower;

(ii) if such Lender claims an exemption from, or a reduction of, withholding tax
under a United States tax treaty, properly completed and executed IRS Form
W-8BEN before the first payment of any interest under this Agreement and at any
other time reasonably requested by Agent or Borrower;

(iii) if such Lender claims that interest paid under this Agreement is exempt
from United States withholding tax because it is effectively connected with a
United States trade or business of such Lender, two properly completed and
executed copies of IRS Form W-8ECI before the first payment of any interest is
due under this Agreement and at any other time reasonably requested by Agent or
Borrower;

(iv) such other form or forms as may be required under the IRC or other laws of
the United States as a condition to exemption from, or reduction of, United
States withholding tax.

Such Lender agrees promptly to notify Agent and Borrower of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.

(b) If any Lender claims exemption from, or reduction of, withholding tax under
a United States tax treaty by providing IRS Form W-8BEN and such Lender sells,
assigns, grants a participation in, or otherwise transfers all or part of the
Obligations of Borrower owing to such Lender, such Lender agrees to notify Agent
of the percentage amount in which it is no longer the beneficial owner of
Obligations of Borrower to such Lender. To the extent of such percentage amount,
Agent will treat such Lender’s IRS Form W-8BEN as no longer valid. In addition,
in the case of participations, such Lender agrees to

 

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deliver to Agent an IRS Form W8-IMY of the Lender and an IRS Form W9 or W8-BEN
of each participant entitling the Borrower to make payments in the same (or
lesser) amounts as if such participation has not been granted.

(c) If any Lender is entitled to a reduction in the applicable withholding tax,
Agent may withhold from any interest payment to such Lender an amount equivalent
to the applicable withholding tax after taking into account such reduction. If
the forms or other documentation required by subsection (a) of this Section are
not delivered to Agent, then Agent may withhold from any interest payment to
such Lender not providing such forms or other documentation an amount equivalent
to the applicable withholding tax.

(d) If the IRS or any other Governmental Authority of the United States or other
jurisdiction asserts a claim that Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such Lender failed to
notify Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason) such Lender
shall indemnify and hold Agent harmless for all amounts paid, directly or
indirectly, by Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to Agent
under this Section, together with all costs and expenses (including attorneys
fees and expenses). The obligation of the Lenders under this subsection shall
survive the payment of all Obligations and the resignation or replacement of
Agent.

(e) All payments made by Borrower hereunder or under any note will be made
without setoff, counterclaim, or other defense, except as required by applicable
law other than for Taxes (as defined below). All such payments will be made free
and clear of, and without deduction or withholding for, any present or future
taxes, levies, imposts, duties, fees, assessments or other charges of whatever
nature now or hereafter imposed by any jurisdiction (other than the United
States) or by any political subdivision or taxing authority thereof or therein
(other than of the United States) with respect to such payments (but excluding,
any tax imposed by any jurisdiction or by any political subdivision or taxing
authority thereof or therein (i) measured by or based on the net income or net
profits of a Lender, or (ii) to the extent that such tax results from a change
in the circumstances of the Lender, including a change in the residence, place
of organization, or principal place of business of the Lender, or a change in
the branch or lending office of the Lender participating in the transactions set
forth herein) and all interest, penalties or similar liabilities with respect
thereto (all such non-excluded taxes, levies, imposts, duties, fees, assessments
or other charges being referred to collectively as “Taxes”). If any Taxes are so
levied or imposed, Borrower agrees to pay the full amount of such Taxes, and
such additional amounts as may be necessary so that every payment of all amounts
due under this Agreement or under any note, including any amount paid pursuant
to this Section 16.11(e) after withholding or deduction for or on account of any
Taxes, will not be less than the amount provided for herein; provided, however,
that Borrower shall not be required to increase any such amounts payable to
Agent or any Lender (i) that is not organized under the laws of the United
States, if such Person fails to comply with the other requirements of this
Section 16.11, or (ii) if the increase in such amount payable results from
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Lender’s own willful misconduct or gross negligence. Borrower will furnish to
Agent as promptly as possible after the date the payment of any Taxes is due
pursuant to applicable law certified copies of tax receipts evidencing such
payment by Borrower.

(f) Each Lender shall, at the request of the Borrower, use reasonable efforts to
comply timely with any certification, identification, information, documentation
or other reporting requirements if such compliance is required by law,
regulation, administrative practice or an applicable treaty as a precondition to
exemption from, or reduction in the rate of, deduction or withholding of any
Taxes for which such Borrower is required to pay any additional amounts payable
to or for the account of such Lender pursuant to this Section 16.11; provided
that complying with such requirements would not be materially more onerous (in
form, in procedure or in the substance of information disclosed) to a Lender
than complying with the comparable information or other reporting requirements
imposed under U.S. tax law, regulations and administrative practice.

(g) Notwithstanding anything in this Section 16.11, the Borrower will not be
required to make payments under this Section 16.11 with respect to taxes that
are imposed on amounts payable to the Lender at the time the Lender becomes a
party to this Agreement (or designates a new lending office outside the United
States), except to the extent that such Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment), to
receive additional amounts from Borrower with respect to such withholding tax
pursuant to Section 16.11.

(h) If any payment by the Borrower is made to or for the account of the Lender
after deduction for or on account of any Taxes, and increased payments are made
by the Borrower pursuant to this Section 16.11, then, if the Lender reasonably
determines that it has received or been granted a refund of, credit against or
remission of such Taxes, such Lender shall reimburse to the Borrower such amount
as such Lender shall determine to be attributable to the relevant Taxes or
deduction or withholding; provided, that (i) such Lender shall not be obligated
to disclose to the Borrower any information regarding its tax affairs and
computations, and (ii) nothing herein shall be construed so as to interfere with
the right of such Lender to arrange its tax affairs as it deems appropriate.

(i) If the Borrower is required to pay additional amounts to or for the account
of any Lender pursuant to this Section 16.11 as a result of a change of law
occurring after the date hereof, then such Lender (but only if at such time such
Lender’s lending office is outside the United States) agrees to use reasonable
efforts to designate a different lending office if such designation will
eliminate or reduce such additional payment which may thereafter accrue and
would not, in the good faith judgment of the Lender, otherwise be
disadvantageous to such Lender; provided that the mere existence of fees,
charges, costs or expenses that the Borrower has offered and agreed to pay on
behalf of a Lender shall not be deemed to be materially disadvantageous to the
Lender.

 

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16.12 Collateral Matters.

(a) The Lenders hereby irrevocably authorize Agent, at its option and in its
sole discretion, to release any Lien on any Collateral (i) upon the termination
of the Commitments and payment and satisfaction in full by Borrower of all
Obligations, (ii) constituting property being sold or disposed of if a release
is required or desirable in connection therewith and if Borrower certifies to
Agent that the sale or disposition is permitted under Section 7.4 of this
Agreement or the other Loan Documents (and Agent may rely conclusively on any
such certificate, without further inquiry), (iii) constituting property in which
Borrower or its Subsidiaries owned no interest at the time the Agent’s Lien was
granted nor at any time thereafter, or (iv) constituting property leased to
Borrower or its Subsidiaries under a lease that has expired or is terminated in
a transaction permitted under this Agreement. Except as provided above, Agent
will not execute and deliver a release of any Lien on any Collateral without the
prior written authorization of (y) if the release is of all or substantially all
of the Collateral, all of the Lenders, or (z) otherwise, the Required Lenders.
Upon request by Agent or Borrower at any time, the Lenders will confirm in
writing Agent’s authority to release any such Liens on particular types or items
of Collateral pursuant to this Section 16.12; provided, however, that (1) Agent
shall not be required to execute any document necessary to evidence such release
on terms that, in Agent’s opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Borrower in respect of)
all interests retained by Borrower, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.

(b) Agent shall have no obligation whatsoever to any of the Lenders to assure
that the Collateral exists or is owned by Borrower or is cared for, protected,
or insured or has been encumbered, or that the Agent’s Liens have been properly
or sufficiently or lawfully created, perfected, protected, or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
Agent pursuant to any of the Loan Documents, it being understood and agreed that
in respect of the Collateral, or any act, omission, or event related thereto,
subject to the terms and conditions contained herein, Agent may act in any
manner it may deem appropriate, in its sole discretion given Agent’s own
interest in the Collateral in its capacity as one of the Lenders and that Agent
shall have no other duty or liability whatsoever to any Lender as to any of the
foregoing, except as otherwise provided herein.

16.13 Restrictions on Actions by Lenders; Sharing of Payments.

(a) Each of the Lenders agrees that it shall not, without the express written
consent of Agent, and that it shall, to the extent it is lawfully entitled to do
so, upon the written request of Agent, set off against the Obligations, any
amounts owing by such Lender to Borrower or any deposit accounts of Borrower now
or hereafter maintained with such Lender. Each of the Lenders further agrees
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do so in writing by Agent, take or cause to be taken any action, including, the
commencement of any legal or equitable proceedings, to foreclose any Lien on, or
otherwise enforce any security interest in, any of the Collateral.

(b) If, at any time or times any Lender shall receive (i) by payment,
foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments
with respect to the Obligations, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender’s ratable portion of all such
distributions by Agent, such Lender promptly shall (1) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for application to the Obligations in accordance with
the applicable provisions of this Agreement, or (2) purchase, without recourse
or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that to the extent that such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party, but
without interest except to the extent that such purchasing party is required to
pay interest in connection with the recovery of the excess payment.

16.14 Agency for Perfection. Agent hereby appoints each other Lender as its
agent (and each Lender hereby accepts such appointment) for the purpose of
perfecting the Agent’s Liens in assets which, in accordance with Article 9 of
the Code can be perfected only by possession or control. Should any Lender
obtain possession or control of any such Collateral, such Lender shall notify
Agent thereof, and, promptly upon Agent’s request therefor shall deliver
possession or control of such Collateral to Agent or in accordance with Agent’s
instructions.

16.15 Payments by Agent to the Lenders. All payments to be made by Agent to the
Lenders shall be made by bank wire transfer of immediately available funds
pursuant to such wire transfer instructions as each party may designate for
itself by written notice to Agent. Concurrently with each such payment, Agent
shall identify whether such payment (or any portion thereof) represents
principal, premium, or interest of the Obligations.

16.16 Concerning the Collateral and Related Loan Documents. Each member of the
Lender Group authorizes and directs Agent to enter into this Agreement and the
other Loan Documents. Each member of the Lender Group agrees that any action
taken by Agent in accordance with the terms of this Agreement or the other Loan
Documents relating to the Collateral and the exercise by Agent of its powers set
forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.

 

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16.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information. By becoming a party to this Agreement,
each Lender:

(a) is deemed to have requested that Agent furnish such Lender, promptly after
it becomes available, a copy of each field audit or examination report (each a
“Report” and collectively, “Reports”) prepared by Agent, and Agent shall so
furnish each Lender with such Reports,

(b) expressly agrees and acknowledges that Agent does not (i) make any
representation or warranty as to the accuracy of any Report, and (ii) shall not
be liable for any information contained in any Report,

(c) expressly agrees and acknowledges that the Reports are not comprehensive
audits or examinations, that Agent or other party performing any audit or
examination will inspect only specific information regarding Borrower and will
rely significantly upon the Books, as well as on representations of Borrower’s
personnel,

(d) agrees to keep all Reports and other material, non-public information
regarding Borrower and its Subsidiaries and their operations, assets, and
existing and contemplated business plans in a confidential manner in accordance
with Section 17.8, and

(e) without limiting the generality of any other indemnification provision
contained in this Agreement, agrees: (i) to hold Agent and any other Lender
preparing a Report harmless from any action the indemnifying Lender may take or
fail to take or any conclusion the indemnifying Lender may reach or draw from
any Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to Borrower, or the indemnifying
Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or
loans of Borrower, and (ii) to pay and protect, and indemnify, defend and hold
Agent, and any such other Lender preparing a Report harmless from and against,
the claims, actions, proceedings, damages, costs, expenses, and other amounts
(including, attorneys fees and costs) incurred by Agent and any such other
Lender preparing a Report as the direct or indirect result of any third parties
who might obtain all or part of any Report through the indemnifying Lender.

In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Borrower to Agent that has not been contemporaneously
provided by Borrower to such Lender, and, upon receipt of such request, Agent
promptly shall provide a copy of same to such Lender, (y) to the extent that
Agent is entitled, under any provision of the Loan Documents, to request
additional reports or information from Borrower, any Lender may, from time to
time, reasonably request Agent to exercise such right as specified in such
Lender’s notice to Agent, whereupon Agent promptly shall request of Borrower the
additional reports or information reasonably specified by such Lender, and, upon
receipt thereof from Borrower, Agent promptly shall provide a copy of same to
such Lender, and (z) any time that Agent renders to Borrower a statement
regarding the Loan Account, Agent shall send a copy of such statement to each
Lender.

 

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16.18 Several Obligations; No Liability. Notwithstanding that certain of the
Loan Documents now or hereafter may have been or will be executed only by or in
favor of Agent in its capacity as such, and not by or in favor of the Lenders,
any and all obligations on the part of Agent (if any) to make any credit
available hereunder shall constitute the several (and not joint) obligations of
the respective Lenders on a ratable basis, according to their respective
Commitments, to make an amount of such credit not to exceed, in principal
amount, at any one time outstanding, the amount of their respective Commitments.
Nothing contained herein shall confer upon any Lender any interest in, or
subject any Lender to any liability for, or in respect of, the business, assets,
profits, losses, or liabilities of any other Lender. Each Lender shall be solely
responsible for notifying its Participants of any matters relating to the Loan
Documents to the extent any such notice may be required, and no Lender shall
have any obligation, duty, or liability to any Participant of any other Lender.
Except as provided in Section 16.7, no member of the Lender Group shall have any
liability for the acts of any other member of the Lender Group. No Lender shall
be responsible to Borrower or any other Person for any failure by any other
Lender to fulfill its obligations to make credit available hereunder, nor to
advance for it or on its behalf in connection with its Commitment, nor to take
any other action on its behalf hereunder or in connection with the financing
contemplated herein.

16.19 Legal Representation of Agent. In connection with the negotiation,
drafting, and execution of this Agreement and the other Loan Documents, or in
connection with future legal representation relating to loan administration,
amendments, modifications, waivers, or enforcement of remedies, Paul, Hastings,
Janofsky & Walker LLP (“Paul Hastings”) only has represented and only shall
represent WFRF in its capacity as Agent and as a Lender. Each other Lender
hereby acknowledges that Paul Hastings does not represent it in connection with
any such matters.

 

17. GENERAL PROVISIONS.

17.1 Effectiveness. This Agreement shall be binding and deemed effective when
executed by Borrower, Agent, and each Lender whose signature is provided for on
the signature pages hereof.

17.2 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.

17.3 Interpretation. Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed against the Lender Group or Borrower, whether under
any rule of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to accomplish fairly the purposes and
intentions of all parties hereto.

 

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17.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.

17.5 Amendments in Writing. This Agreement only can be amended by a writing
signed by Agent (on behalf of the requisite Lenders pursuant to Section 15.1)
and Borrower.

17.6 Counterparts; Telefacsimile Execution. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Agreement. Any party delivering an executed counterpart of
this Agreement by telefacsimile also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.

17.7 Revival and Reinstatement of Obligations. If the incurrence or payment of
the Obligations by Borrower or any Guarantor or the transfer to the Lender Group
of any property should for any reason subsequently be declared to be void or
voidable under any state or federal law relating to creditors’ rights, including
provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (collectively, a “Voidable Transfer”), and if the Lender Group is
required to repay or restore, in whole or in part, any such Voidable Transfer,
or elects to do so upon the reasonable advice of its counsel, then, as to any
such Voidable Transfer, or the amount thereof that the Lender Group is required
or elects to repay or restore, and as to all reasonable costs, expenses, and
attorneys fees of the Lender Group related thereto, the liability of Borrower or
any such Guarantor automatically shall be revived, reinstated, and restored and
shall exist as though such Voidable Transfer had never been made.

17.8 Confidentiality. The Agent and the Lenders each individually (and not
jointly or jointly and severally) agree to use commercially reasonable efforts
to maintain as confidential all Projections (including the Initial Business Plan
and the Fee Letter) and other non-public information regarding Borrower and its
Subsidiaries, their operations, assets, and existing and contemplated business
plans (collectively, “Confidential Information”) provided to Agent or such
Lender by Borrower, and specifically designated by Borrower in good faith at the
time of delivery thereof as being Confidential Information, except that Agent or
such Lender may disclose such information: (a) to attorneys for, and accountants
and auditors to, any member of the Lender Group, (b) to other advisors and
consultants to any member of the Lender Group, provided that any such advisor or
consultant shall have agreed to receive such information hereunder subject to
the terms of this Section 17.8 or similar confidentiality agreement, (c) to
Subsidiaries and Affiliates of any member of the Lender Group (including the
Bank Product Providers), provided that any such Subsidiary or Affiliate shall
have agreed to receive such information hereunder subject to the terms of this
Section 17.8 or similar confidentiality agreement, (d) as may be required by
statute, decision, or judicial or

 

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administrative order, rule, or regulation (with prompt notice to the Borrower so
that the Borrower may seek a protective order or other appropriate remedy and/or
waive Agent’s or any Lender’s compliance with the provisions of this
Section 17.8), (e) as may be agreed to in advance by Borrower or its
Subsidiaries or as requested or required by any Governmental Authority pursuant
to any subpoena or other legal process (with prompt notice to the Borrower so
that the Borrower may seek a protective order or other appropriate remedy and/or
waive Agent’s or any Lender’s compliance with the provisions of this
Section 17.8), (f) as to any such information that is or becomes generally
available to the public (other than as a result of prohibited disclosure by
Agent or Lender), (g) in connection with any assignment, prospective assignment,
sale, prospective sale, participation or prospective participations, or pledge
or prospective pledge of any Lender’s interest under this Agreement, provided
that any such assignee, prospective assignee, purchaser, prospective purchaser,
participant, prospective participant, pledgee, or prospective pledgee shall have
agreed in writing to receive such information hereunder subject to the terms of
this Section 17.8 or similar confidentiality agreement, and (h) in connection
with any litigation or other adversary proceeding involving parties hereto which
such litigation or adversary proceeding involves claims related to the rights or
duties of such parties under this Agreement or the other Loan Documents. The
provisions of this Section 17.8 shall survive the payment in full of the
Obligations. Anything contained herein or in any other Loan Document to the
contrary notwithstanding, the obligations of confidentiality contained herein
and therein, as they relate to the transactions contemplated hereby, shall not
apply to the federal tax structure or federal tax treatment of such
transactions, and each party hereto (and any employee, representative, or agent
of any party hereto) may disclose to any and all Persons, without limitation of
any kind, the federal tax structure and federal tax treatment of such
transactions (including all materials related to such tax structure and tax
treatment). The preceding sentence is intended to cause the transactions
contemplated hereby to not be treated as having been offered under conditions of
confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor
provision) of the Treasury Regulations promulgated under Section 6011 of the
IRC, and shall be construed in a manner consistent with such purpose. In
addition, each party hereto acknowledges that it has no proprietary or exclusive
rights to the tax structure of the transactions contemplated hereby or any tax
matter or tax idea related thereto.

17.9 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.

17.10 Amendment and Restatement.

On the Restatement Date, the Prior Credit Agreement shall be amended, restated
and superseded in its entirety. The parties hereto acknowledge and agree that
(i) this Agreement and the other Loan Documents executed and delivered in
connection herewith do not constitute a novation, payment and reborrowing, or
termination of the “Obligations” (as defined in the Prior Credit Agreement)
under the Prior Credit Agreement as in effect prior to the Restatement Date;
(ii) such “Obligations” are in all respects continuing with only the

 

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terms thereof being modified as provided in this Agreement; (iii) the Liens as
granted under the Loan Documents securing payment of such “Obligations” are in
all respects continuing and in full force and effect and secure the payment of
the Obligations (as defined in this Agreement) and are hereby fully ratified and
affirmed; and (iv) upon the effectiveness of this Agreement all loans and
letters of credit outstanding under the Prior Credit Agreement immediately
before the effectiveness of this Agreement will be part of the Loans and Letters
of Credit hereunder on the terms and conditions set forth in this Agreement.
Without limitation of the foregoing, Borrower hereby fully and unconditionally
ratifies and affirms all Loan Documents and agrees that all collateral granted
thereunder shall from and after the date hereof secure all Obligations
hereunder.

Notwithstanding the modifications effected by this Agreement of the
representations, warranties and covenants of Borrower contained in the Prior
Credit Agreement, Borrower acknowledges and agrees that any causes of action or
other rights created in favor of any Lender and its successors arising out of
the representations and warranties of Borrower contained in or delivered
(including representations and warranties delivered in connection with the
making of the loans or other extensions of credit thereunder) in connection with
the Prior Credit Agreement shall survive the execution and delivery of this
Agreement.

All indemnification obligations of Borrower pursuant to the Prior Credit
Agreement (including any arising from a breach of the representations
thereunder) shall survive the amendment and restatement of the Prior Credit
Agreement pursuant to this Agreement.

On and after the Restatement Date, each reference in the Loan Documents to the
“Credit Agreement”, “thereunder”, “thereof” or similar words referring to the
Credit Agreement shall mean and be a reference to this Agreement.

[Signature pages to follow.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and delivered as of the date first above written.

 

SHARPER IMAGE CORPORATION

a Delaware corporation

By:

 

 

Title:

 

WELLS FARGO RETAIL FINANCE, LLC,

a Delaware limited liability company, as Agent and as a Lender

By:

 

 

Title:

 

[Signature Page to Loan and Security Agreement]

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Schedule A-1

Agent’s Account

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Schedule C-1

Commitments

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Schedule D-1

Designated Account

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Schedule 5.21

Credit Card Processors

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Schedule 6.2

Collateral Reporting

Borrower shall provide Agent with the following documents at the following times
in form reasonably satisfactory to Agent:

(a) Borrowing Base Certificate. On a weekly basis, not later than Wednesday of
each week (for the prior week through Friday of such prior week), Borrower shall
provide to Agent a signed borrowing base certificate, in form as approved by
Agent and including a detailed calculation of the Borrowing Base (including
detail regarding those Accounts of Borrower that are not Eligible Accounts) plus
a detailed aging, by total, of the Accounts of Borrower, together with a
reconciliation to the detailed calculation of the Borrowing Base previously
provided to Agent. Such certificate may be sent to Agent electronically (with an
electronic signature) or by facsimile transmission, provided, that in each case,
upon request by Agent, the original thereof is forwarded to Agent within two
(2) days of such transmission. No adjustments to the borrowing base certificate
may be made without supporting documentation and such other documentation as may
be reasonably requested by Agent from time to time.

(b) Daily Reports. On a daily basis (to the extent applicable for any day):

(i) notice of any claim, offset, or dispute involving an amount in excess of
$1,000,000 asserted by any Account Debtor with respect to Borrower’s and its
Subsidiaries’ Accounts; and

(ii) notice of all claims, offsets, or disputes asserted by Account Debtors with
respect to Borrower’s and its Subsidiaries’ Consumer Installment Sales
Receivables.

(c) Monthly Reports. Monthly, Borrower shall provide to Agent original
counterparts of (each in such form as Agent from time to time may specify):

(i) Within 20 days after the end of such month for the immediately preceding
month, each of the following;

(A) Inventory summary report by location and by department, separately
indicating the refurbished Inventory at each such location;

(B) “flash sales report” by geographical market (Borrower’s format in use on the
Closing Date is acceptable);

(C) Inventory certificate in Agent’s format; and

(D) statement of store activity in Agent’s format.

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(ii) Within 30 days of the end of each month for the immediately preceding
month:

(A) a detailed report regarding Borrower and its Subsidiaries’ cash and Cash
Equivalents;

(B) comparable store sales;

(C) a listing (in a manner consistent with Schedule 5.18) of all Deposit
Accounts (and other agreements of the type required to be disclosed on Schedule
5.18 on the Restatement Date) opened by the Borrower subsequent to the
Restatement Date and not otherwise disclosed by the Borrower to the Agent
pursuant to this clause (C);

(D) a listing (in a manner consistent with Schedule 5.21) of all Credit Card
Processor Agreements (and other agreements of the type required to be disclosed
on Schedule 5.21 on the Restatement Date) entered into by the Borrower
subsequent to the Restatement Date and not otherwise disclosed by the Borrower
to the Agent pursuant to this clause (D);

(f) Additional Reports. Upon request by Agent, Borrower shall provide to Agent:

(i) copies of invoices in connection with Borrower’s and its Subsidiaries’
Accounts, credit memos, remittance advices, deposit slips, shipping and delivery
documents in connection with Borrower’s and its Subsidiaries’ Accounts and, for
Inventory and Equipment acquired by Borrower or its Subsidiaries, purchase
orders and invoices;

(ii) a detailed list of Borrower’s and its Subsidiaries’ customers; provided,
that if such information cannot reasonably be provided in reports to Agent (or
if Agent shall so request), Borrower shall provide access and assistance to
Agent to permit Agent to obtain such information in Borrower’s and its
Subsidiaries’ records (including databases) at any applicable location where
such records are stored or maintained; and

(iii) such other reports as to the Collateral or the financial condition of
Borrower and its Subsidiaries, as Agent may request in its Permitted Discretion.