Exhibit 10.1

[Execution]

LOAN AND SECURITY AGREEMENT

WELLS FARGO RETAIL FINANCE, LLC

AS AGENT

THE LENDERS PARTY HERETO

ROOMSTORE, INC.

AS BORROWER

WELLS FARGO RETAIL FINANCE, LLC

AS SOLE LEAD ARRANGER AND SOLE LEAD BOOKRUNNER

Dated as of May 27, 2010

 

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TABLE OF CONTENTS

 

ARTICLE I. - DEFINITIONS:

   2

ARTICLE II. - THE REVOLVING CREDIT

   38

2.1

  

ESTABLISHMENT OF REVOLVING CREDIT

   38

2.2

  

ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)

   39

2.3

  

RISKS OF VALUE OF COLLATERAL

   39

2.4

  

COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF CREDIT

   39

2.5

  

REVOLVING CREDIT LOAN REQUESTS

   40

2.6

  

MAKING OF REVOLVING CREDIT LOANS

   41

2.7

  

SWINGLINE LOANS

   42

2.8

  

THE LOAN ACCOUNT

   43

2.9

  

THE REVOLVING CREDIT NOTE

   44

2.10

  

PAYMENT OF THE LOAN ACCOUNT

   44

2.11

  

INTEREST ON REVOLVING CREDIT LOANS

   45

2.12

  

UNUSED LINE FEE

   46

2.13

  

EARLY TERMINATION FEE

   46

2.14

  

ARRANGEMENT FEE

   47

2.15

  

CONCERNING FEES

   47

2.16

  

AGENT’S

   48

2.17

  

PROCEDURES FOR ISSUANCE OF L/C’S

   48

2.18

  

FEES FOR L/C’S

   50

2.19

  

CONCERNING L/C’S

   51

2.20

  

CHANGED CIRCUMSTANCES

   53

2.21

  

LENDERS’ COMMITMENTS

   56

2.22

  

INCREASE IN DOLLAR COMMITMENTS

   57

ARTICLE III. - CONDITIONS PRECEDENT

   58

3.1

  

CONDITIONS PRECEDENT TO THE CLOSING DATE AND FUNDING DATE

   58

3.2

  

CORPORATE DUE DILIGENCE

   59

3.3

  

OPINION

   59

3.4

  

OFFICERS’ CERTIFICATES

   59

3.5

  

ADDITIONAL DOCUMENTS

   59

3.6

  

REPRESENTATIONS AND WARRANTIES

   61

3.7

  

MINIMUM DAY ONE AVAILABILITY

   61

3.8

  

ALL FEES AND EXPENSES PAID

   61

3.9

  

NO DEFAULT

   61

3.10

  

NO ADVERSE CHANGE

   61

3.11

  

VALIDITY OF LIENS

   61

3.12

  

REAL PROPERTY

   62

ARTICLE IV. - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:

   62

4.1

  

PAYMENT AND PERFORMANCE OF LIABILITIES

   62

 

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4.2

  

DUE ORGANIZATION. CORPORATE AUTHORIZATION. NO CONFLICTS

   63

4.3

  

TRADE NAMES

   65

4.4

  

INFRASTRUCTURE

   65

4.5

  

SOLVENCY

   65

4.6

  

LOCATIONS

   66

4.7

  

TITLE TO ASSETS

   67

4.8

  

INDEBTEDNESS

   67

4.9

  

INSURANCE

   69

4.10

  

LICENSES AND OTHER MATERIAL CONTRACTS

   70

4.11

  

LEASES

   71

4.12

  

REQUIREMENTS OF LAW

   71

4.13

  

LABOR RELATIONS

   71

4.14

  

MAINTAIN PROPERTIES

   72

4.15

  

TAXES

   72

4.16

  

NO MARGIN STOCK

   73

4.17

  

ERISA

   74

4.18

  

HAZARDOUS MATERIALS

   74

4.19

  

LITIGATION

   75

4.20

  

DIVIDENDS; INVESTMENTS; CORPORATE ACTION

   75

4.21

  

LOANS

   76

4.22

  

PROTECTION OF ASSETS

   76

4.23

  

LINE OF BUSINESS

   77

4.24

  

AFFILIATE TRANSACTIONS

   77

4.25

  

DEPOSIT ACCOUNTS

   77

4.26

  

FURTHER ASSURANCES

   77

4.27

  

ADEQUACY OF DISCLOSURE

   78

4.28

  

NO RESTRICTIONS ON LIABILITIES

   78

4.29

  

[RESERVED]

   79

4.30

  

OTHER COVENANTS

   79

ARTICLE V. - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:

   79

5.1

  

MAINTAIN RECORDS

   79

5.2

  

ACCESS TO RECORDS

   80

5.3

  

NOTICE TO AGENT

   80

5.4

  

BORROWING BASE CERTIFICATE

   81

5.5

  

COLLATERAL REPORTS

   82

5.6

  

[RESERVED.]

   82

5.7

  

[RESERVED]

   82

5.8

  

FINANCIAL REPORTS

   82

5.9

  

OFFICERS’ CERTIFICATES

   83

5.10

  

INVENTORIES, APPRAISALS, AND AUDITS

   83

5.11

  

ADDITIONAL FINANCIAL INFORMATION

   85

5.12

  

MINIMUM AVAILABILITY

   85

ARTICLE VI. - USE AND COLLECTION OF COLLATERAL:

   86

6.1

  

INVENTORY COVENANTS

   86

 

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6.2

  

ACCOUNT COVENANTS

   86

6.3

  

NOTIFICATION TO ACCOUNT DEBTORS

   87

6.4

  

RIGHT TO CURE

   87

ARTICLE VII. - CASH MANAGEMENT; PAYMENT OF LIABILITIES:

   88

7.1

  

DEPOSITORY ACCOUNTS

   88

7.2

  

CREDIT CARD RECEIPTS

   89

7.3

  

THE CONCENTRATION, BLOCKED, OPERATING ACCOUNTS AND INVESTMENT ACCOUNTS

   89

7.4

  

PROCEEDS AND COLLECTION OF ACCOUNTS

   91

7.5

  

PAYMENT OF LIABILITIES

   92

7.6

  

THE OPERATING ACCOUNTS AND DISBURSEMENT ACCOUNT

   93

ARTICLE VIII. - GRANT OF SECURITY INTEREST:

   93

8.1

  

GRANT OF SECURITY INTEREST

   93

8.2

  

EXTENT AND DURATION OF SECURITY INTEREST

   94

8.3

  

PERFECTION OF SECURITY INTERESTS

   95

ARTICLE IX. - AGENT AS BORROWER’S ATTORNEY-IN-FACT:

   98

9.1

  

APPOINTMENT AS ATTORNEY IN FACT

   98

9.2

  

NO OBLIGATION TO ACT

   99

ARTICLE X. - EVENTS OF DEFAULT:

   99

10.1

  

FAILURE TO PAY REVOLVING CREDIT

   99

10.2

  

FAILURE TO MAKE OTHER PAYMENTS

   99

10.3

  

FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD)

   100

10.4

  

FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD)

   100

10.5

  

MISREPRESENTATION

   101

10.6

  

BREACH OF MATERIAL CONTRACTS. BREACH OF LEASE

   101

10.7

  

DEFAULT UNDER OTHER AGREEMENTS

   102

10.8

  

UNINSURED CASUALTY LOSS

   103

10.9

  

ATTACHMENT; JUDGMENT; RESTRAINT OF BUSINESS

   103

10.10

  

BUSINESS FAILURE

   103

10.11

  

BANKRUPTCY

   104

10.12

  

DEFAULT BY GUARANTOR OR AFFILIATE

   104

10.13

  

INDICTMENT

   104

10.14

  

CHALLENGE TO LOAN DOCUMENTS

   104

10.15

  

KEY MANAGEMENT

   105

10.16

  

CHANGE IN CONTROL

   105

ARTICLE XI. - RIGHTS AND REMEDIES UPON DEFAULT:

   105

11.2

  

RIGHTS OF ENFORCEMENT

   106

11.3

  

SALE OF COLLATERAL

   106

11.4

  

OCCUPATION OF BUSINESS LOCATION

   107

11.5

  

GRANT OF NONEXCLUSIVE LICENSE

   108

 

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11.6

  

ASSEMBLY OF COLLATERAL

   108

11.7

  

RIGHTS AND REMEDIES

   108

ARTICLE XII. - NOTICES:

   108

12.1

  

NOTICE ADDRESSES

   108

12.2

  

NOTICE GIVEN

   109

ARTICLE XIII. - TERM:

   110

13.1

  

TERMINATION OF REVOLVING CREDIT

   110

13.2

  

ACTIONS ON TERMINATION

   110

ARTICLE XIV. - THE AGENT

   110

14.1

  

DESIGNATION OF AGENT

   110

14.2

  

RESPONSIBILITIES OF AGENT

   111

14.3

  

DISTRIBUTIONS BY THE AGENT

   112

14.4

  

[RESERVED]

   113

14.5

  

DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS

   113

14.6

  

[RESERVED]

   114

14.7

  

CONFIDENTIAL INFORMATION

   114

14.8

  

RELIANCE BY AGENT

   114

14.9

  

NON-RELIANCE ON AGENT AND OTHER LENDERS

   114

14.10

  

INDEMNIFICATION

   115

14.11

  

RESIGNATIONS OF AGENT

   116

ARTICLE XV. - FUNDINGS AND DISTRIBUTIONS

   116

15.1

  

FUNDING PROCEDURES

   116

15.2

  

SWINGLINE LOANS

   117

15.3

  

AGENT’S COVERING OF FUNDINGS

   117

15.4

  

ORDINARY COURSE DISTRIBUTIONS

   120

ARTICLE XVI. - INTENTIONALLY OMITTED

   121

ARTICLE XVII. - LIQUIDATIONS

   121

17.1

  

ACCELERATION

   121

17.2

  

INITIATION OF LIQUIDATION

   121

17.3

  

ACTIONS AT AND

   122

17.4

  

AGENT’S CONDUCT OF LIQUIDATION

   122

17.5

  

DISTRIBUTION OF LIQUIDATION PROCEEDS

   123

17.6

  

RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION

   123

ARTICLE XVIII. - ASSIGNMENTS BY LENDERS

   124

18.1

  

ASSIGNMENTS AND ASSUMPTIONS

   124

18.2

  

ASSIGNMENT PROCEDURES

   124

18.3

  

EFFECT OF ASSIGNMENT

   125

ARTICLE XIX. - GENERAL:

   126

19.1

  

PROTECTION OF COLLATERAL

   126

19.2

  

PUBLICITY

   126

 

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19.3

  

SUCCESSORS AND ASSIGNS

   126

19.4

  

SEVERABILITY

   127

19.5

  

AMENDMENTS AND WAIVERS

   127

19.6

  

POWER OF ATTORNEY

   129

19.7

  

APPLICATION OF PROCEEDS

   129

19.8

  

INCREASED COSTS

   129

19.9

  

COSTS AND EXPENSES OF THE AGENT AND LENDERS

   130

19.10

  

COPIES AND FACSIMILES

   130

19.11

  

GOVERNING LAW

   131

19.12

  

CONSENT TO JURISDICTION

   131

19.13

  

INDEMNIFICATION

   132

19.14

  

RULES OF CONSTRUCTION

   132

19.15

  

INTENT

   134

19.16

  

PARTICIPATIONS

   135

19.17

  

RIGHT OF SET OFF

   135

19.18

  

PLEDGES TO FEDERAL RESERVE BANKS

   135

19.19

  

MAXIMUM INTEREST RATE

   135

19.20

  

WAIVERS

   136

19.21

  

COUNTERPARTS

   137

 

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EXHIBITS AND SCHEDULES

 

2.7    :      SwingLine Note 2.9    :      Revolving Credit Note 2.21(a)    :
     Lender’s Commitments 4.2    :      Affiliates 4.3    :      Trade Names
4.6(a)    :      Locations, Leases, and Landlords 4.6(c)         Form of
Collateral Access Agreement 4.7(a)    :      Encumbrances 4.7(b)        
Consigned Goods

4.7(d)

  

:

     Third Party Bailees 4.8    :      Indebtedness 4.9    :      Insurance
Policies 4.10(a)    :      Material Contracts 4:10(b)    :      Material
Franchise, etc. Agreements 4.11    :      Leases and Capital Leases 4.13    :
     Collective Bargaining Agreements 4.15    :      Taxes 4.19    :     
Litigation 5.4    :      Form of Borrowing Base Certificate 5.5    :     
Collateral Reporting 5.9    :      Officer’s Compliance Certificate 5.11(c)    :
     Business Plan 7.1    :      DDA’s and Investment Accounts 7.2    :     
Credit Card Arrangements 8.3(e)    :      Letter of Credit Rights 18.2(a)    :
     Assignment and Acceptance Agreement

 

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LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT, dated as of May 27, 2010, is made among

Wells Fargo Retail Finance, LLC, as agent (in such capacity, herein the “Agent”)
for the benefit of those financial institutions identified on the signature
pages of this Agreement and who in the future are those Persons (if any) who
become a “Lender”, whether by execution of this Agreement or an Assignment and
Acceptance Agreement;

and

the Lenders

and

RoomStore, Inc., a Virginia corporation (the “Borrower”).

WITNESSETH:

WHEREAS, the Borrower has requested that the Agent and Lenders enter into
financing arrangements with the Borrower pursuant to which Lenders may make
loans and provide other financial accommodations to the Borrower; and

WHEREAS, each Lender is willing to agree (severally and not jointly) to make
such loans and provide such financial accommodations to the Borrower on a pro
rata basis according to its Commitment (as defined below) on the terms and
conditions set forth herein and the Agent is willing to act as Agent for the
Lenders on the terms and conditions set forth herein and the other Loan
Documents;

NOW, THEREFORE, in consideration of the mutual conditions and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

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ARTICLE I. - DEFINITIONS:

As herein used, the following terms have the following meanings or are defined
in the section of this Agreement so indicated:

“Acceleration”: With respect to any Indebtedness, its becoming due and payable
prior to its stated maturity. Derivations of the word “Acceleration” (such as
“Accelerate”) are used with like meaning in this Agreement.

“Acceleration Notice”: A written notice by the SuperMajority Lenders to the
Agent following the occurrence of an Event of Default.

“Accounts” and “Accounts Receivable” As to the Borrower, all present and future
“Accounts” as defined in the UCC, and also all: accounts, accounts receivable,
receivables, and rights to payment (whether or not earned by performance) for:
property that has been or is to be sold, leased, licensed, assigned, or
otherwise disposed of; services rendered or to be rendered; a policy of
insurance issued or to be issued; a secondary obligation incurred or to be
incurred; arising out of the use of a credit or charge card or information
contained on or used with that card; and also all Inventory which gave rise
thereto, and all rights associated with such Inventory, including the right of
stoppage in transit; all reclaimed, returned, rejected or repossessed Inventory
(if any) the sale of which gave rise to any Account.

“ACH”: Automated clearing house.

“ACH Transactions”: Any cash management or related services (including the ACH
processing of electronic funds transfers through the direct Federal Reserve
Fedline system) provided by Wells Fargo or its Affiliates for the account of the
Borrower and its Subsidiaries.

“Account Debtor”: Has the meaning given that term in the UCC.

“Affiliate”:

(a) With respect to any two Persons, a relationship in which (i) one holds,
directly or indirectly, not less than Fifteen Percent (15%) of the capital
stock, beneficial interests, partnership interests, or other equity interests of
the other; or (ii) one has, directly or indirectly, the right, under ordinary
circumstances, to elect a majority of the directors (or other body or Person who
has those powers customarily vested in a board of directors of a corporation);
or (iii) the same third Person holds, directly or indirectly, not less than
Fifteen Percent (15%) of their respective capital stock, beneficial interests,
partnership interests or other equity interests; or has directly or indirectly
the right to elect the majority of directors of both such parties; or

 

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(b) Any corporation, limited liability company, trust, partnership, joint
venture, or other enterprise which: is a parent, brother sister, subsidiary, or
affiliate, of the Borrower; could have such enterprise’s tax returns or
financial statements consolidated with the Borrower’s; could be a member of the
same controlled group of corporations (within the meaning of Section 1563(a)(1),
(2) and (3) of the Internal Revenue Code of 1986, as amended from time to time)
of which the Borrower is a member; controls or is controlled by the Borrower.

“Agreement”: This Loan and Security Agreement, as it may be modified, amended,
supplemented, amended and restated or restated from time to time.

“Agent”: Defined in the Preamble.

“Agent’s Cover”: Defined in Section 15.3(c)(i).

“Agent’s Rights and Remedies”: Defined in Section 11.6.

“Appraised Inventory Net Liquidation Value”: The product of (a) the Cost of
Eligible Inventory (net of Inventory Reserves) multiplied by (b) that
percentage, determined by the Agent from the then most recent appraisal of the
Borrower’s Inventory obtained by the Agent, to reflect the appraiser’s estimate
of the net realization on Retail of the Liquidation of the Borrower’s Inventory,
which prior to the IT Trigger Date will be calculated separately for stores in
the Eastern Division and Western Division.

“Appraised Real Property Net Liquidation Value”: That value (expressed in
Dollars) determined by the Agent from the then most recent appraisal of such
Real Property obtained by the Agent, to reflect the appraiser’s estimate of the
net realization of the Liquidation of such Real Property.

“Arrangement Fee”: Defined in Section 2.14.

“Assignee Lender”: Defined in Section 18.1.

“Assigning Lender”: Defined in Section 18.1.

“Assignment and Acceptance”: An Assignment and Acceptance Agreement
substantially in the form of EXHIBIT 18.2(a) attached hereto (with blanks
appropriately completed) delivered to Agent in connection with an assignment of
a Lender’s interest hereunder in accordance with the provisions of Article XIX
hereof.

 

3

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“Authorized Officer”: The Borrower’s President, Treasurer, Secretary or Chief
Financial Officer as duly authorized by the Borrower’s Board of Directors, or,
in the case of Borrowing Base Certificates, such other person as is authorized
by the Board of Directors of the Borrower.

“Availability”: The lesser of (a) or (b), where

(a) is the result of

(i) The Revolving Credit Loan Ceiling

Minus

(ii) The aggregate unpaid balance of the Loan Account

Minus

(iii) The aggregate undrawn Stated Amount of all then outstanding L/C’s

Minus

(iv) The aggregate of the Availability Reserves.

(b) is the result of

(i) The Borrowing Base

Minus

(ii) The aggregate unpaid balance of the Loan Account

Minus

(iii) The aggregate undrawn Stated Amount of all then outstanding L/C’s

Minus

(iv) The aggregate of the Availability Reserves.

 

4

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“Availability Reserves”: Such reserves as the Agent from time to time determines
in the Agent’s discretion as being appropriate to reflect the impediments to the
Agent’s ability to realize upon the Collateral. Without limiting the generality
of the foregoing, Availability Reserves may include (but are not limited to)
reserves based on the following:

(i) Rent for any location in a Landlord State if a Collateral Access Agreement
has not been received by the Agent (which shall be three (3) months rent for any
such location).

(ii) Customer Credit Liabilities.

(iii) Taxes and other governmental charges, including, ad valorem, personal
property, and other taxes which in each case might have priority over the
Collateral Interests of the Agent in the Collateral, in each case unless being
contested in good faith and for which adequate cash reserves for the payment
thereof have been established.

(iv) Bank Product Obligations.

(v) Payables which are past the Borrower’s normal trade terms.

“Bank Product Agreements”: Those certain cash management service agreements
entered into from time to time by the Borrower or its Subsidiaries in connection
with any of the Bank Products.

“Bank Product Obligations”: All obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by the Borrower or its
Subsidiaries to Wells Fargo or its Affiliates in respect of Factored Receivables
or 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 is obligated to reimburse to Lender as
a result of Lender purchasing participations or executing indemnities or
reimbursement obligations with respect to the Bank Products provided to Borrower
or its Subsidiaries pursuant to the Bank Product Agreements.

“Bank Product Providers”: Wells Fargo and any Affiliate of Wells Fargo that from
time to time either provides Bank Products to the Borrower or its Subsidiaries
or purchases or factors Factored Receivables.

 

5

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“Bank Products”: Any service or facility extended to the Borrower or its
Subsidiaries by Wells Fargo or any Affiliate of Wells Fargo, 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, (g) Hedge Agreements, or
(h) Factored Receivables.

“Bankruptcy Code”: Title 11, U.S.C., as amended from time to time.

“Bankruptcy Court”: The United States Bankruptcy Court for the District of
Eastern District of Virginia.

“Base”: The greatest of (a) the Federal Funds Rate plus one-half of one (.50%)
percent, (b) the LIBOR Rate (which rate shall be calculated based upon an
Interest Period of three (3) months and shall be determined on a daily basis),
plus one (1%) percent, and (c) 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 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. Any
change in “Base” shall be effective, for purposes of the calculation of interest
due hereunder, when such change is made effective generally by the bank on whose
rate or index “Base” is being set. In all events, interest that is determined by
reference to Base (or any successor to Base) shall be calculated on a 360-day
year and actual days elapsed.

“Base Margin”: Two Percent (2.0%).

“Base Margin Loan”: Each Revolving Credit Loan while bearing interest at the
Base Margin Rate.

“Base Margin Rate”: The aggregate of Base plus the applicable Base Margin.

“Blocked Account”: Any DDA into which proceeds of Collateral are remitted (other
than a Store Account).

“Blocked Account Agreement”: A Control Agreement, in form reasonably
satisfactory to the Agent, pursuant to which the Borrower and applicable bank
recognize the Agent’s Collateral Interest in the contents of the DDA and agrees
that such contents shall be transferred only to the Concentration Account or as
otherwise instructed by the Agent.

 

6

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“Borrower”: Defined in the Preamble.

“Borrowing Base”: The sum of the following:

(a) The Eastern Division Borrowing Base;

Plus

(b) The Western Division Borrowing Base;

Plus

(c) The Appraised Real Property Net Liquidation Value of Eligible Real Property
multiplied by the Real Property Advance Rate (less Real Property Reserves).

Minus

(d) Any Availability Reserves established by Agent.

“Borrowing Base Certificate”: A Certificate in the form attached hereto as
EXHIBIT 5.4 (as such form may be revised from time to time by the Agent), signed
by an Authorized Officer, reflecting the Borrower’s financial condition on the
last Business Day of the reporting period immediately prior to the date when
furnished, including, without limitation, Inventory roll forwards (which prior
to the IT Trigger Date shall be separately stated for the Eastern Division and
Western Division), from the prior period and such other updated information as
the Agent may require.

“Business Day”: Any day (with any references herein to time of day requirements
meaning such times based on Eastern time) other than (a) Saturday or Sunday;
(b) any day on which banks in Boston, Massachusetts, generally are not open to
the general public for the purpose of conducting commercial banking business; or
(c) a day on which the principal office of the Agent or Lenders is not open to
the general public to conduct business.

“Business Plan”: The Borrower’s business plan delivered to the Agent as of the
Closing Date, a copy of which is attached hereto as Exhibit 5.11(c), and any
revision, amendment, or update of such business plan, provided such revision,
amendment, or update has been accepted in writing by the Agent. The Agent
acknowledges that the Business Plan attached hereto as Exhibit 5.11(c) is
acceptable to it.

 

7

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“Capital Adequacy Demand”: Defined in Section 19.8.

“Capital Adequacy Charge”: Defined in Section 19.8.

“Capital Expenditures”: The expenditure of funds or the incurrence of
liabilities which may be capitalized in accordance with GAAP.

“Capital Lease”: Any lease which may be capitalized in accordance with GAAP.

“Cash Equivalent”: (a) Marketable direct obligations issued or unconditionally
guaranteed by the United States or issued by any agency thereof, in each case
maturing within one year 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 one year from the date of acquisition thereof and, at the time of
acquisition, having the highest rating obtainable from either S&P or Moody’s,
(c) commercial paper maturing no more than one year from the date of acquisition
thereof and, at the time of acquisition, having a rating of A-1 or P-1, or
better, from S&P or Moody’s, (d) time deposits, certificates of deposit or
bankers’ acceptances maturing within one year from the date of acquisition
thereof either (i) issued by any bank organized under the laws of the United
States or any state thereof which bank has a rating of A or A2, or better, from
S&P or Moody’s, or (ii) certificates of deposit less than or equal to $100,000
in the aggregate issued by any other bank insured by the Federal Deposit
Insurance Corporation, (e) repurchase obligations offered by the Agent or its
Affiliates with a term of not more than 30 days for underlying securities of the
type described in clause (a) above entered into with any bank meeting the
specifications set forth in clause (d) above at the time of acquisition thereof,
and (f) investments in money market or mutual funds offered by the Agent or its
Affiliates that invest primarily in the foregoing items.

“Certificate”: Any certificate in form and substance reasonably acceptable to
the Agent.

“Change in Control”: The occurrence of any of the following:

(a) The acquisition after the date hereof, by any group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended) or by any Person, of
beneficial ownership

 

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(within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as
amended), directly or indirectly, of 35% or more of the issued and outstanding
capital stock of the Borrower having the right to vote for the election of
directors of the Borrower.

(b) More than half of the persons who were directors of the Borrower on the
first day of any period consisting of Twelve (12) consecutive calendar months
(the first of which Twelve (12) month periods commencing as of the Closing
Date), together with any other directors whose election by the Board of
Directors of Borrower or whose nomination by election by the stockholders of
Borrower was approved by a vote of at least two-thirds of the directors then in
office who either were directors at the beginning of such period or whose
nomination for election was previously so approved, cease, for any reason other
than death or disability, to be directors of the Borrower, and the board of
directors as thereafter constituted is not reasonably acceptable to the Agent.

“Chattel Paper”: Has the meaning given that term in the UCC.

“Closing Date”: The date on which all conditions precedent in Article III of
this Agreement are satisfied.

“Collateral”: Defined in Section 8.1.

“Collateral Access Agreement”: A landlord waiver, bailee letter, contractor
letter, or acknowledgement agreement of any lessor, warehouseman, processor,
consignee, contractor, or other Person in possession of, having an Encumbrance
upon, or having rights or interests in the Equipment or Inventory, in each case,
in the form of Exhibit 4.6(c) hereto or otherwise in form and substance
reasonably satisfactory to the Agent.

“Collateral Interest”: Any interest in property to secure an obligation,
including, without limitation, a security interest, mortgage, and deed of trust.

“Concentration Account”: The deposit account established by the Agent over which
the Agent has sole dominion and control.

“Contingent Funding Commitment”: as defined under Section 6.2 of the Borrower’s
Plan of Reorganization.

 

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“Control Agreement”: An agreement, in form and substance reasonably satisfactory
to the Agent, executed and delivered by the Borrower, the Agent, and the
applicable securities intermediary or bank, which agreement is sufficient to
give the Agent “control” over the subject Securities Account, DDA, Investment
Property, or other account as provided in the UCC.

“Consolidated”: When used to modify a financial term, test, statement, or
report, refers to the application or preparation of such term, test, statement,
or report (as applicable) based upon the consolidation, in accordance with GAAP,
with any adjustments or modifications reasonably acceptable to the Agent, of the
financial condition or operating results of the Borrower and its Subsidiaries.

“Cost”: The lower of

(a) the calculated cost of purchases, based upon the Borrower’s accounting
practices, on a first-in, first-out (FIFO) basis (or, at all times on or after
the IT Trigger Date, an average cost basis) in respect to the Western Division
and an average cost basis in respect to the Eastern Division, in each case,
known to the Agent, which practices are in effect on the date on which this
Agreement was executed as such calculated cost is determined from invoices
received by the Borrower; the Borrower’s purchase journal; or the Borrower’s
stock ledger;

(b) the cost equivalent of the lowest ticketed or promoted price at which the
subject Inventory is offered to the public, after all mark-downs (whether or not
such price is then reflected on the Borrower’s accounting system), determined in
accordance with the Borrower’s historic business practices;

provided that “Cost” does not include Inventory capitalization costs or other
non-purchase price charges (such as UNICAP) used in the Borrower’s calculation
of cost of goods sold.

“Cost Factor”: The result of 1 minus the Borrower’s then cumulative markup
percent derived from the Borrower’s purchase journal on a rolling 12 month
basis.

“Costs of Collection”: Includes, without limitation, all attorneys’ reasonable
fees and reasonable out of pocket expenses incurred by the Agent’s attorneys,
and all reasonable and documented costs incurred by the Agent including, without
limitation, reasonable and documented costs and expenses associated with any
bankruptcy or insolvency proceeding or travel on behalf of the Agent, where such
costs and expenses are directly or indirectly related to or in respect of

 

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the Agent’s: administration and management of the Liabilities; negotiation,
documentation, and amendment of any Loan Document; or efforts to preserve,
protect, collect, or enforce the Collateral, the Liabilities, and/or the Agent’s
Rights and Remedies and/or any of the rights and remedies of the Agent against
or in respect of any guarantor or other person liable in respect of the
Liabilities (whether or not suit is instituted in connection with such efforts).
“Costs of Collection” shall also include the reasonable costs and expenses
similar to the foregoing of Lenders’ Special Counsel. The Costs of Collection
are Liabilities, and at the Agent’s option may bear interest at the then
effective Base Margin Rate.

“Credit Card Advance Rate”: Eighty Five (85%) Percent.

“Credit Card Acknowledgments”: Collectively, the agreements by Credit Card
Issuers or Credit Card Processors who are parties to Credit Card Agreements in
favor of the Agent acknowledging the Agent’s first priority security interest,
for and on behalf of the Lenders, in the monies due and to become due to the
Borrower (including, without limitation, credits and reserves) under the Credit
Card Agreements, and agreeing to transfer all such amounts to a Blocked Account
or the Concentration Account, as the same now exists or may hereafter be amended
or modified; sometimes referred to herein individually as a “Credit Card
Acknowledgment”.

“Credit Card Agreements”: Those certain credit card receipts agreements, each in
form and substance reasonably satisfactory to the Agent and each of which is
among the Agent, the Borrower and the Credit Card Processors.

“Credit Card Issuer”: Any Person (other than the Borrower) who issues or whose
members issue credit cards, including, without limitation, MasterCard or VISA
bank credit or debit cards or other bank credit or debit cards issued through
MasterCard International, Inc., Visa U.S.A., Inc., or Visa International and
American Express, Discover and other non-bank credit or debit card, including
without limitation, credit or debit cards issued by or through American Express
Travel Related Services Company, Inc. and Novus Services, Inc.

“Credit Card Processor”: Any servicing or processing agent or any factor or
financial intermediary who services, processes or manages the credit
authorization, billing transfer and/or payment procedures with respect to the
Borrower’s sales transactions involving credit card or debit card purchases by
customers using credit cards or debit cards issued by any Credit Card Issuer.

 

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“Customer Credit Liability”: Gift certificates, customer deposits, merchandise
credits, layaway obligations, frequent shopping programs, and similar
liabilities of the Borrower to its retail customers and prospective customers.

“Customs Broker Agreement”: A tri-party agreement in form reasonably
satisfactory to the Agent, among the Borrower, and a customs broker or other
carrier, in which the customs broker or other carrier acknowledges that it has
control over and holds the documents evidencing ownership of the subject
Inventory for the benefit of the Agent and agrees, upon notice from the Agent,
to hold and dispose of the subject Inventory solely as directed by the Agent.

“DDA”: Any checking or other demand depository account maintained by the
Borrower or any Guarantor other than an Exempt DDA.

“Default”: Any occurrence, circumstance, or state of facts which would become an
Event of Default if any requisite notice were given and/or any requisite period
of time were to run and such occurrence, circumstance, or state of facts were
not cured within any applicable grace period.

“Delinquent Lender”: Defined in Section 15.3(c).

“Deposit Account”: Has the meaning given that term in the UCC.

“Distribution”: With respect to any Person, (a) the declaration or payment of
any dividend on or in respect of any shares of capital Stock of such Person,
other than dividends payable solely in shares of common stock of such Person,
(b) the purchase, redemption, or other retirement of any shares of any class of
capital stock of such Person, directly or indirectly, (c) the return of capital
by such Person to its shareholders or other interest holders, or (d) any other
distribution on or in respect of any shares of any class of capital stock of
such Person.

“Documents”: Has the meaning given that term in the UCC.

“Documents of Title”: Has the meaning given that term in the UCC.

“Dollar Commitment”: As set forth on EXHIBIT 2.21(a) annexed hereto (as such
amounts may change in accordance with the provisions of this Agreement). The
aggregate of the Dollar Commitments shall not exceed the Revolving Credit Loan
Ceiling.

 

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“Domestic Distribution Center”: The Borrower’s distribution center located at
2280 Tanner Road, Rocky Mount, North Carolina 27801, or elsewhere upon prior
written notice to the Agent.

“Eastern Division”: The operating division of the Borrower including of all of
the Borrower’s retail store locations East of the Mississippi River.

“Eastern Division Appraised Inventory Liquidation Value”: The Appraised
Inventory Net Liquidation Value determined by Agent, in its discretion, as being
applicable to the Borrower’s Inventory located in a stores in its Eastern
Division.

“Eastern Division Borrowing Base”: The result of applying the following formula:

(a) the face amount of Eligible Credit Card Receivables originated by stores in
the Eastern Division multiplied by the Credit Card Advance Rate (less associated
Receivables Reserves)

Plus

(b) the lesser of (i) the Eastern Division Appraised Inventory Net Liquidation
Value of Eligible Inventory multiplied by the Eastern Division Inventory Advance
Rate (less Inventory Reserves) or (ii) the value (calculated at the lower of
Cost or market) of Eligible Inventory of the Eastern Division multiplied by
seventy (70%) percent (less Inventory Reserves).

“Eastern Division Inventory Advance Rate”: Ninety percent (90%).

“Eligible Assignee”: (a) Another Lender, (b) with respect to any Lender, any
Affiliate of that Lender, (c) any commercial bank having total assets of
$5,000,000,000 or more, (d) any (i) savings bank, savings and loan association
or similar financial institution or (ii) insurance company engaged in the
business of writing insurance which, in either case (A) has total assets of
$5,000,000,000 or more, (B) is engaged in the business of lending money and
extending credit under credit facilities substantially similar to those extended
under this Agreement and (C) is operationally and procedurally able to meet the
obligations of a Lender hereunder to the same degree as a commercial bank and
(e) any other financial institution (including a mutual fund or other fund)
having total assets of $5,000,000,000 or more which meets the requirements set
forth in subclauses (B) and (C) of clause (d) above; provided, that each
Eligible Assignee must either (aa) be organized under the laws of the United
States of America, any State thereof or the District of Columbia or (bb) be
organized under the laws of

 

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the Cayman Islands or any country which is a member of the Organization for
Economic Cooperation and Development, or a political subdivision of such a
country, and (i) act hereunder through a branch, agency or funding office
located in the United States of America and (ii) be exempt from withholding of
tax on interest and deliver the documents related thereto as required by the
Agent.

“Eligible Credit Card Receivables”: Accounts due to the Borrower on a
non-recourse basis from major credit card processors (which, if due on account
of a private label credit card program, are deemed in the reasonable discretion
of the Agent to be eligible), (a) which accounts have been outstanding for no
more than five (5) Business Days, (b) as to which the Agent has a perfected
security interest that is prior and superior to all claims and all Encumbrances
(other than Permitted Encumbrances, subject to the Agent’s right to establish
Reserves therefor in accordance with the terms of this Agreement) and (c) as to
which the Agent has received a duly executed Credit Card Acknowledgment from the
applicable credit card processor except as the Agent may otherwise agree.

“Eligible Foreign Transfer Inventory”: That portion of the Borrower’s Inventory
(without duplication of other Eligible Inventory) which has been paid for by the
Borrower, is located outside of the United States of America and is in transit
to one of the Borrower’s domestic ports, provided that

(a) Such Inventory is Eligible Inventory;

(b) The Agent has a first priority perfected security interest in the subject
Inventory and all documents of title with respect thereto and the Agent has
control over the documents which evidence ownership of the subject Inventory
(such as by providing a Collateral Access Agreement to the Agent);

(c) Such Inventory has not been in transit for more than thirty (30) days;

(d) Such Inventory is subject to a negotiable bill of lading (i) in which the
Agent is named as consignee and (ii) that is in the possession of the Agent or
in the possession of a customs broker acting on behalf of the Agent pursuant to
a Customs Broker Agreement, duly executed and delivered by such customs broker;

(e) Such Inventory has been and can be reported by the Borrower to the Agent and
can be appropriately monitored by the Agent, as determined by the Agent;

 

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(f) At no time shall the aggregate amount of Eligible Transfer Inventory and
Eligible Foreign Transfer Inventory included in the Eastern Division Borrowing
Base exceed ten (10%) percent of the aggregate amount of all Eligible Inventory
(other than Eligible Transfer Inventory and Eligible Foreign Transfer Inventory)
included in the Eastern Division Borrowing Base at such time; and

(g) At no time shall the aggregate amount of Eligible Transfer Inventory and
Eligible Foreign Transfer Inventory included in the Western Division Borrowing
Base exceed ten (10%) percent of the aggregate amount of all Eligible Inventory
(other than Eligible Transfer Inventory and Eligible Foreign Transfer Inventory)
included in the Western Division Borrowing Base at such time.

“Eligible Inventory”: The Borrower’s Inventory (including Eligible Transfer
Inventory and Eligible Foreign Transfer Inventory, without duplication), at such
locations, and of such types, character, quality and quantities, as the Agent in
its discretion from time to time determines to be acceptable for inclusion in
the calculation of the Borrowing Base and as to which the Agent has a perfected
security interest that is prior and superior to all claims and all Encumbrances
(other than Permitted Encumbrances, subject to the Agent’s rights to establish
Reserves therefor in accordance with the terms of this Agreement).

In no event, shall “Eligible Inventory” include: (i) any non merchandise
inventory (such as labels, bags, and packaging materials); (ii) damaged goods,
return to vendor merchandise, packaways, consigned inventory, and other similar
categories of Goods; (iii) any Inventory located in any store of the Borrower
which has been closed for business for more than 20 days in any fiscal quarter;
and (iv) any pre-sold Inventory for which a customer has paid a deposit.

“Eligible Real Property”: The Domestic Distribution Center Property, but only
if, and to the extent that, the Agent in its discretion from time to time
determines such property to be acceptable for inclusion in the calculation of
the Borrowing Base, as to which property the Agent has a perfected security
interest, lien, mortgage, deed of trust or collateral assignment, as shall have
been required by the Agent, that is prior and superior to all claims and all
Encumbrances (other than Permitted Encumbrances, subject to the Agent’s rights
to establish Reserves therefor in accordance with the terms of this Agreement).
The Borrower acknowledges that the Agent has informed it that further due
diligence (including, but not

 

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limited to, a Phase II environmental assessment satisfactory to the Agent and an
as-built survey showing that the Domestic Distribution Center does not encroach
on any abutting lots) must be received by the Agent before the Domestic
Distribution Center may constitute Eligible Real Property. Accordingly, until
such time as Agent is in receipt of all items required under Section 3.12 hereof
and has determined that each such item is satisfactory to Agent, in its
discretion, the Domestic Distribution Center shall not constitute Eligible Real
Property included in the Borrowing Base.

“Eligible Transfer Inventory”: That portion of the Borrower’s Inventory (without
duplication of other Eligible Inventory) which has been paid for by the Borrower
and is in transit between one of the Borrower’s domestic distribution centers or
domestic ports and one of the Borrower’s other domestic locations listed on
EXHIBIT 4.6(a), provided that

(a) Such Inventory is Eligible Inventory; and

(b) The Agent is named as consignee of the subject Inventory and the Agent has
control over the documents which evidence ownership of the subject Inventory
(such as by providing a Collateral Access Agreement to the Agent);

(c) Such Inventory has not yet been delivered to one of the Borrower’s other
locations listed on EXHIBIT 4.6(a) and has been in transit from one of the
Borrower’s Domestic Distribution Centers for no more than ten (10) days;

(d) At no time shall the aggregate amount of Eligible Transfer Inventory and
Eligible Foreign Transfer Inventory included in the Eastern Division Borrowing
Base exceed ten (10%) percent of the aggregate amount of all Eligible Inventory
(other than Eligible Transfer Inventory and Eligible Foreign Transfer Inventory)
included in the Eastern Division Borrowing Base at such time; and

(e) At no time shall the aggregate amount of Eligible Transfer Inventory and
Eligible Foreign Transfer Inventory included in the Western Division Borrowing
Base exceed ten (10%) percent of the aggregate amount of all Eligible Inventory
(other than Eligible Transfer Inventory and Eligible Foreign Transfer Inventory)
included in the Western Division Borrowing Base at such time.

“Employee Benefit Plan”: As defined in ERISA.

 

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“Encumbrance”: Each of the following:

(a) Any security interest, mortgage, deed of trust, collateral assignment for
security, pledge, hypothecation, lien, attachment, or charge of any kind
(including any agreement to give any of the foregoing); the interest of a lessor
under a Capital Lease; conditional sale or other title retention agreement; sale
of Accounts or Chattel Paper; or other arrangement pursuant to which any Person
is entitled to any preference or priority with respect to the property or assets
of another Person or the income or profits of such other Person or which
constitutes an interest in property to secure an obligation; each of the
foregoing whether consensual or non consensual and whether arising by way of
agreement, operation of law, legal process or otherwise.

(b) The filing of any effective financing statement under the UCC or comparable
law of any jurisdiction.

“End Date”: The date upon which both (a) all Liabilities have been paid in full
(other than contingent indemnity obligations for which the Agent has established
adequate cash reserves in its reasonable discretion) and (b) all obligations of
the Agent and Lenders to make loans and advances and to provide other financial
accommodations to the Borrower hereunder shall have been irrevocably terminated.

“Environmental Laws”: All of the following:

(a) Any and all federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees or requirements which regulate
or relate to, or impose any standard of conduct or liability on account of or in
respect to environmental protection matters, including, without limitation,
Hazardous Materials, as are now or hereafter in effect.

(b) The common law relating to damage to Persons or property from Hazardous
Materials.

“Equipment”: Includes, without limitation, Goods which qualify as “equipment” as
defined in the UCC, and all of the Borrower’s or any Guarantor’s now owned and
hereinafter acquired equipment, wherever located, including machinery, data
processing and computer equipment and computer hardware and software, whether
owned or licensed, and including embedded software, vehicles, rolling stock,
machinery, office equipment, plant equipment, tools, dies, molds, store
fixtures, furniture, and any and all attachments, accessions or additions
thereto, and substitutions and replacements thereof, wherever located.

 

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“ERISA”: The Employee Retirement Income Security Act of 1974, as amended,
together with all orders, regulations and interpretations thereunder or related
thereto.

“ERISA Affiliate”: Any Person which is under common control with the Borrower
within the meaning of Section 4001 of ERISA or is part of a group including the
Borrower and which would be treated as a single employer under Section 414 of
the Internal Revenue Code of 1986, as amended.

“Events of Default”: Defined in Article X. Each reference to an “Event of
Default” is to an Event of Default that has not been duly waived in writing by
the Agent. In the event of such due waiver, the so waived Event of Default shall
be deemed never to have occurred, other than with respect to any post default
interest which accrued prior to such waiver and with respect to any
reimbursement obligation in respect of any Costs of Collection.

“Excess Availability”: The difference of (a) Availability minus (b) all then
past due obligations of the Borrower that are not being contested in good faith.

“Executive Order 13224”: Defined in Section 4.2(g).

“Exempt DDA”: A depository account maintained by the Borrower, the only contents
of which may be transfers from the Operating Account and actually used solely
(i) for petty cash purposes; or (ii) for payroll and payroll taxes, together
with such other depository accounts agreed to by Agent in writing as
constituting an Exempt DDA.

“Existing Lender”: Bank of America, N.A. as agent, and the lenders for whom it
is acting as agent

“Factored Receivables”: Any Accounts owing by the Borrowers which have been
factored or sold by an Account Debtor of the Borrower to Wells Fargo or any
Affiliate of Wells Fargo.

“Farm Products”: Has the meaning given that term in the UCC.

“Federal Funds Rate”: For any period, a fluctuating interest rate per annum
equal to, for each day during such period, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations for
such day on such transactions received by Agent from three Federal funds brokers
of recognized standing selected by it.

 

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“Fee Letter”: The letter agreement, dated of even date herewith, by and between
the Borrower and the Agent, setting forth certain fees payable by the Borrower
to Agent for the benefit of itself and the Lenders, as the same now exists or
may hereafter be amended, modified, supplemented, extended, restated or
replaced.

“Fiscal Year”: Each twelve (12) month accounting period of the Borrower, which
ends on the last day of February of each year.

“Fixtures”: Has the meaning given that term in the UCC.

“GAAP”: Principles which are consistent with those promulgated or adopted by the
Financial Accounting Standards Board and its predecessors (or successors) in
effect and applicable to that accounting period in respect of which reference to
GAAP is being made, provided, however, in the event of a Material Accounting
Change, then unless otherwise agreed to by the Agent, (a) the Borrower’s
compliance with the financial performance covenant imposed pursuant to
Section 5.12 shall be determined as if such Material Accounting Change had not
taken place and (b) the Borrower shall include, with its monthly, and annual
financial statements a schedule, certified by its chief financial officer, on
which the effect of such Material Accounting Change to the statement with which
provided shall be described.

“General Intangibles”: Includes, without limitation, “general intangibles” as
defined in the UCC; and also all: rights to payment for credit extended;
deposits; amounts due to the Borrower or any Guarantor; credit memoranda in
favor of the Borrower or any Guarantor; warranty claims; tax refunds and
abatements; insurance refunds and premium rebates; all means and vehicles of
investment or hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers; goodwill; causes
of action; judgments; payments under any settlement or other agreement; payments
or right to receive payments on account of any transfer of any interest in any
Leasehold; literary rights; rights to performance; royalties; license and/or
franchise fees; rights of admission; licenses; franchises; license agreements,
including all rights of the Borrower to enforce the foregoing; permits,
certificates of convenience and necessity, and similar rights granted by any
governmental authority; patents, patent applications, patents pending, and other
intellectual property; internet addresses and domain names; developmental ideas
and concepts;

 

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proprietary processes; blueprints, drawings, designs, diagrams, plans, reports,
and charts; catalogs; manuals; technical data; computer software programs
(including the source and object codes therefor), computer records, computer
software, rights of access to computer record service bureaus, service bureau
computer contracts, and computer data; tapes, disks, semi conductors chips and
printouts; trade secrets rights, copyrights, copyrightable materials, copyright
registrations and applications, mask work rights and interests, and derivative
works and interests; user, technical reference, and other manuals and materials;
trade names, trademarks, service marks, and all goodwill relating thereto;
registrations, applications for registration of the foregoing; and all other
intangible property of the Borrower in the nature of intellectual property;
proposals; cost estimates, and reproductions on paper, or otherwise, of any and
all concepts or ideas, and any matter related to, or connected with, the design,
development, manufacture, sale, marketing, leasing, or use of any or all
property produced, sold, or leased, by the Borrower or credit extended or
services performed, by the Borrower, whether intended for an individual customer
or the general business of the Borrower, or used or useful in connection with
research and development by the Borrower.

“Goods”: Has the meaning given that term in the UCC.

“Gross Margin”: With respect to the subject accounting period for which it is
being calculated, the decimal equivalent of the following (determined in
accordance with the retail method of accounting):

Sales (Minus) Cost of Goods Sold

Sales

“Hazardous Materials”: Any (a) hazardous materials, hazardous waste, hazardous
or toxic substances or petroleum products, which (as to any of the foregoing)
are defined or regulated as a hazardous material in or under any Environmental
Law and (b) oil in any physical state.

“Headquarters”: The property located at, and known as, 12501 Patterson Avenue,
Richmond, Virginia 23238.

“Hedge Agreement”: All transactions, agreements, or documents now existing or
hereafter entered into between Borrower or its Subsidiaries and Wells Fargo or
its Affiliates, which 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

 

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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, currencies or commodities.

“Indebtedness”: All indebtedness and obligations of any Person on account of or
in respect to any of the following:

(a) Money borrowed (including any indebtedness which is non recourse to the
credit of such Person but which is secured by an Encumbrance on any asset of
such Person) whether or not evidenced by a promissory note, bond, debenture or
other written obligation to pay money;

(b) Any reimbursement obligations and other liabilities of such Person with
respect to surety bonds (whether bid, performance or otherwise), letter of
credit or acceptance transactions (including, without limitation, the Stated
Amount of all outstanding letters of credit and acceptances issued for the
account of such Person, and (without duplication) any amount for which such
Person would be obligated to provide reimbursement or for which such Person is
liable in connection with a letter of credit or acceptance transaction;

(c) The provision of recourse in connection with the sale or discount of
Accounts or Chattel Paper of such Person;

(d) On account of recourse or repayment obligations with respect to deposits or
advances;

(e) As lessee under Capital Leases; and

(f) In connection with any sale and leaseback transaction.

(g) All obligations, when exercised, with respect to redeemable stock and
redemption or repurchase obligations under any equity securities issued by such
Person.

“Indebtedness” also includes:

(a) Indebtedness of others secured by an Encumbrance on any asset of such
Person, whether or not such Indebtedness is assumed by or are a personal
liability of such Person.

(b) Any guaranty, endorsement, suretyship or other undertaking pursuant to which
that Person may be liable on account of any Indebtedness of any third party
other than on account of the endorsement of checks and other items in the
ordinary course.

 

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(c) The Indebtedness of a partnership or joint venture in which such Person is a
general partner or joint venturer, except to the extent the terms of such
Indebtedness expressly provide that such Person is not liable therefor.

“Indemnified Person”: Defined in Section 19.13.

“Instruments”: Has the meaning given that term in the UCC.

“Interest Payment Date”: With reference to:

(a) Each LIBOR Loan: the last day of each Interest Period relating thereto, and
the Termination Date and the End Date.

(b) Each Base Margin Loan: the first day of each month; the Termination Date;
and the End Date.

“Interest Period”:

(a) With respect to each LIBOR Loan: subject to Subsection (b), below, the
period commencing on the date of the making or continuation of, or conversion
to, the subject LIBOR Loan and ending on the day that corresponds numerically to
such date, thirty (30), sixty (60) or ninety (90) days thereafter, as the
Borrower may elect by irrevocable notice (pursuant to Section 2.5(b)) to the
Agent.

(b) The setting of Interest Periods is in all instances subject to the
following:

(i) Any Interest Period for a LIBOR Loan which would otherwise end on a day that
is not a LIBOR Business Day shall be extended to the next succeeding LIBOR
Business Day, unless that succeeding LIBOR Business Day is in the next calendar
month, in which event such Interest Period shall end on the last LIBOR Business
Day of the month during which the Interest Period ends.

(ii) Subject to subsections (iii) and (iv), below, any Interest Period
applicable to a LIBOR Loan, which Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month during which
such Interest Period ends, shall end on the last LIBOR Business Day of the month
during which that Interest Period ends.

 

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(iii) Any Interest Period which would otherwise end after the Revolving Credit
Termination Date shall end on the Revolving Credit Termination Date.

(iv) The Borrower shall not select, renew, or convert any interest rate for a
Revolving Credit Loan such that, in addition to interest at the Base Margin
Rate, there are more than five (5) Interest Periods applicable to LIBOR Loans at
any one time.

“Inventory”: Includes, without limitation, “inventory” as defined in the UCC and
also all: packaging, advertising, and shipping materials related to any of the
foregoing, and all names or marks affixed or to be affixed thereto for
identifying or selling the same; Goods held for sale or lease or furnished or to
be furnished under a contract or contracts of sale or service by the Borrower,
or used or consumed or to be used or consumed in the Borrower’s business; Goods
of said description in transit: returned, repossessed and rejected Goods of said
description; and all Documents (whether or not negotiable) which represent any
of the foregoing.

“Inventory Reserves”: Such Reserves as may be established from time to time by
the Agent in the Agent’s discretion with respect to the determination of the
saleability, at Retail, of the Eligible Inventory or which reflect such other
factors as affect the market value of the Eligible Inventory. Without limiting
the generality of the foregoing, Inventory Reserves may include (but are not
limited to) reserves based on the following:

(i) Obsolescence (based upon Inventory on hand beyond a given number of days).

(ii) Seasonality.

(iii) Shrinkage.

(iv) Imbalance.

(v) Change in Inventory character.

(vi) Change in Inventory composition.

(vii) Change in Inventory mix.

(viii) Markdowns (both permanent and point of sale).

 

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(ix) Retail mark ons and markups inconsistent with prior period practice and
performance; industry standards; current business plans; or advertising calendar
and planned advertising events.

(x) Return to vendors.

(xi) Damage.

(xii) Inventory in the possession of any bailee.

“Investment”: When used in connection with any Person, any investment by or of
that Person, whether by means of purchase or other acquisition of stock or other
securities of any other Person or by means of a loan, advance, creating a debt
(excluding trade and other advances made in the ordinary course of business in
accordance with ordinary trade terms), capital contribution, guaranty or other
debt or equity participation or interest in any other Person, including any
partnership and joint venture interests of such Person. The amount of any
Investment shall be the amount actually invested (minus any return of capital
with respect to such Investment which has actually been received in cash or has
been converted into cash), without adjustment for subsequent increases or
decreases in the value of such Investment.

“Investment Accounts”: Investment account, securities account, commodity account
or other similar account with any bank or other financial institution or other
securities intermediary or commodity intermediary as of the date hereof for the
maintenance of Permitted Investments maintained or established by the Borrower
in accordance with the terms of this Agreement.

“Investment Property”: Has the meaning given that term in the UCC.

“Issuer”: The issuer of any L/C, including, without limitation, Wells Fargo.

“Landlord”: The holder or holders of the landlord’s or lessor’s interest under a
particular Lease.

“IT Trigger Date” shall mean the date on which the Borrower has implemented and
tested a unified information technology system which is capable of reporting the
Inventory and other assets of both the Eastern Division and the Western Division
in a manner reasonably satisfactory to the Agent.

 

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“Landlord State”: Initially, Washington, Virginia, and Pennsylvania and such
other states in which a landlord’s claim for rent has priority over the
Encumbrances of the Agent in the Collateral.

“L/C”: Any letter of credit, the issuance of which is procured by the Agent for
the account of the Borrower and any acceptance made on account of such letter of
credit.

“Lease”: Any lease pursuant to which the Borrower is entitled to the use and
occupancy of any space.

“Leasehold”: The Borrower’s Lease, leasehold estate or interest in each of the
properties at or upon which the Borrower conducts business, offers any Inventory
for sale, or maintains any of the Collateral, whether or not for retail sale,
together with the Borrower’s interest in any of the improvements and fixtures
located upon or appurtenant to each such estate or interest, including, without
limitation, any rights of the Borrower to payment, proceeds or value of any kind
or nature realized upon the sale, transfer or assignment of any such estate or
interest, whether or not such sale, assignment or transfer occurs during any
case commenced under the Bankruptcy Code.

“Lenders’ Special Counsel”: A single counsel, selected by the Lenders, to
represent the interests of the Lenders in connection with the negotiation,
drafting modification, amendment, restatement, enforcement, attempted
enforcement, or preservation of rights and remedies under this Agreement or any
other Loan Document, as well as in connection with any “workout”, forbearance,
or restructuring of the credit facility contemplated hereby.

“Letter of Credit Rights”: Has the meaning given that term in the UCC and also
refers to any right to payment or performance under an L/C, whether or not the
beneficiary has demanded or is at the time entitled to demand payment or
performance.

“Liabilities”: Includes, without limitation, the following:

(a) All and each of the following, whether now existing or hereafter arising
under this Agreement or under any of the other Loan Documents:

(i) Any and all direct and indirect liabilities, debts, and obligations of the
Borrower to the Agent or the Lenders, each of every kind, nature, and
description.

 

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(ii) Each obligation to repay any loan, advance, indebtedness, note, obligation,
overdraft, or amount now or hereafter owing by the Borrower to the Agent or the
Lenders (including all future advances whether or not made pursuant to a
commitment by the Agent or the Lenders), whether or not any of such are
liquidated, unliquidated, primary, secondary, secured, unsecured, direct,
indirect, absolute, contingent, or of any other type, nature, or description, or
by reason of any cause of action which the Agent or the Lenders, may hold
against the Borrower.

(iii) All notes and other obligations of the Borrower now or hereafter assigned
to or held by the Agent or the Lenders, each of every kind, nature, and
description.

(iv) All interest, fees, and charges and other amounts which may be charged by
the Agent or the Lenders, to the Borrower and/or which may be due from the
Borrower to the Agent or the Lenders, from time to time.

(v) All costs and expenses incurred or paid by the Agent or the Lenders, in
respect of any agreement between the Borrower and the Agent or the Lenders , or
instrument furnished by the Borrower to the Agent or Lenders (including, without
limitation, Costs of Collection, attorneys’ reasonable fees, including
reasonable fees and expenses of Lenders’ Special Counsel), and all court and
litigation costs and expenses).

(vi) Any and all covenants of the Borrower to or with the Agent or the Lenders,
and any and all obligations of the Borrower to act or to refrain from acting in
accordance with any agreement between the Borrower and the Agent or the Lenders,
or instrument furnished by the Borrower to the Agent or the Lenders.

(vii) Each of the foregoing as if each reference to “Agent,” were to each
Affiliate of the Agent and each of the foregoing as if each reference to
“Lenders,” were to each Affiliate of the Lenders.

(b) Any and all direct or indirect liabilities, debts, and obligations of the
Borrower to the Agent or the Lenders or any Affiliate of the Agent or Affiliate
of the Lenders, each of every kind, nature, and description owing on account of
any service or accommodation provided to, or for the account of the Borrower, in
each case pursuant to this or any other Loan Document, including Bank Product
Obligations and the issuances of L/C’s.

 

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“LIBOR Business Day” Any day which is both a Business Day and a day on which on
which banks in London, England in which Wells Fargo or its successor
participates is open for dealings in United States Dollar deposits.

“LIBOR Loan”: Any Revolving Credit Loan which bears interest at an LIBOR Rate.

“LIBOR Margin”: Three Percent (3.0%).

“LIBOR Offer Rate”: With respect to any LIBOR Loan, the rate of interest
(rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Agent
to be highest prevailing rate per annum at which deposits on U.S. Dollars are
offered to Wells Fargo, by first-class banks in the London interbank market in
which Wells Fargo participates at or about 10:00 a.m. (Boston time) two
(2) LIBOR Business Days before the first day of the Interest Period for the
subject LIBOR Loan, for a deposit approximately in the amount of the subject
loan for a period of time approximately equal to such Interest Period. The LIBOR
Rate shall be adjusted on and as of the effective day of any change in the
Reserve Percentage.

“LIBOR Rate”: That per annum rate (calculated on a 360-day year and actual days
elapsed) equal to the LIBOR Offer Rate plus the LIBOR Margin except that, in the
event that the Agent determines that any Lender may be subject to the Reserve
Percentage, the “LIBOR Rate” shall mean, with respect to any LIBOR Loans then
outstanding (from the date on which that Reserve Percentage first became
applicable to such loans), and with respect to all LIBOR Loans thereafter made,
an interest rate per annum equal to the sum of (a) plus (b), where:

(a) is the decimal equivalent of the following fraction:

LIBOR Offer Rate

1 minus Reserve Percentage

(b) is the applicable LIBOR Margin.

“Liquidation”: The liquidation of the Collateral by the Borrower, with the prior
written consent of the Agent, including, without limitation, by the conduct of
“going out of business” or similar sales, or the exercise, by the Agent, of
those rights accorded to the Agent under the Loan Documents as a creditor of the
Borrower following and on account of the occurrence of an Event of Default
looking towards the realization on the Collateral. Derivations of the word
“Liquidation” (such as “Liquidate”) are used with like meaning in this
Agreement.

 

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“Loan Account”: Defined in Section 2.8.

“Loan Documents”: This Agreement, each instrument and document executed and/or
delivered as contemplated by Article III, below, (including without limitation
the Fee Letter) and each other instrument or document from time to time executed
and/or delivered in connection with the arrangements contemplated hereby or
connection with any transaction with the Agent or any Affiliate of the Agent or,
including, without limitation, any transaction which arises out of any cash
management (including any ACH transfer arrangements), depository, investment,
letter of credit, or interest rate protection, or equipment leasing services
provided by the Agent or any Affiliate of the Agent, as each may be amended from
time to time.

“Material Accounting Change”: Any change in GAAP applicable to accounting
periods subsequent to the Borrower’s fiscal year most recently completed prior
to the execution of this Agreement, if such change has a material effect on the
Borrower’s financial condition or operating results, as reflected on financial
statements and reports prepared by or for the Borrower, when compared with such
condition or results as if such change had not taken place, or where preparation
of the Borrower’s statements and reports in compliance with such change results
in the breach of a financial performance covenant imposed pursuant to
Section 5.12, where such a breach would not have occurred if such change had not
taken place or visa versa.

“Material Adverse Change”: (a) A material adverse change in the business,
prospects, operations, results of operations, assets, liabilities or financial
condition of Borrower, (b) a material impairment of the Borrower’s ability to
perform its obligations under the Loan Documents to which it is a party or of
the Agent’s ability to enforce Liabilities in an amount not less than $250,000
or realize upon Collateral having a value of not less than $250,000, or (c) a
material impairment of the enforceability or priority of the Agent’s Collateral
Interests with respect to Collateral having a value of not less than $250,000 as
a result of an action or failure to act on the part of the Borrower.

“Material Adverse Effect”: A result, consequence or outcome resulting from a
Material Adverse Change.

“Material Contract”: Any contract or other agreement, written or oral, of the
Borrower involving monetary liability or other value of or to any Person in an
amount not less than $250,000 in any Fiscal Year, the loss of which could have a
Material Adverse Effect.

 

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“Maturity Date”: May 26, 2014, or if such day is not a Business Day, the next
succeeding Business Day.

“Minority Lenders”: Defined in Section 19.5.

“Mortgages”: Mortgages, deeds of trust, and/or security deeds and assignments of
leases and rents, which convey to the Agent, as security for the Liabilities, a
Lien upon the Real Property.

“Notice Address”: With respect to the Agent and Borrower, as provided in
Section 12.1.

With respect to any Lender, as indicated adjacent to such Lender’s signature at
the foot of this Agreement. With respect to any Person who becomes a Lender
hereafter pursuant to Section 18.2 of this Agreement, as indicated in the
Assignment and Acceptance of such Person.

Each Notice Address is subject to change as provided in Section 12.1.

“OFAC”: Defined in Section 4.2(f).

“Officer’s Compliance Certificate”: Defined in Section 5.9.

“Operating Account”: Defined in Section 7.3(a)(iii).

“Overloan”: A loan, advance, or providing of credit support (such as the
issuance of any L/C) to the extent that, at the time it is made, (a) it is in
excess of the Borrowing Base or (b) it exceeds Availability immediately prior to
the making of such loan, advance, or providing of credit support.

“Participant”: Defined in Section 19.16.

“Patriot Act”: Defined in Section 4.2(g).

“Payment Intangible”: Has the meaning given that term in the UCC and also refers
to any general intangible under which the Account Debtor’s primary obligation is
a monetary obligation.

“Percentage Commitment”: With respect to any Lender, the ratio of (i) the amount
of the Dollar Commitment of such Lender to (ii) the aggregate amount of the
Dollar Commitments of all Lenders (as such percentage may change in accordance
with the provisions of this Agreement), which Percentage Commitment as of the
date hereof is set forth on EXHIBIT 2.21(a) annexed hereto.

 

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“Permissible Overloans”: Revolving Credit Loans which are Overloans, which
aggregate no more than five (5%) of the Borrowing Base at any one time
outstanding, where such loans (without duplication) are either (a) Protective
Overloans or (b) made when Availability equals or is less than zero for more
than sixty (60) days during any 12 month period absent the consent of the
Required Lenders.

“Permitted Disposition”: Any of the following: (a) sales or other dispositions
by Borrower or its Subsidiaries of assets that are worn, damaged, or obsolete in
the ordinary course of business and has a retail value of not more than
$500,000, in the aggregate, during any Fiscal Year, (b) sales by the Borrower or
its Subsidiaries of Inventory in the ordinary course of business, (c) the use or
transfer of money or Cash Equivalents by the Borrower or its Subsidiaries in a
manner that is not prohibited by the terms of this Agreement or the other Loan
Documents, (d) the licensing by the Borrower or its Subsidiaries, on a
non-exclusive basis, of patents, trademarks, copyrights, and other intellectual
property rights in the ordinary course of business, and (e) licenses and
sublicenses by the Borrower or any of its Subsidiaries of software, intellectual
property and other general intangibles in the ordinary course of business,
provided, that in the case of clause (d) and (e) hereof, Borrower has retained
the right to use and exploit each of the Borrower’s intellectual property and
other general intangible used in the Borrower’s business.

“Permitted Encumbrances”: The following:

(a) Encumbrances under the Loan Documents.

(b) Those Encumbrances (if any) listed on EXHIBIT 4.7(a), annexed hereto and
renewals, refinancings and extensions thereof.

(c) Liens securing the payment of taxes, either not yet overdue or the validity
of which is being contested in good faith by the Borrower and for which the
Borrower has established adequate cash reserve; non-consensual statutory liens
(other than liens securing the payment of taxes) arising in the ordinary course
of Borrower’s business to the extent such liens secure (i) indebtedness that is
not overdue, (ii) indebtedness relating to claims or liabilities which are fully
insured and being defended at the sole cost and expense and at the sole risk of
the

 

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insurer or are being contested by the Borrower in good faith by appropriate
proceedings diligently pursued, in each instance prior to the commencement of
foreclosure or other similar proceedings and provided that adequate reserves
therefor have been set aside on the Borrower’s books (provided, however, that
the inclusion of any of the foregoing as “Permitted Encumbrances” shall not
affect their respective relative priorities vis a vis the security interests
created herein), or (iii) zoning restrictions, easements, licenses, covenants
and other restrictions affecting the use of real property.

(d) Deposits under workmen’s compensation, unemployment insurance and social
security laws, or to secure the performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, or to secure statutory
obligations or surety or appeal bonds, or to secure indemnity, performance or
other similar bonds arising in the ordinary course of business.

(e) Landlord’s liens arising by operation of law.

(f) Purchase money security interests or capitalized equipment leases on any
fixed or capital assets acquired or held by the Borrower in the ordinary course
of business and securing Indebtedness incurred or assumed for the purpose of
financing all or any part of the cost of acquiring such fixed or capital assets;
provided however that (i) any such Encumbrance attaches to such property
concurrently with or within 60 days after the acquisition thereof, (ii) such
Encumbrance attaches solely to the assets so acquired in such transaction and
(iii) the principal amount of the Indebtedness secured thereby does not exceed
100% of the cost of such fixed or capital assets.

(g) Easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business that, in the aggregate, are not
substantial in amount and that do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries.

(h) Any interest or title of a lessor, licensor or sublessor under any lease,
license or sublease entered into by the Borrower or any other Subsidiary in the
ordinary course of its business and covering only the assets so leased, licensed
or subleased.

(i) Liens arising from judgments, decrees, awards or attachments in
circumstances not constituting an Event of Default.

 

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(j) Liens on insurance policies and the proceeds thereof pursuant to insurance
premium financing arrangements.

(k) Liens (i) incurred in the ordinary course of business in connection with the
purchase or shipping of goods or assets (or the related assets and proceeds
thereof), which Liens are in favor of the seller or shipper of such goods or
assets and only attached to such goods or assets and are limited to the cost of
shipping of such goods or assets, and (ii) in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods.

(l) Liens in favor of collecting banks having a right of setoff, revocation,
refund or chargeback with respect to money or instruments of the Borrower or any
of its Subsidiaries on deposits with or in possession of such banks, other than
relating to Indebtedness, provided, that such liens are limited to securing
costs and fees of such bank incidental to the maintenance of such accounts.

“Permitted Investments”: (a) Investments in Cash Equivalents; provided, that, no
Revolving Credit Loans are then outstanding; except that notwithstanding that
any Revolving Credit Loans are outstanding, Borrower may from time to time in
the ordinary course of business consistent with its current practices as of the
date hereof, make deposits of cash in operating demand deposit accounts used for
disbursements to the extent requested to provide funds for amounts drawn or
anticipated to be drawn shortly on such accounts and such funds may be held in
Cash Equivalents consisting of overnight investments until so drawn (so long as
such funds and Cash Equivalents are not held more than three (3) Business Days
from the date of the initial deposit thereof), (b) Investments in negotiable
instruments for collection, (c) Investments in existence on the date hereof and
listed on EXHIBIT 7.1 attached hereto, (d) in addition to Investments otherwise
expressly permitted by this Agreement, Investments in an aggregate amount
(valued at cost but giving effect to any portion of such Investments returned to
the investor in cash as a repayment of principal or a return of invested capital
and any earnings on such Investment, whether in the form of interest, dividends
or otherwise) not to exceed in any fiscal year of the Borrower the difference
(if positive) between $200,000 and the aggregate amount of consideration paid by
Borrower in such fiscal year to acquire shares of capital stock issued by Source
1 World, HK Ltd. in accordance with Section 4.20(h), provided, that, both before
and after giving to any such Investment, no Event of Default shall exist and no
Revolving Credit Loans shall be outstanding.

 

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“Permitted Store Openings/Closings”: Defined in Section 4.6(d)(ii).

“Person”: Any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, entity, party or foreign or United States government
(whether federal, state, county, city, municipal or otherwise), including,
without limitation, any instrumentality, division, agency, body or department
thereof.

“Plan of Reorganization”: The Plan of Reorganization (including all exhibits
thereto) of Borrower confirmed by the Bankruptcy Court by order dated May 17,
2005.

“Proceeds”: Includes, without limitation, “Proceeds” as defined in the UCC, and
proceeds of all Collateral.

“Pro Rata”: With respect to any Lender vis à vis any other Lender, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Lender’s Dollar Commitment and the denominator of which shall be the aggregate
of all of the Lenders’ Dollar Commitments, as adjusted from time to time in
accordance with the provisions of Sections 2.21, 2.22 and 18.1 of this
Agreement, provided that, if all Commitments have been terminated, the numerator
shall be the unpaid amount of such Lender’s Revolving Credit Loans and its
interest in L/C exposure and the denominator shall be the aggregate unpaid
principal amount of all unpaid Revolving Credit Loans and L/C exposure.

“Protective Overloans”: Revolving Credit Loans and expenditures and incurrences
of obligations which are made or undertaken by the Agent in the Agent’s
discretion to protect or preserve the Collateral Interests which secure the
Liabilities and Agent’s Rights and Remedies, or which the Agent determines in
its discretion are appropriate to facilitate a Liquidation.

“Real Property”: That portion of the Collateral which consists of the Borrower’s
fee interests in real estate, including, without limitation, the Domestic
Distribution Center.

“Real Property Advance Rate”: Fifty percent (50%).

“Real Property Reserves”: Such Reserves as may be established from time to time
by the Agent in the Agent’s discretion with respect to the determination of the
realization on Liquidation of Eligible Real Property or which reflect such other
factors as affect the Appraised Real

 

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Property Net Liquidation Value of the Eligible Real Property. Without limiting
the generality of the foregoing, Real Property Reserves (without duplication of
other Reserves) may include (but are not limited to) reserves based on real
property charges, including without limitation, real estate taxes and
assessments, common area maintenance charges and insurance charges and
environmental remediation costs, imposed and payable in respect of such Real
Property.

“Receipts”: All cash, cash equivalents, checks, and credit card slips and
receipts as arise out of the sale of the Collateral.

“Receivables Collateral”: That portion of the Collateral which consists of
rights to payment.

“Receivables Reserve”: Such Reserves as may be established from time to time by
the Agent, in the Agent’s reasonable discretion, based upon the Agent’s
determination of the collectability of Eligible Credit Card Receivables in the
ordinary course and of the creditworthiness of the Account Debtors, Credit Card
Issuers, and Credit Card Processors.

“Register”: Defined in Section 18.2(c).

“Regulatory Change”: Defined in Section 2.21(c).

“Required Lenders”: At any time, Lenders whose Pro Rata shares aggregate more
than 50% of the Commitments, or if the Commitments have been terminated, 50% of
the Liabilities (other than Bank Product Obligations) then outstanding.

“Requirement of Law”: As to any Person:

(a) (i) All statutes, rules, regulations, orders, or other requirements having
the force of law and (ii) all court orders and injunctions, arbitrator’s
decisions, and/or similar rulings, in each instance ((i) and (ii)) of or by any
federal, state, municipal, and other governmental authority, or court, tribunal,
panel, or other body which has or claims jurisdiction over such Person, or any
property of such Person, or of any other Person for whose conduct such Person
would be responsible.

(b) That Person’s charter, certificate or articles of incorporation, articles of
organization, and/or other organizational documents, as applicable; and

(c) That Person’s by laws and/or other instruments which deal with corporate or
similar governance, as applicable.

 

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“Reserve Percentage”: The decimal equivalent of that rate applicable to any
Lender under regulations issued from time to time by the Board of Governors of
the Federal Reserve System for determining the maximum reserve requirement of
that Lender with respect to “LIBOR liabilities” as defined in such regulations.
The Reserve Percentage applicable to a particular LIBOR Loan shall be based upon
that which is in effect during the subject Interest Period, with changes in the
Reserve Percentage which take effect during such Interest Period to take effect
(and consequently change any interest rate determined with reference to the
Reserve Percentage) if and when such change is applicable to such loans.

“Reserves”: Collectively, the following: Availability Reserves, Inventory
Reserves, Receivables Reserves, and Leasehold Reserves.

“Retail”: The Cost of Inventory divided by the Cost Factor.

“Revolving Credit”: Defined in Section 2.1(a).

“Revolving Credit Early Termination Fee”: Defined in Section 2.13.

“Revolving Credit Loans”: Defined in Section 2.1(a).

“Revolving Credit Loan Ceiling”: Thirty Million ($30,000,000) Dollars, as such
amount may from time to time be increased pursuant to Section 2.22.

“Revolving Credit Note”: Defined in Section 2.9.

“Revolving Credit Obligations”: The aggregate of the Borrower’s liabilities,
obligations, and indebtedness of any character on account of or in respect to
the Revolving Credit.

“Securities Account”: As defined in the UCC.

“Solvent”: With respect to any Person on a particular date, that such Person is
not insolvent (as such term is defined in the Uniform Fraudulent Transfer Act).

“Specified Store Accounts” shall mean, collectively, (a) the Store Account
maintained at JPMorgan Chase Bank bearing account number 45707765688 and (b) the
Store Account maintained at Columbia Bank bearing account number 155007015.

 

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“Stated Amount”: The maximum amount for which an L/C may be honored, less any
amounts already drawn thereunder.

“Store Accounts”: Defined in Section 7.4(a).

“Subordinated Debt”: Includes unsecured Indebtedness of Borrower that is
subordinated to the Liabilities in a manner, under terms and subject to a
written agreement reasonably satisfactory to Agent.

“Subsidiary”: Any corporation of which more than fifty percent (50%) of the
outstanding capital stock having ordinary voting power to elect a majority of
the board of directors of such corporation (irrespective of whether at the time
stock of any other class of such corporation shall have or might have voting
power by reason of the happening of any contingency) is at the time, directly or
indirectly, owned by the Borrower, or any partnership, joint venture or limited
liability company of which more than fifty percent (50%) of the outstanding
equity interests are at the time, directly or indirectly, owned by the Borrower
or any partnership of which the Borrower is a general partner.

“SuperMajority Lenders”: At any time, Lenders whose Pro Rata shares aggregate
more than 66 2/3% of the Commitments, or if the Commitments have been
terminated, 66 2/3% of the Liabilities (other than Bank Product Obligations)
then outstanding.

“Supporting Obligation”: Has the meaning given that term in the UCC and also
refers to a Letter-of-Credit Right or secondary obligation which supports the
payment or performance of an Account, Chattel Paper, a Document, a General
Intangible, an Instrument, or Investment Property.

“SwingLine”: The facility pursuant to which the SwingLine Lender may advance
SwingLine Loan to the Borrower aggregating up to the SwingLine Loan Ceiling.

“SwingLine Loan Ceiling”: Ten Million ($10,000,000) Dollars, or such other
amount as may be agreed to by the Agent and Required Lenders.

“SwingLine Lender”: WFRF, or another financial institution designated by the
Agent.

“SwingLine Loans”: Defined in Section 2.7(a).

“SwingLine Note”: Defined in Section 2.7(c).

 

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“Tax”: In relation to any Revolving Credit Loans, any tax, levy, impost, duty,
deduction, withholding or charges of whatever nature required to be paid by the
Agent and/or to be withheld or deducted from any payment otherwise required
hereby to be made by the Borrower to the Agent; provided, that the term “Tax”
shall not include any taxes imposed upon the net income of the Agent.

“Termination Date”: The earliest of (a) the Maturity Date; or (b) the occurrence
of any event described in Section 10.11, below; or (c) the date set as the
Termination Date in a notice by the Agent to the Borrower on account of the
occurrence of any Event of Default other than as described in Section 10.11,
below.

“Transfer”: Wire transfer pursuant to the wire transfer system maintained by the
Board of Governors of the Federal Reserve Board, or as otherwise may be agreed
to from time to time by the Agent. Wire instructions may be changed in the same
manner that Notice Addresses may be changed pursuant to Section 12.1 of this
Agreement, except that no change of the wire instructions for Transfers to the
Agent shall be effective without the consent of the Agent.

“UCC”: The New York Uniform Commercial Code as in effect from time to time.

“Unused Line Fee”: Defined in Section 2.12.

“Wells Fargo”: Wells Fargo Bank, N.A., a national banking association, and its
successors and assigns.

“Western Division”: The operating division of the Borrower including all of the
Borrower’s retail store locations West of the Mississippi River.

“Western Division Appraised Inventory Liquidation Value”: The Appraised
Inventory Net Liquidation Value determined by Agent, in its discretion, as being
applicable to the Inventory located in stores in its Western Division.

“Western Division Borrowing Base”: The result of applying the following formula:

(a) the face amount of Eligible Credit Card Receivables originated by stores in
the Western Division multiplied by the Credit Card Advance Rate (less associated
Receivables Reserves)

Plus

 

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(b) the lesser of (i) Western Division Appraised Inventory Net Liquidation Value
of Eligible Inventory multiplied by the Western Division Inventory Advance Rate
(less associated Inventory Reserves) or (ii) the value (calculated at the lower
of Cost or market) of Eligible Inventory of the Western Division multiplied by
seventy (70%) percent (less Inventory Reserves).

“Western Division Inventory Advance Rate”: Ninety percent (90%).

“WFRF”: Wells Fargo Retail Finance, LLC, a Delaware limited liability company,
and its successors and assigns

ARTICLE II. - THE REVOLVING CREDIT

2.1 ESTABLISHMENT OF REVOLVING CREDIT

(a) The Lenders hereby establish a revolving line of credit (the “Revolving
Credit”) in the Borrower’s favor pursuant to which each of the Lenders, acting
through the Agent, shall make loans and advances and otherwise provide financial
accommodations to and for the account of the Borrower until the Maturity Date in
an amount equal to such Lender’s Pro Rata share of advances (each, a “Revolving
Credit Loan”) as provided herein in each instance equal to its applicable
Percentage Commitment of Availability, up to a maximum amount of its applicable
Dollar Commitment. The obligations of each Lender hereunder shall be several and
not joint.

(b) Loans, advances, and financial accommodations under the Revolving Credit
shall be made with reference to the Borrowing Base and shall be subject to
Availability. The Borrowing Base and Availability shall be determined by the
Agent by reference to Borrowing Base Certificates furnished as provided in
Section 5.4 below (subject to Reserves established by the Agent as permitted
hereunder).

(c) The Dollar Commitment of each Lender to provide such loans, advances, and
financial accommodations is subject to Section 2.2.

(d) The proceeds of borrowings under the Revolving Credit shall be used solely
to (i) repay the Borrower existing obligations to the Existing Lender in an
amount not to exceed $13,750,000 million (in addition to providing a backstop
L/C issued by Wells Fargo Bank for the benefit of the Existing Lender securing
any L/C’s issued by Existing Lender which remain outstanding on the Closing
Date) and (ii) for working capital purposes, Capital Expenditures and other
general corporate purposes. No proceeds of a borrowing under the Revolving
Credit may be used, nor shall any be requested, with a view towards the
accumulation of any general fund or funded reserve of the Borrower other than in
the ordinary course of the Borrower’s business and consistent with the
provisions of this Agreement.

 

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2.2 ADVANCES IN EXCESS OF BORROWING BASE (OVERLOANS)

(a) No Lender has any obligation to make any loan or advance, or otherwise to
provide any credit to or for the benefit of the Borrower where the result of
such loan, advance, or credit is an Overloan except that each Lender shall be
obligated to advance its Pro Rata share of Permissible Overloans which the Agent
deems prudent.

(b) The Lenders’ obligations, among themselves, are subject to Section 15.3 of
this Agreement (which relates to each Lender’s making amounts available to the
Agent) and to Section 19.5(a)(viii) of this Agreement (which relates to
Permissible Overloans).

(c) The Lenders’ providing of an Overloan on any one occasion does not affect
the obligations of the Borrower hereunder (such as the Borrower’s obligation to
immediately repay any amount which otherwise constitutes an Overloan) nor shall
it obligate the Lenders to do so on any other occasion.

2.3 RISKS OF VALUE OF COLLATERAL.

Any reference to a given asset in connection with the making of loans, credits,
and advances and the providing of financial accommodations under the Revolving
Credit and/or the monitoring of compliance with the provisions hereof shall not
be deemed a determination by the Agent or the Lenders relative to the actual
value of the asset in question. All risks concerning the value of the Collateral
are and remain upon the Borrower. All Collateral secures the prompt, punctual,
and faithful performance of the Liabilities whether or not relied upon by the
Agent in connection with the making of loans, credits, and advances and the
providing of financial accommodations under the Revolving Credit.

2.4 COMMITMENT TO MAKE REVOLVING CREDIT LOANS AND SUPPORT LETTERS OF CREDIT.

Subject to the provisions of this Agreement, the Lenders shall make a loan or
advance under the Revolving Credit and the Agent shall have an L/C issued for
the account of the Borrower, in each instance if duly and timely requested by
the Borrower as provided herein provided that:

(a) No Overloan is then outstanding and none will result therefrom.

(b) There does not exist a Default or Event of Default and none will thereby
exist.

 

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2.5 REVOLVING CREDIT LOAN REQUESTS.

(a) Requests for loans and advances under the Revolving Credit or for the
continuance or conversion of an interest rate applicable to a Revolving Credit
Loan may be requested by the Borrower in such manner as may from time to time be
reasonably acceptable to the Agent.

(b) Subject to the provisions of this Agreement, the Borrower may request a
Revolving Credit Loan and elect an interest rate and Interest Period to be
applicable to that Revolving Credit Loan by giving notice to the Agent by no
later than the following:

(i) If such Revolving Credit Loan is to be or is to be converted to a Base
Margin Loan: By 1:00 PM on the Business Day on which the subject Revolving
Credit Loan is to be made or is to be so converted. Base Margin Loans requested
by the Borrower, other than those resulting from the conversion of a LIBOR Loan,
shall not be less than $10,000.00.

(ii) If such Revolving Credit Loan is to be, or is to be converted to, an LIBOR
Loan: By 1:00 PM, at least three (3) LIBOR Business Days before the commencement
of any new Interest Period or the end of the then applicable Interest Period.
LIBOR Loans and conversions to LIBOR Loans shall each be not less than
$1,000,000.00 and in increments of $100,000.00 in excess of such minimum.

(iii) Any LIBOR Loan which matures while an Event of Default exists may be
converted, at the option of the Agent, to a Base Margin Loan notwithstanding any
notice from the Borrower that such Revolving Credit Loan is to be continued as a
LIBOR Loan.

(c) Any request for a Revolving Credit Loan or for the continuance or conversion
of a Revolving Credit Loan which is made after the applicable deadline therefor,
as set forth above, shall be deemed to have been made at the opening of business
on the then next Business Day or LIBOR Business Day, as applicable, unless the
Agent, in its discretion, determines to deem it to have been made earlier. Each
request for a Revolving Credit Loan or for the conversion of a Revolving Credit
Loan shall be made in such manner as may from time to time be acceptable to the
Agent.

(d) The Borrower may request that the Agent cause the issuance of L/C’s for the
account of the Borrower as provided in Section 2.18.

(e) Following the Closing Date, the Agent may rely on any request for a loan or
advance, or other financial accommodation under the Revolving Credit which the
Agent, in good faith,

 

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believes to have been made by a Person duly authorized to act on behalf of the
Borrower and may decline to make any such requested loan or advance, or
issuance, or to provide any such financial accommodation pending the Agent’s
being furnished with such documentation concerning that Person’s authority to
act as may be reasonably satisfactory to the Agent.

(f) A request by the Borrower for loan or advance or other financial
accommodation under the Revolving Credit shall be irrevocable and shall
constitute certification by the Borrower that as of the date of such request,
each of the following is true and correct:

(i) Each representation, not relating to a specific date, which is made herein
or in any of the Loan Documents is then true and correct in all material
respects as of and as if made on the date of such request (except (A) to the
extent of changes resulting from transactions contemplated or permitted by this
Agreement or the other Loan Documents and changes occurring in the ordinary
course of business and (B) to the extent that such representations and
warranties expressly relate to an earlier date).

(ii) Neither a Default nor an Event of Default exists.

(g) If, at any time or from time to time, a Default or Event of Default exists
and is continuing,

(i) The Agent may suspend the Revolving Credit immediately, in which event
neither the Agent nor the Lenders shall be obligated during such suspension to
make any additional loans or advances or to provide any additional financial
accommodation hereunder or to seek the issuance of any L/C.

(ii) The Agent may suspend the right of the Borrower to request any LIBOR Loan
or to convert any Base Margin Loan to a LIBOR Loan.

2.6 MAKING OF REVOLVING CREDIT LOANS

(a) A loan or advance under the Revolving Credit shall be made by the Transfer
of the proceeds of such loan or advance to the Operating Account or as otherwise
instructed by the Borrower.

(b) A loan or advance shall be deemed to have been made under the Revolving
Credit (and the Borrower shall be indebted to the Agent or Lenders for the
amount thereof immediately) upon the Agent’s initiation of the Transfer of the
proceeds of such loan or advance in accordance with the Borrower’s instructions
(if such loan or advance is of funds requested by the Borrower) or the charging
of the amount of such loan to the Loan Account (in all other circumstances).

 

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(c) There shall not be any recourse to or liability of the Agent or Lenders
(except to the extent caused by the gross negligence or willful misconduct of
the Agent or Lenders), on account of:

(i) Any delay in the making of any loan or advance requested under the Revolving
Credit.

(ii) Any delay by any bank or other depository institution in treating the
proceeds of any such loan or advance as collected funds.

(iii) Any delay in the receipt, and/or any loss, of funds which constitute a
loan or advance under the Revolving Credit, the wire transfer of which was
properly initiated by the Agent or Lenders in accordance with wire instructions
provided to the Agent by the Borrower).

2.7 SWINGLINE LOANS.

(a) For ease of administration of Revolving Credit Loans, Revolving Credit Loans
which are Base Margin Loans may be made by the Agent, as a SwingLine Lender (in
the aggregate, the “SwingLine Loans”), in accordance with the procedures set
forth in this Agreement for the making of Revolving Credit Loans. The unpaid
principal balance of the SwingLine Loans shall not at any one time be in excess
of the SwingLine Loan Ceiling.

(b) The aggregate unpaid principal balance of SwingLine Loans shall bear
interest at the rate applicable to Base Margin Loans and shall be repayable as a
Revolving Credit Loan under the Revolving Credit.

(c) The Borrower’s obligation to repay SwingLine Loans may be evidenced by a
Note substantially in the form of EXHIBIT 2.7 (“SwingLine Note”), executed by
the Borrower and payable to the Agent. Neither the original nor a copy of the
SwingLine Note shall be required to establish or prove any Liability. Upon the
Borrower being provided with an affidavit (which shall include an indemnity
reasonably satisfactory to the Borrower) from the Agent to the effect that the
SwingLine Note has been lost, mutilated, or destroyed, the Borrower shall
execute and deliver a replacement of any SwingLine Note to the Agent.

(d) For all purposes of this Loan Agreement, the SwingLine Loans and the
Borrower’s obligations to the Agent constitute Revolving Credit Loans and are
secured as “Liabilities”.

 

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(e) SwingLine Loans may be subject to periodic settlement by the Agent with the
Lenders.

2.8 THE LOAN ACCOUNT.

(a) An account (“Loan Account”) shall be opened on the books of the Agent in
which a record shall be kept of all loans and advances made under the Revolving
Credit.

(b) The Agent may also keep a record (either in the Loan Account or elsewhere,
as the Agent may from time to time elect) of all interest, fees, service
charges, costs, expenses, and other debits owed to the Agent and the Lender on
account of the Liabilities and of all credits against such amounts so owed.

(c) All credits against the Liabilities shall be conditional upon receipt of
final payment to the Agent and the Lenders of the items giving rise to such
credits. The amount of any item credited against the Liabilities which is
charged back against the Agent or the Lenders for any reason or is not so paid
shall be a Liability and shall be added to the Loan Account, whether or not the
item so charged back or not so paid is returned.

(d) Except as otherwise provided herein, all fees, service charges, costs, and
expenses for which the Borrower is obligated hereunder are payable on demand
(accompanied by reasonable back-up documentation therefor). In the determination
of Availability, the Agent may deem fees, service charges, accrued interest
(except for interest charged on LIBOR Loans, which, absent the occurrence of an
Event of Default, shall be charged on the maturity date of the LIBOR contract),
and other payments which will be due and payable between the date of such
determination and the first day of the then next succeeding month as having been
advanced under the Revolving Credit whether or not such amounts are then due and
payable.

(e) The Agent, without the request of the Borrower, may charge any DDA or
advance under the Revolving Credit any interest, fee, service charge, or other
payment to which the Agent or the Lenders is entitled from the Borrower pursuant
hereto and may charge the same to the Loan Account notwithstanding that such
amount so advanced may result in Borrowing Base’s being exceeded, provided, that
Agent furnishes the Borrower with prior notice of any charge on account of fees,
service charges and other payments to which the Agent or the Lenders is
entitled. The Agent shall provide notice to the Borrower prior to making any
such charge to any DDA or to the Loan Account and shall endeavor to comply with
Borrower’s request to make such charge either to a DDA or to the Loan Account
(so long as, in the case of a DDA, the Agent has the right and authority to
charge such DDA). Any amount which

 

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is added to the principal balance of the Loan Account as provided in this
Section 2.8(e) shall bear interest, at the interest rate then and thereafter
applicable to Base Margin Loans. Such action on the part of the Agent shall not
constitute a waiver of the Agent’s right or the Borrower’s obligations under
Section 2.10(b).

(f) Any statement rendered by the Agent or the Lenders to the Borrower
concerning the Liabilities shall, in the absence of manifest error, be
considered correct and accepted by the Borrower and shall be conclusively
binding upon the Borrower unless the Borrower provides the Agent with written
objection thereto within forty-five (45) days after the mailing of such
statement, which written objection shall indicate, with particularity, the
reason for such objection. In the absence of manifest error, the Loan Account
and the Agent’s and Lender’s books and records concerning the loan arrangement
contemplated herein and the Liabilities shall be prima facie evidence and proof
of the items described therein.

2.9 THE REVOLVING CREDIT NOTE.

The Borrower’s obligation to repay loans and advances under the Revolving Credit
to any Lender, with interest as provided herein, may, at each Lender’s option,
be evidenced by a Note (a “Revolving Credit Note”) substantially in the form of
EXHIBIT 2.9, annexed hereto, executed by the Borrower, payable to such Lender.
Neither the original nor a copy of any Revolving Credit Note shall be required,
however, to establish or prove any Liability. Upon the Borrower being provided
with an affidavit (which shall include an indemnity reasonably satisfactory to
the Borrower) from any Lender to the effect that the Revolving Credit has been
lost, mutilated, or destroyed, the Borrower on behalf of itself and the other
Borrower shall execute and deliver a replacement thereof to the applicable
Lender.

2.10 PAYMENT OF THE LOAN ACCOUNT.

(a) Subject to Section 2.13 hereof, the Borrower may repay all or any portion of
the principal balance of the Loan Account from time to time until the
Termination Date.

(b) The Borrower, without notice or demand from the Agent, shall pay the Agent
that amount, from time to time, which is necessary so that there is no Overloan
outstanding.

(c) The Borrower shall repay the then entire unpaid balance of the Revolving
Credit and all other Liabilities on the Termination Date.

(d) The Agent shall endeavor to cause payments, pursuant to Sections 2.10(a) and
2.10(b), to be applied in accordance with Section 7.5(a) of this Agreement. The
Agent shall endeavor to cause those application of payments (if any), pursuant
to Sections 2.10(a) and 2.10(b) against LIBOR

 

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Loans then outstanding in such manner as results in the least cost to the
Borrower, but shall not have any affirmative obligation to do so nor liability
on account of the Agent’s failure to have done so. In no event shall action or
inaction taken by the Agent excuse the Borrower from any indemnification
obligation under Section 2.10(e).

(e) Upon the request of the Agent, the Borrower shall indemnify the Agent and
Lenders and hold the Agent and Lenders harmless from and against any loss, cost
or expense (including loss of anticipated profits) which the Agent or Lenders
may sustain or incur (including, without limitation, by virtue of acceleration
after the occurrence of any Event of Default) as a consequence of any of the
following:

(i) Default by the Borrower in payment of the principal amount of or any
interest on any LIBOR Loan as and when due and payable, including any such loss
or expense arising from interest or fees payable by the Agent or Lenders in
order to maintain its LIBOR Loans.

(ii) Default by the Borrower in making a borrowing or conversion after the
Borrower has given (or is deemed to have given) a request for a Revolving Credit
Loan or a request to convert a Revolving Credit Loan from one applicable
interest rate to another.

(f) The making of any payment on an LIBOR Loan or the making of any conversion
of any such Loan to a Base Margin Loan on a day that is not the last day of the
applicable Interest Period with respect thereto, including interest or fees
payable by the Agent and Lenders as “breakage fees”.

2.11 INTEREST ON REVOLVING CREDIT LOANS.

(a) Each Revolving Credit Loan which consists of a Base Margin Loan shall bear
interest at the Base Margin Rate (determined based upon a 360-day year and
actual days elapsed), unless and until it is made as, or is converted to, an
LIBOR Loan pursuant to Section 2.5 hereof.

(b) Each Revolving Credit Loan which consists of an LIBOR Loan shall bear
interest at the applicable LIBOR Rate (determined based upon a 360-day year and
actual days elapsed).

(c) Subject to, and in accordance with, the provisions of this Agreement, the
Borrower may cause all or a part of the unpaid principal balance of Revolving
Credit Loans to bear interest at the Base Margin Rate or the LIBOR Rate as
specified from time to time by the Borrower.

 

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(d) The Borrower shall not select, renew, or convert any interest rate for a
Revolving Credit Loan such that, in addition to interest at the Base Margin
Rate, there are more than five (5) LIBOR Periods applicable to the outstanding
LIBOR Loans at any one time.

(e) The Borrower shall pay accrued and unpaid interest on each Revolving Credit
Loan in arrears on the applicable Interest Payment Date therefor. Following the
occurrence and during the continuance of any Event of Default (and whether or
not the Agent exercises the Agent’s rights on account thereof), all Revolving
Credit Loans shall bear interest, at the option of the Agent, at rate which is
the aggregate, in the case of Base Margin Loan, of the then applicable Base
Margin Rate plus two percent (2%) per annum, and in the case of LIBOR Loans, the
then applicable LIBOR Rate plus two percent (2%) per annum.

2.12 UNUSED LINE FEE.

In addition to any other fee to be paid by the Borrower on account of the
Revolving Credit, the Borrower shall pay the Agent, for the benefit of the
Lenders, an “Unused Line Fee”. The Unused Line Fee shall equal One Half of One
Percent (0.50%) per annum of the average difference, during the quarter just
ended (or relevant period with respect to the payment being made on June 1, 2010
or the Termination Date) between the Revolving Credit Loan Ceiling and the sum
of (i) the unpaid principal balance of the Loan Account and (ii) the Stated
Amount of L/Cs. The Unused Line Fee shall be paid in arrears, on the first day
of each calendar quarter (commencing with June 1, 2010) and on the Termination
Date.

2.13 EARLY TERMINATION FEE.

If for any reason this Agreement is terminated on or prior to the second
anniversary of the Closing Date, in view of the impracticality and extreme
difficulty of ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lenders’ lost profits as a result thereof,
Borrower shall pay to Agent, for the ratable account of Lenders, upon the
effective date of such termination, an early termination fee (“Revolving Credit
Early Termination Fee”) in the amount equal to:

 

Amount

 

Period

1% of Revolving Credit Loan Ceiling   From the Closing Date to and excluding the
first anniversary of the Closing Date 0.50% of Revolving Credit Loan Ceiling  
From the first anniversary of the Closing Date to and including the second
anniversary of the Closing Date

 

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The Revolving Credit Early Termination Fee shall be presumed to be the amount of
damages sustained by Lenders as a result of such early termination and Borrower
agrees that it is reasonable under the circumstances currently existing
(including, but not limited to, the borrowings that are reasonably expected by
Borrower hereunder and the interest, fees and other charges that are reasonably
expected to be received by Lenders hereunder). In addition (but without
duplication), Lender shall be entitled to such early termination fee upon the
occurrence of any Event of Default described in Section 10.11, even if Agent or
Lenders do not exercise their right to terminate this Agreement, but elects to
provide financing to Borrower or permit the use of cash collateral under the
Bankruptcy Code.

2.14 ARRANGEMENT FEE.

In addition to any other fee to be paid by the Borrower on account of the
Revolving Credit the Borrower shall pay the Agent an “Arrangement Fee”, as set
forth in the Fee Letter.

2.15 CONCERNING FEES.

(a) In addition to any other right to which the Lenders is then entitled on
account thereof, the Agent may assess, for the benefit of the Lenders, an
additional fee payable by the Borrower on account of the accommodation, from
time to time, by the Agent or the Lenders of the Borrower’s request that the
Agent or Lenders depart or dispense with one or more of the administrative
provisions of this Agreement and/or the Borrower’s failure to comply with any of
such provisions.

(b) In connection with an increase in the Revolving Credit Loan Ceiling
requested by the Borrower which increases the Revolving Credit Loan Ceiling to
an amount in excess of $35,000,000, Agent reserves the right to negotiate with
the Borrower for the assessment of additional fees, including fees for the
benefit of the Agent, in the event that Agent syndicates the facility
contemplated by this Agreement.

(c) The Borrower shall not be entitled to any credit, rebate or repayment of the
Unused Line Fee and Revolving Credit Early Termination Fee, or other fee earned
by the Lenders pursuant to this Agreement or any other Loan Document
notwithstanding any termination of this Agreement or suspension or termination
of the Agent’s or Lenders’ obligation to make loans and advances hereunder.

 

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2.16 AGENT’S DISCRETION.

(a) Each reference in the Loan Documents to the exercise of discretion or the
like by the Agent or the Lenders shall be to that Person’s exercise of its
judgment, in good faith, based upon that Person’s consideration of any such
factor as that Person, taking into account information of which that Person then
has actual knowledge, believes:

(i) Would reasonably be expected to affect the value of the Collateral, the
enforceability of the Agent’s Collateral Interests therein, or the amount which
the Agent would likely realize therefrom (taking into account delays which may
possibly be encountered in the Agent’s realizing upon the Collateral and likely
Costs of Collection);

(ii) Indicates that any report or financial information delivered to the Agent
or the Lenders by or on behalf of the Borrower is incomplete, inaccurate, or
misleading in any material manner or was not prepared in accordance with the
requirements of this Agreement;

(iii) Reasonably suggests an increase in the likelihood that the Borrower will
become the subject of a bankruptcy or insolvency proceeding; or

(iv) That a Default or Event of Default exists and is continuing.

2.17 PROCEDURES FOR ISSUANCE OF L/C’S.

(a) The Borrower may request that the Agent cause the issuance of L/C’s for the
account of the Borrower. Each such request shall be in such format as may from
time to time be reasonably acceptable to the Agent.

(b) The Agent will cause the issuance of any L/C so requested by the Borrower,
provided that, at the time that the request is made, the Revolving Credit has
not been suspended as provided in Section 2.5(h) and if so issued:

(i) The aggregate Stated Amount of all L/C’s then outstanding (giving effect to
the L/C whose issuance is requested), does not exceed Ten ($10,000,000) Million
Dollars;

(ii) The expiry of the requested L/C is not later than the earlier of thirty
(30) days prior to the Maturity Date or the following:

 

  (A) For standby L/C’s: One (1) year from initial issuance, provided, that such
standby L/C’s may be renewable year to year during the term of this Agreement.

 

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  (B) For documentary L/C’s: Sixty (60) days from issuance; and

(iii) an Overloan will not result from the issuance of the subject L/C.

(c) Unless otherwise agreed between the Borrower and the Agent, the Issuer of
all L/C’s shall be Wells Fargo and any successor to Wells Fargo.

(d) The Borrower shall also execute such documentation to apply for and support
the issuance of an L/C as may be required by Wells Fargo or any other Issuer.

(e) There shall not be any recourse to, nor liability of, the Agent or Lenders
on account of

(i) Any delay or refusal by an Issuer to issue an L/C; or

(ii) Any action or inaction of an Issuer on account of or in respect to, any
L/C.

(f) The Borrower shall reimburse the Issuer for the amount of any honoring of a
drawing under an L/C on the same day on which such honoring takes place if the
Borrower receives written notice thereof from the Agent by 1:00 PM on such day.
The Agent or Lenders, without the request of the Borrower, may advance under the
Revolving Credit (and charge to the Loan Account) the amount of any honoring of
any L/C and other amount for which the Borrower, the Lenders, the Agent, or the
Issuer becomes obligated on account of, or in respect to, any L/C. Such advance
shall be made whether or not there exists an Event of Default or such advance
would result in an Overloan. Such action shall not constitute a waiver of the
Agent’s rights under Section 2.10(b) hereof.

(g) By the issuance of an L/C (or an amendment to an L/C increasing the amount
thereof) and without any further action on the part of the Issuer or any Lender,
the Issuer shall be deemed to have granted to each Lender, and each Lender shall
be deemed to have purchased, a participation in each L/C and all obligations and
liabilities relating thereto, in an amount equal to its Pro Rata share of such
L/C and all obligations and liabilities relating thereto, and upon the demand of
the Agent each such Lender agrees to pay to Agent, for the account of the
Issuer, such Lender’s Pro Rata share of any amounts paid by the Issuer under
such L/C.

 

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2.18 FEES FOR L/C’S.

(a) In connection with each L/C provided by the Agent, the Borrower shall pay
Agent an administrative issuance fee (“L/C Issuance Fee”) equal to the product
of three-eighths of one percent (0.375%) times the Stated Amount of such L/C.
Such fee shall be due and payable in full on the date when such L/C is issued.

(b) In addition to the L/C Issuance Fee, the Borrower shall pay to the Agent a
fee, for the benefit of the Lenders, on account of each L/C procured by the
Agent, quarterly in arrears, and on the Termination Date and on the End Date,
equal to the following:

(i) For each standby L/C: The then applicable LIBOR Margin per annum, of the
Stated Amount of such standby L/C, payable quarterly in arrears, on the first
day of each month.

(ii) For each documentary L/C: The then applicable LIBOR Margin minus one half
of one percent (0.50%) per annum of the weighted average of the Stated Amount of
such documentary L/C outstanding at any time during the period since the then
most recent payment of such fee, payable quarterly in arrears, on the first day
of each month, and on the End Date.

(iii) Notwithstanding Subsections (i) and (ii), above, following the occurrence
of any Event of Default (and whether or not the Agent exercises the Agent’s
rights on account thereof), the above fees, at the option of the Agent, shall be
two percent (2%) per annum above the applicable rates above.

(c) In addition to the fee to be paid as provided in Section 2.19(a), above, the
Borrower shall pay to the Agent (or to the Issuer, if so requested by Agent), on
demand, all other customary issuance, processing, negotiation, amendment, and
administrative fees and other amounts charged by the Issuer on account of, or in
respect to, any L/C.

(d) If any change in any law, executive order or regulation, or any directive of
any administrative or governmental authority (whether or not having the force of
law), or in the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, in each case
after the date hereof, shall either:

(i) impose, modify or deem applicable any reserve, special deposit or similar
requirements against letters of credit heretofore or hereafter issued by any
Issuer or with respect to which the Agent, the Lenders or any Issuer has an
obligation to lend to fund drawings under any L/C; or

 

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(ii) impose on any Issuer any other condition or requirements relating to any
such letters of credit;

and the result of any event referred to in Section 2.19(c)(i) or 2.19(c)(ii),
above, shall be to increase the cost to the Agent, the Lenders or any Issuer
issuing or maintaining any L/C (which increase in cost shall be the result of
such Issuer’s reasonable allocation among that Issuer’s letter of credit
customers of the aggregate of such cost increases resulting from such events),
then, upon demand by the Agent and delivery by the Agent to the Borrower of a
certificate of an officer of the Agent or the subject Issuer describing such
change in law, executive order, regulation, directive, or interpretation
thereof, its effect on such Issuer, and the basis for determining such increased
costs and their allocation, the Borrower shall immediately pay to the Agent,
from time to time as specified by the Agent, such amounts as shall be sufficient
to compensate the Agent, the Lenders or the subject Issuer for such increased
cost. Any Issuer’s determination of costs incurred under Section 2.19(c)(i) or
2.19(c)(ii), above, and the allocation, if any, of such costs among the Borrower
and other letter of credit customers of such Issuer, if done in good faith and
made on an equitable basis and in accordance with such officer’s certificate,
shall be conclusive and binding on the Borrower.

2.19 CONCERNING L/C’S.

(a) None of the Agent, the Lenders, the Issuer, the Issuer’s correspondents, or
any advising, negotiating, or paying bank with respect to any L/C shall be
responsible in any way for:

(i) The performance by any beneficiary under any L/C of that beneficiary’s
obligations to the Borrower.

(ii) The form, sufficiency, correctness, genuineness, authority of any person
signing, falsification, or the legal effect of, any documents called for under
any L/C if such documents on their face appear to be in order.

(b) The Issuer may honor, as complying with the terms of any L/C and of any
drawing thereunder, any drafts or other documents otherwise in order, but signed
or issued by an administrator, executor, conservator, trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, liquidator,
receiver, or other legal representative of the party authorized under such L/C
to draw or issue such drafts or other documents.

 

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(c) Unless the Borrower on behalf of itself and the other Borrower instructs any
Issuer otherwise, in the particular instance, the Borrower hereby authorizes any
Issuer to:

(i) Select an advising bank;

(ii) Select a paying bank; and

(iii) Select a negotiating bank.

(d) All directions, correspondence, and funds transfers relating to any L/C are
at the risk of the Borrower. The Issuer shall have discharged the Issuer’s
obligations under any L/C or the drawing thereunder which includes payment
instructions if the Issuer initiates the method of payment called for thereby
(or initiates any other commercially reasonable and comparable method). None of
the Agent, the Lenders or the Issuer shall have any responsibility for any
inaccuracy, interruption, error, or delay in transmission or delivery by post,
telegraph or cable, or for any inaccuracy of translation, excepting gross
negligence or willful misconduct.

(e) The Agent’s, each Lender’s and the Issuer’s rights, powers, privileges and
immunities specified in or arising under this Agreement are in addition to any
heretofore or at any time hereafter otherwise created or arising, whether by
statute or rule of law or contract.

(f) Except to the extent otherwise expressly provided hereunder or agreed to in
writing by the Issuer and the Borrower, the L/C will be governed by either, at
the election of the Issuer, the Uniform Customs and Practice for Documentary
Credits, International Chamber of Commerce, Publication No. 500, and any
subsequent revisions thereof, or the International Standby Practices – ISP 98,
International Chamber of Commerce Publication, No 590, and subsequent revisions
thereto.

(g) The obligations of the Borrower under this Agreement with respect to L/C’s
are absolute, unconditional, and irrevocable and shall be performed strictly in
accordance with the terms hereof under all circumstances, whatsoever including,
without limitation, the following:

(h) Any lack of validity or enforceability or restriction, restraint, or stay in
the enforcement of this Agreement, any L/C, or any other agreement or instrument
relating thereto;

(i) Any amendment or waiver of, or consent to the departure from, any L/C;

(ii) The existence of any claim, set off, defense, or other right which the
Borrower may have at any time against the beneficiary of any L/C; and

(iii) Any good faith honoring of a drawing under any L/C, which drawing possibly
could have been dishonored based upon a strict construction of the terms of the
L/C.

 

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2.20 CHANGED CIRCUMSTANCES.

(a) Subject to the provisions of this Agreement, the Borrower shall have the
option (A) as of any date, to convert all or any part of Base Margin Loans to,
or request that new Revolving Credit Loans be made as, LIBOR Loans of various
Interest Periods; (B) as of the last day of any Interest Period, to continue all
or any portion of the relevant LIBOR Loans as LIBOR Loans; (C) as of the last
day of any Interest Period, to convert all or any portion of the LIBOR Loans to
Base Rate Loans; and (D) at any time, to request new Revolving Credit Loans as
Base Rate Loans; provided, that Revolving Credit Loans may not be continued as
or converted to LIBOR Loans, if the continuation or conversion thereof would
violate the provisions of Sections 2.21(b) or 2.21(c) of this Agreement or if an
Event of Default has occurred.

(b) The Agent’s determination of the LIBOR Rate as provided above shall be
conclusive. Furthermore, if the Agent or the Lenders determines, in good faith
(which determination shall be conclusive), prior to the commencement of any
Interest Period that (A) U.S. Dollar deposits of sufficient amount and maturity
for funding the Revolving Credit Loans are not available to the Agent or the
Lenders in the London Interbank LIBOR market in the ordinary course of business,
or (B) by reason of circumstances affecting the London Interbank LIBOR market,
adequate and fair means do not exist for ascertaining the rate of interest to be
applicable to the Revolving Credit Loans requested by the Borrower to be LIBOR
Loans or the Revolving Credit Loans bearing interest at the rates set forth in
this Agreement shall not represent the effective pricing to the Agent for
U.S. Dollar deposits of a comparable amount for the relevant period (such as for
example, but not limited to, official reserve requirements required by
Regulation D to the extent not given effect in determining the rate) or (C) the
LIBOR Rate determined or to be determined for any Interest Period will not
adequately and fairly reflect the cost to the Lenders of making or maintaining
LIBOR Loans during such Interest Period, the Agent shall promptly notify the
Borrower and (1) all existing LIBOR Loans shall convert to Base Rate Loans upon
the end of the applicable Interest Period, and (2) no additional LIBOR Loans
shall be made until such circumstances are cured.

(c) If, after the date hereof, the introduction of, or any change in any
applicable law, treaty, rule, regulation or guideline or in the interpretation
or administration thereof by any governmental authority or any central bank or
other fiscal, monetary or other authority having jurisdiction over the Agent,
the Lenders or their respective lending offices (a “Regulatory Change”), shall,
in the opinion of counsel to the Agent or the Lenders, make it unlawful for the
Agent or the Lenders to make or maintain LIBOR Loans, then the Agent shall
promptly notify the Borrower and (A) the LIBOR Loans shall

 

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immediately convert to Base Rate Loans on the last Business Day of the then
existing Interest Period or on such earlier date as required by law and (B) no
additional LIBOR Loans shall be made until such circumstance is cured.

(d) The Borrower shall reimburse each Lender on demand for any loss incurred or
to be incurred by it in the reemployment of the funds released (i) resulting
from any prepayment (for any reason whatsoever, including, without limitation,
conversion to Base Margin Loans or acceleration by virtue of, and after, the
occurrence and continuance of an Event of Default) of any LIBOR Loan required or
permitted under this Agreement, if such LIBOR Loan is prepaid other than on the
last day of the Interest Period for such LIBOR Loan or (ii) in the event that
after the Borrower delivers a notice of borrowing under Section 2.5(b)(ii) in
respect of LIBOR Loans, such LIBOR Loans are not made on the first day of the
Interest Period specified in such notice of borrowing for any reason other than
a breach by such Lender of its obligations hereunder. Such loss shall be the
amount as reasonably determined by such Lender as the excess, if any, of (A) the
amount of interest which would have accrued to such Lender on the amount so paid
or not borrowed at a rate of interest equal to the LIBOR Rate (including the
LIBOR Margin) for such Loan, for the period from the date of such payment or
failure to borrow to the last day (x) in the case of a payment or refinancing
with Base Margin Loans other than on the last day of the Interest Period for
such LIBOR Loan, of the then current Interest Period for such LIBOR Loan, or
(y) in the case of such failure to borrow, of the Interest Period for such Loan
which would have commenced on the date of such failure to borrow, over (B) the
amount of interest which would have accrued to such Lender on such amount by
placing such amount on deposit for a comparable period with leading banks in the
London interbank market (collectively, “Breakage Costs”). Any Lender demanding
reimbursement for such loss shall deliver to the Borrower from time to time one
or more certificates setting forth the amount of such loss as determined by such
Lender and setting forth in reasonable detail the manner in which such amount
was determined.

(e) If any Regulatory Change (whether or not having the force of law) shall
(A) impose, modify or deem applicable any assessment, reserve, special deposit
or similar requirement against assets held by, or deposits in or for the account
of or loans by, or any other acquisition of funds or disbursements by, the Agent
or the Lenders; (B) subject the Agent, the Lenders or the LIBOR Loans to any Tax
or change the basis of taxation of payments to the Agent or the Lenders of
principal or interest due from the Borrower to the Agent or the Lenders
hereunder (other than a change in the taxation of the overall net income of the
Agent or the Lenders); or (C) impose on the Agent or the Lenders any other
condition regarding the LIBOR Loans or the Agent’s or any Lender’s funding
thereof, and the Agent or Lenders shall determine (which determination shall be
conclusive) that the result of the foregoing is to

 

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increase the cost to the Agent or the Lenders of making or maintaining the LIBOR
Loans or to reduce the amount of principal or interest received by the Agent or
Lenders hereunder, then the Borrower shall pay to the Agent or the Lenders, on
demand, such additional amounts as the Agent or the Lenders shall, from time to
time, determine are sufficient to compensate and indemnify the Agent or Lenders
from such increased cost or reduced amount.

(f) All payments made by Borrower hereunder or under any other Loan Document
will be made without setoff, counterclaim, or other defense. In addition, all
such payments will be made free and clear of, and without deduction or
withholding for, any present or future Taxes, and in the event any deduction or
withholding of Taxes is required, Borrower shall comply with the next sentence
of this Section 2.20(f). 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 any
other Loan Document, including any amount paid pursuant to this Section 2.20(f)
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein or in such other Loan Document. Borrower
will furnish to Agent as promptly as possible after the date the payment of any
Tax is due pursuant to applicable law, certified copies of tax receipts
evidencing such payment by the Borrower. The Borrower agrees to pay any present
or future stamp, value added or documentary taxes or any other excise or
property taxes, charges, or similar levies that arise from any payment made
hereunder or under any other Loan Document or from the execution, delivery,
performance, recordation, or filing of, or otherwise with respect to this
Agreement or any other Loan Document.

(g) If the Agent or a Lender determines, in its sole discretion, that it has
received a refund of any Taxes with respect to which the Borrower has paid
additional amounts pursuant to Section 2.21(f), so long as no Event of Default
has occurred and is continuing, it shall pay over such refund to the Borrower
(but only to the extent of payments made, or additional amounts paid, by the
Borrower under Section 2.20(f) with respect to Taxes giving rise to such a
refund), net of all out-of-pocket expenses of the Agent or such Lender and
without interest (other than any interest paid by the relevant governmental
authority with respect to such a refund); provided, that, the Borrower, upon the
request of the Agent or such Lender, agrees to repay the amount paid over to the
Borrower (plus any penalties, interest or other charges, imposed by the relevant
governmental authority) to the Agent or such Lender in the event the Agent or
such Lender is required to repay such refund to such governmental authority.
Notwithstanding anything in this Agreement to the contrary, this Section 2.20
shall not be construed to require the Agent or any Lender to make available its
tax returns (or any other information which it deems confidential) to Borrower
or any other Person.

 

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2.21 LENDERS’ COMMITMENTS.

(a) Subject to Section 18.1 (which provides for assignments and assumptions of
commitments), each Lender’s “Percentage Commitment”, and “Dollar Commitment” as
of the date hereof is set forth on EXHIBIT 2.21(a).

(b) The obligations of each Lender are several and not joint. No Lender shall
have any obligation to make any loan or advance under the Revolving Credit in
excess of the lesser of the following:

(i) that Lender’s Percentage Commitment of the subject loan or advance or of
Availability; and

(ii) that Lender’s unused Dollar Commitment.

(c) No Lender shall have any liability to the Borrower on account of the failure
of any other Lender to provide any loan or advance under the Revolving Credit
nor any obligation to make up any shortfall which may be created by such
failure.

(d) The Dollar Commitments, Percentage Commitments and identities of the Lenders
may be changed, from time to time in accordance with Section 2.22 or by the
reallocation or assignment of Dollar Commitments and Percentage Commitments
amongst the Lenders or with other Persons who become “Lenders”, provided,
however unless an Event of Default has occurred (in which event, no consent of
the Borrower is required) any assignment to a Person not then a Lender shall be
subject to the prior consent of the Borrower (not to be unreasonably withheld),
which consent will be deemed given unless the Borrower provides the Agent with
written objection, not more than five (5) Business Days after the Agent shall
have given the Borrower written notice of a proposed assignment.

(e) Upon written notice given the Borrower from time to time by the Agent, of
any assignment or allocation referenced in Section 2.21(d) or any increase in
the Dollar Commitments pursuant to Section 2.22:

(i) The Borrower, if required by the Agent, shall execute one or more Revolving
Credit Notes (which notes shall replace or supplement, as the case may be, any
Revolving Credit Notes theretofore provided by the Borrower) to reflect such
changed Dollar Commitments, Percentage Commitments, and identities and shall
deliver such Revolving Credit Notes to the Agent (which promptly thereafter
shall cancel and deliver to the Borrower the Revolving Credit Notes so

 

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replaced, if any). In the event that the Agent does not require the delivery of
Revolving Credit Notes or that in the event that a Revolving Credit Note is to
be exchanged following its acceleration or the entry of an order for relief
under the Bankruptcy Code with respect to the Borrower, the Agent, in lieu of
causing the Borrower to execute one or more new Revolving Credit Notes, may
issue the Agent’s Certificate confirming the resulting Dollar Commitments and
Percentage Commitments.

(ii) Such change shall be effective from the effective date specified in such
written notice and any Person added as a Lender shall have all rights and
privileges of a Lender hereunder thereafter as if such Person had been a
signatory to this Agreement and any other Loan Document to which a Lender is a
signatory and any person removed as a Lender shall be relieved of any
obligations or responsibilities of a Lender hereunder thereafter.

2.22 INCREASE IN DOLLAR COMMITMENTS.

(a) Borrower may, at any time, deliver a written request to Agent to increase
the Dollar Commitments. Any such written request shall specify the amount of the
increase in the Dollar Commitments that Borrower is requesting, provided, that,
(i) in no event shall the aggregate amount of any such increase cause the Dollar
Commitments to exceed $35,000,000, (ii) any such request shall be for an
increase of not less than $2,500,000, (iii) any such request shall be
irrevocable, (iv) in no event shall there be more than one such increase in any
calendar quarter and (v) no Default or Event of Default shall exist.

(b) Upon the receipt by Agent of any such written request, Agent shall notify
each of the Lenders of such request and each Lender shall have the option (but
not the obligation) to increase the amount of its Dollar Commitment by an amount
up to its Pro Rata share of the amount of the increase thereof requested by
Borrower as set forth in the notice from Agent to such Lender. Each Lender shall
notify Agent within ten (10) days after the receipt of such notice from Agent
whether it is willing to so increase its Dollar Commitment, and if so, the
amount of such increase; provided, that, (i) the minimum increase in the
Commitments of each such Lender providing the additional Commitments shall equal
or exceed $1,000,000, and (ii) no Lender shall be obligated to provide such
increase in its Dollar Commitment and the determination to increase the Dollar
Commitment of a Lender shall be within the sole and absolute discretion of such
Lender.

(c) The Revolving Credit Loan Ceiling shall be increased by the amount of the
increase in the applicable Dollar Commitments from Lenders for which the Agent
has received Assignment and Acceptances within thirty (30) days after the date
of the request by the Borrower for the

 

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increase or such earlier date as the Agent and the Borrower may agree (but
subject to the satisfaction of the conditions set forth below), whether or not
the aggregate amount of the increase in the Dollar Commitments equals or exceeds
the amount of the increase in the Revolving Credit Loan Ceiling requested by the
Borrower in accordance with the terms hereof, effective on the date that each of
the following conditions have been satisfied:

(i) the Agent shall have received from each Lender that is providing an
additional Dollar Commitment as part of the increase in the Revolving Credit
Loan Ceiling, an Assignment and Acceptance duly executed by such Lender and the
Borrower, provided, that, the aggregate Dollar Commitments set forth in any such
Assignment and Acceptance shall be not less than $1,000,000;

(ii) the conditions precedent to the making of Revolving Credit Loans set forth
in this Agreement shall be satisfied as of the date of the increase in the
Revolving Credit Loan Ceiling, both before and after giving effect to such
increase;

(iii) such increase in the Revolving Credit Loan Ceiling, on the date of the
effectiveness thereof, shall not violate any agreement or document, or any
applicable law, regulation or order or decree of any court or other governmental
authority and shall not be enjoined, temporarily, preliminarily or permanently;
and

(iv) there shall have been paid to the Agent, for the account of each Lender
providing an additional Dollar Commitment in connection with such increase in
the Revolving Credit Loan Ceiling, a fee in the amount equal to one (1%) percent
of such additional Dollar Commitment.

(d) As of the effective date of any such increase in the Revolving Credit Loan
Ceiling, each reference to the term Dollar Commitments and Revolving Credit Loan
Ceiling herein and in any of the other Loan Documents shall be deemed amended to
mean the amount of the Dollar Commitments and Revolving Credit Loan Ceiling
specified in the most recent written notice from the Agent to the Borrower of
the increase in the Dollar Commitments and Revolving Credit Loan Ceiling.

ARTICLE III. - CONDITIONS PRECEDENT

3.1 CONDITIONS PRECEDENT TO THE CLOSING DATE AND FUNDING DATE

As a condition to the effectiveness of this Agreement, the establishment of the
Revolving Credit, the procurement of the initial L/C’s issued hereunder, and the
making of the first loan under the Revolving Credit, each of the documents
respectively described in Sections 3.1 through and including 3.4

 

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(each in form and substance reasonably satisfactory to the Agent) shall have
been delivered to the Agent, and the conditions respectively described in
Sections 3.5 through and including 3.13, shall have been satisfied as of the
Closing Date, unless otherwise indicated:

3.2 CORPORATE DUE DILIGENCE.

(a) A certificate of corporate good standing issued with respect to the Borrower
by the Secretary of State of the State in which the Borrower is organized, to be
delivered as of the Closing Date.

(b) Certificates of qualification to do business as a foreign corporation,
issued by the Secretary(ies) of State of each State in which the Borrower’s
conduct of business or ownership of assets requires such qualification, to be
delivered as of the Closing Date.

(c) A Certificate of the Borrower’s Secretary as to the due adoption and
continued effectiveness of, each corporate resolution adopted in connection with
the establishment of the loan arrangement contemplated by the Loan Documents and
attesting to the true signatures of each Person authorized as a signatory to any
of the Loan Documents, such certificate to set forth the text of each such
resolution in an attachment thereto, to be delivered as of the Closing Date.

3.3 OPINION.

An opinion of counsel to the Borrower, to be delivered as of the Closing Date.

3.4 OFFICERS’ CERTIFICATES.

Certificates executed by the President or the Chief Financial Officer of the
Borrower as of the Closing Date and stating that the representations and
warranties made by the Borrower to the Agent in the Loan Documents are true and
complete as of the date of such certificate, and that no event has occurred
which is or which, solely with the giving of notice or passage of time (or
both), would be an Event of Default.

3.5 ADDITIONAL DOCUMENTS.

Such additional instruments and documents as the Agent or its counsel reasonably
may require or request including, without limitation, the following, each to be
delivered as of the Closing Date:

(a) Loan Documents. Each of the Loan Documents shall have been duly executed and
delivered, in recordable form where applicable, by the respective parties
thereto and shall be in full force and effect.

 

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(b) Certificates of Insurance. (i) A certificate of insurance from an
independent insurance broker dated as of the Closing Date, identifying insurers,
types of insurance, insurance limits, policy terms and otherwise describing the
insurance obtained in accordance with this Agreement, and (ii) a lender loss
payable endorsement.

(c) Borrowing Base Certificate. Delivery of the initial Borrowing Base
Certificate dated as of the Closing Date.

(d) Business Plan. Delivery of the Business Plan, together with a certificate
executed by the President or Chief Financial Officer of the Borrower with
respect thereto.

(e) Fee Letter. Fee Letter dated as of the Closing Date by and between the Agent
and the Borrower.

(f) Trademark Security Agreement. Duly executed and delivered Trademark Security
Agreement dated as of the Closing Date, by and between the Borrower and the
Agent

(g) Payoff Letter. A payoff letter executed by the Borrower and the Existing
Lender and UCC-3 termination statements.

(h) Credit Card Acknowledgments. Duly executed Credit Card Acknowledgments with
respect to each Credit Card Issuer and Credit Card Processor.

(i) Blocked Account Agreements. Duly executed Blocked Account Agreements with
respect to each Blocked Account and such other DDAs (other than Exempt DDAs) as
the Agent may require.

(j) Collateral Access Agreements. Duly executed Collateral Access Agreements
with respect to (i) the cross dock facility of the Borrower located in Jessup,
Maryland and (ii) each distribution center of the Borrower located in
(A) Houston, Texas, (B) Dallas, Texas and (C) El Paso, Texas.

(k) Notes. Duly executed Revolving Credit Note and Swingline Note, dated the
Closing Date.

 

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(l) Pledge Agreement. Duly executed Pledge and Security Agreement, dated as of
the Closing Date, by Borrower in favor of Agent.

3.6 REPRESENTATIONS AND WARRANTIES.

As of the Closing Date, each of the representations made by or on behalf of the
Borrower in this Agreement or in any of the other Loan Documents or in any other
report, statement, document, or paper provided by or on behalf of the Borrower
shall be true and complete as of the date as of which such representation or
warranty was made.

3.7 MINIMUM DAY ONE AVAILABILITY.

After giving effect to the first funding under the Revolving Credit, all then
held checks (if any), accounts payable which are beyond credit terms then
accorded the Borrower, overdrafts, any charges to the Loan Account made in
connection with the establishment of the credit facility contemplated hereby;
and L/C’s to be issued at, or immediately subsequent to, such establishment,
Excess Availability shall not be less than $3,000,000.

3.8 ALL FEES AND EXPENSES PAID.

All fees due at or immediately after the first funding under the Revolving
Credit and all costs and expenses incurred by the Agent and Lenders in
connection with the establishment of the credit facility contemplated hereby
(including the reasonable and documented fees and expenses of counsel to the
Agent and Lenders to the extent invoiced) shall have been paid in full.

3.9 NO DEFAULT.

Neither a Default nor an Event of Default has occurred which is continuing.

3.10 NO ADVERSE CHANGE.

No event shall have occurred or failed to occur, which occurrence or failure is
or could have a Material Adverse Effect.

3.11 VALIDITY OF LIENS.

All UCC filings in the opinion of the Agent to protect and preserve such
Collateral Interests shall have been duly effected. The Agent shall have
received evidence thereof in form and substance satisfactory to the Agent.

 

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3.12 REAL PROPERTY

(a) Agent shall have received, in form and substance satisfactory to Agent, all
releases, terminations and such other documents as Agent may request to evidence
and effectuate the termination by any existing lenders of their respective
financing arrangements with the Borrower and the termination and release by it
or them, as the case may be, of any interest in and to any Real Property, duly
authorized, executed and delivered by it or each of them, including, but not
limited to, satisfactions and discharges of any mortgages, deeds of trust or
deeds to secure debt by the Borrower in favor of it or any of them, in form
acceptable for recording with the appropriate Governmental Authority.

(b) Agent shall have received environmental audits of the Real Property to be
subject to the Mortgages conducted by an independent environmental engineering
firm acceptable to Agent, and in form, scope and methodology satisfactory to
Agent, confirming the absence of any material environmental problem.

(c) Agent shall have received, in form and substance satisfactory to Agent,
title insurance policies from title insurance companies satisfactory to the
Agent insuring the priority and validity of each Mortgage in an amount
acceptable to the Agent and containing only such exceptions and including such
terms, conditions, and endorsements as are satisfactory to Agent and Agent shall
have received ALTA instrument surveys and surveyor certificates as to each
parcel of Real Property of the Borrower satisfactory to Agent and sufficient for
the deletion of the survey exception from such title insurance policy.

(d) Agent shall have received, in form and substance satisfactory to Agent, such
appraisals of the Real Property from appraisers selected by the Agent, in form
and substance acceptable to the Agent.

(e) Agent shall have received Mortgages, in recordable form.

ARTICLE IV. - GENERAL REPRESENTATIONS, COVENANTS AND WARRANTIES:

To induce the Agent and Lenders to establish the credit facility contemplated
herein to make loans and advances and to provide financial accommodations under
this Agreement (each of which loans shall be deemed to have been made in
reliance thereupon), the Borrower, in addition to all other representation,
warranties, and covenants made by the Borrower in any other Loan Document,
represents, warrants, and covenants as follows:

4.1 PAYMENT AND PERFORMANCE OF LIABILITIES.

The Borrower shall pay each Liability when due (or when demanded, if payable on
demand) and shall promptly, punctually, and faithfully perform each other
Liability.

 

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4.2 DUE ORGANIZATION. CORPORATE AUTHORIZATION. NO CONFLICTS.

(a) The exact name of the Borrower, as set forth in the Borrower’s
organizational documents, is set forth in EXHIBIT 4.2 hereof. The Borrower
presently is and shall hereafter remain in good standing and be duly organized
under the laws of Virginia and shall hereafter remain duly qualified and in good
standing in every other State in which, by reason of the nature or location of
the Borrower’s assets or operation of the Borrower’s business, such
qualification may be necessary, except where the failure to so qualify would
have Material Adverse Effect. EXHIBIT 4.2 accurately describes the corporate
structure of the Borrower and its Subsidiaries.

(b) EXHIBIT 4.2 accurately identifies each Subsidiary and Affiliate and each
Subsidiary’s Affiliates (i) form of legal entity, (ii) the number of shares of
capital stock issued, (iii) the number of shares owned by the Borrower, and
(iv) the jurisdiction of organization. The Borrower shall provide the Agent with
prior written notice of any entity’s becoming or ceasing to be a Subsidiary.

(c) The Borrower shall not change its State of incorporation or its
organizational identification number unless the Borrower shall have given the
Agent prior written notice thereof.

(d) The Borrower has all requisite corporate power and authority to execute and
deliver all Loan Documents to which the Borrower is a party and has and will
hereafter retain all requisite corporate power to perform all Liabilities.

(e) The execution and delivery by the Borrower of each Loan Document, the
Borrower’s consummation of the transactions contemplated by such Loan Documents
(including, without limitation, the creation of Collateral Interests by the
Borrower to secure the Liabilities), the Borrower’s performance under such Loan
Document, the borrowings hereunder, and the use of the proceeds thereof:

(i) Have been duly authorized by all necessary corporate action on the part of
the Borrower;

(ii) Do not, and will not, contravene any provision of any Requirement of Law or
obligation of the Borrower except to the extent any such contravention would not
reasonably be expected to have a Material Adverse Effect; and

 

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(iii) Will not result in the creation or imposition of, or the obligation to
create or impose, any Encumbrance upon any assets of the Borrower pursuant to
any Requirement of Law or obligation of the Borrower, except pursuant to the
Loan Documents.

(f) The Loan Documents have been duly executed and delivered by the Borrower and
are the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors’ rights generally or by equitable principles
relating to enforceability.

(g) The Borrower, nor any of its Subsidiaries, has engaged in any dealings or
transactions, directly or indirectly, (i) in contravention of any U.S.,
international or other anti-money laundering regulations or conventions,
including, without limitation, the United States Bank Secrecy Act, the United
States Money Laundering Control Act of 1986, the United States International
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Trading
with the Enemy Act (50 U.S.C. §1 et seq., as amended), any foreign asset control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto, the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 and
the regulations promulgated thereunder (collectively, the “Patriot Act”), or any
order issued with respect to anti-money laundering by the U.S. Department of the
Treasury’s Office of Foreign Assets Control (“OFAC”), or (ii) in contravention
of Executive Order No. 13224 issued by the President of the United States on
September 24, 2001 (Executive Order Blocking Property and Prohibiting
Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism),
as may be amended or supplemented from time to time (“Executive Order 13224”) or
(iii) on behalf of terrorists or terrorist organizations, including those
persons or entities that are included on any relevant lists maintained by the
United Nations, North Atlantic Treaty Organization, Organization of Economic
Cooperation and Development, OFAC, Financial Action Task Force, U.S.
Securities & Exchange Commission, U.S. Federal Bureau of Investigation, U.S.
Central Intelligence Agency, U.S. Internal Revenue Service, or any country or
organization, all as may be amended from time to time. As of the date hereof and
as of the Closing Date, neither the Borrower nor any of its Subsidiaries (i) is
listed in the Annex to or is otherwise subject to the provisions of Executive
Order 13224, (ii) is listed on OFAC’s most current list of “Specifically
Designed Nationals and Blocked Persons,” (iii) commits, threatens to commit or
supports “terrorism”, as that term is defined in Executive Order 13224, or
(iv) has been associated with or is otherwise affiliated with any entity or
person listed above.

 

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4.3 TRADE NAMES.

(a) EXHIBIT 4.3 is a listing of:

(i) All names under which the Borrower has conducted its business within the
five (5) years preceding the date hereof, and

(ii) All entities and/or persons with whom the Borrower ever consolidated or
merged within the five (5) years preceding the date hereof, or from whom the
Borrower ever acquired in a single transaction or in a series of related
transactions substantially all of such entity’s or Person’s assets within the
five (5) years preceding the date hereof.

(b) The Borrower will provide the Agent with not less than ten (10) days prior
written notice (with reasonable particularity) of any change to the Borrower’s
name.

4.4 INFRASTRUCTURE.

(a) The Borrower has and will maintain a sufficient infrastructure to conduct
its business as presently conducted and as contemplated to be conducted as
described in the Business Plan.

(b) The Borrower owns and possesses, or has the right to use (and will hereafter
own, possess, or have such right to use) all patents, industrial designs,
trademarks, trade names, trade styles, brand names, service marks, logos,
copyrights, trade secrets, know-how, confidential information, and other
intellectual or proprietary property of any third Person necessary for the
Borrower’s conduct of the Borrower’s business.

(c) The conduct by the Borrower of the Borrower’s business does not presently
infringe (nor will the Borrower conduct its business in the future so as to
infringe) the patents, industrial designs, trademarks, trade names, trade
styles, brand names, service marks, logos, copyrights, trade secrets, know-how,
confidential information, or other intellectual or proprietary property of any
third Person except as would not reasonably be expected to have a Material
Adverse Effect.

4.5 SOLVENCY.

Borrower is Solvent and will be Solvent after the creation of the Liabilities,
the Collateral Interests of Agent and the other transactions contemplated
hereunder.

 

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4.6 LOCATIONS.

(a) The Collateral, and the books, records, and papers of the Borrower
pertaining thereto, are kept and maintained solely at the Borrower’s chief
executive offices and those locations which are listed on EXHIBIT 4.6(a), which
includes, with respect to each such location, the name and address of the
landlord on the Lease which covers such location

(b) Intentionally deleted.

(c) The Borrower shall use its reasonable efforts to provide the Agent with
Collateral Access Agreements or subordinations, in substantially the form
annexed hereto as EXHIBIT 4.6(c) for each of the Borrower’s locations in any of
the Landlord States. The Agent may establish an Availability Reserve for each
such location as to which a Collateral Access Agreement is not so delivered,
which Availability Reserve shall be reduced or eliminated upon delivery of a
Collateral Access Agreement for such location.

(d) The Borrower will not:

(i) Alter, modify or amend any Lease, unless such alteration, modification, or
amendment would not have a material adverse economic effect on the Borrower or
is on more economically favorable terms for the Borrower, and Borrower has
provided Agent with a copy of such alteration, modification or amendment
reasonably promptly following its execution.

(ii) Commit to, or open or close any location at which the Borrower maintains,
offers for sales, or stores any of the Collateral except that the Borrowers may:
(I) open, during any Fiscal Year, new stores in an amount not to exceed the
number of new stores projected to be opened in the Business Plan during such
Fiscal Year and (II) close, during any Fiscal Year, the number of stores
projected to be closed in the Business Plan during such Fiscal Year (“Permitted
Store Openings/Closings”).

(e) Except as otherwise disclosed pursuant to, or permitted by, this
Section 4.6, and except for goods in control of a customs broker who has entered
into a Customs Brokers Agreement no tangible personal property of the Borrower
with a value in excess of $100,000 is in the care or custody of any third party
or stored or entrusted with a bailee or other third party and none shall
hereafter be placed under such care, custody, storage, or entrustment.

 

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4.7 TITLE TO ASSETS.

(a) The Borrower is, and shall hereafter remain, the owner of the Collateral
free and clear of all Encumbrances other than Encumbrances listed on EXHIBIT
4.7(a) and other Permitted Encumbrances.

(b) The Borrower does not and shall not have possession of any property on
consignment to the Borrower except as set forth on EXHIBIT 4.7(b); provided,
that, at no time shall Borrower have possession of property on consignment to
Borrower having a value (determined at cost) in excess of $500,000 in the
aggregate.

(c) Intentionally deleted.

(d) The Borrower does not have any goods, documents of title or other Collateral
in the custody, control, or possession of a third party, except as set forth in
EXHIBIT 4.7(d) and except for goods located in the United States in transit to a
location of the Borrower permitted herein or in the ordinary course of business
of the Borrower in the possession of the carrier transporting such goods. In the
event that any goods, documents of title or other Collateral with a value in
excess of $100,000 are at any time after the date hereof in the custody, control
or possession of any other person not referred to in EXHIBIT 4.7(d) or such
carriers, Borrower shall promptly notify the Agent thereof in writing. Promptly
upon Agent’s request, the Borrower shall deliver to the Agent a Collateral
Access Agreement duly authorized, executed and delivered by such person and
Borrower.

(e) EXHIBIT 4.7(d) is a schedule of all carriers, consolidators and customs
brokers employed by the Borrower for the transport of goods in the ordinary
course of the business of the Borrower. The Borrower shall not employ any other
carriers, consolidators or customs brokers unless (i) the Borrower have provided
the Agent with at least five days prior notice thereof and (ii) such carrier,
consolidator or customs broker has executed and delivered to the Agent a Customs
Broker Agreement.

4.8 INDEBTEDNESS.

(a) The Borrower does not and shall not hereafter have any Indebtedness with the
exceptions of:

(i) Any Indebtedness under the Loan Documents;

(ii) The Indebtedness (if any) listed on EXHIBIT 4.8, annexed hereto and any
refinancings, refundings, renewals or extensions thereof (without increasing
(except to the extent of fees and interest on such Indebtedness, refinancings,
refundings, renewals or extensions), or shortening the maturity of, the
principal amount thereof);

 

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(iii) Indebtedness for fixed or capital assets secured by purchase money
security interests not otherwise described EXHIBIT 4.8;

(iv) Capital Leases (exclusive of those listed on EXHIBIT 4.8) for the
acquisition of Equipment in an aggregate principal amount not exceeding Three
Million Five Hundred Thousand Dollars ($3,500,000) outstanding at any one time,
plus the aggregate amount of any capitalized obligations in respect of Leases
that are treated as Capital Leases per GAAP;

(v) Indebtedness in respect of performance bonds, bid bonds, appeal bonds,
surety bonds or other similar obligations arising in the ordinary course of
business in connection with the opening of new stores or the procurement of
utility services, and any refinancings thereof;

(vi) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against insufficient
funds in the ordinary course of business, provided that such Indebtedness is
extinguished within three Business Days after its incurrence; and

(vii) Indebtedness consisting of the financing of insurance premiums in the
ordinary course of business.

(b) The Borrower shall not prepay other Indebtedness (other than the
Liabilities), except for amounts which do not exceed one million dollars
($1,000,000) in the aggregate at any time following the Closing Date, provided,
that at the time of such prepayment, an Authorized Officer of the Borrower has
certified to the Agent that: (i) no Default or Event of Default has occurred
which is continuing at the time of such prepayment and none would exist after
giving effect to such prepayment, and (ii) for a period of 90 days prior to the
date thereof and, on a pro forma basis, for a period of 180 days after the date
thereof, Excess Availability, at all times, is at least equal to a sum,
expressed in Dollars, of twenty five (25%) percent multiplied by the lesser of
(x) the Revolving Credit Loan Ceiling and (y) the Borrowing Base.

(c) Except for prepayments permitted under Section 4.8(b), the Borrower shall
not make any payment of any part or all of any Subordinated Debt or take any
other action or omit to take any other action in respect of any Subordinated
Debt in contravention of the written terms of any instrument evidencing such
Subordinated Debt, or enter into any agreement (written or oral) which could in
any way be considered to amend, modify or terminate any instrument or agreement
evidencing or relating to Subordinated Debt.

 

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(d) Borrower has no obligations or liabilities in respect of the Contingent
Funding Commitment; it being agreed that any and all of the obligations and
liabilities of the Borrower in respect of the Contingent Funding Commitment have
been satisfied and discharged prior to the Closing Date.

4.9 INSURANCE.

(a) EXHIBIT 4.9 is a schedule of all insurance policies owned by the Borrower
under which the Borrower is the named insured. Each of such policies is in full
force and effect. The Borrower is not in default or violation in any material
respect of any such policy.

(b) The Borrower shall have and maintain at all times insurance with its current
insurers or other insurers having a rating of A+ or better by A.M. Best,
covering such risks, in such amounts, containing such terms, in such form and
for such periods as may be reasonably satisfactory to the Agent (it being agreed
that the Borrower’s insurance in effect on the Closing Date shall be deemed to
be satisfactory to the Agent for purposes of this clause (b)).

(c) All insurance carried by the Borrower shall provide for a minimum of thirty
(30) days’ written notice of cancellation to the Agent (except for notices of
cancellation related to an increase in premiums issued in the ordinary course of
business) and all such insurance which covers the Collateral shall include an
endorsement in favor of the Agent, which endorsement shall provide that the
insurance, to the extent of the Agent’s interest therein, shall not be impaired
or invalidated, in whole or in part, by reason of any act or neglect of the
Borrower or by the failure of the Borrower to comply with any warranty or
condition of the policy.

(d) The coverage reflected on EXHIBIT 4.9 presently satisfies the foregoing
requirements, it being recognized by the Borrower, however, that such
requirements may change hereafter to reflect changing circumstances.

(e) The Borrower shall furnish the Agent as of the Closing Date and from time to
time, upon reasonable request by the Agent, with certificates or other evidence
reasonably satisfactory to the Agent regarding compliance by the Borrower with
the foregoing requirements.

(f) In the event of the failure by the Borrower to maintain insurance as
required herein, the Agent, at its option following notice to the Borrower, may
obtain such insurance, provided, however, the Agent’s obtaining of such
insurance shall not constitute a cure or waiver of any Event of Default
occasioned by the Borrower’s failure to have maintained such insurance.

 

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(g) The Borrower shall advise the Agent of each claim in excess of $100,000 made
by the Borrower under any policy of insurance which covers the Collateral and
will permit the Agent, at the Agent’s option in each instance, to the exclusion
of the Borrower, to conduct the adjustment of each such claim following the
occurrence and during the continuance of any Event of Default. The Borrower
hereby appoints the Agent as the Borrower’s attorney in fact to obtain, adjust,
settle, and cancel any insurance described in this section and to endorse in
favor of the Agent any and all drafts and other instruments with respect to such
insurance, in each case following the occurrence and during the continuance of
any Event of Default. The within appointment, being coupled with an interest, is
irrevocable until this Agreement is terminated by a written instrument executed
by a duly authorized officer of the Agent. The Agent shall not be liable on
account of any exercise pursuant to said power except where such exercise was
conducted in a grossly negligent manner or in willful misconduct. The Agent may
apply any proceeds of such insurance against the Liabilities, whether or not
such have matured, in such order of application as the Agent may determine.

4.10 LICENSES AND OTHER MATERIAL CONTRACTS.

(a) EXHIBIT 4.10(a) sets forth all Material Contracts to which the Borrower is a
party or is bound as of the date hereof. The Borrower has delivered true,
correct and complete copies of such Material Contracts to the Agent on or before
the date hereof. The Borrower is not in default of or under any Material
Contract except as would not reasonably be expected to have a Material Adverse
Effect and has not received notice of the intention of any other party thereto
to terminate any Material Contract. The Borrower has all contracts necessary for
the operation of its business as presently conducted, as conducted immediately
prior to the date hereof or as presently proposed to be conducted except for
those the failure to obtain could not have a Material Adverse Effect.

(b) EXHIBIT 4.10(b) sets forth each material license, distributorship, franchise
and similar agreement issued to the Borrower or to which the Borrower is a
party. Each such license, distributorship, franchise, and similar agreement
issued to the Borrower, or to which any of the Borrower is a party is in full
force and effect. No party to any such license or agreement is in default or
violation thereof. The Borrower has not received any notice or threat of
cancellation of any such license or agreement.

 

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4.11 LEASES.

EXHIBIT 4.11 is a schedule of all presently effective Capital Leases to which
the Borrower is a party and includes a list of all other presently effective
Leases to which the Borrower is a party. Each of such Leases and Capital Leases
is in full force and effect. The Borrower is not in default or violation of any
such Lease or Capital Lease except such defaults and violations as would not
reasonably be expected to have a Material Adverse Effect, and the Borrower has
not received any written notice or threat of cancellation of any such Lease or
Capital Lease except as would not reasonably be expected to have a Material
Adverse Effect. The Borrower hereby authorizes the Agent at any time and from
time to time upon the occurrence and during the continuance of an Event of
Default to contact any of the Borrower’s landlords in order to confirm the
continued compliance by the Borrower with the terms and conditions of the
Lease(s) between the Borrower and that landlord and to discuss such issues,
concerning the Borrower’s occupancy under such Lease(s), as the Agent may
determine.

4.12 REQUIREMENTS OF LAW.

The Borrower is in compliance with, and shall hereafter comply with and use its
assets in compliance with, all Requirements of Law except where the failure of
such compliance could not reasonably be expected to have Material Adverse
Effect. The Borrower has not received any notice of any violation of any
Requirement of Law (other than of a violation which could not reasonably be
expected to result in a Material Adverse Effect), other than any such violations
that have not been cured or otherwise remedied.

4.13 LABOR RELATIONS.

(a) The Borrower has not been and is not presently a party to any collective
bargaining or other labor contract except as disclosed on EXHIBIT 4.13.

(b) There is not presently pending and, to the Borrower’s knowledge, there is
not threatened any of the following:

(i) Any strike, slowdown, picketing, work stoppage, or employee grievance
process;

(ii) Any proceeding against or affecting the Borrower relating to the alleged
violation of any Requirement of Law pertaining to labor relations or National
Labor Relations Board, the Equal Employment Opportunity Commission, or any
comparable governmental body, organizational activity, or other labor or
employment dispute against or affecting the Borrower; or

(iii) Any lockout of any employees by the Borrower, (and no such action is
contemplated by the Borrower);

 

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that, in the case of any of the foregoing, would reasonably be expected to have
a Material Adverse Effect.

(c) No event has occurred or circumstance exists that could provide the basis
for any work stoppage or other labor dispute that would reasonably be expected
to have a Material Adverse Effect.

(d) The Borrower has complied with all Requirements of Law relating to
employment, equal employment opportunity, nondiscrimination, immigration, wages,
hours, benefits, collective bargaining, the payment of social security and
similar taxes, occupational safety and health, and plant closing except as would
not reasonably be expected to have a Material Adverse Effect.

4.14 MAINTAIN PROPERTIES.

The Borrower shall:

(a) Keep the Collateral in good order and repair (ordinary reasonable wear and
tear and insured casualty excepted);

(b) Not suffer or cause the waste or destruction of any material part of the
Collateral;

(c) Not use any of the Collateral in violation of any policy of insurance
thereon;

(d) Not sell, lease, or otherwise dispose of any of the Collateral, except for
Permitted Dispositions, and upon such sale, lease or disposition, the Borrower
shall turn over to the Agent all net cash Receipts as provided herein; and the
sale, lease, or disposition of Collateral in connection with the movement of
Inventory from one store to another store in the ordinary course of business.

4.15 TAXES.

(a) The Borrower has filed, or caused to be filed, in a timely manner all
material Federal, state and other material tax returns, reports and declarations
which are required to be filed by it. All information in such tax returns,
reports and declarations is complete and accurate in all material respects.
Borrower has paid or caused to be paid all material taxes due and payable or
claimed due and payable in any assessment received by it, which, if unpaid,
would result in a material Encumbrance on any of its properties or assets,
except taxes the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower and with
respect to which adequate reserves in conformity with GAAP have been set aside
on its books in all material respects. Adequate provision has been made for the
payment of all accrued and unpaid Federal, state, county, local, foreign and
other taxes whether or not yet due and payable and whether or not disputed.

 

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(b) Intentionally deleted.

(c) Except as disclosed on EXHIBIT 4.15, there are no examinations of or with
respect to the Borrower presently being conducted by the Internal Revenue
Service or any other taxing authority.

(d) The Borrower has, and hereafter shall: pay, as they become due and payable,
all taxes and unemployment contributions and other charges of any kind or nature
levied, assessed or claimed against the Borrower or the Collateral by any person
or entity whose claim could result in an Encumbrance upon any asset of the
Borrower or by any governmental authority; properly exercise any trust
responsibilities imposed upon the Borrower by reason of withholding from
employees’ pay or by reason of the Borrower’s receipt of sales tax or other
funds for the account of any third party; timely make all contributions and
other payments as may be required pursuant to any Employee Benefit Plan now or
hereafter established by the Borrower; and timely file all tax and other returns
and other reports with each governmental authority to whom the Borrower is
obligated to so file.

(e) At its option, the Agent may, but shall not be obligated to, pay any taxes,
unemployment contributions, and any and all other charges levied or assessed
upon the Borrower or the Collateral by any person or entity or governmental
authority, and make any contributions or other payments on account of the
Borrower’s Employee Benefit Plan as the Agent, in the Agent’s discretion, may
deem necessary or desirable, to protect, maintain, preserve, collect, or realize
upon any or all of the Collateral or the value thereof or any right or remedy
pertaining thereto in the event Borrower fails to do so in the times required
after written notice, provided, however, the Agent” making of any such payment
shall not constitute a cure or waiver of any Event of Default occasioned by the
Borrower’s failure to have made such payment.

4.16 NO MARGIN STOCK.

The Borrower is not engaged in the business of extending credit for the purpose
of purchasing or carrying any margin stock (within the meaning of Regulations U,
T, and X of the Board of Governors of the Federal Reserve System of the United
States). No part of the proceeds of any borrowing hereunder will be used at any
time to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying any such margin stock.

 

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4.17 ERISA.

Neither the Borrower nor any ERISA Affiliate ever has or hereafter shall:

(a) Violate or fail to be in full compliance with Employee Benefit Plan
maintained by the Borrower;

(b) Fail timely to file all reports and filings required by ERISA to be filed by
the Borrower;

(c) Engage in any “prohibited transactions” or “reportable events” (respectively
as described in ERISA);

(d) Engage in, or commit, any act such that a tax or penalty could be imposed
upon the Borrower on account thereof pursuant to ERISA;

(e) Accumulate any material funding deficiency within the meaning of ERISA;

(f) Terminate any Employee Benefit Plan such that a lien could be asserted
against any assets of the Borrower on account thereof pursuant to ERISA; or

(g) Be a member of, contribute to, or have any obligation under any Employee
Benefit Plan which is a multiemployer plan within the meaning of Section 4001(a)
of ERISA.

4.18 HAZARDOUS MATERIALS.

(a) Except as would not reasonably be expected to have a Material Adverse
Effect, the Borrower has never:

(i) Been legally responsible for any release or threat of release of any
Hazardous Material; or

(ii) Received notification of any release or threat of release of any Hazardous
Material from any site or vessel occupied or operated by the Borrower and/or of
the incurrence of any expense or loss in connection with the assessment,
containment, or removal of any release or threat of release of any Hazardous
Material from any such site or vessel.

(b) Except as would not reasonably be expected to have a Material Adverse
Effect, the Borrower shall:

(i) Dispose of any Hazardous Material only in compliance with all Environmental
Laws; and

 

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(ii) Not store on any site or vessel occupied or operated by the Borrower and
not transport or arrange for the transport of any Hazardous Material, except if
such storage or transport is in the ordinary course of the Borrower’s business
and is in compliance with all Environmental Laws.

(c) The Borrower shall provide the Agent with written notice upon obtaining
knowledge of any incurrence of any material expense or loss by any governmental
authority or other Person in connection with the assessment, containment, or
removal of any Hazardous Material, for which material expense or loss the
Borrower may be liable.

4.19 LITIGATION.

Except as described in EXHIBIT 4.19, there is not presently pending or
threatened by or against the Borrower any suit, action, proceeding, or
investigation which could reasonably be expected to result in a Material Adverse
Effect.

4.20 DIVIDENDS; INVESTMENTS; CORPORATE ACTION.

The Borrower shall not:

(a) Pay any cash dividend or make any other distribution in respect of any class
of the Borrower’s capital stock;

(b) Redeem, retire, purchase, or acquire the Borrower’s capital stock or
securities;

(c) Purchase, hold or acquire any capital stock, evidences of indebtedness or
other securities or, make or permit to exist any loans or advances to, or make
or permit to exist any investment or any other interest in, any other Person,
except for Permitted Investments or as permitted by Section 4.21;

(d) Merge or consolidate or be merged or consolidated with or into any other
corporation or other entity;

(e) Consolidate any of the Borrower’s operations with those of any other
corporation or other entity;

(f) Organize or create any Affiliate;

 

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(g) Subordinate any debts or obligations owed to the Borrower by any third party
to any other debts owed by such third party to any other Person; or

(h) Acquire any assets other than in the ordinary course and conduct of the
Borrower’s business as conducted at the execution of this Agreement, except that
the Borrower may acquire shares of capital stock issued by Source 1 World, HK
Ltd. for consideration not to exceed $100,000 in the aggregate so long as no
Event of Default shall exist before and after giving effect to any such
acquisition.

4.21 LOANS.

The Borrower shall not make any loans or advances to, nor acquire the
Indebtedness of, any Person, provided, however, the foregoing does not prohibit
any of the following:

(a) Advance payments made, or extensions of trade credit, to the Borrower’s
suppliers in the ordinary course and the holding of receivables in the ordinary
course of business;

(b) Advances to the Borrower’s officers, employees, and salespersons with
respect to reasonable expenses to be incurred by such officers, employees, and
salespersons for the benefit of the Borrower, not to exceed $50,000 in the
aggregate at any time outstanding.

4.22 PROTECTION OF ASSETS.

The Agent may in its discretion from time to time, discharge any tax that is due
or Encumbrance on any of the Collateral, or take any other action which the
Agent may deem necessary or desirable to repair, insure, maintain, preserve,
collect, or realize upon any of the Collateral if the Borrower has failed to do
so after written notice. The Agent shall not have any obligation to undertake
any of the foregoing and shall have no liability on account of any action so
undertaken except where there is a specific finding in a judicial proceeding (in
which the Agent has had an opportunity to be heard), from which finding no
further appeal is available, that the Agent had acted in actual bad faith or in
a grossly negligent manner. The Borrower shall pay to the Agent, on demand, or
the Agent, in its discretion, may add to the Loan Account, all amounts paid or
incurred by the Agent pursuant to this Section 4.22. The obligation of the
Borrower to pay such amounts is a Liability.

 

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4.23 LINE OF BUSINESS.

The Borrower shall not engage in any business other than the business in which
it is currently engaged or a business reasonably related thereto (the conduct of
which reasonably related business is reflected in the Business Plan).

4.24 AFFILIATE TRANSACTIONS.

The Borrower shall not make any payment, nor give any value to any Affiliate,
except:

(a) for transactions with such Affiliate for a price and on terms which shall be
no less favorable to the Borrower than those which would have been charged and
imposed in an arms length transaction, and

(b) for transactions which qualify as Permitted Dispositions between and among
the Borrower and any Subsidiary.

4.25 DEPOSIT ACCOUNTS.

The Borrower shall deliver to the Agent, by no later than June 7, 2010, evidence
reasonably satisfactory to the Agent that all of the deposit accounts of the
Borrower maintained with Bank of America have been closed. The Borrower shall
deliver to the Agent, by no later than June 30, 2010, evidence reasonably
satisfactory to the Agent that all of the deposit accounts of the Borrower
maintained with any financial institution (other than Wells Fargo Bank or Bank
of America) have been closed.

4.26 FURTHER ASSURANCES.

(a) The Borrower is not the owner of, nor has it any interest in, any property
or asset which, immediately upon the satisfaction of the conditions precedent to
the effectiveness of the credit facility contemplated hereby (Article III) will
not be subject to perfected Collateral Interests in favor of the Agent to the
extent contemplated by this Agreement (subject only to Permitted Encumbrances)
to secure the Liabilities.

(b) The Borrower will not hereafter acquire any asset or any interest in
property which is not, promptly upon such acquisition, subject to such a
perfected Collateral Interest in favor of the Agent to secure the Liabilities
(subject only to Permitted Encumbrances).

(c) The Borrower shall execute and deliver to the Agent such instruments,
documents, and papers, and shall do all such things from time to time hereafter
as the Agent may reasonably request: to carry into effect the provisions of this
Agreement; to protect and perfect the Agent’s Collateral Interests in the
Collateral; and facilitate the collection of the Receivables Collateral. The
Borrower shall execute all such instruments as may be reasonably required by the
Agent with respect to the recordation and/or perfection of the Collateral
Interests created or contemplated herein.

 

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(d) The Borrower hereby designates the Agent as and for the Borrower’s true and
lawful attorney, with full power of substitution, to authorize on behalf of the
Borrower the filing of any financing statements in order to perfect or protect
the Agent’s Collateral Interests in the Collateral.

(e) A carbon, photographic, or other reproduction of this Agreement or of any
financing statement or other instrument executed pursuant to this Section 4.26
shall be sufficient for filing to perfect the security interests granted herein.

4.27 ADEQUACY OF DISCLOSURE.

(a) All financial statements furnished to the Agent or the Lenders by the
Borrower have been prepared in accordance with GAAP consistently applied (except
to the extent that the Borrower’s historic accounting practices in effect as of
the date to which such statements relate were not consistent with GAAP, as
previously disclosed by Borrower) and present fairly in all material respects
the Consolidated condition of the Borrower at the date(s) thereof and the
Consolidated results of operations and cash flows of the Borrower for the
period(s) covered subject, in the case of interim financials, to normal year end
adjustments and absence of footnotes. There has been no Material Adverse Change
in the financial condition, results of operations, or cash flows of the Borrower
since the date(s) of such financial statements.

(b) The Borrower does not have any material contingent obligations or obligation
under any Lease or Capital Lease required to be, but which is not, noted in the
Borrower’s Consolidated financial statements furnished to the Agent or the
Lenders prior to the execution of this Agreement.

(c) No document, instrument, agreement, or paper (other than projections) now or
hereafter given the Agent or the Lenders by or on behalf of the Borrower or any
guarantor of the Liabilities in connection with the execution of this Agreement
by the Agent or Lenders, taken as a whole, contains or will contain any untrue
statement of a material fact or omits or will omit to state a fact necessary in
order to make the statements therein not materially misleading.

4.28 NO RESTRICTIONS ON LIABILITIES.

The Borrower shall not enter into or become subject to, directly or indirectly,
any agreement prohibiting or restricting (other than with respect to Permitted
Encumbrances), in any manner (including, without limitation, by way of covenant,
representation, or event of default) any of the following:

(a) The granting of Collateral Interests in favor of the Agent on any asset of
the Borrower; The incurrence of any of the Liabilities.

 

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4.29 [RESERVED]

4.30 OTHER COVENANTS.

The Borrower shall not indirectly do or cause to be done any act which, if done
directly by the Borrower, would breach any covenant contained in this Agreement.

ARTICLE V. - FINANCIAL REPORTING AND PERFORMANCE COVENANTS:

5.1 MAINTAIN RECORDS.

The Borrower shall:

(a) At all times, keep proper books of account, in which entries full, true, and
accurate in all material respects shall be made, all in accordance with GAAP
applied consistently with prior periods (except to the extent that the
statements in respect to periods prior to the date hereof may not reflect more
recent GAAP pronouncements) to fairly reflect the financial condition of the
Borrower at the close of, and its results of operations for, the periods in
question.

(b) Timely provide the Agent with those financial reports, statements, and
schedules required by this Article V or otherwise, each of which reports,
statements and schedules shall be prepared, to the extent applicable, in
accordance with GAAP applied consistently with prior periods to fairly reflect
the financial condition of the Borrower at the close of, and its results of
operations for, the period(s) covered therein.

(c) At all times, keep accurate current records of the Collateral including,
without limitation, accurate current stock, cost, and sales records of its
Inventory, accurately and sufficiently itemizing and describing the kinds,
types, and quantities of Inventory and the cost and selling prices thereof.

(d) At all times, retain independent certified public accountants who are
reasonably satisfactory to the Agent and instruct such accountants to be
available to the Agent to discuss the Borrower’s financial condition, operating
results, controls, and such other matters, within the scope of the retention of
such accountants, as may be raised by the Agent. Agent acknowledges that BDO
Seidman is satisfactory.

 

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5.2 ACCESS TO RECORDS.

(a) The Borrower shall accord the Agent and the Agent’s representatives access
from time to time as the Agent and such representatives may require to all
properties owned by or over which the Borrower has control. The Agent and such
representatives shall have the right, and the Borrower will permit the Agent and
the Agent’s representatives from time to time as Agent and such representatives
may request, all upon reasonable notice and at such reasonable times during
normal business hours, to examine, inspect, copy, and make extracts from any and
all of the Borrower’s books, records, electronically stored data, papers, and
files. The Borrower shall make all of the Borrower’s copying facilities
available to the Agent and the Agent’s representatives.

(b) The Borrower hereby authorizes the Agent and the Agent’s representatives to,
upon reasonable prior written notice and during normal business hours to
inspect, copy, duplicate, review, cause to be reduced to hard copy, run off,
draw off, and otherwise use any and all computer or electronically stored
information or data which relates to the Borrower, any service bureau,
contractor, accountant, or other person, and directs any such service bureau,
contractor, accountant, or other person who maintains such information for the
Borrower fully to cooperate with the Agent and the Agent’s representatives with
respect thereto.

Notwithstanding anything to the contrary in this Section 5.2, none of the
Borrower or any of their Subsidiaries will be required to disclose, permit the
inspection, examination or making of extracts, or discussion of, any document,
information or other matter that (i) in respect of which disclosure to the Agent
or any Lender (or its representative) is then prohibited by law or any agreement
binding on the Borrower or any of its Subsidiaries or (ii) is subject to
attorney-client or similar privilege or constitutes attorney work product; and
it is understood that, in connection with the foregoing in this Section 5.2 and
so long as no Default has occurred and is continuing, the parties hereto shall
endeavor to avoid material disruption to the Borrower’s and its Subsidiaries’
business, including the audit process.

5.3 NOTICE TO AGENT.

(a) The Borrower shall provide the Agent with written notice promptly upon the
occurrence of any of the following events, which written notice shall be with
reasonable particularity as to the facts and circumstances in respect of which
such notice is being given:

(i) Any change in the Authorized Officers.

(ii) [Reserved]

 

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(iii) Any cessation by the Borrower of its making payment to its creditors
generally as the Borrower’s debts become due.

(iv) The failure to pay rent, the failure of which continues for more than three
(3) days in respect of the Lease for the Domestic Distribution Center and the
occurrence of a default or event of default in respect of any Lease.

(v) Any Material Adverse Change.

(vi) The occurrence of a Default or Event of Default.

(vii) Any intention on the part of the Borrower to discharge the Borrower’s
present independent accountants or any withdrawal or resignation by such
independent accountants from their acting in such capacity.

(viii) Any litigation which, if determined adversely to the Borrower, would
reasonably be expected to have a Material Adverse Effect.

(b) The Borrower shall:

(i) Provide the Agent, when so distributed, with copies of any materials
distributed to the shareholders of the Borrower (qua such shareholders) or filed
with the SEC in respect to Borrower.

(ii) At the request of the Agent, from time to time, provide the Agent with
copies of all advertising (including copies of all print advertising and
duplicate tapes of all video and radio advertising).

(iii) Provide the Agent, when received by the Borrower, with a copy of any
management letter or similar material communications from any accountant of the
Borrower.

5.4 BORROWING BASE CERTIFICATE.

The Borrower shall provide the Agent by 11:00 a.m., on or before Wednesday of
each week, with a Borrowing Base Certificate in the form of EXHIBIT 5.4 hereto.
Each Borrowing Base Certificate shall state the inventory roll forward, which
prior to the IT Trigger Date shall be stated separately for the Borrower’s
Eastern Division and Western Division.

 

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5.5 COLLATERAL REPORTS.

The Borrower shall provide the Agent with copies of the reports identified on
EXHIBIT 5.5 hereto and the times specified therein, which reports shall be
separately stated for the Borrower’s Eastern Division and Western Division prior
to the IT Trigger Date, as indicated on EXHIBIT 5.5 hereto.

5.6 [RESERVED.]

5.7 [RESERVED].

5.8 FINANCIAL REPORTS.

(a) Annually, within ninety (90) days following the end of the Borrower’s fiscal
year, the Borrower shall furnish the Agent with the following:

(i) A copy of the Borrower’s Consolidated annual financial statement, which
statement shall have been prepared by, and bear the unqualified opinion of, the
Borrower’s independent certified public accountants (i.e. said statement shall
be “certified” by such accountants) and shall include, at a minimum (with
comparative information for the then prior fiscal year) a balance sheet, income
statement, statement of changes in shareholders’ equity, and cash flows and, at
the request of Agent prior to the IT Trigger Date, shall include separate
information in respect to the Borrower’s Eastern Division and Western Division;
and

(ii) The Officer’s Compliance Certificate.

(b) Monthly, within thirty (30) days following the end of the Borrower’s fiscal
months, the Borrower shall furnish the Agent with the following

(i) A copy of the Borrower’s Consolidated monthly financial statement, which
shall include, at a minimum (with comparative information for the same month in
the then prior fiscal year) a balance sheet, income statement, statement of
changes in shareholders’ equity, and cash flows and, at the request of Agent
prior to the IT Trigger Date, shall include separate information in respect to
the Borrower’s Eastern Division and Western Division; and

(ii) The Officer’s Compliance Certificate.

 

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5.9 OFFICERS’ CERTIFICATES.

(a) The Borrower shall cause its Authorized Officer to certify, in the form
attached hereto as EXHIBIT 5.9 (the “Officer’s Compliance Certificate”) in
connection with those monthly and annual statements to be furnished pursuant to
this Agreement that:

(i) Such statement was prepared in accordance with GAAP consistently applied and
presents fairly the financial condition of the Borrower at the close of, and the
results of the Borrower’s operations and cash flows for, the period(s) covered,
subject, however to the following:

 

  (A) usual year end adjustments and the absence of footnotes (this exception
shall not be included in the Certificate which accompanies such annual
statement).

 

  (B) Material Accounting Changes (in which event, such certificate shall
include a schedule (in reasonable detail) of the effect of each such Material
Accounting Change) not previously specifically taken into account in the
determination of the financial performance covenant imposed pursuant to
Section 5.12.

(ii) There does not exist a Default or Event of Default or, if such an event has
occurred, its nature (in reasonable detail) and the steps (if any) being taken
or contemplated by the Borrower to be taken on account thereof.

(iii) The Borrower was in compliance (or had failed to comply) as of the date of
the applicable statement with each of the financial performance covenants
included in Section 5.12 hereof; such certification to be accompanied by
calculations demonstrating such compliance or failure to comply.

5.10 INVENTORIES, APPRAISALS, AND AUDITS.

(a) The Agent may, at the expense of the Borrower, participate in and/or observe
each inventory and any cycle count of the Collateral which is undertaken on
behalf of the Borrower. The Borrower may not change the methodology to be
followed in connection with the conduct of and reporting on the results of such
inventory from the methodology employed by the Borrower as of the date of this
Agreement.

(b) The Borrower, at its expense, shall cause each store location, warehouse,
and distribution center in the Eastern Division to have not less than one
(1) physical inventory in each twelve (12) month period to be undertaken, and
cycle counts for the Western Division, consistent with current practice, while
this Agreement is in effect (the scheduling of which shall be subject to the
Agent’s discretion), conducted by such inventory takers as are reasonably
satisfactory to the Agent and following

 

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such methodology as may be reasonably satisfactory to the Agent; provided, that,
following the IT Trigger Date the Borrower shall, at its expense, cause each
store location, warehouse and distribution center in the Western Division to
have not less than one (1) physical inventory in each twelve (12) month period
to be undertaken.

(c) The Borrower shall provide the Agent with a copy of the preliminary results
of each such inventory (as well as of any other physical inventory undertaken by
the Borrower) within ten (10) days after its completion.

(d) The Borrower shall provide the Agent with a reconciliation of the results of
each such inventory (as well as of any other physical inventory undertaken by
the Borrower) to the Borrower’s books and records within thirty (30) days
following the completion of such inventory.

(e) The Agent, in its discretion, following the occurrence and during the
continuance of a Event of Default, may cause such additional inventories to be
taken as the Agent determines (each, at the expense of the Borrower).

(f) Agent presently contemplates obtaining up to three (3) appraisals of the
Borrower’s Inventory during any twelve (12) month period during which this
Agreement is in effect but may obtain more in the Agent’s good faith judgment;
provided, that, so long as no Default or Event of Default exists, the Borrower
shall not be liable for the costs and expenses of more than three (3) appraisals
(or if Excess Availability shall have fallen below twenty percent (20%) of the
Borrowing Base, four (4) appraisals) during any twelve (12) month period
(exclusive of the appraisal delivered pursuant to Article III).

(g) The Agent presently contemplates conducting up to three (3) commercial
finance audits of the Borrower’s books and records during any twelve (12) month
period during which this Agreement is in effect but may obtain more in the
Agent’s good faith judgment; provided, that, so long as no Default or Event of
Default exists, the Borrower shall not be liable for the costs and expenses of
more than three (3) commercial finance audits (or if Excess Availability shall
have fallen below twenty percent (20%) of the Borrowing Base, four
(4) commercial finance audits) during any twelve (12) month period (exclusive of
the commercial finance audit delivered pursuant to Article III).

(h) The Agent presently contemplates conducting one (1) appraisal of the
Borrower’s Eligible Real Property during any twelve (12) month period during
which this Agreement is in effect but may obtain more in the Agent’s good faith
judgment; provided, that, so long as no Default or Event of Default exists, the
Borrower shall not be liable for the costs and expenses of more than one
(1) appraisal (during any twelve (12) month period (exclusive of the appraisal
delivered pursuant to Article III).

 

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5.11 ADDITIONAL FINANCIAL INFORMATION.

(a) In addition to all other information required to be provided pursuant to
this Article V, the Borrower promptly shall provide the Agent such other and
additional information concerning the Borrower, the Collateral, the operation of
the Borrower’s business, and the Borrower’s financial condition, including
financial reports and statements (including supporting schedules), as the Agent
may from time to time reasonably request from the Borrower.

(b) The Borrower may provide the Agent, from time to time hereafter, with
updated forecasts of the Borrower’s anticipated performance and operating
results.

(c) The Borrower shall, no later than 30 days after to the end of each of the
Borrower’s Fiscal Years, furnish the Agent with an updated Business Plan which
shall go out at least through the end of the then next Fiscal Year and shall
include a Consolidated income statement, balance sheet, and statement of cash
flow, by month, as well as components of the Borrowing Base and shall include
assumptions, each prepared in conformity with GAAP and consistent with the
Borrower’s then current practices. The initial Business Plan is attached hereto
as Exhibit 5.11(c).

(d) The Borrower recognizes that all appraisals, inventories, analysis,
financial information, and other materials which the Agent may obtain, develop,
or receive with respect to the Borrower is confidential to the Agent and that,
except as otherwise provided herein, the Borrower is not entitled to receipt of
any of such appraisals, inventories, analysis, financial information, and other
materials, nor copies or extracts thereof or therefrom.

5.12 MINIMUM AVAILABILITY.

The Borrower shall not permit Excess Availability at any time to be less than
that amount (stated in Dollars) equal to the greater of (a) $2,000,000 or
(b) Ten (10%) Percent multiplied by the Borrowing Base. Compliance with such
financial performance covenant shall be made as if no Material Accounting
Changes had been made. The Agent may determine the Borrower’s compliance with
such covenant based upon financial reports and statements provided by the
Borrower to the Agent (whether or not such financial reports and statements are
required to be furnished pursuant to this Agreement) as well as by reference to
interim financial and collateral information provided to, or developed by, the
Agent.

 

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ARTICLE VI. - USE AND COLLECTION OF COLLATERAL:

6.1 INVENTORY COVENANTS.

(a) The Borrower shall not engage in any sale of the Inventory other than for
fair consideration in the conduct of the Borrower’s business in the ordinary
course and shall not engage in sales or other dispositions to creditors, sales
or other dispositions in bulk, or any use of any of the Inventory in breach of
any provision of this Agreement, except in the ordinary course of business
consistent with past practices.

(b) No sale of Inventory shall be on consignment, approval, or under any other
circumstances such that, with the exception of the Borrower’s customary return
policy applicable to the return of Inventory purchased by the Borrower’s retail
customers in the ordinary course, such Inventory may be returned to the Borrower
without the consent of the Agent.

(c) All Inventory now owned or hereafter acquired by the Borrower is and will be
of good and merchantable quality and free from defects (other than defects
within customary trade tolerances or for purchases of “irregular” Inventory in
accordance with current practices).

(d) Borrower shall produce, use, store and maintain the Inventory, with all
reasonable care and caution and in accordance with applicable standards of any
insurance and in conformity with applicable laws (including the requirements of
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders relating thereto).

(e) Borrower shall keep Inventory in good and marketable condition.

(f) None of the Inventory or other Collateral constitutes Farm Products.

6.2 ACCOUNT COVENANTS.

(a) The Borrower may grant such allowances or other adjustments to the
Borrower’s Account Debtors, Credit Card Processors and Credit Card Issuers
(exclusive of extending the time for payment of any Account or Account
Receivable, which shall not be done without first obtaining the Agent’s prior
written consent in each instance) as the Borrower may reasonably deem to accord
with sound business practice, provided, however, the authority granted the
Borrower pursuant to this Section 6.3 may be limited or terminated by the Agent
at any time in the Agent’s discretion following the occurrence and during the
continuance of an Event of Default.

(b) Borrower shall notify Agent promptly of the assertion of (i) any claims,
offsets, defenses or counterclaims by any Account Debtor, Credit Card Issuer or
Credit Card Processor or any

 

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disputes with any of such Persons or any settlement, adjustment or compromise
thereof, to the extent any of the foregoing exceeds $100,000 in any one case or
$250,000 in the aggregate and (ii) all material adverse information relating to
the financial condition of any Account Debtor, Credit Card Issuer or Credit Card
Processor known to the Borrower.

(c) The Agent from time to time may verify the Receivables Collateral directly
with the Borrower’s Account Debtors, Credit Card Issuer or Credit Card
Processor, such verification to be undertaken in keeping with commercially
reasonable commercial lending standards.

(d) The Borrower shall notify Agent promptly of: (i) any notice of a material
default by the Borrower under any Credit Card Agreements or of any default which
has a reasonable likelihood of resulting in the Credit Card Issuer or Credit
Card Processor ceasing to make payments or suspending payments to Borrower,
(ii) any notice from any Credit Card Processor or Credit Card Issuer that such
Person is ceasing or suspending, or will cease or suspend, any present or future
payments due or to become due to Borrower from such Person, or that such Person
is terminating or will terminate any of the Credit Card Agreements, and
(iii) the failure of the Borrower to comply with any material terms of the
Credit Card Agreements or any terms thereof which has a reasonable likelihood of
resulting in the Credit Card Issuer or Credit Card Processor ceasing or
suspending payments to the Borrower.

(e) The Borrower shall not post any bond to secure the Borrower’s performance
under any agreement to which the Borrower is a party nor cause any surety,
guarantor, or other third party obligee to become liable to perform any
obligation of the Borrower (other than to the Agent) in the event of the
Borrower’s failure so to perform, except in connection with store openings and
the procurement of utility services.

6.3 NOTIFICATION TO ACCOUNT DEBTORS.

The Agent shall have the right while an Event of Default has occurred and is
continuing to notify any of the Borrower’s Account Debtors, Credit Card Issuer,
and Credit Card Processor to make payment directly to, or an account designated
by, the Agent and to collect all amounts due on account of the Collateral.

6.4 RIGHT TO CURE

Agent may, at its option, upon prior notice to the Borrower, (a) cure any
material default by the Borrower under any material agreement with a third party
that affects the Collateral, its value or the ability of the Agent to exercise
Agent’s Rights and Remedies or the ability of the Borrower to perform its

 

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obligations hereunder or under any of the other Loan Documents, (b) pay or bond
on appeal any material judgment entered against the Borrower, (c) discharge any
material Encumbrances at any time levied on or existing with respect to the
Collateral and pay any amount, incur any expense or perform any act which, in
the Agent’s judgment, is necessary or appropriate to preserve, protect, insure,
or maintain the Collateral and the rights of the Agent with respect thereto.
Agent may add any amounts so expended to the Liabilities and charge the
Borrower’s Loan Account therefor, such amounts to be payable by Borrower on
demand (supported by reasonable back-up documentation). Agent shall be under no
obligation to effect such cure, payment or bonding and shall not, by doing so,
be deemed to have assumed any obligation or liability of the Borrower. Any
payment made or other action taken by Agent under this section shall be without
prejudice to any right to assert an Event of Default hereunder and proceed
accordingly.

ARTICLE VII. - CASH MANAGEMENT; PAYMENT OF LIABILITIES:

7.1 DEPOSITORY ACCOUNTS.

(a) Annexed hereto as EXHIBIT 7.1 is a Schedule of all present DDA’s and
Investment Accounts, which includes, with respect to each depository (i) the
name and address of that depository; (ii) the account number(s) of the
account(s) maintained with such depository; and (iii) a contact person at such
depository.

(b) The Borrower shall deliver the following to the Agent with respect to each
DDA:

(i) Notification, executed on behalf of the Borrower, to each depository
institution with which any DDA is maintained (other than any Exempt DDA and the
Blocked Account or any other DDA which is covered by a Blocked Account), in form
satisfactory to the Agent of the Agent’s interest in such DDA.

(ii) A Blocked Account Agreement with any depository institution at which either
of the following conditions applies:

 

  (A) Both any DDA (other than the Operating Account) and the Operating Account
is maintained.

 

  (B) A Blocked Account is maintained.

 

  (C) Upon the request of the Agent, the Operating Account is maintained.

 

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(c) The Borrower will not establish any DDA hereafter (other than an Exempt DDA)
unless, contemporaneous with such establishment, the Borrower delivers the
following to the Agent:

(i) With respect to DDAs that are not Blocked Accounts, the Operating Account,
Disbursement Account or Exempt DDA’s, notification to the depository at which
such DDA is established if the same would have been required pursuant to
Section 7.1(b)(i) if the subject DDA were open at the execution of this
Agreement;

(ii) With respect to DDAs that are Blocked Accounts, a Blocked Account Agreement
executed on behalf of the depository at which such DDA is established if the
same would have been required pursuant to Section 7.1(b)(ii) if the DDA were
open at the execution of this Agreement.

(d) Notwithstanding anything contained herein to the contrary, the Borrower
(i) shall deliver a Control Agreement to the Agent with respect to each
Investment Account, and (ii) shall not establish any Investment Account
hereafter unless, contemporaneous with such establishment, the Borrower delivers
a Control Agreement to the Agent, executed by the institution at which such
Investment Account is maintained.

7.2 CREDIT CARD RECEIPTS.

(a) Annexed hereto as EXHIBIT 7.2, is a Schedule which describes all Credit Card
Agreements with Credit Card Issuers and Credit Card Processors.

(b) The Borrower shall (i) deliver to the Agent, notification, executed on
behalf of the Borrower, to each of the Borrower’s Credit Card Processors and
Credit Card Issuers of notice (in form reasonably satisfactory to the Agent),
which notice provides that payment of all credit card charges submitted by the
Borrower to that clearinghouse or other processor and any other amount payable
to the Borrower by such clearinghouse or other processor shall be directed to
the Concentration Account or as otherwise designated from time to time by the
Agent and (ii) shall cause each such Credit Card Processor and Credit Card
Issuer to enter into Credit Card Acknowledgments. The Borrower shall not change
such direction or designation except upon and with the prior written consent of
the Agent.

7.3 THE CONCENTRATION, BLOCKED, OPERATING ACCOUNTS AND INVESTMENT ACCOUNTS.

(a) The following deposit accounts have been or will be established (and are so
referred to herein):

(i) The “Concentration Account”: The deposit account established by the Agent
with Wells Fargo.

 

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(ii) The “Blocked Account(s)”: Each deposit account now existing or hereafter
established by the Borrower with (A) JP Morgan Chase and (B) any other banks
satisfactory to the Agent, into which Borrower shall deposit, or cause to be
deposited, proceeds of Collateral and from which the Borrower shall not make
disbursements.

(iii) The “Operating Account”: Each deposit account now or hereafter established
by the Borrower with JP Morgan Chase (or any other banks satisfactory to Agent),
from which disbursements may be made and into which advances under the Revolving
Credit may be deposited.

(b) The contents of each DDA (other than the Operating Account and the
Disbursement Account), and each Blocked Account, and each Investment Account
constitute Collateral and Proceeds of Collateral. The contents of the
Concentration Account constitute the Agent’s property.

(c) The Borrower shall not establish any Blocked Account hereafter except upon
not less than 10 days written notice to the Agent and the delivery to the Agent
of a Blocked Account Agreement with respect thereto.

(d) The Borrower shall pay all fees and charges of, and maintain such impressed
balances as may be required by the depository in which any account is opened as
required hereby (even if such account is opened by and/or is the property of the
Agent.

(e) Notwithstanding anything to the contrary contained in this Section 7.3 or
elsewhere in this Agreement, each Blocked Account Agreement (other than any
Control Agreement in respect of any Investment Account) shall provide (except as
the Agent may otherwise agree in writing) that all amounts in the applicable
Blocked Account shall be remitted to the Concentration Account or such other
account as the Agent may specify.

(f) The Borrower agrees that at any time or from time to time, that the Agent
requests that the Borrower delivers to such a financial institution an
instruction to forward all amounts in the applicable Blocked Account to the
Concentration Account, the Borrower shall immediately upon such a request
deliver such an instruction to such financial institution and deliver a written
copy thereof to the Agent.

 

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7.4 PROCEEDS AND COLLECTION OF ACCOUNTS.

(a) All Receipts and all other proceeds of Collateral shall be held in trust by
the Borrower for the Agent and shall not be commingled with any of the
Borrower’s other funds. All Receipts and other proceeds of Collateral shall
promptly be deposited and/or transferred only to the Blocked Account(s), or the
Concentration Account, or another DDA permitted hereunder which are established
and used solely for the purpose of receiving Receipts and other proceeds of
Collateral from a retail store location (collectively, the “Store Accounts”)
(and in such case, only if the funds in such DDA are deposited and/or
transferred to a Blocked Account in accordance with Section 7.4(b)).

(b) The Borrower shall cause the ACH or wire transfer to a Blocked Account, no
less frequently than daily (and whether or not there is then an outstanding
balance in the Loan Account) of the following:

(i) The contents of each Store Account; provided, that, so long as the Agent has
not otherwise instructed the Borrower at any time that an Event of Default
exists, the contents of each Specified Store Account may be transferred to a
Blocked Account no less frequently than three (3) times per week. Each such
transfer may be net of any minimum balance, not to exceed $750, as may be
required to be maintained in the subject Store Account by the bank at which such
Store Account is maintained.

(ii) The proceeds of all credit card charges not otherwise provided for pursuant
to this Agreement.

(iii) All other Receipts and Proceeds of Collateral.

(c) Whether or not any Liabilities are then outstanding, the Borrower shall
cause the daily ACH or wire transfer to the Concentration Account, or as
otherwise designated by the Agent (or shall permit the Agent to cause such daily
ACH or wire transfers to the Concentration Account or as otherwise designated by
Agent), of then entire ledger balance of each Blocked Account, net of such
minimum balance, not to exceed $750, as may be required to be maintained in the
Blocked Account by the depository which the Blocked Account is maintained.

(d) In the event that, notwithstanding the provisions of this Section 7.4, the
Borrower receives or otherwise has dominion and control of any Receipts, or any
proceeds or collections of any Collateral, such Receipts, proceeds, and
collections shall be held in trust by the Borrower for the Agent and shall not
be commingled with any of the Borrower’s other funds or deposited in any account
of the Borrower other than a Blocked Account, a Store Account or as otherwise as
instructed by the Agent.

 

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7.5 PAYMENT OF LIABILITIES.

(a) On any Business Day on which there are funds on deposit in the Concentration
Account, the Agent shall apply the then collected balance of the Concentration
Account (net of fees charged, and of such minimum balances as may be required by
the bank at which the Concentration Account is maintained) first, towards the
unpaid balance of SwingLine Loans, second, towards the unpaid balance of the
Loan Account and third towards all other Liabilities, provided, however, for
purposes of the calculation of interest on the unpaid principal balance of the
Loan Account, such payment shall be deemed to have been made one (1) Business
Day after such transfer.

(b) The following rules shall apply to deposits and payments under and pursuant
to this Agreement:

(i) Funds shall be deemed to have been deposited to the Concentration Account on
the Business Day on which deposited, provided that notice of such deposit is
available to the Agent by 2:00PM on that Business Day.

(ii) Funds paid to the Agent, other than by deposit to the Concentration
Account, shall be deemed to have been received on the Business Day when they are
good and collected funds, provided that notice of such payment is available to
the Agent by 2:00PM on that Business Day.

(iii) If notice of a deposit to the Concentration Account (Section 7.5(b)(i)) or
payment (Section 7.5(b)(ii)) is not available to the Agent until after 2:00PM on
a Business Day, such deposit or payment shall be deemed to have been made at
9:00AM on the then next Business Day.

(iv) All deposits to the Concentration Account and other payments to the Agent
are subject to clearance and collection.

(c) The Agent shall transfer to the Operating Account any surplus in the
Concentration Account remaining after the application towards the Liabilities
referred to in Section 7.5(a), above (less those amount which are to be netted
out, as provided therein) provided, however, in the event that an Event of
Default has occurred and is continuing and or one or more L/C’s are then
outstanding, then the Agent may establish a funded reserve of up to 105% of the
aggregate Stated Amounts of such L/C’s. Such funded reserve shall either be
(i) returned to the Borrower if no Event of Default exists or (ii) applied
towards the Liabilities following Acceleration.

 

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7.6 THE OPERATING ACCOUNTS AND DISBURSEMENT ACCOUNT.

Except as otherwise specifically provided in, or permitted by, this Agreement,
all checks shall be drawn by the Borrower upon, and other disbursements shall be
made by the Borrower solely from, the Operating Accounts or Disbursement
Accounts.

ARTICLE VIII. - GRANT OF SECURITY INTEREST:

8.1 GRANT OF SECURITY INTEREST.

To secure the Borrower’s prompt, punctual, and faithful performance and payment
of all and each of the Liabilities, the Borrower hereby grants to the Agent, for
the benefit of the Lenders and the Bank Product Providers, a continuing security
interest in and to, and assigns to the Agent all assets of the Borrower, and
each item thereof, whether now owned or now due, or in which in which that
Borrower has an interest, or hereafter acquired, arising, or to become due, or
in which that Borrower obtains an interest, and all products, Proceeds,
substitutions, and accessions of or to any of the following (all of which,
together with any other property in which the Agent may in the future be granted
a security interest, is referred to herein as the “Collateral”):

(a) All Accounts.

(b) All Inventory.

(c) All General Intangibles.

(d) All Equipment.

(e) All Goods.

(f) All Fixtures.

(g) All Farm Products.

(h) All Chattel Paper.

(i) All Leaseholds.

 

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(j) All Letter of Credit Rights.

(k) All Payment Intangibles.

(l) All Supporting Obligations.

(m) All books, records, and information relating to the Collateral and/or to the
operation of the Borrower’s business, and all rights of access to such books,
records, and information, and all property in which such books, records, and
information are stored, recorded, and maintained.

(n) All Investment Property, Instruments, Documents, Documents of Title, Deposit
Accounts, policies and certificates of insurance, deposits, impressed accounts,
compensating balances, money, cash, or other property.

(o) All commercial tort claims (as defined in the UCC).

(p) All insurance proceeds, refunds, and premium rebates, including, without
limitation, proceeds of fire and credit insurance, whether any of such proceeds,
refunds, and premium rebates arise out of any of the foregoing ( Section 8.1(a)
through 8.1(o) ) or otherwise.

(q) All Real Property (other than the Real Property located at (i) 1008 Highway
501, Myrtle Beach, South Carolina and (ii) 7970 Annapolis Road, Lanham,
Maryland).

(r) All supporting obligations and all present and future liens, security
interests, rights, remedies, title and interest in, to and in respect of
Accounts and other Collateral, including (i) rights and remedies relating to
guaranties, contracts of suretyship, letter of credit and credit and other
insurance related to the Collateral, (ii) rights of stoppage in transit,
replevin, repossession, reclamation and other rights and remedies of an unpaid
vendor, lien or secured party, (iii) goods described in invoices, documents,
contracts or instruments with respect thereto, or otherwise representing or
evidencing, Accounts or other Collateral, including returned, repossessed and
reclaimed goods, and (iv) deposits by and property of Account Debtors or other
persons securing the obligations of Account Debtors.

8.2 EXTENT AND DURATION OF SECURITY INTEREST.

The security interest created and granted herein is in addition to, and
supplemental of, any security interest previously granted by the Borrower to the
Agent and shall continue in full force and effect applicable to all Liabilities
until all Liabilities have been paid and/or satisfied in full (other than
contingent indemnity obligations for which the Agent has established cash
reserves to the extent required

 

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by Agent in its reasonable discretion), the Dollar Commitment of the Lenders to
make loans and other financial accommodations has been terminated, and the
security interest granted herein is specifically terminated in writing by a duly
authorized officer of the Agent.

8.3 PERFECTION OF SECURITY INTERESTS.

(a) Except to the extent provided herein, the Borrower agrees to take all action
that the Agent may request as a matter of non-bankruptcy law to perfect and
protect the Agent’s Collateral Interest in the Collateral and for such
Collateral Interest to obtain the priority therefor contemplated hereby,
including, without limitation, executing and delivering such documents and
instruments, financing statements, providing such notices and assents of third
parties, obtaining governmental approvals and providing such other instruments
and documents in recordable form as the Agent may request; provided, however,
that the Borrower shall not be required to deliver executed Leasehold Mortgages
for any Leasehold. The Borrower irrevocably and unconditionally authorizes the
Agent to file at any time and from time to time such financing statements with
respect to the Collateral naming the Agent or its designee as the secured party
and Borrower as debtors, as Agent may require, together with any amendment and
continuations with respect thereto, that (a) indicate the Collateral (i) as “all
assets of the Borrower” or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article 9
of the Uniform Commercial Code of New York or such jurisdiction, or (ii) as
being of an equal or lesser scope or with greater detail, and (b) provide any
other information required by part 5 of Article 9 of the Uniform Commercial Code
of any jurisdiction for the sufficiency or filing office acceptance of any
financing statement or amendment, including (i) whether the Borrower is an
organization, the type of organization and any organization identification
number issued to the Borrower and, (ii) in the case of a financing statement
filed as a fixture filing, if any, a sufficient description of real property to
which the Collateral relates. The Borrower agrees to furnish any such
information to the Agent promptly upon the Agent’s request. The Borrower hereby
authorizes the Agent to adopt on behalf of the Borrower any symbol required for
authenticating any electronic filing. Without the written authorization of the
Agent, in no event shall the Borrower at any time file, or permit or cause to be
filed, any correction statement or termination statement with respect to any
financing statement (or amendment or continuation with respect thereto) naming
the Agent or its designee as secured party and the Borrower as debtor.

(b) The Borrower does not have any Chattel Paper (whether tangible or
electronic) or instruments as of the date hereof. In the event that the Borrower
shall be entitled to or shall receive any Chattel Paper or instrument after the
date hereof with a value in excess of $100,000, the Borrower shall

 

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promptly notify the Agent thereof in writing. Promptly upon the receipt thereof
by the Borrower (including by any agent or representative), the Borrower shall
deliver, or cause to be delivered to the Agent, all tangible Chattel Paper and
instruments with a value in excess of $100,000 that the Borrower may at any time
acquire, accompanied by such instruments of transfer or assignment duly executed
in blank as the Agent may from time to time specify, in each case except as the
Agent may otherwise agree. At the Agent’s option after a Default, the Borrower
shall, or Agent may at any time on behalf of the Borrower, cause the original of
any such instrument or Chattel Paper with a value in excess of $100,000 to be
conspicuously marked in a form and manner reasonably acceptable to Agent with
the following legend referring to Chattel Paper or instruments as applicable:
“This [chattel paper][instrument] is subject to the security interest of Wells
Fargo Retail Finance, LLC, as Agent. and any sale, transfer, assignment or
encumbrance of this [chattel paper][instrument] violates the rights of such
secured party.”

(c) In the event that the Borrower shall at any time hold or acquire an interest
in any electronic Chattel Paper or any “transferable record” (as such term is
defined in Section 201 of the Federal Electronic Signatures in Global and
National Commerce Act or in Section 16 of the Uniform Electronic Transactions
Act as in effect in any relevant jurisdiction) with a value in excess of
$100,000, the Borrower shall promptly notify the Agent thereof in writing.
Promptly upon the Agent’s request, the Borrower shall take, or cause to be
taken, such actions as the Agent may reasonably request to give Agent control of
such electronic Chattel Paper with a value in excess of $100,000 under
Section 9-105 of the UCC and control of such transferable record under
Section 201 of the Federal Electronic Signatures in Global and National Commerce
Act or, as the case may be, Section 16 of the Uniform Electronic Transactions
Act, as in effect in such jurisdiction.

(d) Except as set forth on Schedule 7.1, the Borrower does not own or hold,
directly or indirectly, beneficially or as record owner or both, any Investment
Property, as of the date hereof, or have any Investment Account, deposit
account, securities account, commodity account or other similar account with any
bank or other financial institution or other securities intermediary or
commodity intermediary as of the date hereof.

(i) In the event that the Borrower shall be entitled to or shall at any time
after the date hereof hold or acquire any certificated securities, the Borrower
shall promptly endorse, assign and deliver the same to the Agent, accompanied by
such instruments of transfer or assignment duly executed in blank as the Agent
may from time to time specify. If any securities now or hereafter acquired by
the Borrower are uncertificated and are issued to the Borrower or its nominee
directly by the issuer thereof, the Borrower shall promptly notify the Agent
thereof and shall as the Agent may specify, either

 

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(A) cause the issuer to agree to comply with instructions from the Agent as to
such securities, without further consent of the Borrower or such nominee, or
(B) arrange for the Agent to become the registered owner of the securities.

(e) Except as set forth on EXHIBIT 8.3(e), the Borrower is not the beneficiary
or otherwise entitled to any Letter of Credit Rights. In the event that the
Borrower shall be entitled to or shall receive any Letter of Credit Rights after
the date hereof with a value in excess of $100,000, the Borrower shall promptly
notify Agent thereof in writing. The Borrower shall promptly, at the request of
the Agent may specify, either (i) deliver, or cause to be delivered to Agent,
with respect to any such letter of credit, banker’s acceptance or similar
instrument with a value in excess of $100,000, the written agreement of the
issuer and any other nominated person obligated to make any payment in respect
thereof (including any confirming or negotiating bank), in form and substance
reasonably satisfactory to Agent, consenting to the assignment of the proceeds
of the letter of credit to the Agent by the Borrower and agreeing to make all
payments thereon directly to the Agent or as the Agent may otherwise direct or
(ii) cause the Agent to become, at the Borrower’s expense, the transferee
beneficiary of the letter of credit, banker’s acceptance or similar instrument
(as the case may be) with a value in excess of $100,000.

(f) The Borrower does not have any commercial tort claims as of the date hereof.
In the event that the Borrower shall at any time after the date hereof have any
commercial tort claims with a value in excess of $100,000, the Borrower shall
promptly notify the Agent thereof in writing, which notice shall (i) set forth
in reasonable detail the basis for and nature of such commercial tort claim and
(ii) include the express grant by the Borrower to the Agent of a security
interest in such commercial tort claim (and the proceeds thereof). In the event
that such notice does not include such grant of a security interest, the sending
thereof by the Borrower to the Agent shall be deemed to constitute such grant to
the Agent. Upon the sending of such notice, any commercial tort claim described
therein shall constitute part of the Collateral and shall be deemed included
therein. Without limiting the authorization of the Agent otherwise provided
herein or otherwise arising by the execution by the Borrower of this Agreement,
the Agent is hereby irrevocably authorized from time to time and at any time to
file such financing statements naming Agent or its designee as secured party and
Borrower as debtor, or any amendments to any financing statements, covering any
such commercial tort claim as Collateral. In addition, the Borrower shall
promptly upon the Agent’s request, execute and deliver, or cause to be executed
and delivered, to the Agent such other agreements, documents and instruments as
Agent may require in connection with such commercial tort claim with a value in
excess of $100,000.

 

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(g) Except in the case of Permitted Encumbrances, the Borrower hereby covenants
and agrees that each Leasehold shall at all times be free and clear of all
liens, claims and encumbrances of any nature or description and no other
creditor of the estate (secured or unsecured) shall be entitled to encumber any
Leasehold without the express written consent of the Agent.

ARTICLE IX. - AGENT AS BORROWER’S ATTORNEY-IN-FACT:

9.1 APPOINTMENT AS ATTORNEY IN FACT.

The Borrower hereby irrevocably constitutes and appoints the Agent as the
Borrower’s true and lawful attorney, with full power of substitution, following
the occurrence and during the continuance of an Event of Default, to convert the
Collateral into cash at the sole risk, cost, and expense of the Borrower, but
for the ratable benefit of the Agent. The rights and powers granted the Agent by
this appointment include but are not limited to the right and power to:

(a) Prosecute, defend, compromise, or release any action relating to the
Collateral.

(b) Sign change of address forms to change the address to which the Borrower’s
mail is to be sent to such address as the Agent shall designate; receive and
open the Borrower’s mail; remove any Receivables Collateral and Proceeds of
Collateral therefrom and turn over the balance of such mail either to the
Borrower or to any trustee in bankruptcy, receiver, assignee for the benefit of
creditors of the Borrower, or other legal representative of the Borrower whom
the Agent determines to be the appropriate person to whom to so turn over such
mail.

(c) Endorse the name of the Borrower in favor of the Agent upon any and all
checks, drafts, notes, acceptances, or other items or instruments; sign and
endorse the name of the Borrower on, and receive as secured party, any of the
Collateral, any invoices, schedules of Collateral, freight or express receipts,
or bills of lading, storage receipts, warehouse receipts, or other documents of
title respectively relating to the Collateral.

(d) Sign the name of the Borrower on any notice to the Borrower’s Account
Debtors or verification of the Receivables Collateral; sign the Borrower’s name
on any Proof of Claim in Bankruptcy against Account Debtors, and on notices of
lien, claims of mechanic’s liens, or assignments or releases of mechanic’s liens
securing the Accounts.

(e) Take all such action as may be necessary to obtain the payment of any letter
of credit and/or banker’s acceptance of which the Borrower is a beneficiary.

 

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(f) Repair, manufacture, assemble, complete, package, deliver, alter or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any customer of the Borrower.

(g) Use, license or transfer any or all General Intangibles of the Borrower.

9.2 NO OBLIGATION TO ACT.

The Agent shall not be obligated to do any of the acts or to exercise any of the
powers authorized by Section 9.1 herein, but if the Agent elects to do any such
act or to exercise any of such powers, it shall not be accountable for more than
it actually receives as a result of such exercise of power, and shall not be
responsible to the Borrower for any act or omission to act except for any act or
omission to act as to which there is a final determination made in a judicial
proceeding (in which proceeding the Agent has had an opportunity to be heard)
which determination includes a specific finding that the subject act or omission
to act had been grossly negligent or in actual bad faith.

ARTICLE X. - EVENTS OF DEFAULT:

Any event described in this Article X respectively shall constitute an “Event of
Default” herein. Upon the occurrence and during the continuance of any Event of
Default described in Section 10.11, any and all Liabilities shall become due and
payable without any further act on the part of the Agent. Upon the occurrence of
any other Event of Default, the Agent may declare any and all Liabilities
immediately due and payable. The occurrence of any Event of Default shall also
constitute, without notice or demand, a default under all other agreements
between the Agent and the Borrower and instruments and papers heretofore, now or
hereafter given the Agent.

10.1 FAILURE TO PAY REVOLVING CREDIT.

The failure by the Borrower to pay (a) any principal when due under the
Revolving Credit, or (b) any amount (other than principal) when due under the
Revolving Credit within three (3) Business Days of the date when due.

10.2 FAILURE TO MAKE OTHER PAYMENTS.

The failure by the Borrower to pay when due (or upon demand, if payable on
demand) any payment Liability other than under the Revolving Credit within three
(3) Business Days of the date when due.

 

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10.3 FAILURE TO PERFORM COVENANT OR LIABILITY (NO GRACE PERIOD).

The failure by the Borrower to promptly, punctually, faithfully and timely
perform, discharge, or comply with any covenant or Liability not otherwise
described in Section 10.1 or Section 10.2 hereof, and included in any of the
following provisions hereof:

Section Relates to:

4.6(e) Store Openings/Closings

4.7(a) Encumbrances

4.8 Indebtedness

4.9(b) Insurance

4.14(d) Asset Sales

4.20 Dividends, Investments, Corporate Actions

4.21 Loans

4.24 Affiliate Transactions

5.3(a)(vi) Notice of Defaults

5.12 Financial Performance Covenant

Article VII Cash Management

10.4 FAILURE TO PERFORM COVENANT OR LIABILITY (GRACE PERIOD).

(a) The failure of the Borrower to promptly, punctually and timely perform,
discharge or comply with the relevant covenant or Liability, following the
expiry of the applicable grace period specified in the chart below:

 

Section

 

Grace Period

 

Number of Grace Periods

4.7 (other than 4.7(a)) (Title to Assets)   10 days   1 per Fiscal Year

 

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4.9 (other than 4.9(b)) (Insurance)   10 days   1 per Fiscal Year 5.2 (Access)  
5 days   1 per Fiscal Year 5.3 (other than 5.3(a)(vi)) (Notice)   5 days   2 per
Fiscal Year 5.4 (Borrowing Base Certificate)   1 day   1 per fiscal quarter 5.5
(Collateral Reporting)   5 days   1 per fiscal quarter 5.8 (Financial Reporting)
  15 days   1 per Fiscal Year

(b) the failure by the Borrower, within 30 days following the earlier of an
Authorized Officer of the Borrower’s knowledge of a breach of any covenant or
Liability not described in any of Sections 10.1, 10.2, or 10.3 or of the
Borrower’s receipt of written notice from the Agent of the breach thereof.

10.5 MISREPRESENTATION.

Any representation or warranty at any time made by the Borrower to the Agent was
not true or complete in all material respects when given.

10.6 BREACH OF MATERIAL CONTRACTS. BREACH OF LEASE.

(a) The occurrence of any event such that any Indebtedness of the Borrower in
excess of $100,000 to any creditor other than the Agent could be accelerated
(whether or not the subject creditor takes any action on account of such
occurrence).

(b) The default by Borrower under any Material Contract which default continues
for more than the applicable cure period, if any, with respect thereto which
default could have a Material Adverse Effect.

(c) The default by Borrower under any Credit Card Agreement, which default
continues for more than the applicable cure period, if any, with respect thereto
which default could have a Material Adverse Effect, or any Credit Card Issuer or
Credit Card Processor withholds payment of amounts otherwise payable to the
Borrower to fund a reserve account or otherwise hold as collateral, or shall
require the Borrower to pay funds into a reserve account or for such Credit Card
Issuer or Credit

 

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Card Processor to otherwise hold as collateral, or the Borrower shall provide a
letter of credit, guarantee, indemnity or similar instrument to or in favor of
such Credit Card Issuer or Credit Card Processor such that in the aggregate all
of such funds in the reserve account, other amounts held as collateral and the
amount of such letters of credit, guarantees, indemnities or similar instruments
shall exceed $100,000 or any Credit Card Issuer or Credit Card Processor shall
debit or deduct any amounts in excess of $25,000 in the aggregate in any Fiscal
Year of the Borrower from any deposit account of the Borrower.

(d) Any Credit Card Issuer or Credit Card Processor shall send written notice to
Borrower that it is ceasing to make or suspending payments to the Borrower of
amounts due or to become due to the Borrower or shall cease or suspend such
payments, or shall send written notice to the Borrower that it is terminating
its arrangements with the Borrower or such arrangements shall terminate as a
result of any event of default under such arrangements, which continues for more
than the applicable cure period, if any, with respect thereto, unless the
Borrower shall have entered into arrangements with another Credit Card Processor
or Credit Card Issuer, as the case may be, with thirty (30) days after the date
of such notice.

(e) The occurrence of any of the following with respect to Leases on which the
Borrower is the lessee or is obligated:

(i) Default and the expiry of any applicable grace period with respect to more
than five (5) Leases of retail stores, except if the existence of such default
is disputed in good faith by the Borrower and the applicable landlord has been
stayed or agreed in writing to forbear from instituting proceedings to recover
possession of the leased premises or otherwise terminate the subject Lease or
Borrower’s rights to peaceful possession of the subject premises.

(ii) Default and the expiry of any applicable grace period of any Lease of any
warehouse or distribution center.

(f) The occurrence of any event of default with respect to any Lease which
default continues for more than the applicable cure period, if any.

10.7 DEFAULT UNDER OTHER AGREEMENTS.

The occurrence of any breach or default under any agreement (including any Loan
Document other than this Loan Agreement) between the Agent and the Borrower or
instrument given by the Borrower to the Agent and the expiry, without cure, of
any applicable grace period (notwithstanding that the subject Agent may not have
exercised all or any of its rights on account of such breach or default).

 

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10.8 UNINSURED CASUALTY LOSS.

The occurrence of any uninsured loss, theft, damage, or destruction of or to any
portion of the Collateral having a retail value in excess of $500,000.

10.9 ATTACHMENT; JUDGMENT; RESTRAINT OF BUSINESS.

(a) The service of process upon the Agent or the Lenders or any Participant
seeking to attach, by trust or other process, any of a Borrower’s funds of
$250,000 or more (in the aggregate during any Fiscal Year) on deposit with, or
assets of the Borrower in the possession of, the Agent or the Lenders or such
Participant.

(b) One or more judgments or orders shall be entered against the Borrower
involving in the aggregate a liability (net of any amount covered by insurance)
of $250,000 or more, unless (i) enough of such judgments or orders shall not
have been vacated, discharged, stayed, satisfied or bonded pending appeal within
any applicable appeal period to reduce the aggregate liability below $250,000
and (ii) no actions to enforce any such judgment has been taken.

(c) The entry of any order or the imposition of any other process having the
force of law, the effect of which is to restrain in any material way the conduct
by the Borrower of its business in the ordinary course.

10.10 BUSINESS FAILURE.

Any act by, against, or relating to the Borrower, or its property or assets,
which act constitutes the determination, by the Borrower, to initiate a program
of partial or total self liquidation; application for, consent to, or sufferance
of the appointment of a receiver, trustee, or other person, pursuant to court
action or otherwise, over all, or any part of the Borrower’s property; the
granting of any trust mortgage or execution of an assignment for the benefit of
the creditors of the Borrower, or the occurrence of any other voluntary or
involuntary liquidation or extension of debt agreement for the Borrower; the
offering by or entering into by the Borrower of any composition, extension, or
any other arrangement seeking relief from or extension of the debts of the
Borrower; or the initiation of any judicial or non judicial proceeding or
agreement by, against, or including the Borrower which seeks or intends to
accomplish a reorganization or arrangement with creditors; and/or the initiation
by or on behalf of the Borrower of the liquidation or winding up of all or any
part of the Borrower’s business or operations.

 

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10.11 BANKRUPTCY.

The failure by the Borrower to generally pay its debts as they mature;
adjudication of bankruptcy or insolvency relative to the Borrower; the entry of
an order for relief or similar order with respect to the Borrower in any
proceeding pursuant to the Bankruptcy Code or any other federal bankruptcy law;
the filing of any complaint, application, or petition by the Borrower initiating
any matter in which the Borrower is or may be granted any relief from the debts
of that Borrower pursuant to the Bankruptcy Code or any other insolvency statute
or procedure; the filing of any complaint, application, or petition against the
Borrower initiating any matter in which the Borrower is or may be granted any
relief from the debts of that Borrower pursuant to the Bankruptcy Code or any
other insolvency statute or procedure.

10.12 DEFAULT BY GUARANTOR OR AFFILIATE.

The occurrence of any of the foregoing Events of Default with respect to any
guarantor or endorser, or surety of the Liabilities, as if such guarantor,
endorser or surety were the “Borrower” described therein.

10.13 INDICTMENT FORFEITURE.

The indictment of, or institution of any legal process or proceeding against,
the Borrower or any member of the Borrower’s senior management, under any
federal, state, municipal, and other civil or criminal statute, rule,
regulation, order, or other requirement having the force of law where the
relief, penalties, or remedies sought or available include the forfeiture of any
property of the Borrower and/or the imposition of any stay or other order, the
effect of which could be to restrain in any material way the conduct by that
Borrower of its business in the ordinary course.

10.14 CHALLENGE TO LOAN DOCUMENTS.

(a) Any challenge by or on behalf of the Borrower or any guarantor of the
Liabilities to the validity of any Loan Document or the applicability or
enforceability of any Loan Document strictly in accordance with the subject Loan
Document’s terms or which seeks to void, avoid, limit, or otherwise adversely
affect any security interest created by or in any Loan Document or any payment
made pursuant thereto.

(b) Any determination by any court or any other judicial or government authority
that any Loan Document is not enforceable in accordance with the subject Loan
Document’s terms or which voids, avoids, limits, or otherwise adversely affects
any security interest created by any Loan Document or any payment made pursuant
thereto.

 

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10.15 KEY MANAGEMENT.

The death, disability, or failure of either Curtis Kimbrell or Lewis Brubaker at
any time to exercise that authority and discharge those management
responsibilities with respect to the Borrower as are exercised and discharged by
such Persons at the execution of this Agreement, and the failure of the Borrower
to appoint a successor reasonably acceptable to the Agent within one hundred
twenty (120) days following such cessation.

10.16 CHANGE IN CONTROL.

Any Change in Control.

ARTICLE XI. - RIGHTS AND REMEDIES UPON DEFAULT:

Upon the occurrence and during the continuance of any Event of Default, the
Agent may, and at the instruction of the Required Lenders, shall (in each case
under clauses (a) or (b) by written notice to the Borrower), in addition to any
other rights or remedies provided for hereunder or under any other Loan Document
or by applicable law, do any one or more of the following:

(a) declare the Liabilities (other than the Bank Product Obligations), whether
evidenced by this Agreement or by any of the other Loan Documents, immediately
due and payable, whereupon the same shall become and be immediately due and
payable and Borrower shall be obligated to repay all of such Liabilities in
full, without presentment, demand, protest, or further notice or other
requirements of any kind, all of which are hereby expressly waived by Borrower;

(b) declare the Dollar Commitments terminated, whereupon the Dollar Commitments
shall immediately be terminated together with (i) any obligation of any Lender
hereunder to make Revolving Credit Loans, (ii) the obligation of the Agent or
the SwingLine Lender to make SwingLine Loans, and (iii) the obligation of the
Agent to cause the issuance of L/Cs; and

(c) exercise all other rights and remedies available to Agent or the Lenders
under the Loan Documents or applicable law.

The foregoing to the contrary notwithstanding, upon the occurrence of any Event
of Default described in Section 10.11, in addition to the remedies set forth
above, without any notice to Borrower or any other Person or any act, the Dollar
Commitments shall automatically terminate and the Liabilities (other than the
Bank Product Obligations), inclusive of all accrued and unpaid interest thereon
and all fees and all other amounts owing under this Agreement or under any of
the other Loan Documents, shall automatically and immediately become due and
payable and Borrower shall be obligated to repay all of such Liabilities in
full, without presentment, demand, protest, or notice of any kind, all of which
are

 

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expressly waived by Borrower. No stay which otherwise might be imposed pursuant
to Section 362 of the Bankruptcy Code or otherwise shall stay, limit, prevent,
hinder, delay, restrict, or otherwise prevent the Agent’s exercise of any of
such rights and remedies.

11.2 RIGHTS OF ENFORCEMENT.

The Agent shall have all of the rights and remedies of a secured party upon
default under the UCC, in addition to which the Agent shall have all and each of
the following rights and remedies:

(a) To give notice to any bank at which any DDA or Blocked Account is maintained
and in which Proceeds of Collateral are deposited, to turn over such Proceeds
directly to the Agent.

(b) To give notice to any of the Borrower’s customs brokers (if any) to follow
the instructions of the Agent as provided in any Customs Brokers Agreement.

(c) To collect the Receivables Collateral with or without the taking of
possession of any of the Collateral.

(d) To take possession of all or any portion of the Collateral.

(e) To sell, lease, or otherwise dispose of any or all of the Collateral, in its
then condition or following such preparation or processing as the Agent deems
advisable and with or without the taking of possession of any of the Collateral.

(f) To conduct one or more going out of business sales which include the sale or
other disposition of the Collateral.

(g) To apply the Receivables Collateral or the Proceeds of the Collateral
towards (but not necessarily in complete satisfaction of) the Liabilities.

(h) To exercise all or any of the rights, remedies, powers, privileges, and
discretions under all or any of the Loan Documents.

11.3 SALE OF COLLATERAL.

(a) Any sale or other disposition of the Collateral may be at public or private
sale upon such terms and in such manner as the Agent deems advisable, having due
regard to compliance with any statute or regulation which might affect, limit,
or apply to the Agent’s disposition of the Collateral.

 

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(b) The Agent, in the exercise of the Agent’s rights and remedies upon default,
may conduct one or more going out of business sales, in the Agent’s own right or
by one or more agents and contractors. Such sale(s) may be conducted upon any
premises owned, leased, or occupied by the Borrower. The Agent and any such
agent or contractor, in conjunction with any such sale, may augment the
Inventory with other goods (all of which other goods shall remain the sole
property of the Agent or such agent or contractor). Any amounts realized from
the sale of such goods which constitute augmentations to the Inventory (net of
an allocable share of the costs and expenses incurred in their disposition)
shall be the sole property of the Agent or such agent or contractor and neither
the Borrower nor any Person claiming under or in right of the Borrower shall
have any interest therein.

(c) Unless the Collateral is perishable or threatens to decline speedily in
value, or is of a type customarily sold on a recognized market (in which event
the Agent shall provide the Borrower with such notice as may be practicable
under the circumstances), the Agent shall give the Borrower at least ten
(10) days prior written notice of the date, time, and place of any proposed
public sale, and of the date after which any private sale or other disposition
of the Collateral may be made. The Borrower agrees that such written notice
shall satisfy all requirements for notice to the Borrower which are imposed
under the UCC or other applicable law with respect to the exercise of the
Agent’s rights and remedies upon default.

(d) The Agent or the Lenders may credit bid and may purchase the Collateral, or
any portion of it at any sale held under this Article XI.

(e) If any of the Collateral is sold, leased, or otherwise disposed of by the
Agent on credit, the Liabilities shall not be deemed to have been reduced as a
result thereof unless and until payment is finally received thereon by the
Agent.

11.4 OCCUPATION OF BUSINESS LOCATION.

In connection with the Agent’s exercise of the Agent’s rights under this Article
XI, the Agent may enter upon, occupy, and use any premises owned or occupied by
the Borrower, and may exclude the Borrower from such premises or portion thereof
as may have been so entered upon, occupied, or used by the Agent. The Agent
shall not be required to remove any of the Collateral from any such premises
upon the Agent’s taking possession thereof, and may render any Collateral
unusable to the Borrower. In no event shall the Agent be liable to the Borrower
for use or occupancy by the Agent of any premises pursuant to this Article XI,
nor for any charge (such as wages for the Borrower’s employees and utilities)
incurred in connection with the Agent’s exercise of the Agent’s Rights and
Remedies.

 

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11.5 GRANT OF NONEXCLUSIVE LICENSE.

The Borrower hereby grants to the Agent a royalty free nonexclusive irrevocable
license to use, apply, and affix any trademark, trade name, logo, other
intellectual property, or the like in which the Borrower now or hereafter has
rights, such license being with respect to the Agent’s exercise of the rights
hereunder including, without limitation, in connection with any completion of
the manufacture of Inventory or sale or other disposition of Inventory.

11.6 ASSEMBLY OF COLLATERAL.

The Agent may require the Borrower to assemble the Collateral and make it
available to the Agent at the Borrower’s sole risk and expense at a place or
places which are reasonably convenient to both the Agent and Borrower.

11.7 RIGHTS AND REMEDIES.

The rights, remedies, powers, privileges, and discretions of the Agent
hereunder, under any other Loan Document or under applicable law (herein, the
“Agent Rights and Remedies”) shall be cumulative and not exclusive of any rights
or remedies which it would otherwise have. No delay or omission by the Agent in
exercising or enforcing any of the Agent’s Rights and Remedies shall operate as,
or constitute, a waiver thereof. No waiver by the Agent of any Event of Default
or of any default under any other agreement shall operate as a waiver of any
other default hereunder or under any other agreement. No single or partial
exercise of any of the Agent’s Rights or Remedies, and no express or implied
agreement or transaction of whatever nature entered into between the Agent and
any person, at any time, shall preclude the other or further exercise of the
Agent’s Rights and Remedies. No waiver by the Agent of any of the Agent’s Rights
and Remedies on any one occasion shall be deemed a waiver on any subsequent
occasion, nor shall it be deemed a continuing waiver. The Agent’s Rights and
Remedies may be exercised at such time or times and in such order of preference
as the Agent may determine. The Agent’s Rights and Remedies may be exercised
without resort or regard to any other source of satisfaction of the Liabilities.

ARTICLE XII. - NOTICES:

12.1 NOTICE ADDRESSES.

All notices, demands, and other communications made in respect of the Loan
Documents (other than a request for a loan or advance or other financial
accommodation under the Revolving Credit) shall be made to the following
addresses, each of which may be changed upon written notice to all others given
by certified mail, return receipt requested:

If to the Agent:

Wells Fargo Retail Finance, LLC

One Boston Place, Suite 1800

Boston, Massachusetts 02108

Attention: Connie Liu

Fax No.: (617) 523-4032

 

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With a copy to:

Otterbourg, Steindler, Houston & Rosen, P.C.

230 Park Avenue

New York, New York 10169

Attention: Michael Barocas, Esq.

Fax No.: (212) 682-6104

If to the Borrower:

RoomStore, Inc.

12501 Patterson Avenue

Richmond, VA 23238

Attention: Lewis M. Brubaker

Fax No.: (804) 784-7657

With a copy to:

Richmond Law, PLC

10321 Washington Hwy

Glen Allen, VA 23059

Attention: Brian D. Bertonneau, Esq.

Fax No.: (877) 736-3414

12.2 NOTICE GIVEN.

(a) Except as otherwise specifically provided herein, notices shall be deemed
made and correspondence received, as follows (all times being local to the place
of delivery or receipt):

(i) By mail: the sooner of when actually received or three (3) days following
deposit in the United States mail, postage prepaid.

(ii) By recognized overnight express delivery: the Business Day following the
day when sent.

(iii) By Hand: If delivered on a Business Day after 9:00 AM.

(iv) By Facsimile transmission (which must include a header on which the party
sending such transmission is indicated. Otherwise, at the opening of the then
next Business Day.

 

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(b) Rejection or refusal to accept delivery and inability to deliver because of
a changed address or Facsimile Number for which no due notice was given shall
each be deemed receipt of the notice sent.

(c) Agent will give the Borrower notice of its intention to foreclose on its
security interests by recognized overnight express delivery.

ARTICLE XIII. - TERM:

13.1 TERMINATION OF REVOLVING CREDIT.

The Revolving Credit shall remain in effect (subject to suspension as provided
in Section 2.5(h) hereof) until the Termination Date.

13.2 ACTIONS ON TERMINATION.

On the Termination Date, the Borrower shall pay the Agent (whether or not then
due), in immediately available funds, all then Liabilities including, without
limitation: the entire balance of the Loan Account (including the unpaid
principal balance of the Revolving Credit Loans); any payments due on account of
the indemnification obligations included in Section 2.10(e); any accrued and
unpaid Unused Line Fee; and all unreimbursed costs and expenses of Agent for
which the Borrower is responsible; and shall make such arrangements concerning
any L/C’s then outstanding as are reasonably satisfactory to the Agent. Until
such payment, all provisions of this Agreement, other than those contained in
Article II which place an obligation on the Agent to make any loans or advances
or to provide financial accommodations under the Revolving Credit or otherwise,
shall remain in full force and effect until all Liabilities shall have been paid
in full (other than contingent indemnity obligations for which the Agent has
established cash reserves in such amounts as it reasonably deems necessary). The
release by the Agent of the Collateral Interests granted the Agent by the
Borrower hereunder may be upon such conditions and indemnifications as the Agent
may require and which are consistent with customary practices in the asset-based
lending industry.

ARTICLE XIV. - THE AGENT

14.1 DESIGNATION OF AGENT.

(a) Each Lender appoints and designates Wells Fargo Retail Finance, LLC as the
“Agent” hereunder and under the Loan Documents.

(b) Each Lender authorizes each Agent:

(i) To execute those of the Loan Documents and all other instruments relating
thereto to which that Agent is a party.

 

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(ii) To take such action on behalf of the Lenders and to exercise all such
powers as are expressly delegated to that Agent hereunder and in the Loan
Documents and all related documents, together with such other powers as are
reasonably incident thereto.

14.2 RESPONSIBILITIES OF AGENT.

(a) Notwithstanding anything contained herein to the contrary, the Agent shall
have responsibility and authority for the administration of the credit facility
contemplated by this Agreement, including without limitation the establishment
of Reserves and the conduct of any Liquidation.

(b) The Agent shall not have any duties or responsibilities to, or any fiduciary
relationship with, any Lender except for those expressly set forth in this
Agreement.

(c) The Agent nor any of its Affiliates shall be responsible to any Lender for
any of the following:

(i) Any recitals, statements, representations or warranties made by the
Borrower, or any other Person (other than for statements made herein or in
writing by the Agent).

(ii) Any appraisals or other assessments of the assets of the Borrower or of
anyone else responsible for or on account of the Liabilities.

(iii) The value, validity, effectiveness, genuineness, enforceability, or
sufficiency of the Agreement, the Loan Documents or any other document referred
to or provided for therein.

(iv) Any failure by the Borrower, or any other Person (other than the Agent) to
perform such Person’s obligations under the Loan Documents.

(d) Agent may employ attorneys, accountants, and other professionals and agents
and attorneys in fact and shall not be responsible for the negligence or
misconduct of any such attorneys, accountants, and other professionals or agents
or attorneys in fact selected with reasonable care. No such attorney,
accountant, other professional, agent, or attorney in fact shall be responsible
for any action taken or omitted to be taken by any other such Person.

 

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(e) Agent, nor any of its directors, officers, or employees shall not be
responsible for any action taken or omitted to be taken by any other of them in
connection herewith in reliance upon advice of its counsel nor, in any other
event except for any action taken or omitted to be taken as to which a final
judicial determination has been or is made (in a proceeding in which such Person
has had an opportunity to be heard) that such Person had acted in a grossly
negligent manner, in actual bad faith, or in willful misconduct.

(f) With respect to the repayment of the Liabilities, Agent shall not have any
responsibility in any event for more funds than Agent actually receives and
collects.

(g) The Agent, in its separate capacity as Lender, shall have the same rights
and powers hereunder as any other Lender.

(h) The Agent shall not be required to perfect any Lien in real estate fixtures,
Leaseholds, motor vehicles covered by certificates of title, or be responsible
for any failure to do so.

14.3 DISTRIBUTIONS BY THE AGENT.

(a) The Agent, in its reasonable discretion based upon the Agent’s determination
of the likelihood that additional payments will be received, expenses incurred,
and/or claims made by third parties to all or a portion of such proceeds, may
delay the distribution of any payment received on account of the Liabilities.

(b) The Agent may disburse funds prior to determining that the sums which the
Agent expects to receive have been finally and unconditionally paid to the
Agent. If and to the extent that the Agent does disburse funds and it later
becomes apparent that the Agent did not then receive a payment in an amount
equal to the sum paid out, then any Lender to whom the Agent made the funds
available, on demand from the Agent, shall refund to the Agent the sum paid to
that Person.

(c) If, in the opinion of the Agent, the distribution of any amount received by
the Agent might involve the Agent in liability, or might be prohibited hereby,
or might be questioned by any Person, then the Agent may refrain from making
distribution until the Agent’s right to make distribution has been adjudicated
by a court of competent jurisdiction.

(d) The proceeds of any Lender’s exercise of any right of, or in the nature of,
set off shall be deemed, first, to the extent that such Lender is entitled to
any distribution hereunder, to constitute such distribution and second, shall be
shared with the other Lenders as if distributed pursuant to (and shall be deemed
as distributions under) the terms of this Agreement.

 

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(e) Each Lender acknowledges that the crediting of the Liabilities with the
“proceeds” of any transaction in which a post foreclosure asset is acquired is a
non cash transaction and that, in consequence, no distribution of such
“proceeds” will be made by the Agent to any Lender until such time that such
“proceeds” are converted to cash.

(f) In the event that a court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be repaid or disgorged, then
each Lender to which any such distribution shall have been made shall repay, to
the Agent which had made such distribution, that Lender’s ratable share of the
amount so adjudged or determined to be repaid or disgorged.

14.4 [RESERVED].

14.5 DISTRIBUTIONS OF NOTICES AND OF DOCUMENTS.

The Agent will forward to each Lender, promptly after the Agent’s receipt
thereof, a copy of each notice or other document furnished to the Agent pursuant
to the Loan Agreement and other Loan Documents, including monthly and annual
financial statements received from the Borrower pursuant to Article V of this
Agreement and copies of appraisals and commercial audits, other than any of the
following (provided that the failure of the Agent to distribute notices or other
documents in accordance with this Agreement will not subject the Agent to any
liability absent gross negligence or willful misconduct on the part of the
Agent):

(a) Routine communications associated with requests for Revolving Credit Loans
and/or the issuance of L/C’s.

(b) Routine or nonmaterial communications.

(c) Any notice or document required by any of the Loan Documents to be furnished
directly to the Lenders by the Borrower.

(d) Any notice or document of which the Agent has knowledge that such notice or
document had been forwarded to the Lenders other than by the Agent.

 

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14.6 [RESERVED].

14.7 CONFIDENTIAL INFORMATION.

(a) Each Lender will maintain, as confidential in accordance with its customary
confidentiality procedures, all of the following:

(i) Proprietary approaches, techniques, and methods of analysis which are
applied by Agent in the administration of the credit facility contemplated by
this Agreement.

(ii) Proprietary forms and formats utilized by Agent in providing reports to the
Lenders pursuant hereto, which forms or formats are not of general currency.

(iii) Confidential information provided by the Borrower pursuant to the Loan
Documents, other than any information which becomes known to the general public
through services other than that Lender.

(b) Nothing included herein shall prohibit the disclosure of any such
information as may be required to be provided by judicial process or by
regulatory authorities having jurisdiction over any party to this Agreement.

14.8 RELIANCE BY AGENT.

Agent shall be entitled to rely upon any certificate, notice or other document
(including any cable, telegram, telex, or facsimile) reasonably believed by
Agent to be genuine and correct and to have been signed or sent by or on behalf
of the proper person or persons, and upon advice and statements of attorneys,
accountants and other experts selected by Agent. As to any matters not expressly
provided for in this Agreement, any Loan Document, or in any other document
referred to therein, Agent shall in all events be fully protected in acting, or
in refraining from acting, in accordance with the applicable Consent required by
this Agreement. Instructions given with the requisite consent shall be binding
on all Lenders.

14.9 NON-RELIANCE ON AGENT AND OTHER LENDERS.

(a) Each Lender represents to all other Lenders and to Agent that such Lender:

(i) Independently and without reliance on any representation or act by Agent or
by any other Lender, and based on such documents and information as that Lender
has deemed appropriate, has made such Lender’s own appraisal of the financial
condition and affairs of the Borrower and decision to enter into this Agreement
and the Loan Documents.

(ii) Has relied upon that Lender’s review of the Loan Documents by that Lender
and by counsel to Lender as that Lender deemed appropriate under the
circumstances.

 

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(b) Each Lender agrees that such Lender, independently and without reliance upon
Agent or any other Lender, and based upon such documents and information as such
Lender shall deem appropriate at the time, will continue to make such Lender’s
own appraisals of the financial condition and affairs of the Borrower when
determining whether to take or not to take any discretionary action under this
Agreement or the Loan Documents.

(c) Agent, in the discharge of Agent’s duties hereunder, shall not be required
to make inquiry of, or to inspect the properties or books of, any Person.

(d) Except for notices, reports, and other documents and information expressly
required to be furnished to the Lenders by an Agent hereunder (as to which, see
Section 14.5), Agent shall not have any affirmative duty or responsibility to
provide any Lender with any credit or other information concerning any Person,
which information may come into the possession of Agent or any Affiliate of
Agent.

(e) Each Lender, at such Lender’s request, shall have reasonable access to all
non-privileged documents in the possession of Agent, which documents relate to
Agent’s performance of its duties hereunder and the Loan Documents.

14.10 INDEMNIFICATION.

Without limiting the liabilities of the Borrower under any this or any of the
Loan Documents, each Lender shall indemnify Agent, ratably, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever (including
attorneys’ reasonable fees and expenses and other out of pocket expenditures)
which may at any time be imposed on, incurred by, or asserted against Agent and
in any way relating to or arising out of this Agreement or any other Loan
Document or any documents contemplated by or referred to therein or the
transactions contemplated thereby or the enforcement of any of terms hereof or
thereof or of any such other documents, provided, however, no Lender shall be
liable for any of the foregoing to the extent that any of the foregoing arises
from any action taken or omitted to be taken by Agent as to which a final
judicial determination has been or is made (in a proceeding in which Agent has
had an opportunity to be heard) that the Agent had acted in a grossly negligent
manner, in actual bad faith, or in willful misconduct.

 

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14.11 RESIGNATIONS OF AGENT.

(a) The Agent may resign at any time by giving sixty (60) days prior written
notice thereof to the Lenders. Upon receipt of any such notice of resignation,
the Requisite Lenders shall have the right to appoint a successor Agent (and if
no Event of Default has occurred and is continuing, with the consent of the
Borrower not to be unreasonably withheld or delayed). If no successor Agent
shall have been so appointed and shall have accepted such appointment within
thirty (30) days after the giving of notice by the Agent, then the Agent may
appoint a successor Agent, which shall be a financial institution having a
combined capital and surplus in excess of $250,000,000. The consent of the
Borrower otherwise required by this Section 15.11 shall not be required if an
Event of Default has occurred and is continuing.

(b) Upon the acceptance of any appointment as Agent hereunder by a successor
Agent, such successor shall thereupon succeed to, and become vested with, all
the rights, powers, privileges, and duties of the (resigning) Agent so replaced,
and the (resigning) Agent shall be discharged from the (resigning) Agent’s
duties and obligations hereunder, other than on account of any responsibility
for any action taken or omitted to be taken by the (resigning) Agent as to which
a final judicial determination has been or is made (in a proceeding in which the
(resigning) Agent has had an opportunity to be heard) that Agent had acted in a
grossly negligent manner or in bad faith.

(c) After any retiring Agent’s resignation, the provisions of this Agreement and
of all Loan Documents shall continue in effect for the retiring Agent’s benefit
in respect of any actions taken or omitted to be taken by it while it was acting
as Agent.

ARTICLE XV. - FUNDINGS AND DISTRIBUTIONS

15.1 FUNDING PROCEDURES.

(a) Subject to Section 15.2, the Agent shall advise each Lender, no later than
1:00PM (Boston Time) on a date on which any Revolving Credit Loan is to be made.
Such advice, in each instance, may be by telephone or facsimile transmission,
provided that if such advice is by telephone, it shall be confirmed in writing
and shall include a reference (as applicable) to the interest rate applicable to
the proposed Revolving Credit Loan.

(b) Subject to Section 15.2, each Lender, by no later than the end of business
on the day on which the subject Revolving Credit Loan is to be made, subject to
that Lender’s Dollar Commitment, shall Transfer that Lender’s Percentage
Commitment of the requested Revolving Credit Loan to the Agent as proceeds of
advances under the Revolving Credit.

 

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15.2 SWINGLINE LOANS.

(a) In the event that, when a Revolving Credit Loan is requested and the
aggregate unpaid balance of the SwingLine Loan is less than the SwingLine Loan
Ceiling, then the SwingLine Lender may advise the Agent that the SwingLine
Lender has determined to include up to the amount of the requested Revolving
Credit Loan as part of the SwingLine Loan. In such event, the SwingLine Lender
shall Transfer the amount of the requested Revolving Credit Loan to the Agent.

(b) The SwingLine Loan shall be converted to a Revolving Credit Loan in which
all Lenders participate as follows:

(i) At any time and from time to time (but not less than on a weekly basis), the
SwingLine Lender may advise the Administrative Agent that all of the SwingLine
Loan is to be converted to a Revolving Credit Loan in which all Lenders
participate. The Agent will settle the SwingLine Loan the earlier of
(a) Wednesday of each week or (b) when the aggregate outstanding SwingLine Loans
exceeds $10,000,000.00.

(ii) At the initiation of a Liquidation, the then entire unpaid principal
balance of the SwingLine Loan shall be converted to a Revolving Credit Loan in
which all Lenders participate.

In either such event, the Agent shall advise each Lender of such conversion as
if, and with the same effect as if such conversion were the making of a
Revolving Credit Loan as provided in Section 15.1.

(c) The SwingLine Lender, in separate capacities, may also be the Agent and a
Lender.

(d) The SwingLine Lender, in its capacity as SwingLine Lender, is not a “Lender”
for any of the following purposes:

(i) Except as otherwise specifically provided in the relevant Section, any
distribution pursuant to Section 17.6.

(ii) Determination of whether the requisite Lenders have consented to action
requiring such consent.

15.3 AGENT’S COVERING OF FUNDINGS.

(a) Each Lender shall make available to the Agent, as provided herein, that
Lender’s Percentage Commitment of the following:

(i) Each Revolving Credit Loan, up to the maximum amount of that Lender’s Dollar
Commitment of the Revolving Credit Loans.

 

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(ii) Up to the maximum amount of that Lender’s Dollar Commitment of each L/C
drawing (to the extent that such L/C drawing is not “covered” by a Revolving
Credit Loan as provided herein).

(b) In all circumstances, the Agent may:

(i) Assume that each Lender timely shall make available to the Agent that
Lender’s Percentage Commitment of each Revolving Credit Loan, notice of which is
provided pursuant to Section 15.1(a) of this Agreement.

(ii) In reliance upon such assumption, make available the corresponding amount
to the Borrower.

(iii) Assume that each Lender timely shall pay, and shall make available, to the
Agent all other amounts which that Lender is obligated to so pay and/or make
available hereunder or under any of the Loan Documents.

(c) In the event that, in reliance upon any of such assumptions, the Agent makes
available, a Lender’s Percentage Commitment of one or more Revolving Credit
Loans, L/C drawings, or any other amount to be made available hereunder or under
any of the Loan Documents with respect to the Revolving Credit, which amount a
Lender (a “Delinquent Lender”) fails to provide to the Agent within one
(1) Business Day of written notice of such failure, then:

(i) The amount which had been made available by the Agent is an “Agent’s Cover”.

(ii) All interest paid by the Borrower on account of the Revolving Credit Loan
or coverage of the subject L/C Drawing which consists of the Agent’s Cover shall
be retained by the Agent until the Agent’s Cover, with interest, has been paid.

(iii) The Delinquent Lender shall pay to the Agent, on demand, interest at a
rate equal to the prevailing Federal Funds Effective Rate during the period
during which such amount remains unpaid, on the principal balance of the Agent’s
Cover, from the date of the making of the Agent’s Cover to until repaid.

 

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(iv) The Agent shall have succeeded to all rights to payment to which the
Delinquent Lender otherwise would have been entitled hereunder in respect of
those amounts paid by or in respect of the Borrower on account of the Agent’s
Cover together with interest until it is repaid by the applicable Delinquent
Lender. Such payments shall be deemed made first towards the amounts in respect
of which the Agent’s Cover was provided and only then towards amounts in which
the Delinquent Lender is then participating. For purposes of distributions to be
made pursuant to Section 15.4 (which relates to ordinary course distributions)
or Section 17.6 (which relates to distributions of proceeds of a Liquidation)
below, amounts shall be deemed distributable to a Delinquent Lender (and
consequently, to the Agent to the extent to which the Agent is then entitled) at
the highest level of distribution (if applicable) at which the Delinquent Lender
would otherwise have been entitled to a distribution.

(v) Subject to Section 15.3(c)(iv), the Delinquent Lender shall be entitled to
receive any payments from the Borrower to which the Delinquent Lender is then
entitled, provided however there shall be deducted from such amount and retained
by the Agent any interest to which the Agent is then entitled on account of
Section 15.3(c)(ii), above.

(d) A Delinquent Lender shall not be relieved, by virtue of any Agent’s Cover or
otherwise, of any obligation of such Delinquent Lender hereunder (all and each
of which shall constitute continuing obligations on the part of any Delinquent
Lender).

(e) A Delinquent Lender may cure its status as a Delinquent Lender by paying the
Agent the aggregate of the following:

(i) The Agent’s Cover (to the extent not previously repaid by the Borrower and
retained by the Agent in accordance with Subsection 15.3(c)(iv), above) with
respect to that Delinquent Lender.

(ii) Plus

(iii) Any interest payable under Section 15.3(c)(iii), above (which relates to
interest to be paid by that Delinquent Lender).

(iv) Plus

(v) All such costs and expenses as may be incurred by the Agent in the
enforcement of the Agent’s rights against such Delinquent Lender.

 

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15.4 ORDINARY COURSE DISTRIBUTIONS.

(a) Except as otherwise provided in Section 17.6, below (which relates to
distributions on account of Liquidation), the Agent promptly shall distribute to
the SwingLine Lender and the respective Lenders, payments made by the Borrower
on account of the SwingLine Loans and the Revolving Credit Loans, to the extent
such payments are actually received and collected by the Agent in the following
order and priority:

(i) First: To the SwingLine Lender, up to the then unpaid principal balance of
the SwingLine Loans.

(ii) Second: To the Lenders, their respective Percentage Commitments of such
payments.

(b) Weekly, on such day as may be set from time to time by the Agent (or more
frequently at the Agent’s option), the Agent and each Lender shall settle up on
amounts advanced under the Revolving Credit and collected funds received in the
Concentration Account.

(c) The Agent shall make distributions on account of interest to the SwingLine
Lender and to each Lender, which payment to each Lender shall equal such
Lender’s respective Pro Rata share of interest received by the Agent in respect
of the Revolving Credit Loans. In all cases the Agent shall make distributions
on account of interest when such interest is actually received and collected by
the Agent (excluding the One Business Day settlement delay as provided for in
Section 7.5(a) of the Loan Agreement, which shall be for the account of the
Agent only) and only if such interest is then due and payable hereunder. For
purposes of calculating interest due to a Lender, that Lender shall be entitled
to receive interest on the actual amount contributed by that Lender towards the
principal balance of the Revolving Credit Loans outstanding during the
applicable period covered by the interest payment made by the Borrower. Any net
principal reductions to the Revolving Credit Loans received by the Agent in
accordance with the Loan Documents during such period shall not reduce such
actual amount so contributed, for purposes of calculation of interest due to
that Lender, until the Agent has distributed to that Lender its Pro Rata share
thereof.

(d) The Agent shall distribute fees paid on account of the Revolving Credit
Loans as follows:

(i) Unused Line Fee. To the Lenders, Pro Rata, based upon their respective
Percentage Commitments.

 

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(ii) Intentionally Omitted.

(iii) Any fees on account of the issuance of L/Cs to the extent distributable to
the Lenders.

(iv) Any fees payable to Agent pursuant to the Agent’s Fee Letter to the Agent.

(e) No Lender shall have any interest in, or right to receive any part of any
interest which reflects “float” as described in the proviso included in
Section 7.5(a) of the Loan Agreement. Any such float shall be for the account of
the Agent only.

(f) No Lender shall have any interest in, or right to receive any part of, any
fees payable to the Agent pursuant to the terms of the Fee Letter.

(g) Any amount received by the Agent as reimbursement for any cost or expense
(including without limitation, attorneys’ reasonable fees) shall be distributed
by the Agent to that Person which is entitled to such reimbursement as provided
in this Agreement or the Loan Agreement (and if such Person(s) is (are) the
Lenders, Pro Rata based upon their respective Percentage Commitments at the date
on which the expense, in respect of which such reimbursement is being made, was
incurred).

(h) Each distribution pursuant to this Section 16.4 is subject to
Section 15.3(c), above (which relates to Delinquent Lenders).

ARTICLE XVI. - INTENTIONALLY OMITTED

ARTICLE XVII. - LIQUIDATIONS

17.1 ACCELERATION.

Unless stayed by judicial or statutory process, the Agent shall Accelerate the
Liabilities within a commercially reasonable time following the receipt of an
Acceleration Notice from the Required Lenders following the occurrence and
during the continuance of an Event of Default.

17.2 INITIATION OF LIQUIDATION.

Unless stayed by judicial or statutory process, a Liquidation may be initiated
by the Agent following Acceleration of the Liabilities.

 

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17.3 ACTIONS AT AND FOLLOWING INITIATION OF LIQUIDATION.

(a) At the initiation of a Liquidation:

(i) The unpaid principal balance of the SwingLine Loan (if any) shall be
converted, pursuant to Section 14.2, to a Revolving Credit Loan in which all
Lenders participate.

(ii) The Agent and the Lenders shall “net out” each Lender’s respective
contributions towards the Loans, so that each Lender holds that Lender’s
Percentage Commitment of the Revolving Credit Loans and advances.

(b) Following the initiation of a Liquidation, each Lender shall contribute,
towards any L/C thereafter honored and not immediately reimbursed by the
Borrower, that Lender’s Percentage Commitment of such honoring.

17.4 AGENT’S CONDUCT OF LIQUIDATION.

(a) Any Liquidation shall be conducted solely by the Agent with the advice and
assistance of the Lenders.

(b) The Agent may appoint one or more nominees to “bid in” or otherwise acquire
ownership to any post foreclosure asset.

(c) The Agent shall manage the nominee and manage and dispose of any post
foreclosure assets with a view towards the realization of the economic benefits
of the ownership of the post foreclosure assets and in such regard, the Agent
and/or the nominee may operate, repair, manage, maintain, develop, and dispose
of any post foreclosure asset in such manner as the Agent determines as
appropriate under the circumstances.

(d) The Agent may decline to undertake or to continue taking a course of action
or to execute an action plan (whether proposed by the Agent or by any Lender)
unless indemnified to the Agent’s satisfaction by the Lenders against any and
all liability and expense which may be incurred by the Agent by reason of taking
or continuing to take that course of action or action plan.

(e) Each Lender shall execute all such instruments and documents not
inconsistent with the provisions of this Agreement or the other Loan Documents
as the Agent and/or the nominee reasonably may request with respect to the
creation and governance of any nominee, the conduct of the Liquidation, and the
management and disposition of any post foreclosure asset.

 

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17.5 DISTRIBUTION OF LIQUIDATION PROCEEDS.

(a) The Agent may establish one or more reasonably funded reserve accounts into
which proceeds of the conduct of any Liquidation may be deposited in
anticipation of reasonably anticipated future expenses which may be incurred by
the Agent in the exercise of rights as a secured creditor of the Borrower and
prior claims which the Agent anticipates may need to be paid.

(b) The Agent shall distribute the proceeds of any Liquidation, net of any
amount deposited into such fund reserve accounts, all reasonable costs and
expenses of the Agent, any Costs of Collection of Agent (which shall be
distributed to the Agent) and of prior claims, to the extent available, to the
Agent with such frequency as the Agent determines.

(c) The Agent shall distribute the net proceeds of Liquidation, as distributed
to the Administrative Agent by the Agent pursuant to Section 17.5(b), above in
accordance with the relative priorities set forth in Section 17.6.

(d) Each Lender, on the written request of the Agent and/or any nominee, not
more frequently than once each month, shall reimburse the Agent and/or any
nominee, ratably, for any cost or expense reasonably incurred by the Agent
and/or the Nominee in the conduct of a Liquidation, which amount is not covered
out of current proceeds of the Liquidation, which reimbursement shall be paid
over to and distributed by the Agent and shall constitute Costs of Collection of
such Lender.

17.6 RELATIVE PRIORITIES TO PROCEEDS OF LIQUIDATION.

The relative priorities of security interests in the Collateral and to the
proceeds of a Liquidation are as follows:

(a) First: to the Agent on account of Costs of Collection of the Agent and other
Liabilities owing to the Agent; and then

(b) Second: To the SwingLine Lender, on account of any SwingLine Loans not
converted to Revolving Credit Loans pursuant to Section 17.2(b); and then

(c) Third: To the Lenders, Pro Rata, to the extent of the Liabilities (other
than Bank Product Obligations); and then

(d) Fourth: To the Bank Product Providers, ratably, to the extent of the Bank
Product Obligations then due and payable and with respect to which the Agent has
received written notice that such Bank Product Obligations are then due and
payable.

 

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The foregoing priorities shall apply in the event any of the Borrower becomes
the subject of a proceeding described in Section 10.11 of this Agreement hereof
and regardless of whether the respective claims and Liens of each Lender are
allowed by the court hearing such proceeding.

ARTICLE XVIII. - ASSIGNMENTS BY LENDERS

18.1 ASSIGNMENTS AND ASSUMPTIONS.

(a) Except as provided herein, each Lender (in this Section 18.1, an “Assigning
Lender”) may assign to one or more Eligible Assignees (in this Section 18.1,
each an “Assignee Lender”) all or a portion of that Lender’s interests, rights
and obligations under this Agreement and the other Loan Documents (including,
all or a portion of its Dollar Commitment) and the same portion of the loans at
the time owing to it, and of the note (if any) held by the Assigning Lender,
provided that,

(i) Each of the Agent and (so long as no Event of Default exists and is
continuing) the Borrower shall have given its prior written consent to such
assignment, each which consent shall not be unreasonably withheld, but need not
be given, in the case of the Agent, if the proposed assignment would result in
any resulting Lender’s having a Dollar Commitment of less than the “minimum
hold” amount specified in Section 18.1(a)(iii).

(ii) Each such assignment shall be of a constant, and not a varying, percentage
of all the rights and obligations under this Agreement of Assigning Lenders that
are Lenders.

(iii) Following the effectiveness of such assignment, the Lender’s Dollar
Commitment of the Assigning Lender that is a Lender (if not an assignment of all
of such Lender’s Dollar Commitment) shall not be less than $10,000,000.00 (i.e.,
the “minimum hold”).

18.2 ASSIGNMENT PROCEDURES.

This Section 18.2 describes the procedures to be followed in connection with an
assignment effected pursuant to this Article XVIII and permitted by
Section 18.1.

(a) The parties to such an assignment shall execute and deliver to the Agent an
Assignment and Acceptance substantially in the form of EXHIBIT 18.2(a), annexed
hereto (an “Assignment and Acceptance”).

(b) The Assigning Lender shall deliver to the Agent, with such Assignment and
Acceptance, the Note (if any) held by the subject Assigning Lender and the
Agent’s processing fee of $5,000.00, provided, however, no such processing fee
shall be due where the Assigning Lender is one of the Lenders at the initial
execution of this Agreement or where the Assignee Lender is an Affiliate of the
Assignor Lender.

 

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(c) The Agent shall maintain a copy of each Assignment and Acceptance delivered
to it and, in the case of an Assigning Lender that is a Lender, a register or
similar list (the “Register”) for the recordation of the names and addresses of
the Lenders and of the Percentage Commitment and Dollar Commitment of each
Lender. The Register shall be available for inspection by the Lenders at any
reasonable time and from time to time upon reasonable prior notice. In the
absence of manifest error, the entries in the Register shall be conclusive and
binding on all Lenders. The Agent and the Lenders may treat each Person whose
name is recorded in the Register as a “Lender” hereunder for all purposes of
this Agreement.

(d) The Assigning Lender and Assignee Lender, directly between themselves, shall
make all appropriate adjustments in payments for periods prior to the effective
date of an Assignment and Assumption.

18.3 EFFECT OF ASSIGNMENT.

(a) From and after the effective date specified in an Assignment and Acceptance
which has been executed, delivered, and recorded (which effective date the Agent
may delay by up to five (5) Business Days after the delivery of such Assignment
and Acceptance):

(i) The Assignee Lender:

 

  (A) Shall be a party to this Agreement and the Loan Documents (and to any
amendments thereof) as fully as if the Assignee Lender had executed each.

 

  (B) Shall have the rights of a Lender hereunder, except in the case in which
the Assigning Lender is a Lender, in which case the Assignee Lender shall have
the rights of a Lender hereunder to the extent of the Dollar Commitment and
Percentage Commitment assigned by such Assignment and Acceptance.

(ii) The Assigning Lender shall be released from the Assigning Lender’s
obligations under this Agreement and the Loan Documents, except in the case in
which the Assigning Lender is a Lender, in which case the Assignee Lender shall
be released from its obligations under this Agreement and the Loan Documents to
the extent of the Dollar Commitment assigned by such Assignment and Acceptance.

 

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(iii) The Agent shall undertake to obtain and distribute replacement notes to
the subject Assigning Lender and Assignee Lender.

(b) By executing and delivering an Assignment and Acceptance, the parties
thereto confirm to and agree with each other and with all parties to this
Agreement as to those matters which are set forth in the subject Assignment and
Acceptance.

ARTICLE XIX. - GENERAL:

19.1 PROTECTION OF COLLATERAL.

The Agent has no duty as to the collection or protection of the Collateral
beyond the safe custody of such of the Collateral as may come into the
possession of the Agent.

19.2 PUBLICITY.

The Agent, at its expense and with the Borrower’s consent (not to be
unreasonably withheld), may issue a “tombstone” notice of the establishment of
the credit facility contemplated by this Agreement and may make reference to the
Borrower (and may utilize any logo or other distinctive symbol associated with
the Borrower) in connection with any advertising, promotion, or marketing
undertaken by the Agent. Anything in this Agreement to the contrary
notwithstanding, the Agent may provide information concerning the terms and
conditions of this Agreement and the other Loan Documents to loan syndication
and pricing reporting services.

19.3 SUCCESSORS AND ASSIGNS.

This Agreement shall be binding upon the Borrower and the Borrower’s
representatives, successors, and assigns and shall inure to the benefit of the
Agent and the Lenders and their respective successors and assigns, provided,
however, no trustee or other fiduciary appointed with respect to the Borrower
shall have any rights hereunder. In the event that the Agent or any Lender
assigns or transfers its rights under this Agreement, the assignee shall
thereupon succeed to and become vested with all rights, powers, privileges, and
duties of such assignor hereunder and such assignor shall thereupon be
discharged and relieved from its duties and obligations hereunder.

 

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19.4 SEVERABILITY.

Any determination that any provision of this Agreement or any application
thereof is invalid, illegal, or unenforceable in any respect in any instance
shall not affect the validity, legality, or enforceability of such provision in
any other instance, or the validity, legality, or enforceability of any other
provision of this Agreement.

19.5 AMENDMENTS AND WAIVERS.

(a) Neither this Agreement nor the other Loan Documents nor any terms hereof or
thereof may be amended, waived, discharged or terminated unless such amendment,
waiver, discharge or termination is in writing signed by the Required Lenders or
at the Agent’s option, by Agent with the authorization of the Required Lenders,
and as to amendments to any of the Loan Documents (other than with respect to
any provision of Articles XV, XVII or XIX), by the Borrower; except, that, no
such amendment, waiver, discharge or termination shall:

(i) Reduce the interest rate or any fees or extend the time of scheduled payment
of principal, interest, or any fees or reduce the principal amount of any
Revolving Credit Loan or L/C, in each case without the consent of each Lender
directly affected thereby;

(ii) Increase the Dollar Commitment of any Lender over the amount thereof then
in effect or provided hereunder, in each case without the consent of such
Lender;

(iii) Release all or substantially all the Collateral (except as expressly
required hereunder or under any other Loan Document or applicable law and except
as permitted under Section 4.14), without the consent of the Agent and all of
the Lenders;

(iv) Reduce any percentage specified in the definition of Required Lenders or
Supermajority Lenders, without the consent of the Agent and all Lenders;

(v) Consent to the assignment or transfer by the Borrower of any of its rights
and obligations under this Agreement, without the consent of Agent and all of
the Lenders;

(vi) Amend, modify, or waive any terms of this Section 19.5 hereof, without the
consent of the Agent and all of the Lenders; or

(vii) Increase the advance rates constituting part of the Borrowing Base (in
excess of the advance rates set forth in the definition of “Borrowing Base” as
in effect on the date hereof, or amend any definition that is a component
definition of “Borrowing Base”, for such purpose) if such amendment would make
more credit available to the Borrower, without the consent of the Agent and all
of the Lenders; or

 

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(viii) Make any Overloans which are not Permitted Overloans, without the consent
of the Agent and all of the Lenders.

(b) Notwithstanding anything to the contrary contained in Section 19.5(a) above,
in the event that the Borrower requests that this Agreement or any other Loan
Document be amended or otherwise modified in a manner which would require the
unanimous consent of all Lenders and such amendment or other modification is
agreed to by the Required Lenders, then, with the consent of the Borrower, Agent
and the Required Lenders, Borrower and the Required Lenders may amend this
Agreement without the consent of the Lenders that did not agree to such
amendment or other modification (collectively, the “Minority Lenders”) to
provide for the termination of the Dollar Commitment of each of the Minority
Lenders, the addition to this Agreement of one or more other Lenders, or an
increase in the Commitments of one or more of the Required Lenders, so that the
Commitments, after giving effect to such amendment, shall be in the same
aggregate amount as the Commitments immediately before giving effect to such
amendment, and if any Revolving Credit Loans are outstanding at the time of such
amendment, the making of such additional Revolving Credit Loans by such new
Lenders or Required Lenders, as the case may be, as may be necessary to repay in
full the outstanding Revolving Credit Loans of the Minority Lenders immediately
before giving effect to such amendment and the payment of all interest, fees and
other Liabilities payable or accrued in favor of the Minority Lenders and such
other modifications to this Agreement as Borrower and the Required Lenders may
determine to be appropriate.

(c) The consent of the Agent shall be required for any amendment, waiver or
consent affecting the rights or duties of the Agent hereunder or under any other
Loan Document, in addition to the consent of the Lenders otherwise required by
this Section and the exercise by Agent of any of its rights hereunder with
respect to Reserves, Eligible Credit Card Accounts, Eligible Inventory, and
Eligible Real Property shall not be deemed an amendment to the advance rates
provided for in this Section 19.5.

(d) This Agreement and the other Loan Documents incorporate all discussions and
negotiations between the Borrower, the Agent and the Lenders, either express or
implied, concerning the matters included herein and in such other instruments,
any custom, usage, or course of dealings to the contrary notwithstanding. No
such discussions, negotiations, custom, usage, or course of dealings shall
limit, modify, or otherwise affect the provisions thereof. No failure by the
Agent or Lenders to give notice to the Borrower of the Borrower’s having failed
to observe and comply with any warranty or

 

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covenant included in any Loan Document shall constitute a waiver of such
warranty or covenant or the amendment of the subject Loan Document. No change
made by the Agent to the manner by which Availability is determined shall
obligate the Agent to continue to determine Availability in that manner.

19.6 POWER OF ATTORNEY.

In connection with all powers of attorney included in this Agreement, the
Borrower hereby grants unto the Agent full power to do any and all things
necessary or appropriate in connection with the exercise of such powers as fully
and effectually as the Borrower might or could do, hereby ratifying all that
said attorney shall do or cause to be done by virtue of this Agreement. No power
of attorney set forth in this Agreement shall be affected by any disability or
incapacity suffered by the Borrower and each shall survive the same. All powers
of attorney conferred upon the Agent by this Agreement, being coupled with an
interest, shall be irrevocable until this Agreement is terminated by a written
instrument executed by a duly authorized officer of the Agent.

19.7 APPLICATION OF PROCEEDS.

The proceeds of any collection, sale, or disposition of the Collateral, or of
any other payments received hereunder, shall be applied towards the Liabilities
in such order and manner as the Agent determines in its sole discretion,
consistent, however, with the provisions of this Agreement. The Borrower shall
remain liable for any deficiency remaining following such application.

19.8 INCREASED COSTS.

If the Agent or Lenders shall have determined that the adoption of any law, rule
or regulation regarding capital adequacy, or any change therein or in the
interpretation or application thereof, or compliance by the Agent or Lenders
with any request or directive regarding capital adequacy (whether or not having
the force of law) from any central bank or governmental authority enacted after
the date hereof, does or shall have the effect of reducing the rate of return on
such party’s capital as a consequence of its obligations hereunder to a level
below that which the Agent or Lenders could have achieved but for such adoption,
change or compliance (taking into consideration the Agent’s or Lenders’ policies
with respect to capital adequacy) by a material amount, then from time to time,
after submission by the Agent or Lenders to the Borrower of a written demand
therefor (“Capital Adequacy Demand”) together with the certificate described
below, the Borrower shall pay to the Agent or Lenders, as applicable, such
additional amount or amounts (“Capital Adequacy Charge”) as will compensate the
Agent or Lenders for such reduction, such Capital Adequacy Demand to be made
with reasonable promptness following such determination. A certificate of the
Agent or Lenders claiming entitlement to payment as set forth

 

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above shall be conclusive. Such certificate shall set forth the nature of the
occurrence giving rise to such reduction, the amount of the Capital Adequacy
Charge to be paid to the Agent or Lenders, and the method by which such amount
was determined. In determining such amount, the Agent or Lenders may use any
reasonable averaging and attribution method, applied on a non-discriminatory
basis.

19.9 COSTS AND EXPENSES OF THE AGENT AND LENDERS.

The Borrower shall pay from time to time on demand (accompanied by reasonable
back-up documentation) all Costs of Collection and all reasonable costs,
expenses, and disbursements of (including attorneys’ reasonable fees and
expenses) which are incurred by the Agent and Lenders in connection with the
preparation, negotiation, execution, and delivery of this Agreement and of any
other Loan Documents, and all other reasonable costs, expenses, and
disbursements which may be incurred connection with or in respect to the credit
facility contemplated hereby or which otherwise are incurred with respect to the
Liabilities.

(a) The Borrower shall pay from time to time on demand all reasonable costs and
expenses (including reasonable attorneys’ fees and expenses) incurred by the
Agent and all reasonable costs and expenses (including reasonable attorney’s
fees and expenses) incurred by the Lenders to the Lenders’ Special Counsel,
following the occurrence of any Event of Default.

(b) The Borrower authorizes the Agent to pay all such fees and expenses and in
the Agent’s discretion, to add such fees and expenses to the Loan Account.

(c) The undertaking on the part of the Borrower in this Section 19.9 shall
survive payment of the Liabilities and/or any termination, release, or discharge
executed by the Agent in favor of the Borrower, other than a termination,
release, or discharge which makes specific reference to this Section 19.9.

19.10 COPIES AND FACSIMILES.

This Agreement and all documents which relate thereto, which have been or may be
hereinafter furnished the Agent or the Lenders may be reproduced by the Agent or
Lenders by any photographic, xerographic, digital imaging, or other process, and
such Person making such reproduction may destroy any document so reproduced. Any
such reproduction (other than promissory notes) shall be admissible in evidence
as the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
in the regular course of business). Any facsimile which bears proof of
transmission shall be binding on the party which or on whose behalf such
transmission was initiated and likewise shall be so admissible in evidence as if
the original of such facsimile had been delivered to the party which or on whose
behalf such transmission was received.

 

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19.11 GOVERNING LAW.

This Agreement and all rights and obligations hereunder, including matters of
construction, validity, and performance, shall be governed by the internal laws
of the State of New York but excluding any principles of conflicts of law or
other rule of law that would cause the application of the law of any
jurisdiction other than the laws of the State of New York.

19.12 CONSENT TO JURISDICTION.

(a) The Borrower agrees that any legal action, proceeding, case, or controversy
against the Borrower with respect to any Loan Document may be brought in the
Supreme Court of the State of New York, New York County and the United States
District Court for the Southern District of New York, as the Agent may elect in
the Agent’s sole discretion. By execution and delivery of this Agreement, the
Borrower, for itself and in respect of its property, accepts, submits, and
consents generally and unconditionally, to the jurisdiction of the aforesaid
courts.

(b) The Borrower WAIVES personal service of any and all process upon it, and
irrevocably consents to the service of process out of any of the aforementioned
courts in any such action or proceeding by the mailing of copies thereof by
certified mail, postage prepaid, to Borrower at Borrower’s address for notices
as specified herein, such service to become effective five (5) Business Days
after such mailing.

(c) The Borrower WAIVES any objection based on forum non conveniens and any
objection to venue of any action or proceeding instituted under any of the Loan
Documents and consents to the granting of such legal or equitable remedy as is
deemed appropriate by the Court.

(d) Nothing herein shall affect the right of the Agent to bring legal actions or
proceedings in any other competent jurisdiction.

(e) The Borrower agrees that any action commenced by the Borrower asserting any
claim arising under or in connection with this Agreement or any other Loan
Document shall be brought solely in the Supreme Court of the State of New York,
New York County or the United States District Court for the Southern District of
New York, and that such Courts shall have exclusive jurisdiction with respect to
any such action.

 

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19.13 INDEMNIFICATION.

The Borrower shall indemnify, defend, and hold the Agent and Lenders and any
Participant and any of their respective employees, officers, or agents (each, an
“Indemnified Person”) harmless of and from any claim brought or threatened
against any Indemnified Person by the Borrower, any guarantor or endorser of the
Liabilities, or any other Person (as well as from attorneys’ reasonable fees,
expenses, and disbursements in connection therewith) on account of the
relationship of the Borrower or of any other guarantor or endorser of the
Liabilities or the transactions contemplated by the Loan Documents (each of
claims which may be defended, compromised, settled, or pursued by the
Indemnified Person with counsel of the Agent’s or Lender’s or Participant’s (as
the case may be) selection, but at the expense of the Borrower) except where the
Indemnified Person seeking indemnification had acted in a grossly negligent
manner, or in actual bad faith, or where such claims arise from the willful
misconduct of the Indemnified Person. This indemnification shall survive payment
of the Liabilities and/or any termination, release, or discharge executed by the
Agent or Lenders in favor of the Borrower, other than a termination, release, or
discharge duly executed on behalf of the Agent or Lenders which makes specific
reference to this Section 19.13.

19.14 RULES OF CONSTRUCTION.

The following rules of construction shall be applied in the interpretation,
construction, and enforcement of this Agreement and of the other Loan Documents:

(a) Unless otherwise specifically provided for herein, interest and any fee or
charge which is stated as a per annum percentage shall be calculated based on a
360 day year and actual days elapsed.

(b) Words in the singular include the plural and words in the plural include the
singular.

(c) Any reference, herein, to a circumstance or event’s having “more than a de
minimis adverse effect” and any similar reference is to a circumstance or event
which (x) in a well-managed enterprise, would receive the active attention of
senior management with a view towards it being reversed or remedied; or (y) if
not reversed or remedied, could reasonably be expected to lead to its becoming a
material adverse effect.

 

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(d) Cross references to Sections in this Agreement begin with the Article in
which that Section appears and then the Section to which reference is made. (For
example, a reference to “Section 5.6” is to subsection 6, which appears in
Article V of this Agreement).

(e) Titles, headings (indicated by being underlined or shown in Small Capitals)
and any Table of Contents are solely for convenience of reference; do not
constitute a part of the instrument in which included; and do not affect such
instrument’s meaning, construction, or effect.

(f) The words “includes” and “including” are not limiting.

(g) Text which follows the words “including, without limitation” (or similar
words) is illustrative and not limiting.

(h) Except where the context otherwise requires or where the relevant
subsections are joined by “or”, compliance with any Section or provision of any
Loan Document which constitutes a warranty or covenant requires compliance with
all subsections (if any) of that Section or provision. Except where the context
otherwise requires, compliance with any warranty or covenant of any Loan
Document which includes subsections which are joined by “or” may be accomplished
by compliance with any of such subsections.

(i) Text which is shown in italics, shown in bold, shown IN ALL CAPITAL LETTERS,
or in any combination of the foregoing, shall be deemed to be conspicuous.

(j) The words “may not” are prohibitive and not permissive.

(k) The word “or” is not exclusive.

(l) Any reference to a Person’s “knowledge” (or words of similar import) are to
such Person’s knowledge assuming that such Person has undertaken reasonable and
diligent investigation with respect to the subject of such “knowledge” (whether
or not such investigation has actually been undertaken).

(m) Terms which are defined in one section of any Loan Document are used with
such definition throughout the instrument in which so defined.

(n) The symbol “$” refers to United States Dollars.

 

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(o) Unless limited by reference to a particular Section or provision, any
reference to “herein”, “hereof”, or “within” is to the entire Loan Document in
which such reference is made.

(p) References to “this Agreement” or to any other Loan Document is to the
subject instrument as amended to the date on which application of such reference
is being made.

(q) Except as otherwise specifically provided, all references to time are to
Charlotte time.

(r) In the determination of any notice, grace, or other period of time
prescribed or allowed hereunder:

(i) Unless otherwise provided (I) the day of the act, event, or default from
which the designated period of time begins to run shall not be included and the
last day of the period so computed shall be included unless such last day is not
a Business Day, in which event the last day of the relevant period shall be the
then next Business Day and (II) the period so computed shall end at 5:00 PM on
the relevant Business Day.

(ii) The word “from” means “from and including”.

(iii) The words “to” and “until” each mean “to, but excluding”.

(iv) The word “through” means “to and including”.

(s) The Loan Documents shall be construed and interpreted in a harmonious manner
and in keeping with the intentions set forth in Section 19.15 hereof, provided,
however, in the event of any inconsistency between the provisions of this
Agreement and any other Loan Document, the provisions of this Agreement shall
govern and control.

19.15 INTENT.

It is intended that:

(a) The scope of the Collateral Interests created by the Borrower to secure the
Liabilities be broadly construed in favor of the Agent.

(b) All Collateral Interests created in favor of the Agent at any time and from
time to time by the Borrower secure all Liabilities, whether now existing or
contemplated or hereafter arising.

 

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(c) All reasonable costs, expenses, and disbursements incurred by the Agent and,
to the extent provided herein, the Lenders, in connection with such Person’s
relationship(s) with the Borrower shall be borne by the Borrower.

(d) Unless otherwise explicitly provided herein, the Agent’s consent to any
action of the Borrower which is prohibited unless such consent is given may be
given or refused by the Agent in its sole discretion and without reference to
Section 2.17 hereof.

19.16 PARTICIPATIONS.

The Agent or Lenders may sell participations to one or more financial
institutions (a “Participant”) all or a portion of the Agent’s or Lenders’
rights and obligations under this Agreement. No such sale of a participation
shall relieve the Agent or Lenders from the Agent’s or Lenders’ obligations
hereunder.

19.17 RIGHT OF SET OFF.

Any and all deposits or other sums at any time credited by or due to the
Borrower from the Agent, Lenders or any Participant or from any Affiliate of any
of the foregoing, and any cash, securities, instruments or other property of the
Borrower in the possession of any of the foregoing, whether for safekeeping or
otherwise (regardless of the reason such Person had received the same), to the
extent permitted by law, shall at all times constitute security for all
Liabilities and for any and all obligations of the Borrower to the Agent,
Lenders or any Participant or such Affiliate and, after the occurrence and
during the continuance of an Event of Default, may be applied or set off against
the Liabilities and against such obligations at any time, whether or not such
are then due and whether or not other collateral is then available to the Agent.

19.18 PLEDGES TO FEDERAL RESERVE BANKS.

Nothing included in this Agreement shall prevent or limit the Agent or Lenders,
to the extent that the Agent or Lenders is subject to any of the twelve Federal
Reserve Banks organized under §4 of the Federal Reserve Act (12 U.S.C. §341)
from pledging all or any portion of that Agent’s or Lenders’ interest and rights
under this Agreement, provided, however, neither such pledge nor the enforcement
thereof shall release the Agent or Lenders from its obligations hereunder or
under any of the Loan Documents.

19.19 MAXIMUM INTEREST RATE.

Regardless of any provision of any Loan Document, the Agent and Lenders shall
not be entitled to contract for, charge, receive, collect, or apply as interest
on any Liability, any amount in excess of the

 

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maximum rate imposed by applicable law. Any payment which is made which, if
treated as interest on a Liability would result in such interest’s exceeding
such maximum rate shall be held, to the extent of such excess, as additional
collateral for the Liabilities as if such excess were “Collateral.”

19.20 WAIVERS.

(a) The Borrower (and all guarantors, endorsers, and sureties of the
Liabilities) make each of the waivers included in Section 19.20(b), below,
knowingly, voluntarily, and intentionally, and understands that Agent and
Lenders, in establishing the facilities contemplated hereby and in providing
loans and other financial accommodations to or for the account of the Borrower
as provided herein, whether not or in the future, is relying on such waivers.

(b) THE BORROWER, AND EACH SUCH GUARANTOR, ENDORSER, AND SURETY RESPECTIVELY
WAIVES THE FOLLOWING:

(i) Except as otherwise specifically required hereby, notice of non payment,
demand, presentment, protest and all forms of demand and notice, both with
respect to the Liabilities and the Collateral.

(ii) Except as otherwise specifically required hereby, the right to notice
and/or hearing prior to the Agent’s exercising of the Agent’s rights upon
default.

(iii) THE RIGHT TO A JURY IN ANY TRIAL OF ANY CASE OR CONTROVERSY IN WHICH THE
AGENT OR LENDER IS OR BECOMES A PARTY (WHETHER SUCH CASE OR CONTROVERSY IS
INITIATED BY OR AGAINST THE AGENT OR LENDER OR IN WHICH THE AGENT OR LENDER IS
JOINED AS A PARTY LITIGANT), WHICH CASE OR CONTROVERSY ARISES OUT OF OR IS IN
RESPECT OF, ANY RELATIONSHIP AMONGST OR BETWEEN THE BORROWER OR ANY OTHER PERSON
AND THE AGENT OR LENDER LIKEWISE WAIVES THE RIGHT TO A JURY IN ANY TRIAL OF ANY
SUCH CASE OR CONTROVERSY).

(iv) The benefits or availability of any stay, limitation, hindrance, delay, or
restriction (including, without limitation, any automatic stay which otherwise
might be imposed pursuant to Section 362 of the Bankruptcy Code) with respect to
any action which the Agent may or may become entitled to take hereunder.

 

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(v) Any defense, counterclaim, set off, recoupment, or other basis on which the
amount of any Liability, as stated on the books and records of the Agent or
Lenders, could be reduced or claimed to be paid otherwise than in accordance
with the tenor of and written terms of such Liability.

(vi) Any claim to consequential, special, or punitive damages.

19.21 COUNTERPARTS.

This Agreement, any of the other Loan Documents, and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed an original, but all of which
counterparts together shall constitute but one agreement. Delivery of an
executed counterparty of this Agreement or any other Loan Documents by
telefacsimile or other electronic method of transmission shall be equally as
effective as delivery of an original executed counterpart of this Agreement or
such other Loan Documents.

Intentionally Left Blank

 

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ROOMSTORE, INC. (“Borrower”) By:   /s/ Lewis M. Brubaker, Jr.

 

Print Name:   Lewis M. Brubaker, Jr.

 

Title:   CFO WELLS FARGO RETAIL FINANCE, LLC (“Lender”) By:  

/s/ William Chan

 

Print Name:  

William Chan

 

Title:  

Director

Notice Address: One Boston Place, Suite 1800 Boston, Massachusetts 02108
Attention: Connie Liu Fax No.: (617) 523-4032 WELLS FARGO RETAIL FINANCE, LLC,
as Agent (“Agent”) By:  

/s/ William Chan

 

Print Name:  

William Chan

 

Title:  

Director

[Signature Page to Loan and Security Agreement]