Exhibit 10.2


 


2005
AMENDED AND RESTATED


 


CREDIT
AGREEMENT


 


 


(REVOLVING
LOAN)


 


 


BY AND
BETWEEN


 


 


WELLS FARGO
BANK, NATIONAL ASSOCIATION,


 


AS LENDER,


 


 


AND


 


 


GAIAM,
INC., AND THE RESTRICTED SUBSIDIARIES


 


 


AS BORROWER


 


 


DATED AS OF
JULY 29, 2005


 





















 


CREDIT AGREEMENT

(REVOLVING LOAN)


 


Recitals


 


A.                                   WELLS FARGO BANK WEST, N.A. and GAIAM, INC.
and its 100% owned subsidiaries, entered into that certain Loan Agreement (“2002 Credit Agreement”) dated as of December 31,
2002 (“Original Effective Date”).


 


B.                                     The parties to the 2002 Credit Agreement
desire to make certain amendments to, but not to discharge any indebtedness or
other obligations owing under, the 2002 Credit Agreement, as incorporated in
this 2005 Amended and Restated Credit Agreement which, upon satisfaction of the
provisions in Section 8.1 thereof, shall replace in its entirety the 2002
Credit Agreement.


 


Agreement


 


THIS 2005 AMENDED AND RESTATED CREDIT AGREEMENT (“Credit Agreement”) is entered into as of July 29,
2005 (“Effective Date”), by and
between WELLS FARGO BANK, NATIONAL ASSOCIATION (as successor in interest to
Wells Fargo Bank West, N.A.) as lender (“Lender”)
and GAIAM, INC., a corporation formed under the laws of the State of Colorado,
whose address is 360 Interlocken Boulevard, Suite 300, Broomfield,
Colorado 80021 (“Gaiam”) and the
Persons identified on Schedule 1 hereto (“Restricted Subsidiaries” and, collectively
with Gaiam, the “Borrower”).


 


ARTICLE 1.  DEFINED TERMS


 


As used in this Credit Agreement, the following
terms shall have the meanings set forth below (and such meaning shall be
equally applicable to both the singular and plural form of the terms defined,
as the context may require):


 


1.1                                 AAA:  shall have the meaning set
forth in Subsection 13.4.1.


 


1.2                                 Accounts Aging Report: 
shall have the meaning set forth in Subsection 9.2.15.


 


1.3                                 Accounts Receivable: 
means all rights to payment for goods sold or leased or for services
rendered whether or not earned by performance, including those evidenced by an
instrument or chattel paper (as those terms are defined in the Colorado Uniform
Commercial Code).


 


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1.4                                 Additional Costs: 
shall have the meaning set forth in Section 13.10.


 


1.5                                 Advance Date:  a
day (which shall be a Banking Day) on which a Revolving Advance is made.


 


1.6                                 Affiliate:  means, as to any Person, any
other Person that directly or indirectly controls, or is controlled by, or is
under common control with such Person. The term “control” means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.


 


1.7                                 Aggregate LC Commitment: 
shall be $15,000,000.00.


 


1.8                                 Applicable Lending Office: 
means for each type of Revolving Advance the lending office of Lender
designated as such for such Revolving Advances on its signature page hereof
or such other office of Lender as Lender may from time to time specify to
Borrower as the office by which its Revolving Advances of such type are to be
made and maintained.


 


1.9                                 Authorized Officer: 
shall have the meaning set forth in Subsection 8.1.5.


 


1.10                           Bank Debt:  all amounts owing under the
Revolving Note, fees, and all interest, expenses, charges and other amounts
payable by Borrower pursuant to the Loan Documents.


 


1.11                           Banking Day:  any day (a) other than a
Saturday or Sunday and other than a day which is a Federal legal holiday or a
legal holiday for banks in the State of Colorado, and (b) if such day
relates to a borrowing of, a payment or prepayment of principal of or interest
on, a continuation of or conversion into, or a LIBO Rate Period for, a LIBO
Rate Loan, or a notice by Borrower with respect to any such borrowing, payment,
prepayment, continuation, conversion, or LIBO Rate Period, on which dealings in
U.S. Dollar deposits are carried out in the London interbank market.


 


1.12                           Base LIBOR:  means a rate of interest per
annum equal to the rate as published in the Eastern Edition of the Wall Street Journal on the Banking Day
corresponding to the first day of each LIBO Rate Period (including LIBO Rate
Periods that occur on account of the automatic renewal of a pervious LIBO Rate
Period as provided in Subsection 4.1.2 hereof) as the Inter-Bank Market
Offered Rate for delivery of funds on such date for a 30-day period and in an
amount approximately equal to the principal amount to which it would apply,
with the understanding that such rate is utilized by Lender for the purpose of
calculating effective rates of interest for loans making reference thereto.


 


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1.13                           Base Rate:  means at any time the rate of
interest most recently announced by Lender as its Prime Rate, from time to time
which serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, adjusted by the Base Rate Margin.


 


1.14                           Base Rate Loan: 
shall have the meaning set forth in Subsection 4.1.1.


 


1.15                           Base Rate Margin: 
negative 50 basis points.


 


1.16                           Borrower Benefit Plan: 
means any “employee benefit plan”, as such term is defined in Section 3(3) of
ERISA, including the following: (a) any funded “employee welfare benefit
plan,” as that term is defined in Section 3(1) of ERISA; (b) any
“multiemployer plans,” as defined in Section 3(37) of ERISA; (c) any “employee
pension benefit plan” as defined in Section 3(2) of ERISA; (d) any
“multiple employer plan” within the meaning of Section 413 of the Code; (e) any
“multiple employer welfare arrangement” within the meaning of Section 3(40)
of ERISA; (f) a “voluntary employees’ beneficiary association” within the
meaning of Section 501(c)(9) of the Code; (g) a “welfare benefit
fund” within the meaning of Section 419 of the Code; or (h) any
employee welfare benefit plan within the meaning of Section 3(1) of
ERISA for the benefit of retired or former employees, which is maintained by
the Borrower or in which Borrower participates or to which Borrower is
obligated to contribute, but excluding any such plan, arrangement, association
or fund that is maintained outside of the United States primarily for the
benefit of persons substantially all of whom are nonresident aliens.


 


1.17                           Borrower Pension Plan: 
means each Borrower Benefit Plan that is an “employee pension benefit
plan” as defined in Section 3(2) of ERISA that is intended to satisfy
the requirements of Section 401(a) of the Code.


 


1.18                           Borrower Account: 
means the deposit accounts for each Borrower maintained at Lender and
described on Exhibit 1.18 hereto.


 


1.19                           Borrowing Base: 
means the sum of the following amounts determined on any date pursuant
to the most recent Borrowing Base Certificate (subject to adjustment based upon
any audit done by Lender):


 


(a)                                  Seventy percent (70.0%) of the net unpaid
amount of all Eligible Receivables; plus


 


(b)                                 Forty percent (40.0%) of the value of all
Eligible Inventory, with such value determined at the lower of cost or market
in accordance with GAAP.


 


1.20                           Borrowing Base Certificate: means the certificate so titled
periodically provided by Borrower to Lender and in the form of Exhibit 1.20
hereto.


 


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1.21                           Borrowing Notice: 
shall have the meaning set forth in Section 2.2.


 


1.22                           Capital Expenditures: 
means an expenditure for the purchase of any fixed asset as determined
in accordance with GAAP.


 


1.23                           Capital Lease: 
means any lease of property (whether real, personal or mixed) by a
Person, the discounted present value of the rental obligations of such Person
as lessee under such lease, in accordance with GAAP, is required to be
capitalized on the balance sheet of such Person.


 


1.24                           Cash Collateral Account: 
means an account for the deposit of funds established with Lender, or
with such other financial institution as shall be approved by Lender.


 


1.25                           Casualty Event: 
means a loss or taking caused by or resulting from a fire, earthquake,
explosion, wind, rain, or condemnation, or substantially similar occurrence.


 


1.26                           Casualty Proceeds:  the
amount received on account of a Casualty Event from insurance, condemnation
award, judgment, or settlement.


 


1.27                           Change in Law: 
shall have the meaning set forth in Subsection 4.2.2.


 


1.28                           Closing Date:  that
date, which must occur on or before July 29, 2005, on which Lender and
Borrower have executed all Loan Documents to which they are parties and on
which all of the conditions set forth in Section 8.1 of this Credit
Agreement have been met.


 


1.29                           Code:  means the Internal Revenue
Code of 1986, as amended.


 


1.30                           Collateral:  shall have the meaning set
forth in Section 6.1.


 


1.31                           Committed Advances: 
means the principal amount of all Revolving Advances which Lender is
obligated to make as a result of Borrower having made a Borrowing Notice
pursuant to Section 2.3 hereof, but which has not been funded.


 


1.32                           Compliance Certificate:  a
certificate of the chief financial officer of Borrower acceptable to Lender and
in the form attached hereto as Exhibit 1.32.


 


1.33                           Consolidated Subsidiaries: 
means, considered together, (a) each of Gaiam’s Subsidiaries and (b) the
following entities in which Gaiam has an equity ownership interest in excess of
fifty percent (50.0%): (i) Natural Habitat, Inc., and (ii) Gaiam
Limited.


 


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1.34                           Conversion Request: 
shall have the meaning set forth in Subsection 4.1.2.


 


1.35                           Corporate Officer: 
shall have the meaning set forth in Section 1.70.


 


1.36                           Current Assets: 
means with respect to any Person, current assets less receivables and
investments in or other amounts due from any shareholder, director, officer,
employee or any person or entity related to, or an Affiliate of, such Person,
determined in accordance with GAAP.


 


1.37                           Current Liabilities: 
means with respect to any Person the aggregate amount of such Person’s
items properly shown as current liabilities on its balance sheet, determined in
accordance with GAAP.


 


1.38                           Default Interest Rate:  a
rate of interest equal to 400 basis points in excess of the Base Rate in effect
from time to time.


 


1.39                           Delinquent Accounts: 
means Accounts Receivable unpaid sixty (60) days after the due date
therefore.


 


1.40                           Eligible Inventory: 
means all of the Inventory of Borrower in which Lender has a first lien
security interest (subject only to liens permitted under this Credit Agreement
in Section 10.2 or otherwise herein), and which meets the following
requirements:  (a) is not located at
premises outside of the United States; (b) does not constitute bill and
hold goods except to the extent that the Account Receivable arising from the
sale of such goods does not constitute an Eligible Receivable; (c) is
currently listed for sale in Borrower’s current catalogs or websites, will be
listed for sale in future catalogs or on the website, and does not constitute
unserviceable, obsolete or slow moving Inventory; (d) does not constitute
returned, damaged and/or defective Inventory (including, but not limited to,
VHS tapes returned by customers for refund, replacement by DVDs, or otherwise);
and (e) is not Inventory purchased on consignment.  Inventory which is not Eligible Inventory
shall nevertheless be part of the Collateral.


 


1.41                           Eligible Receivables: 
means all of the Accounts Receivable of Borrower in which Lender has a
first lien security interest (subject only to liens permitted under this Credit
Agreement in Section 10.2 or otherwise herein), and which meet the
following requirements:  (i) arise
from the actual bona fide sale, in the ordinary course of business, of
Inventory on ordinary trade terms and in accordance with the terms and
provisions contained in any documents related thereto; (ii) are evidenced
by an invoice; and (iii) are net of any credit, trade or other allowance
given to the account debtor thereof.  “Eligible
Receivables” shall not include any Accounts Receivable which fall into any one
or more of the following categories:


 


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(a)                                  The Accounts Receivable of any account
debtor twenty-five percent (25%) or more of whose Accounts Receivable are
Delinquent Accounts;


 


(b)                                 Which are Delinquent Accounts;


 


(c)                                  With respect to which the account debtor
is an Affiliate of Borrower or an employee of Borrower;


 


(d)                                 With respect to which the account debtor
has asserted in writing any defense, counterclaim, or right to discount, whether
well founded or otherwise, or which is subject to liens, encumbrances, or
rights in favor of Persons other than Lender (other than liens permitted under
this Credit Agreement in Section 10.2 or otherwise), or which are subject
to any offset or deduction;


 


(e)                                  With respect to which the account debtor
is the subject of dissolution, liquidation or termination proceedings, or with
respect to which there has been commenced a voluntary or involuntary proceeding
under any provision of the bankruptcy or insolvency laws or with respect to
which there has been an assignment for the benefit of creditors;


 


(f)                                    With respect to which payment by the
account debtor may be conditional pursuant to the terms of the engagement;


 


(g)                                 With respect to which the account debtor
is not a resident of, or have its chief executive office located in, the United
States, except to the extent such accounts are supported by (i) an
irrevocable letter of credit (the original of which is delivered to Lender or a
representative of Lender) issued or confirmed by a bank chartered under the
laws of the United States or any state and which has combined capital, surplus
and undivided profits of at least $250,000,000.00, or (ii) insurance,
bonds or other assurances reasonably satisfactory to Lender; provided that
Accounts Receivable of Borrower which otherwise qualify as Eligible Receivables
may be treated as Eligible Receivables up to a maximum of $500,000.00 in the
aggregate even though the chief executive office of the account debtor or
debtors thereof is located in Canada.


 


(h)                                 With respect to which Borrower is or may
become liable to the account debtor for goods sold or services rendered by the
account debtor to Borrower; provided that this clause (h) shall not apply
to Accounts Receivable where the account debtor is Whole Foods Market, Inc.;


 


(i)                                     With respect to which goods have not been
shipped, or the services have not been rendered, to the account debtor;


 


(j)                                     That portion of any Accounts Receivable
which represent interim or progress billings or retention rights on the part of
the account debtor thereunder;


 


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(k)                                  The Accounts Receivable of the account
debtor thereunder, and its Affiliates, constitute more than fifty percent (50%)
of all otherwise Eligible Receivables (but the portion of the Accounts
Receivable of such account debtor not in excess of such percentage may be
deemed Eligible Receivables); or


 


(l)                                     With respect to which the account debtor
is a federal, state, or local government or any department or agency thereof
and the aggregate amount of Accounts Receivable owed by such account debtor is
in excess of $10,000.00.


 


Accounts
Receivable which are not Eligible Receivables shall nevertheless be part of the
Collateral.


 


1.42                           Environmental Laws: 
means any federal or state law relating to the public health, safety,
industrial hygiene, pollution or the environment, including laws relating to
noise or to emissions, discharges, releases or threatened releases of Hazardous
Substances into the workplace, the community or the environmental conditions,
or otherwise relating to the generation, manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances, and including, without limitation, the Comprehensive environmental
Response Compensation and Liability Act of 1980 as amended, 42 U.S.C. 9601-9657
(“CERCLA”), the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. 6901-6987 (“RCRA”) , the Superfund Amendments and
Reauthorization Act (“SARA”), and
the Federal Toxic Substances Control Act, as each may be amended from time to
time.


 


1.43                           Environmental Regulations:  as
defined in the definition of Hazardous Substances.


 


1.44                           ERISA:  shall have the meaning set
forth in Section 7.10.


 


1.45                           ERISA Affiliate: 
means any corporation or trade or business which is a member of the same
controlled group of corporations (within the meaning of Section 414(b) of
the Code) as Borrower or is under common control (within the meaning of Section 414(c) of
the Code) with Borrower, provided, however, that for purposes of provisions
herein concerning minimum funding obligations (imposed under Section 412
of the Code or Section 302 of ERISA), the term “ERISA Affiliate” shall
also include any entity required to be aggregated with Borrower under Section 414(m)
or 414(o) of the Code.


 


1.46                           Event of Default: 
shall have the meaning set forth in Section 12.1.


 


1.47                           Fiscal Quarter: 
means each three month period during Borrower’s Fiscal Year commencing
with the first day of such Fiscal Year.


 


1.48                           Fiscal Year:  shall have the meaning set
forth in Section 7.15.


 


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1.49                           GAAP:  generally accepted accounting
principles in the United States of America, applied consistently, as in effect
from time to time.


 


1.50                           Hazardous Substances: 
dangerous, toxic or hazardous pollutants, contaminants, chemicals,
wastes, materials or substances, as defined in or governed by the provisions of
any Environmental Laws or any other federal, state or local law, statute, code,
ordinance, regulation, requirement or rule relating thereto (“Environmental Regulations”), and also
including urea formaldehyde, polychlorinated biphenyls, asbestos,
asbestos-containing materials, nuclear fuel or waste, and petroleum products,
or any other waste, material, substances, pollutant or contaminant which would
subject an owner of property to any damages, penalties or liabilities under any
applicable Environmental Regulations.


 


1.51                           Indebtedness: 
means as to any Person:  (a) indebtedness
or liability of such Person for borrowed money, or for the deferred purchase
price of property or services (including trade obligations); (b) obligations
of such Person as lessee under Capital Leases; (c) obligations of such
Person arising under bankers’ or trade acceptance facilities; (d) all
guarantees, endorsements (other than for collection or deposit in the ordinary
course of business), and other contingent obligations of such Person to
purchase any of the items included in this definition, to provide funds for
payment, to supply funds to invest in any other Person, or otherwise to assure
a creditor of another Person against loss; (e) all obligations secured by
a lien on property owned by such Person, whether or not the obligations have
been assumed; and (f) all obligations of such Person under any agreement
providing for an interest rate swap, cap, cap and floor, contingent
participation or other hedging mechanisms with respect to interest payable on
any of the items described in this definition.


 


1.52                           Indemnified Parties: 
shall have the meaning set forth in Section 11.1.


 


1.53                           Intangible Assets: 
means license agreements, trademarks, trade names, patents, capitalized
research and development, proprietary products (the results of past research
and development treated as long term assets and excluded from inventory) and
goodwill (all determined in accordance with GAAP).


 


1.54                           Intellectual Property: 
shall have the meaning set forth in Section 7.18.


 


1.55                           Inventory:  means finished goods, held for
sale or to be furnished under a contract of service, but excluding raw
materials, work in process, or materials used or consumed in a business.


 


1.56                           LC Issuance Fee: 
shall have the meaning set forth in Subsection 3.2.3.


 


1.57                           LC Request:  shall have the meaning set
forth in Section 3.1.


 


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1.58                           Letters of Credit: 
shall have the meaning set forth in Section 3.1.


 


1.59                           LIBO Effective Date: 
shall have the meaning set forth in Subsection 4.1.2.


 


1.60                           LIBO Rate:  means the rate per annum
(rounded upward, if necessary, to the nearest whole 1/8 of 1%) and determined
pursuant to the following formula:


 


	
  LIBO Rate =

  	
  Base LIBOR

  	
   

  
	
   

  	
  100% - LIBOR Reserve
  Percentage

  	
   

  



 


adjusted
by the addition of the LIBO Rate Margin.


 


1.61                           LIBO Rate Loan: 
shall have the meaning set forth in Subsection 4.1.2.


 


1.62                           LIBO Rate Margin:  275
basis points.


 


1.63                           LIBO Rate Period: 
shall have the meaning set forth in Subsection 4.1.2.


 


1.64                           LIBO Request: 
shall have the meaning set forth in Subsection 4.1.2.


 


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


 


1.66                           Licensing Laws: 
shall have the meaning set forth in Section 7.4.


 


1.67                           Loan Documents:  this
Credit Agreement, the Revolving Note, the Security Documents, and other
documents required to grant to Lender a perfected security interest in the
Collateral.


 


1.68                           Loans:  means, collectively, all Base
Rate Loans and all LIBO Rate Loans outstanding at any time.


 


1.69                           Mandatory Prepayments: 
shall have the meaning set forth in Section 5.5.


 


1.70                           Material Adverse Effect: 
means: (a) a material adverse effect on the financial condition,
results of operation, business or property of Borrower; (b) a material
adverse effect on the ability of Borrower to perform its obligations under this
Credit Agreement and the other Loan Documents; or (c) a material


 


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adverse
effect upon the ability of Lender to enforce its rights and remedies under the Loan
Documents.


 


1.71                           Material Agreements: 
shall have the meaning set forth in Section 7.16.


 


1.72                           Multiemployer Plan: 
means a Borrower Benefit Plan defined as such in Section 3(37) of
ERISA.


 


1.73                           Net Worth:  means total owner’s equity.


 


1.74                           Officer:  means (a) in the case of
a corporation, any chief executive officer, chief operational officer, chief
financial officer, president, vice president, secretary, treasurer, assistant
vice president, assistant secretary, assistant treasurer, or other corporate
officer (“Corporate Officer”); (b) in
the case of a partnership, any general partner, manager, and any other
individual whose duties generally correspond to those performed by any
Corporate Officer; (c) in the case of a limited liability company, the
manager(s), any member, and any other individual whose duties generally
correspond to those performed by any Corporate Officer; and (d) in the
case of any other association, any individual whose duties generally correspond
to those performed by any Corporate Officer.


 


1.75                           Organization Documents:  in
the case of a corporation, its articles or certificate of incorporation and
bylaws; in the case of a partnership, its partnership agreement and certificate
of limited partnership, if applicable; in the case of a limited liability
company, its articles of organization and its operating agreement.


 


1.76                           PBGC:  shall have the meaning set
forth in Section 7.10.


 


1.77                           Permitted Encumbrance: 
shall have the meaning set forth in Section 7.12.


 


1.78                           Person:  any individual, corporation,
limited liability company, association, partnership, trust, organization,
government, governmental agency, or other entity.


 


1.79                           Potential Default:  any
event, other than an event described in Section 12.1(a) hereof, which
with the giving of notice or lapse of time, or both, would become an Event of
Default.


 


1.80                           Profitable Operations: 
means Gaiam and all of the Consolidated Subsidiaries have, in the
aggregate, achieved positive net income based on the most recent 10K report
filed by Borrower with the Securities and Exchange Commission, or based on such
comparable information as may be required by Lender in the event Borrower is
not required to file a 10K report.


 


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1.81                           Prohibited Transaction: 
means any transaction prohibited under Section 406 of ERISA or Section 4975
of the Code.


 


1.82                           Regulatory Change: 
shall have the meaning set forth in Section 13.10.


 


1.83                           Reportable Event: 
means any of the events set forth in Section 4043(b) of ERISA
or in the regulations thereunder.


 


1.84                           Required License: 
shall have the meaning set forth in Section 7.9.


 


1.85                           Revolving Advance: 
shall have the meaning set forth in Section 2.1.


 


1.86                           Revolving Commitment: 
shall be $15,000,000.00.


 


1.87                           Revolving Facility: 
means the loan facility made available to Borrower under Article 2
of this Credit Agreement.


 


1.88                           Revolving Loan Availability Period: 
means the period from the Closing Date until the Banking Day immediately
prior to the Revolving Maturity Date.


 


1.89                           Revolving Loan: 
means Loans under the Revolving Facility pursuant to Article 2
hereof.


 


1.90                           Revolving Maturity Date: 
means July 31, 2007.


 


1.91                           Revolving Note: 
shall have the meaning set forth in Section 2.3.


 


1.92                           Rules:  shall have the meaning set
forth in Subsection 13.4.1.


 


1.93                           Security Documents:  the
security agreements, mortgages, deeds of trust, financing statements, pledge
agreements, leasehold assignment and consents, assignments and/or other
security documents executed by Borrower in favor of Lender to secure Borrower’s
performance of its obligations under the Revolving Note and other Loan
Documents with a first lien (subject to Permitted Encumbrances) on all
accounts, inventory, and equipment of Borrower, in form and substance acceptable
to Lender, as any of such documents may be amended from time to time.


 


1.94                           Subsidiary:  means with respect to any
Person:  (a) any corporation in
which such Person, directly or indirectly, (i) owns one hundred percent
(100%) or more of the outstanding stock thereof, or (ii) has the
power under ordinary circumstances to elect at least a majority of the
directors thereof, or (b) any partnership, association, joint venture,
limited liability company, or other unincorporated organization or entity with
respect to which such Person, directly or indirectly, (i) owns more than
one hundred percent (100%) of the outstanding


 


12





















 


equity
interest thereof, or (ii) has the power under ordinary circumstances to
directly or indirectly control the management thereof.


 


1.95                           Total Liabilities: 
means with respect to any Person the aggregate amount of such Person’s
items properly shown as liabilities on its balance sheet, determined in
accordance with GAAP.


 


1.96                           Voluntary Payments: 
shall have the meaning set forth in Section 5.4.


 


1.97                           Working Capital: 
means Current Assets minus Current Liabilities.


 


1.98                           Wire Instructions: 
payments to Lender shall be by wire transfer in accordance with the
following instructions:


 


Bank:  Wells
Fargo Bank N.A.


ABA Routing: 121000248


Ref: Gaiam Inc. Loan #2775220168-67


Account: #0763850720


Account Name: Wires in process-GL


Principal amount
$                            


Interest amount
$                            


 


ARTICLE 2.  REVOLVING FACILITY


 


2.1                                 Revolving Facility Loan.  On
the terms and conditions set forth in this Credit Agreement, and so long as no
Event of Default or Potential Default has occurred and is continuing, Lender
agrees to make advances under the Revolving Facility (“Revolving Advance”) from time to time
during the Revolving Loan Availability Period, subject to the following:


 


2.1.1 Revolving
Commitment; Borrowing Base.  Borrower
shall not be entitled to request a Revolving Advance in an amount which, when
added to the outstanding amount of all previous Revolving Advances plus all
Committed Advances under the Revolving Loan plus the undrawn face amount of all
outstanding Letters of Credit, would exceed the lesser of: (a) the
Revolving Commitment; or (b) the Borrowing Base.


 


2.2                                 Borrowing Notice.  Any
Borrower shall give Lender prior notice by telephone or by written notice sent
by facsimile (effective upon receipt) of each request for a Revolving Advance
on or before 3:30 P.M. (Mountain time) on the day of making such Revolving
Advance.  Each written notice must be in
substantially the form of Exhibit 2.2 hereto (“Borrowing Notice”) and must specify (a) the
amount of such Revolving Advance (subject to the provisions of Section 4.1
hereof), and (b) the proposed date of making such Revolving Advance.  Each notice by telephone must provide to
Lender all of the information required to be provided in a written Borrowing
Notice.  Borrower acknowledges that Lender
is permitting telephonic requests for Revolving


 


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Advances
at Borrower’s request and Lender shall have no liability in acting upon a
telephonic request that it believes has been made by a properly authorized
Person.  Lender shall, not later than
3:30 P.M. (Mountain time), and upon fulfillment of the applicable
conditions set forth in this Section and in Article 8 hereof, make
such Revolving Advance available to such Borrower, in immediately available
funds, and will transmit such funds to such Borrower’s Borrower Account by wire
transfer or otherwise.  Each Borrower
acknowledges that all Borrowers shall be jointly and severally liable for the
repayment of each Revolving Advance, regardless of which Borrower has requested
and received such Revolving Advance.


 


2.3                                 Revolving Facility Promissory Note.  The
obligations of Borrower, and each of them, to Lender under the Revolving
Facility, including payment obligations with respect to all Revolving Advances
made by Lender shall be evidenced by, and repaid with interest in accordance
with, a single promissory note of Borrower in substantially the form of Exhibit 2.3
hereto duly completed, in the stated maximum principal amount equal to the
Revolving Commitment, payable to Lender for the account of its Applicable
Lending Office, and maturing as to principal on the Revolving Maturity Date (“Revolving Note”).


 


2.4                                 Lender Records. 
Lender shall record on its books and records the amount of each
Revolving Advance, all payments of principal and interest under the Revolving
Note, and the principal balance from time to time outstanding.  Lender’s record thereof shall be prima facie
evidence as to all such amounts and shall be binding on Borrower absent
manifest error.  Notwithstanding the
foregoing, Borrower will never be required to pay to Lender as principal more
than the principal amount of all Revolving Advances made by Lender.


 


2.5                                 Use of Proceeds.  The
proceeds of the Revolving Facility will be used by Borrower for general
corporate, including business acquisitions permitted hereunder, and working
capital purposes and to fund draws under Letters of Credit (as provided
herein), and Borrower agrees not to request or use such proceeds for any other
purpose.  Borrower will not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors or to extend credit to any Person for the purpose of purchasing or
carrying any such margin stock.


 


ARTICLE 3.  LETTER OF CREDIT FACILITY


 


3.1                                 Letter of Credit Request.  On
the terms and conditions set forth in this Credit Agreement, and so long as no
Event of Default or Potential Default has occurred and is continuing (or if an
Event of Default or Potential Default has occurred and is continuing, it has been
waived in writing by Lender), Borrower, and each of them, may request the
issuance of one or more documentary letters of credit or standby letters of
credit for the benefit of Borrower (“Letters
of Credit”) by sending, not later than 12:00 noon (Mountain time) on
a Banking


 


14





















 


Day
at least one (1) Banking Day before the issuance date, a request therefore
via TSOL, Trade Services On Line (“LC Request”)
to Lender.  The LC Request shall set
forth the following information with respect to the requested Letter of Credit:
(a) the face amount and expiry date, (b) the name of the beneficiary,
(c) the terms thereof, and (d) such other information as the Lender
shall request.  In no event may the
expiry date of a Letter of Credit be later than the Revolving Maturity Date
unless at the time of its issuance (x) Lender determines that such extended
expiry date is consistent with Borrower’s usual and customary practices for
Letters of Credit transactions during the immediately preceding twelve (12)
months; and (y) Borrower agrees that, (i) this Credit Agreement and the
other Loan Documents shall remain in effective and enforceable solely to enable
Lender to fund any draws under each such Letter of Credit, and (ii) at
Lender’s option, on the Revolving Maturity Date, Borrower shall take such
action as Lender shall require to grant to Lender a security interest in
property approved by Lender and sufficient in liquidation value to cover the
undrawn face amount of all such Letters of Credit.


 


3.2                                 Letters of Credit.  No
later than 1:00 P.M. (Mountain time) on the second (2nd) Banking Day after
the receipt by the Lender of an LC Request (or such later date as may be
specified in such LC Request), it shall issue the requested Letter of Credit
for any expiry period from seven (7) days to the earlier of (a) 365
days after the date of issuance; or (b) a date which is up to 180 days
after the Revolving Maturity Date, subject to the following:


 


3.2.1 Limitation
on Amount.  The face amount of the
requested Letter of Credit may not, when added to the undrawn face amount of
all Letters of Credit then outstanding, would exceed the lesser of (a) the
Aggregate LC Commitment; or (b) an amount which, when added to the
outstanding amount of all previous Revolving Advances plus all Committed
Advances under the Revolving Loan, would exceed the Revolving Commitment.


 


3.2.2 Availability.  Letters of Credit may be requested for
issuance only during the period commencing on the Closing Date and ending on
the Banking Day immediately preceding the Revolving Maturity Date.


 


3.2.3 Fees.  Borrower shall at the time of issuance,
renewal, or reissuance of each Letter of Credit pay to the Lender, a fee (“LC Issuance Fee”) in the amount determined
by Lender in accordance with Lender’s policies and fee schedule then in
effect regarding Letters of Credit and taking into account Lender’s duties with
respect to draws under such Letter of Credit.


 


3.2.4 Treatment
of Draws.  Each draw under a Letter
of Credit shall be funded by Lender making a debit to any Borrower Account, and
to the extent that there are not sufficient collected funds in any Borrower
Account, by Lender making a Revolving Advance under the Revolving
Facility.  Each Borrower acknowledges
that all Borrowers shall be jointly and severally liable for the


 


15





















 


repayment of each
Revolving Advance to fund a draw on a Letter of Credit, regardless of which
Borrower has requested and received such Letter of Credit.


 


3.3                                 Reimbursement Obligation Unconditional.  All
draws under the Letters of Credit are absolutely, unconditionally, and
irrevocably reimbursable by Borrower, and each of them individually regardless
of which Borrower requested and received such Letter of Credit, and may be
funded as a debit to any Borrower Account or as Revolving Advances in
accordance with Subsection 3.2.4 hereof, notwithstanding:


 


(a)                                  Any lack of validity or enforceability of
the Letter of Credit, any of the documents referenced in the Letter of Credit,
or any other agreement or instrument related to any such documents;


 


(b)                                 The existence of any claim, setoff,
defense or other right which Borrower may have at any time against the
beneficiary or any transferee of the Letter of Credit (or any person for whom
the beneficiary or transferee may be acting);


 


(c)                                  Any statement, draft, certificate, or any
other document presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect, or any statement therein
being untrue or inaccurate in any respect whatsoever or the draw certificate
was otherwise unauthorized, it being expressly understood and agreed by
Borrower that Lender shall not have any liability on account of any lack of
authorization or forgery and any recovery from third parties on account of such
lack of authorization or such forgery shall be the sole responsibility of
Borrower; or


 


(d)                                 Payment of a draw against presentation of
a draft or certificate which does not comply with the terms of the Letter of
Credit, unless such payment is made as a result of the gross negligence or
willful misconduct of Lender as issuer of the Letter of Credit.


 


ARTICLE 4.  INTEREST AND FEES


 


4.1                                 Interest.  Interest on the Revolving Note
and Revolving Loan shall be calculated as follows:


 


4.1.1 Base Rate
Option.  Except for those periods
during which Borrower receives a LIBO Rate Loan pursuant to Subsection 4.1.2
hereof, the outstanding principal balance under the Revolving Note shall bear
interest at the Base Rate and shall be deemed a “Base Rate Loan”.


 


4.1.2 LIBO Rate
Option.  From time to time, and so
long as no Event of Default has occurred and is continuing, Gaiam may request
that the entire balance owing under the Revolving Note bear interest at the
LIBO Rate (“LIBO Rate Loan”) by
making a written request therefore (“LIBO
Request”) to Lender by facsimile, specifying the Banking Day, which
must be at least two


 


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(2) Banking Days,
and not more than five (5) Banking Days, after the date of the LIBO
Request, on which such balance is to begin accruing interest at the LIBO Rate (“LIBO Effective Date”).  Gaiam’s election to convert the balance owing
under the Revolving Note to a LIBO Rate Loan shall be in effect and irrevocable
for a period of thirty (30) days (or the next succeeding Banking Day in the
event that such thirtieth (30th) day is not a Banking Day) commencing on, and
including, the LIBO Effective Date (“LIBO
Rate Period”) and each LIBO Rate Period shall be automatically
extended for an additional thirty (30) days unless, at least three (3) Banking
Days before the end of the then current LIBO Rate Period, Gaiam makes a written
request (“Conversion Request”) to
Lender by facsimile specifying that the entire balance owing under the
Revolving Note bear interest at the Base Rate commencing on the Banking Day
immediately following the end of the then current LIBO Rate Period and
continuing until such time, if ever, that Gaiam makes another LIBO Request to
Lender.  Lender shall incur no liability
in acting upon a request which it believes in good faith had been made by a
properly authorized employee or other representative of Gaiam.  An election for a LIBO Rate Loan shall remain
in effect for the LIBO Rate Period then in effect and shall be subject to the
automatic renewal provisions contained above in this Section notwithstanding
the fact that the balance owing under the Revolving Note is paid down in whole
or in part.


 


4.2                                 Additional Provisions for LIBO Rate Loans.


 


4.2.1 Inapplicability
or Unavailability of LIBO Rate.  If
Lender at any time shall determine (which determination shall be conclusive)
that for any reason adequate and reasonable means do not exist for ascertaining
the LIBO Rate, or that the relevant rates of interest referred to in the
definition of LIBO Rate upon the basis of which the rate of interest for LIBO
Rate Loans for the LIBO Rate Period is to be determined do not adequately cover
the cost to Lender of making or maintaining such LIBO Rate Loans for the LIBO
Rate Period, then Lender shall promptly give notice thereof to Gaiam.  If such notice is given, and until such
notice has been withdrawn by Lender, then any portion of the outstanding
principal balance which bears interest determined in relation to the LIBO Rate
shall, subsequent to the end of the LIBO Rate Period applicable thereto, bear
interest at the Base Rate, and Lender shall have no obligation to convert a
Base Rate Loan to a LIBO Rate Loan.


 


4.2.2 Change in
Law; LIBO Rate Loan Unlawful.  If any
law, treaty, rule, regulation or determination of a court or governmental
authority or any change therein or in the interpretation or application thereof
(each, a “Change in Law”) shall
make it unlawful for Lender to (a) convert a Base Rate Loan to a LIBO Rate
Loan or (b) maintain all or any portion of the LIBO Rate Loans, Lender
shall promptly notify Gaiam thereof in writing. 
In the former event, any obligation of Lender to continue a LIBO Rate
Loan beyond the then effective LIBO Rate Period or to convert a Base Rate Loan
to a LIBO Rate Loan shall immediately be canceled (and, in lieu thereof, shall
be continued as a Base Rate Loan), and in the latter event, any such unlawful
LIBO Rate Loan shall be


 


17





















 


converted to a Base Rate
Loan; provided, however, that if any such Change in Law shall permit the LIBO
Rate to remain in effect until the expiration of the LIBO Rate Period
applicable to such unlawful LIBO Rate Loan, then such LIBO Rate Loan shall
continue in effect until the expiration of such LIBO Rate Period.


 


4.3                                 Default Interest Rate.  All
past due payments on the Revolving Note or any other Bank Debt (whether as a
result of nonpayment by Borrower when due, at maturity, or upon acceleration)
shall bear interest at the Default Interest Rate from and after the due date
for the payment, or on the date of maturity or acceleration, as the case may
be.


 


4.4                                 Interest Calculation. 
Interest on Base Rate Loans and on LIBO Rate Loans shall be calculated
on the actual number of days the principal owing thereunder is outstanding with
the daily rate calculated on the basis of a year consisting of 360 days.  In calculating interest, the Advance Date
shall be included and the date each payment is received shall be excluded.


 


ARTICLE 5.  PAYMENTS


 


5.1                                 Principal Payments. 
Principal shall be payable under the Revolving Note on the Revolving
Maturity Date, and as Voluntary Payments as provided in Section 5.4
hereof, and as Mandatory Prepayments as provided in Section 5.5 hereof.


 


5.2                                 Interest Payments. 
Interest on Base Rate Loans and on LIBO Rate Loans shall be payable
monthly in arrears on the last Banking Day of the month and, in addition to the
foregoing, interest on all Loans then accrued and unpaid shall be payable on
the Revolving Maturity Date.


 


5.3                                 Manner of Payment.  All
payments, including prepayments, that Borrower is required or permitted to make
under the terms of this Credit Agreement shall be made to Lender (a) in
immediately available federal funds, to be received no later than 2:00 P.M.
Mountain time of the Banking Day on which such payment is due by (i) wire
transfer through Federal Reserve Bank, Kansas City, to the Lender in accordance
with the Wire Instructions (or to such other account or by such other means as
Lender may designate by notice to Borrower), (ii) Internet communication
and transfer through such programs as Lender may make available from time to
time, and (iii) in person or any other method as Lender makes available
from time to time; and (b) without setoff or counterclaim and free and
clear of and without deduction for any taxes, levies, impost, duties, charges,
fees, deductions, withholding, compulsory loans, restrictions or conditions of
any nature now or hereafter imposed or levied by any jurisdiction or any
political subdivision thereof or taxing or other authority therein unless
Borrower is required by law to make such deduction or withholding.  In the event any payment whatsoever owing
from Borrower to Lender under the terms of this Credit Agreement is not made
when due, Lender may, at its sole option and discretion, debit any Borrower
Account for the amount of such payment.


 


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5.4                                 Voluntary Payments; Application of Voluntary
Payments.  Borrower shall have the right to pay (“Voluntary Payments”) all or any part of the
outstanding principal balance under the Loans on any Banking Day.  Voluntary Payments on the Revolving Loan may
be reborrowed during the Revolving Loan Availability Period under the terms and
conditions and subject to the limits set forth in this Credit Agreement.  Notwithstanding any of the foregoing
provisions, upon the occurrence and during the continuance of an Event of
Default or Potential Default, all Voluntary Payments shall be applied, as
Lender in its sole discretion shall determine, to fees, costs, interest or
principal indebtedness under the Revolving Note, and/or to any other Bank Debt.


 


5.5                                 Mandatory Prepayments. 
Borrower shall be required to make prepayments (“Mandatory Prepayments”) in each of the
following events:  (a) in the event
any of the Eligible Inventory is the subject of a Casualty Event, Borrower
shall, within three (3) Banking Days of the occurrence of the Casualty
Event, provide Lender with an updated Borrowing Base Certificate, taking into
account the effects of the Casualty Event on the amount of Eligible Inventory
and, based on such updated Borrowing Base Certificate (and upon its approval by
Lender), Borrower shall make a Mandatory Prepayment as required by clause (b) of
this Section; and (b) in the event that at any time the outstanding amount
of all Revolving Advances, plus the amount of all Committed Advances, plus the
undrawn face amount of all outstanding Letters of Credit exceeds the lesser of (i) the
Revolving Commitment or (ii) the Borrowing Base, a Mandatory Prepayment in
the amount of such excess.  Mandatory
Prepayments under clauses (a) and (b) shall be due no later than
three (3) Banking Days after the occurrence of the condition requiring
such Mandatory Prepayment.


 


5.6                                 Payments on Banking Days. 
Whenever any payment to be made hereunder shall be stated to be due on a
day that is not a Banking Day, such payment shall be made on the next
succeeding Banking Day and such extension of time shall be included in the
computation of the interest or of any fees due hereunder, as the case may be.


 


ARTICLE 6.  SECURITY


 


6.1                                 Borrower’s Assets.  As
security for the payment and performance of all obligations of Borrower to
Lender including but not limited to all principal and interest under the
Revolving Note, fees, reimbursements, and all other Bank Debt or obligations
under any of the Loan Documents, Borrower, and each of them individually, shall
grant to, and maintain for, Lender a first lien and security interest, subject
only to Permitted Encumbrances, in all of its inventory, accounts, and
equipment, tangible and intangible, whether now owned or hereafter acquired, (“Collateral”), pursuant to the Security
Documents.  Borrower, and each of them
individually, shall execute and deliver to Lender the Security Documents to
evidence the security interest of Lender in the Collateral, together with such
financing statements or other documents as Lender shall request.  Borrower, and each of them individually,
shall also execute such further


 


19





















 


security
agreements, financing statements, assignments or other documents as Lender
shall reasonably request, in form and substance as Lender shall specify, to
establish, confirm, perfect or provide notice of Lender’s security interest in
the Collateral.  If requested by
Lender:  (a) Borrower, and each of
them individually, and Lender shall place a legend on any chattel paper or
instruments included in the Collateral showing Lender’s security interest
therein; and (b) Borrower, and each of them individually, shall deliver to
Lender possession of any chattel paper, instruments and securities included in
the Collateral (duly endorsed to Lender’s reasonable satisfaction).


 


ARTICLE 7.  REPRESENTATIONS AND WARRANTIES


 


To induce Lender to make Revolving Advances and to
issue Letters of Credit, and recognizing that Lender is relying thereon,
Borrower, and each of them individually, represents and warrants as follows:


 


7.1                                 Organization, Good Standing, Etc. 
Borrower, and each of them individually: 
(a) is duly organized, validly existing, and in good standing under
the laws of its state of formation; (b) is duly qualified to do business
and is in good standing in each jurisdiction in which the transaction of its
business makes such qualification necessary; and (c) has all requisite
corporate and legal power to own and operate its assets and to carry on its
business.


 


7.2                                 Corporate Authority, Due Authorization;
Consents.  Borrower, and each of them individually, has
full power and authority to execute, deliver and perform under this Credit
Agreement, the Revolving Note, all other Loan Documents and all other documents
and agreements as contemplated by this Credit Agreement, all of which have been
duly authorized.  All consents or
approvals of any Person that are necessary for, or are required as a condition
of the execution, delivery and performance of the Loan Documents, have been
obtained.


 


7.3                                 Litigation.  There are, no pending legal or
governmental actions, proceedings or investigations to which Borrower is a
party or to which any property of Borrower is subject which could reasonably be
expected to result in any Material Adverse Effect and, to Borrower’s knowledge,
no such actions or proceedings are threatened or contemplated by any federal,
state, county, or city (or similar unit) governmental agency or any other
Person.


 


7.4                                 No Violations.  The
execution, delivery and performance of the Loan Documents will not:  (a) violate any provision of Borrower’s
Organization Documents, or any law, rule, regulation, judgment, order or ruling
of any court or governmental agency; (b) violate, conflict with, result in
a breach of, constitute a default under, or with the giving of notice or the
expiration of time or both, constitute a default under, any existing real
estate mortgage, indenture, lease, security agreement, contract, note,
instrument or any other agreements or documents binding on Borrower or
affecting its property; or (c) violate, conflict


 


20





















 


with,
result in a breach of, constitute a default under, or result in the loss of, or
restriction of rights under, any Required License or any order, law, rule, or
regulation under or pursuant to which any Required License was issued or is
maintained (“Licensing Laws”).


 


7.5                                 Binding Agreement.  Each
of the Loan Documents to which Borrower is a party constitutes the legal, valid
and binding obligation of Borrower, enforceable in accordance with its terms,
subject only to limitations on enforceability imposed by applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors’
rights generally and by general principles of equity.


 


7.6                                 Compliance with Laws. 
Borrower is in compliance with all federal, state, and local laws,
rules, regulations, ordinances, codes and orders, including without limitation
all Environmental Laws and all Licensing Laws, with respect to which
noncompliance would result in a Material Adverse Effect.


 


7.7                                 Principal Place of Business; Business Form;
and Place of Formation.  The place of business of each Borrower, or
chief executive office if it has more than one place of business, is located at
the address shown on Exhibit 7.7 hereto.  The business form and state of formation of
each Borrower are as shown on Exhibit 7.7 hereto.


 


7.8                                 Payment of Taxes. 
Borrower has filed all required federal, state and local tax returns and
has paid all taxes as shown to be payable by Borrower on such returns as they have
become due.  Borrower has paid when due
all other taxes, assessments or impositions levied or assessed against Borrower
or its business or properties with respect to which nonpayment could reasonably
be expected to result in a Material Adverse Effect.


 


7.9                                 Licenses and Approvals. 
Borrower has ownership of, or license to use, or has been issued, all
franchises, certificates, approvals, permits, authorities, agreements, and
licenses which are used or necessary to permit it to own its properties and to
conduct the business as presently being conducted except where the failure to
do so could not reasonably be expected to have a Material Adverse Effect (each
a “Required License”).  Each Required License is in full force and
effect, and there is no outstanding notice of cancellation or termination or,
to Borrower’s knowledge, any threatened cancellation or termination in
connection therewith, nor has an event occurred with respect to any Required
License which, with the giving of notice or passage of time or both, could
result in the revocation or termination thereof or otherwise in any impairment
of Borrower’s rights with respect thereto, which impairment could reasonably be
expected to have a Material Adverse Effect. 
No consent, permission, authorization, order, or license of any
governmental authority, is necessary in connection with the execution,
delivery, performance, or enforcement of and under the Loan Documents to which
Borrower is a party,


 


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except
such as have been obtained and are in full force and effect and as are
described on Exhibit 7.9.


 


7.10                           Employee Benefit Plans.  Exhibit 7.10
hereto sets forth as of the Closing Date a true and complete list of each
Borrower Benefit Plan, broken down by the categories set forth in clauses (a) through
(h) of the definition of “Borrower Benefit Plan” contained in Article 1
hereof, and each “cafeteria plan” as defined in Code Section 125, that is
maintained by Borrower or any of its ERISA Affiliates or in which Borrower or
any of its Subsidiaries participates or to which Borrower or any of its ERISA
Affiliates is obligated to contribute, in each case as of the Closing
Date.  Borrower and its ERISA Affiliates
are in compliance in all material respects with the Employee Retirement Income
Security Act of 1974, as amended, and the regulations thereunder (“ERISA”), to the extent applicable to them,
and have not received any notice to the contrary from the Pension Benefit
Guaranty Corporation (“PBGC”).


 


7.11                           Equity Investments. 
Borrower does not now own any stock or other voting or equity interest,
directly or indirectly, in any Person other than as set forth on Exhibit 7.11.


 


7.12                           Real Property; Title to Real and Personal
Property.  Borrower: 
(a) has all real property interests, including without limitation,
fee interests, leasehold interests, easements, licenses and rights of way which
are necessary for the conduct of Borrower’s business; (b) holds good and
marketable title to all of Borrower’s real property (other than rights of way,
easements and similar interests in real property which in the aggregate are not
material); (c) owns all of its personal property, and holds all of its
leases, free and clear of any lien, pledge, restriction, or encumbrance, except
as specifically identified in Exhibit 7.12 attached hereto or as
permitted by Section 10.2 hereof (“Permitted
Encumbrances”).  All of
Borrower’s leases which constitute Material Agreements are in full force and
effect and, where Borrower is the lessee thereunder, afford Borrower peaceful
and undisturbed possession of the subject matter thereof.


 


7.13                           Personal Property. 
Borrower owns or leases all tangible personal property necessary for the
conduct of Borrower’s business as it is being conducted; all such property is
in good operating condition and repair, reasonable wear and tear excepted, and
suitable in all material respects for the uses for which it is being utilized.


 


7.14                           Environmental Compliance. 
Without limiting the provisions of Section 7.6 above, all property
owned or leased by Borrower and all operations conducted by it are in
compliance in all material respects with all Environmental Laws and
Environmental Regulations, with respect to which the failure to comply would
have a Material Adverse Effect.


 


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7.15                           Fiscal Year.  Each fiscal year of Borrower
begins on January 1 of each calendar year and ends on December 31 of
each calendar year (“Fiscal Year”).


 


7.16                           Material Agreements.  Exhibit 7.16
hereto sets forth all material agreements of Borrower required to be filed as
an exhibit to Borrower’s filings with the Securities and Exchange Commission
pursuant to Item 601(b)(10) of Regulation S-K of the Securities and
Exchange Commission (“Material Agreements”).  Neither Borrower nor, to Borrower’s
knowledge, any other party to any Material Agreement, is in default thereunder,
and no facts exist which with the giving of notice or the passage of time, or
both, would constitute such a default or could reasonably be expected to result
in a Material Adverse Effect.


 


7.17                           Regulations G, U and X.  No
portion of any Revolving Advance will be used for the purpose of purchasing,
carrying, or making loans to finance the purchase of, any “margin security” or “margin
stock” as such terms are used in Regulations G, U or X of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Parts 207, 221, and 224.


 


7.18                           Intellectual Property. 
Borrower owns or licenses all registered patents, trademarks, trade
names, service marks and copyrights (collectively, “Intellectual Property”) that it utilizes in its business as
presently being conducted, except where the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.  Borrower is not a licensee under any written
license for any patent, trademark, tradename, service mark or copyright other
than shrinkwrap licenses for “off-the-shelf” software used by Borrower in the
conduct of its business.  The
Intellectual Property registrations are in full force and effect, and Borrower
has taken or caused to be taken all action, necessary to maintain the
Intellectual Property registrations in full force and effect and has not taken
or failed to take or cause to be taken any action which, with the giving of notice,
or the expiration of time, or both, could result in any such Intellectual
Property registrations being revoked, invalidated, modified, or limited, except
where such revocation, invalidation, modification, or limitation could not
reasonably be expected to result in a Material Adverse Effect.


 


7.19                           Labor Matters; Labor Agreements. 
Except as set forth in Exhibit 7.19 hereof:  (a) There are no collective bargaining
agreements or other labor agreements covering any employees of Borrower, the
termination, cessation, or breach of which could reasonably be expected to
result in a Material Adverse Effect, and a true and correct copy of each such
agreement will be furnished to Lender upon its written request from time to
time.  (b) There is no organizing
activity involving Borrower or pending or, to Borrower’s knowledge, threatened
by any labor union or group of employees. 
(c) There are, to Borrower’s knowledge, no representation
proceedings pending or threatened with the National Labor Relations Board, and
no labor organization or group of employees of Borrower, has made a pending
demand for recognition.  (d) There
are no complaints or charges against Borrower or pending or, to Borrower’s


 


23





















 


knowledge
threatened to be filed with any federal, state, local or foreign court,
governmental agency or arbitrator based on, arising out of, in connection with,
or otherwise relating to the employment or termination of employment by
Borrower, of any individual.  (e) There
are no strikes or other labor disputes against Borrower that are pending or, to
Borrower’s knowledge, threatened.  (f) Hours
worked by and payment made to employees of Borrower have not been in violation
of the Fair Labor Standards Act (29 U.S.C. § 201 et seq.) or any
other applicable law dealing with such matters. 
The representations made in clauses (b) through (f) of this Section are
made with respect to those occurrences described which could, considered in the
aggregate, reasonably be expected to have a Material Adverse Effect.


 


7.20                           Borrowing Base Certificate; Compliance
Certificate.  The Borrowing Base Certificate and the
Compliance Certificate are accurate as of the date indicated therein.


 


7.21                           Disclosure.  The representations and
warranties contained in this Article 7 and in the other Loan Documents or
in any financial statements or projections provided to Lender do not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make such representations or warranties not misleading.


 


ARTICLE 8.  CONDITIONS TO REVOLVING ADVANCES


 


8.1                                 Conditions to Closing.  The
obligation of Lender to make any Revolving Advances and to issue Letters of
Credit hereunder is subject to satisfaction, in the sole discretion of Lender,
of each of the following conditions precedent prior to the first Revolving
Advance or the first issuance of a Letter of Credit (except as specifically
provided otherwise in Subsection 8.1.2):


 


8.1.1 Loan
Documents.  Lender shall have
received duly executed originals of the Loan Documents.


 


8.1.2 Searches;
UCC Filings; Recordings.  Lender
shall have received current searches of appropriate filing offices (dated no
more than thirty (30) days prior to the Closing Date) showing that (a) no
state or federal tax liens have been filed which remain in effect against
Borrower, or any of them, or any of the Collateral; (b) except with
respect to Permitted Encumbrances no financing statements have been filed by
any Person except to perfect the security interests required by this Credit
Agreement, which remain in effect against Borrower, or any of them, or any of
the Collateral or other assets of any Borrower; (c) all financing
statements necessary to perfect the security interests in the Collateral
granted to Lender under the Loan Documents have been filed or recorded, to the
extent such security interests are capable of being perfected by such filing
and/or recording; and (d) all of the Loan Documents required to be
recorded or filed to perfect the security interests and liens granted therein
in the Collateral shall be so recorded and filed.


 


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8.1.3 Approvals.  Lender shall have received evidence
satisfactory to it that all consents and approvals of governmental authorities
and third parties which are with respect to Borrower, necessary for, or
required as a condition of:  (a) the
validity and enforceability of the Loan Documents to which it is a party; and (b) creation
and perfection of, and realization on, Lender’s lien on the Collateral, have,
in each such case, been obtained and are in full force and effect.


 


8.1.4 Organizational
Documents.  Lender shall have
received for each Borrower:  (a) good
standing certificates, dated no more than thirty (30) days prior to the Closing
Date, for such Borrower for its state of formation (to the extent such
certification is available) and for each state where its operations require
qualification or authorization to transact business; (b) a copy of the
Organization Documents of such Borrower certified to by the appropriate
governmental official in its state of formation with which they must be filed
(to the extent such certification is available); and (c) a copy of the
Organization Documents of such Borrower, certified as true and complete by the
Secretary or Assistant Secretary, Managing Partner, or Manager, of such
Borrower, as applicable, to the extent certification by the appropriate
governmental official in its state of formation with which they must be filed
is not available.


 


8.1.5 Evidence
of Authorization .  Lender shall have
received in form and substance satisfactory to Lender documents evidencing all
corporate or other authorizing action taken by each Borrower to authorize
(including the specific names and titles of the persons authorized to so act
(each an “Authorized Officer”))
the execution, delivery and performance of the Loan Documents to which it is a
party, certified to be true and correct by the Secretary or Assistant
Secretary, Managing Partner, or Manager, of such Borrower, as applicable.


 


8.1.6 Legal
Opinion for Borrower.  Lender shall
have received opinions of counsel for each Borrower (who shall be reasonably
acceptable to Lender), in form and content acceptable to Lender and addressed
to Lender and its present and future assigns and participants.


 


8.1.7 Evidence
of Insurance.  Borrower shall have
provided Lender with insurance certificates and such other evidence, in form
and substance satisfactory to Lender, of all insurance required to be
maintained by it under the Loan Documents.


 


8.1.8 Material
Agreements.  Lender shall have
received copies of those Material Agreements as Lender may request in its sole
discretion.


 


8.1.9 Borrowing
Base Certificate.  Borrower shall
have provided to Lender a proper Borrowing Base Certificate accurate as of June 30,
2005.


 


8.1.10 Inventory
Report.  Borrower shall have provided
to Lender a proper Inventory Report accurate as of June 30, 2005.


 


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8.1.11 [Intentionally
Omitted]


 


8.1.12 No Material
Change.  No change shall have
occurred in the condition or operations of Borrower since June 30, 2005
which could reasonably be expected to result in a Material Adverse Effect.


 


8.1.13 Fees and
Expenses.  Borrower shall have paid
Lender, by wire transfer of immediately available federal funds all fees owing
to Lender that are due on the Closing Date, and all expenses owing pursuant to Section 13.1
hereof.


 


8.1.14 Accounts
Aging Report .  Borrower shall have
provided to Lender a proper Accounts Aging Report which satisfies the
requirements set forth in Subsection 9.2.15 hereof and which is accurate
as of June 30, 2005.


 


8.1.15 Operating
Accounts; Treasury Management Services. 
Borrower, and each of them, shall have taken such action as Lender shall
reasonably require to insure that all of Borrower’s material operating accounts
and related treasury management services are maintained with, and/or being
handled by, Lender.


 


8.1.16 Further
Assurances.  Borrower shall have
provided and/or executed and delivered to Lender such further assignments,
documents or financing statements, in form and substance satisfactory to
Lender, that Borrower is to execute and/or deliver pursuant to the terms of the
Loan Documents or as Lender may reasonably request.


 


8.2                                 Conditions to Revolving Advance and Issuance
of Letters of Credit.  Lender’s obligation to fund each Revolving
Advance and to issue Letters of Credit is subject to the satisfaction, in the
sole discretion of Lender, of each of the following conditions precedent, as
well as those set forth in Section 8.1 hereof, and each Borrowing Notice
or LC Request submitted by Borrower shall constitute a representation by
Borrower, upon which Lender may rely, that the conditions set forth in
Subsections 8.2.3, 8.2.4, and 8.2.5 hereof have been satisfied:


 


8.2.1 Borrowing
Notice; LC Request.  Borrower shall
have provided to Lender a Borrowing Notice that satisfies the requirements of Section 2.2
hereof or an LC Request that satisfies the requirements of Section 3.1
hereof, as applicable.


 


8.2.2 Possession
of Documents.  Lender shall have
received possession of all instruments or securities, if any, with respect to
which possession is required to perfect Lender’ security interest therein.


 


8.2.3 Default.  As of the Advance Date no Event of Default or
Potential Default shall have occurred and be continuing, and the disbursing of


 


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the amount of the
Revolving Advance requested in the Borrowing Notice shall not result in an
Event of Default or Potential Default.


 


8.2.4 Representations
and Warranties.  The representations
and warranties of Borrower contained in each of the Loan Documents to which it
is a party and all exhibits thereto, subject to updates provided from time to
time by Borrower and (except for updates of disclosure items listed on Exhibits
7.11 and 7.16 to reflect investments and other events and transactions
permitted by this Agreement) approved in writing by Lender in its reasonable
discretion, shall be true and correct in all material respects on and as of the
date on which the Revolving Advance is to be made as though made on such
date.  Borrower shall have paid Lender,
by wire transfer of immediately available U.S. funds all fees which are then
due and payable, including all expenses owing pursuant to Section 13.1
hereof.


 


8.2.5 Availability
Period.  The Borrowing Notice does
not specify an Advance Date which is later than the Banking Day immediately
prior to the last day of the Revolving Loan Availability Period.


 


8.2.6 No
Material Change.  No change shall
have occurred in the condition or operations of Borrower since the date of the
financial statements most recently provided by Borrower to Lender pursuant
to Subsection 9.2.1 or 9.2.2 hereof, as applicable, which, when considered
in the aggregate, could reasonably be expected to result in a Material Adverse
Effect.


 


ARTICLE 9.  AFFIRMATIVE COVENANTS


 


From and after the date of this Credit Agreement and
until the Bank Debt is indefeasibly paid in full, all Letters of Credit have
expired, and Lender has no obligation to make any Revolving Advance and no
obligation to issue Letters of Credit hereunder, Borrower, and each of them,
agrees that it will observe and comply with the following covenants for the
benefit of Lender:


 


9.1                                 Books and Records. 
Borrower shall at all times keep proper books of record and account, in
which correct and complete entries shall be made of all its dealings, in
accordance with GAAP.


 


9.2                                 Reports and Notices. 
Borrower shall provide to Lender the following reports, information and
notices:


 


9.2.1 Annual
Financial Statements.  As soon as
available, but in no event later than one hundred and fifty (150) days after
the end of any Fiscal Year of Borrower occurring during the term hereof annual
financial statements of Gaiam and each of the Consolidated Subsidiaries,
prepared in accordance with GAAP consistently applied which shall:  (a) be audited by independent certified
public accountants selected by Borrower which are reasonably acceptable to
Lender; (b) be accompanied by a report of such accountants containing an
opinion reasonably acceptable to Lender; and (c) include a balance sheet,
an


 


27





















 


income statement, a
statement of cash flows, a statement of stockholders’ equity, and all notes and
schedules relating thereto; (d) be prepared in reasonable detail and in
comparative form; and (e) be accompanied by a Compliance Certificate.  The requirements of clauses (a) through (d) of
this Subsection will be satisfied if Borrower provides Lender with the
financial statement Borrower files with the Securities and Exchange Commission
with its 10K report, so long as Borrower is required to makes such a filing and
the filing is made on a timely basis.


 


9.2.2 Quarterly
Financial Statements.  As soon as
available but in no event more than ninety (90) days after the end of each
Fiscal Quarter the following financial statements or other information
concerning the operations of Gaiam and each of the Consolidated Subsidiaries,
prepared in accordance with GAAP consistently applied:  (a) a balance sheet; (b) an income
statement; (c) a statement of cash flows; (d) a statement of
stockholders’ equity, for such Fiscal Quarter and for the Fiscal Year to date;
and (e) such other quarterly statements as Lender may reasonably request,
which quarterly statements requested under this clause (e) shall include
any and all notes and schedules thereto. 
Such quarterly financial statements required pursuant to this Subsection shall
be accompanied by a Compliance Certificate. 
The requirements of clauses (a) through (d) of this Subsection will
be satisfied if Borrower provides Lender with the financial statement Borrower
files with the Securities and Exchange Commission with its 10Q report, so long
as Borrower is required to make such a filing and the filing is made no more
than forty-five (45) days after the end of each Fiscal Quarter.


 


9.2.3 Notice of
Default.  As soon as the existence of
any Event of Default or Potential Default becomes known to any Officer of
Borrower, Borrower shall promptly give Lender written notice of such Event of
Default or Potential Default, the nature and status thereof, and the action
being taken or proposed to be taken with respect thereto.


 


9.2.4 Notice of
Certain Changes.  Borrower shall
notify Lender at least ten (10) Banking Days prior to the occurrence of
any change in the name, business form, or place of formation, of Borrower in
order to maintain the perfected status of Lender’s first lien and security
interest (subject only to Permitted Encumbrances) in the Collateral.


 


9.2.5 Notice of
Litigation.  Borrower shall promptly
notify Lender in writing of all litigation in which Borrower is a party, and
which either: (a) involves an amount of $200,000 or more, singly or in the
aggregate at any time; or (b) could reasonably be expected to result in a
Material Adverse Effect with respect to Borrower.


 


9.2.6 Notice of
Material Adverse Effect.  Promptly
after any Officer of Borrower obtains knowledge thereof, notice of any matter
which has resulted or could reasonably be expected to result in a Material
Adverse Effect.


 


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9.2.7 Notice of Environmental Litigation.  Without limiting the provisions of Subsection 9.2.5
hereof, promptly after Borrower’s receipt thereof, notice of the receipt of all
pleadings, orders, complaints, indictments, or other communication alleging a
condition that may require Borrower to undertake or to contribute to a cleanup
or other response under Environmental Regulations, or which seeks penalties,
damages, injunctive relief, or criminal sanctions related to alleged violations
of such laws, or which claims personal injury or property damage to any person
as a result of environmental factors or conditions or which, if adversely
determined, could reasonably be expected to have a Material Adverse Effect.


 


9.2.8 Regulatory and Other Notices.  Promptly after Borrower’s receipt thereof,
copies of any notices or other communications received from any governmental
authority with respect to any matter or proceeding the effect of which could
reasonably be expected to have a Material Adverse Effect.


 


9.2.9 Adverse Action Regarding Required
Licenses.  In
the event Borrower learns that any petition, action, investigation, notice of
violation or apparent liability, notice of forfeiture, order to show cause,
complaint or proceeding is pending, or, to the best of the knowledge of any
officer of Borrower, threatened, to seek to revoke, cancel, suspend, modify, or
limit any of the Required Licenses, Borrower shall provide Lender with prompt
written notice thereof and shall take, or cause to be taken, all reasonable measures
to contest such action in good faith.


 


9.2.10 ERISA Reports.  As soon as possible and in any event within
twenty (20) days after Borrower or any ERISA Affiliate knows or has reason to
know that any Reportable Event or Prohibited Transaction has occurred with
respect to any Borrower Benefit Plan or that the PBGC or Borrower or any ERISA
Affiliate has instituted or will institute proceedings under Title IV of ERISA
to terminate any Borrower Pension Plan, or that Borrower or any ERISA Affiliate
has completely or partially withdrawn from a Multiemployer Plan, or that a
Borrower Benefit Plan which is a Multiemployer Plan is in reorganization
(within the meaning of Section 4241 of ERISA), is insolvent (within the
meaning of Section 4245 of ERISA) or is terminating, a certificate of the
Chief Financial Officer of Borrower or such ERISA Affiliate setting forth
details as to such Reportable Event or Prohibited Transaction or Borrower
Pension Plan termination or withdrawal or reorganization or insolvency and the action
Borrower or such ERISA Affiliate proposes to take with respect thereto,
provided, however, that notwithstanding the foregoing, no reporting is required
under this subsection unless the matter(s), individually or in the
aggregate, result, or could be reasonably expected to result, in aggregate
obligations or liabilities of Borrower and/or the ERISA Affiliates in excess of
$100,000.


 


9.2.11 Borrowing Base Certificate.  Borrower shall, no later than the thirtieth
(30th) day of each Fiscal Quarter, provide to Lender a Borrowing Base
Certificate, certified to by Gaiam’s chief financial officer, effective as of


 


29





















 


the
last day of the previous Fiscal Quarter, and including a breakdown as to
amounts of Eligible Accounts and Eligible Inventory owned by each Borrower
individually.


 


9.2.12 Quarterly Inventory Report.  Borrower shall, no later than the thirtieth
(30th) day of each Fiscal Quarter, provide to Lender an Inventory Report,
certified to by Gaiam’s chief financial officer, effective as of the last day
of the previous Fiscal Quarter, and including a breakdown as to amounts of
Inventory owned by each Borrower individually.


 


9.2.13 Annual Projections.  Borrower shall, no later than ninety (90)
days after the end of each Fiscal Year, provide to Lender projections for
Borrower’s forecasted operations during such Fiscal Year showing, on a
month-by-month and year to date cumulative basis, including forecasted income,
expenses, and borrowing needs. Such projections shall be accompanied by a
certificate of Borrower’s Authorized Officer certifying that, (a) at the
time of submission, such projections are based upon reasonable estimates and
assumptions, all of which were fair in light of then-current conditions, (b) such
projections were prepared on the basis of the assumptions stated therein, and
reflect the reasonable estimate of Borrower of the results of operations and
other information projected therein; (c) to the knowledge of the Person
providing the certification, as of the date thereof (i) there have been no
changes in the estimates and assumptions used in preparing the projections
which, if taken into account, would, in the aggregate, have a material adverse
effect on such projections, and (ii) such estimates and assumptions are
fair in light of the current conditions; and (d) no undisclosed facts
exist which, if taken into account, would, in the aggregate, have a material
adverse effect on the projections.


 


9.2.14 SEC Filings and Reports.  Promptly upon their becoming available,
copies of all registration statements and regular periodic reports, if any,
which Borrower shall have filed with the Securities and Exchange Commission or
any governmental agency substituted therefor, or any national securities exchange,
including copies of Borrower’s form 10-K annual report, form 10-Q quarterly
report and any Form 8-K report filed with the Securities and Exchange
Commission.


 


9.2.15 Accounts Aging Report.  Borrower shall, no later than the thirtieth
(30th) day of each Fiscal Quarter, provide to Lender a report (“Accounts Aging Report”), certified to by Gaiam’s chief financial officer,
effective as of the last day of the previous Fiscal Quarter, showing for each
Borrower whose Accounts Receivable are included in the Borrowing Base:  (a) aggregate balances of all Accounts
Receivable owing on a current, 30-day, 60-day, 90-day and over 90-day basis, (b) by
name of account debtor, those accounts (and amounts) which are more than 90-days
past due, (c) by name of account debtor, those of Accounts Receivable
owing (and amounts) as to which the account debtor has (i) threatened or
asserted a set-off, defense or adverse claim


 


30





















 


or (ii) threatened or asserted a refusal to
pay, (d) individually by name and amount owing all account debtors with
respect to which twenty-five percent (25%) or more of their total outstanding
balance of Accounts Receivable owing constitutes Delinquent Accounts, and (e) by
name and amount owing all account debtors whose outstanding balances of
Accounts Receivable owing individually constitute in excess of twenty-five
percent (25%) of Borrower’s total of Accounts Receivable owing at the time of
the report


 


9.2.16 Additional Information.  With reasonable promptness such additional
financial information or other documentation as Lender may reasonably request.


 


9.3                                 Maintenance of Existence and Qualification.  Each
Borrower shall maintain its existence in good standing under the laws of its
state of formation.  Each Borrower shall
qualify and remain qualified to do business in each jurisdiction in which such
qualification is necessary or desirable in view of its business, operations and
properties.


 


9.4                                 Compliance with Legal Requirements and Agreements.  Borrower shall:  (a) comply with all laws, rules,
regulations and orders applicable to Borrower or its business; and (b) comply
with all agreements, indentures, mortgages, and other instruments to which it
is a party or by which it or any of its property is bound; provided, however,
that the failure of Borrower to comply with this sentence in any instance not
directly involving Lender shall not constitute an Event of Default unless such
failure could reasonably be expected to have a Material Adverse Effect.


 


9.5                                 Compliance with Environmental Laws.  Without
limiting the provisions of Section 9.4 of this Credit Agreement, Borrower
shall comply in all material respects with, and take all reasonable steps
necessary to cause all persons occupying or present on any properties owned or
leased by Borrower to comply with, all Environmental Laws and Environmental
Regulations, the failure to comply with which could reasonably be expected to
have a Material Adverse Effect.


 


9.6                                 Taxes.  Borrower shall cause to be paid when due all
taxes, assessments, and other governmental charges upon, and payable by, it,
its income, its sales, its properties, and federal and state taxes withheld
from its employees’ earnings, unless such taxes, assessments, or other
governmental charges shall be contested in good faith by appropriate actions or
legal proceedings and Borrower shall establish adequate reserves therefor in
accordance with GAAP.


 


9.7                                 Insurance.  Borrower shall keep its assets, including the
Collateral, insured at all times by an insurance carrier or carriers reasonably
acceptable to Lender which have an AI rating by the current BEST Key Rating
Guide, against all risks covered by a special form policy (and including flood
(for property


 


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located in a flood plain zone), earthquake and
windstorm coverage) in the amount of the full replacement cost (other than with
respect to motor vehicles) as well as liability, worker’s compensation,
business interruption, boiler and machinery and such other insurance as Lender
may reasonably require, in amounts and with deductibles or maximum payouts
customarily carried by Persons in similar lines of business.  Borrower shall also maintain fidelity
coverage (including employee dishonesty) on such officers and employees and in
such amounts as Lender shall reasonably specify, or in the absence of any such
specification, as customarily carried by Persons engaged in comparable
businesses and comparably situated.  Such
insurance policies shall contain such reasonable endorsements as Lender shall
from time to time require and all liability policies shall name Lender as an
additional insured as its interests may appear. 
All such casualty insurance policies shall be endorsed with a loss
payable clause, as appropriate, in favor of Lender.  Certificates of all insurance referred to in
this Section satisfactory to Lender shall be delivered to and held by
Lender, and the policy or policies evidencing all such insurance shall be
provided to Lender upon Lender’s request therefor.  All such insurance policies shall contain a
provision requiring at least ten (10) days’ notice to Lender prior to
any cancellation for non-payment of premiums and at least forty-five (45) days’
notice to Lender of cancellation for any other reason or of modification or
non-renewal.  No later than forty (40)
days prior to expiration, Borrower shall give Lender (a) satisfactory
written evidence of renewal of all such policies with premiums paid; or (b) a
written report as to the steps being taken by Borrower to renew or replace all
such policies, provided that notwithstanding the receipt of such written
report, Lender may at any time thereafter give Borrower written notice to
provide Lender with such evidence as described in clause (a), in which case Borrower
must do so within ten (10) days of such notice.  Borrower agrees to pay all premiums on such
insurance as they become due, and will not permit any condition to exist on or
with respect to its assets which would wholly or partially invalidate any insurance
thereon.  Effective upon the occurrence
of an Event of Default, all of Borrower’s right, title and interest in and to
all such policies and any unearned premiums paid thereon are hereby assigned to
Lender who shall have the right, but not the obligation, to assign the same to
any purchaser of the Collateral at any foreclosure sale.  Borrower shall give immediate written notice
to the insurance carrier and Lender of any loss.  Borrower hereby authorizes and empowers
Lender upon the occurrence and during the continuation of an Event of Default,
at Lender’s option and in Lender’s sole discretion, to act as attorney-in-fact
for Borrower to make proof of loss, to adjust and compromise any claim under
insurance policies, to collect and receive insurance proceeds, and to deduct
therefrom Lender’s expenses incurred in the collection of such proceeds, all as
it shall relate to the Collateral.


 


9.8                                 Title to Assets and Maintenance.  Borrower
shall defend and maintain title to all its properties and assets, including the
Collateral.  Borrower shall keep its
assets, both real and personal, including the Collateral, in good order and
condition consistent with industry practice and shall make all


 


32





















 


necessary repairs, replacements and improvements so
that its business may be properly and advantageously conducted.


 


9.9                                 Payment of Liabilities.  Borrower shall pay all
liabilities (including, without limitation: 
(a) any indebtedness for borrowed money or for the deferred purchase
price of property or services; (b) any obligations under leases which have
or should have been characterized as capitalized leases, as determined in
accordance with GAAP; and (c) any contingent liabilities, such as
guaranties, for the obligations of others relating to indebtedness for borrowed
money or for the deferred purchase price of property or services or relating to
obligations under leases which have or should have been characterized as
capitalized leases, as determined in accordance with GAAP) as they become due
beyond any period of grace under the instrument creating such liabilities,
unless (with the exception of the Bank Debt) they are being contested in good
faith by appropriate actions or legal proceedings, Borrower establishes adequate
reserves therefor in accordance with GAAP, and such contesting will not result
in a Material Adverse Effect.


 


9.10                           Further Assurances.  Borrower shall, as may be
required from time to time by Lender, provide such documents as may be
necessary or desirable in the judgment of Lender to verify the existence and
perfection of the security interest in the Collateral granted to Lender.


 


9.11                           Inspection.  Borrower shall permit Lender or its agents,
during normal business hours or at such other times as the parties may agree,
to examine Borrower’s properties (including, but without limitation, the
Collateral), books, and records, and to discuss Borrower’s affairs, finances,
operations, and accounts with its respective officers, directors, employees,
and independent certified public accountants.


 


9.12                           Required Licenses; Permits; Etc.  Borrower
shall duly and lawfully obtain and maintain in full force and effect all
Required Licenses as appropriate for the business being conducted and
properties owned by Borrower at any given time.


 


9.13                           ERISA.  Borrower shall make or cause to be made, and
cause each ERISA Affiliate to make or cause to be made, all payments or
contributions to all Borrower Benefit Plans covered by Title IV of ERISA, which
are necessary to enable those Borrower Benefit Plans to continuously meet all
minimum funding standards or requirements.


 


9.14                           Financial Covenants.  Borrower shall maintain the
following financial covenants on a consolidated basis of the operations of
Gaiam and each Consolidated Subsidiary:


 


9.14.1 Net Worth.  At, and measured as of, the end of each
Fiscal Quarter Net Worth shall be no less than: (a) $40,000,000 for the
period from the


 


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Closing Date through and including September 30,
2005; and (b) $47,000,000 as of December 31, 2005 and thereafter.


 


9.14.2 Current Ratio.  At, and measured as of, the end of each
Fiscal Quarter, a ratio of Current Assets, divided by Current Liabilities of
equal no less than 1.35 to 1.0.


 


9.14.3 Total Liabilities to Net Worth.  At, and measured as of, the end of each
Fiscal Quarter, a ratio of Total Liabilities, divided by Net Worth (in each
case as determined in accordance with GAAP), of greater than 1.00 to 1.0.


 


9.14.4 Minimum Net Income.  At, and measured as of, the end of each
Fiscal Year, Profitable Operations.


 


9.15                           Change of Management.  Jirka Rysavy shall at all times
be Gaiam’s Chief Executive Officer and/or Chairman (defined as the person who
proposes and implements all significant policies regarding Gaiam’s operations
and who directs the day to day operations of Gaiam).


 


ARTICLE 10. 
NEGATIVE COVENANTS


 


From and after the date of this
Credit Agreement and until the Bank Debt is indefeasibly paid in full, all
Letters of Credit have expired, and Lender has no obligation to make Revolving
Advances and no obligation to issue Letters of Credit hereunder, Borrower, and
each of them, agrees to observe and comply with the following covenants for the
benefit of Lender:


 


10.1                           Borrowing.  Borrower shall not create, incur, assume or
permit to exist, directly or indirectly, any Indebtedness, except for:  (a) Indebtedness of Borrower arising
under this Credit Agreement and the other Loan Documents; (b) current
operating liabilities (other than for borrowed money) incurred in the ordinary
course of business; (c) Indebtedness on the date hereof as set forth in Exhibit 10.1
attached hereto; (d) Indebtedness subordinated to all Bank Debt in a
manner acceptable to Lender in its sole discretion; (e) other
Indebtedness, including, without limitation, Indebtedness arising under
guarantees permitted under Section 10.4 hereof and Indebtedness arising
under Capital Leases, in a maximum amount of principal outstanding at any one
time of $5,000,000.00; (f) indebtedness constituting any refinancing or
refunding of indebtedness described in clauses (d) and (e) of this
Section, provided that the principal amount thereof does not increase as a
result of any such refinancing or refunding from the balance owing on the date
hereof or on the date of such refinancing or refunding, whichever is lower; and
(g) investments permitted by Section 10.6 (to the extent such
investments constitute Indebtedness by virtue of being an obligation to supply
funds to invest in any Person).


 


10.2                           Liens.  Borrower will not create, incur, assume or
suffer to exist any mortgage, pledge, lien, charge or other encumbrance on, or
any security interest in, any of its real or personal properties (including,
without limitation,


 


34





















 


leasehold interests, leasehold improvements and any
other interest in real property or fixtures), now owned or hereafter acquired,
except:


 


(a)                                  Liens for taxes or other governmental charges which
are not due or remain payable without penalty, or are being contested in good
faith by appropriate actions or proceedings; provided that such reserves or
other appropriate provisions, if any, as shall be required by GAAP, shall have
been made for such taxes or other governmental charges;


 


(b)                                 Deposits or pledges to secure workmen’s
compensation, unemployment insurance, old age benefits or other social security
obligations or in connection with or to secure the performance of bids,
tenders, trade contracts or leases or to secure statutory obligations or surety
or appeal bonds or other pledges or deposits of like nature and all in the
ordinary course of business;


 


(c)                                  Mechanics’, carriers’, workmen’s, repairmen’s or
other like liens arising in the ordinary course of business in respect of
obligations not yet due or which are being contested in good faith and by
appropriate proceedings;


 


(d)                                 Easements, rights-of-way, zoning restrictions and
other similar matters incidental to the ownership of property which do not in
the aggregate materially detract from the value of such property or assets or
materially impair their use in the operation of the business of Borrower;


 


(e)                                  Purchase money security interests in property
(including any security interest created in a lease transaction); provided that
(i) such property is used in the ordinary course of Borrower’s business, (ii) such
security interests shall attach only to the property so purchased (or, if
applicable, leased), (iii) the amount of the purchase money financing so
secured does not exceed the amount permitted under Section 10.1 hereof,
and (iv) the purchase (or, if applicable, lease) occurred subsequent to
the Closing Date;


 


(f)                                    All precautionary filings of financing statements
under the Uniform Commercial Code which cover property that is made available
to or used by Borrower pursuant to the terms of an operating lease or Capital
Lease with an aggregate asset value of $1,500,000.00; and


 


(g)                                 Liens in existence on the date hereof as set forth
in Exhibit 10.2 attached hereto.


 


10.3                           Sale of Assets.  Borrower will not sell, convey, assign, lease
or otherwise transfer or dispose of, voluntarily, by operation of law or
otherwise, any of its assets to any Person, except that; (a) Borrower may
sell inventory, equipment and fixtures disposed of in the ordinary course of
its business; (b) Borrower may dispose of inventory and equipment which is
worn out or obsolete or no longer used or useful by Borrower in its business so
long as no Event of Default has occurred and is continuing.


 


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10.4                           Liabilities of Others.  Borrower shall not assume,
guarantee, become liable as a surety, endorse, contingently agree to purchase,
or otherwise be or become liable, directly or indirectly (including, but not
limited to, by means of a maintenance agreement, an asset or stock purchase
agreement, or any other agreement designed to ensure any creditor against
loss), for or on account of the obligation of any Person, except (a) by
the endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of the Borrower’s business; (b) those
liabilities to be assumed under the Asset Purchase Agreement between Gaiam, Inc.
and GT Brands LLC, GT Merchandising & Licensing LLC, Gym Time, LLC,
BSBP Productions LLC, and GoodTimes Entertainment LLC, dated July 8, 2005
(“GoodTimes Agreement”); (c) up to an aggregate of $10,000,000.00 in
connection with acquisitions permitted pursuant to Section 10.5 hereof;
and (d) subject to the limitations contained in Section 10.1(f) hereof,
guarantees made from time to time by Borrower in the ordinary course of its
business.


 


10.5                           Merger; Acquisitions; Business Form; Etc.  Borrower
shall not merge or consolidate with any entity, or acquire all or substantially
all of the assets of any Person or entity, change its business form, or
commence operations under any other name, organization, or entity, including
any joint venture; provided however that Borrower may (a) make
acquisitions pursuant to which payment is made solely in stock or equity
interests in Borrower; (b) complete the asset purchase contemplated in the
GoodTimes Agreement; (c) in addition to acquisitions permitted under
clauses (a) and (b) of this Section, make acquisitions up to, for all
Borrowers in the aggregate, $10,000,000.00 in consideration paid in any Fiscal
Year; (d) form new Subsidiaries; and (e) merge or consolidate one
Borrower into another Borrower, provided that no later than ten (10) Business
Days after the creation of a new Subsidiary or any merger or consolidation, as
described in clauses (d) or (e), Borrower shall (i) provide Lender
with written notification of such transactions (including a detailed
description, the name of any newly formed Person, any change in the name of any
existing Person, the business form of any newly formed Person or change in
business form of any existing Person, and the place of location (as that term
is used in the applicable Uniform Commercial Code) of any newly formed Person
or any change of location of any existing Person, and (ii) take such
action (or cause such newly formed Person to take such action) as Lender
directs in order to create and/or perfect Lender’s security interest in any
Collateral.


 


10.6                           Investments.  Borrower will not own, purchase or acquire
any stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any Person, except that Borrower may own, purchase or
acquire:


 


(a)                                  Commercial paper maturing not in excess of one year
from the date of acquisition and rated P1 by Moody’s Investors Service, Inc.
or A1 by Standard & Poor’s Corporation on the date of
acquisition;


 


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(b)                                 Certificates of deposit in North American commercial
banks rated C or better by Keefe, Bruyette & Woods, Inc. or
3 or better by Cates Consulting Analysts, maturing not in excess of one year
from the date of acquisition;


 


(c)                                  Obligations of the United States government or any
agency thereof, the obligations of which are guaranteed by the United States
government, maturing, in each case, not in excess of one year from the date of
acquisition; and


 


(d)                                 Repurchase agreements of any bank or trust company
incorporated under the laws of the United States of America or any state
thereof and fully secured by a pledge of obligations issued or fully and
unconditionally guaranteed by the United States government; and


 


(e)                                  The Investments described on Exhibit 10.6
hereto and owned as of the Closing Date, investments permitted by Section 10.5
hereof, and up to an aggregate of $5,000,000.00 in Investments acquired by
Borrower subsequent to the Closing Date’ provided that such additional
$5,000,000.00 in Investments shall not include Investments which would
otherwise be prohibited by Section 10.5 hereof.


 


10.7                           Loans.  Borrower shall not lend or advance money,
credit, or property to any Person, except for trade credit extended in the
ordinary course of business and loans or advances to employees not in excess of
$50,000.00 for any such employee and an aggregate at any time of $250,000.00
for all employees.


 


10.8                           Transactions With Related Parties.  Borrower
shall not purchase, acquire, or sell any equipment, other personal property,
real property or services from or to any Affiliate, except in the ordinary
course and pursuant to the reasonable requirements of Borrower’s business and
upon fair and reasonable terms no less favorable than would be obtained by
Borrower in a comparable arm’s-length transaction with an unrelated Person.


 


10.9                           ERISA.  Borrower shall not:  (a) adopt, maintain or become obligated
to contribute to any Borrower Benefit Plan not disclosed on Exhibit 7.10
hereto without the prior written consent of Lender, which shall not be
unreasonably withheld; (b) engage in or permit any transaction which
results in a Prohibited Transaction or in the imposition of an excise tax
pursuant to Section 4975 of the Code; (c) engage in or permit any
transaction or other event which results in a Reportable Event for any Borrower
Pension Plan; (d) fail to make full payment when due of all amounts which,
under the provisions of any Borrower Benefit Plan, Borrower is required to pay
as contributions thereto; (e) permit to exist any “accumulated funding
deficiency” (as such term is defined in Section 302 of ERISA) in excess of
$25,000.00, whether or not waived, with respect to any Borrower Pension Plan; (f) fail
to make any payments to any Multiemployer Plan that Borrower may be required to
make under any agreement


 


37





















 


relating to such Multiemployer Plan or any law
pertaining thereto; or (g) terminate any Borrower Pension Plan without the
prior written consent of Lender.  As used
in this Section, all terms enclosed in quotation marks shall have the
meanings set forth in ERISA.  Borrower’s
failure to comply with any of the foregoing provisions of this Section shall
not constitute a breach of this Credit Agreement or an Event of Default unless
such failure could reasonably be expected to result in a Material Adverse
Effect.


 


10.10                     Payment of Dividends.  Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of any class
of its capital stock now or hereafter outstanding, or set aside or otherwise
deposit or invest any sums for such purpose.


 


10.11                     Change in Fiscal Year.  Borrower shall not change its
Fiscal Year.


 


10.12                     Capital Expenditures.  Borrower shall not make any
Capital Expenditures in excess of $10,000,000.00 in the aggregate in any Fiscal
Year.


 


10.13                     Intercompany Transactions.  Notwithstanding anything to the
contrary contained in Article 10, so long as no Event of Default has
occurred and is continuing, a Borrower may (a) create or incur
Indebtedness to another Borrower, (b) sell, convey, assign, lease or
otherwise transfer any of its assets to another Borrower, (c) guarantee or
otherwise become liable for an obligation of another Borrower that is otherwise
permitted under this Agreement, (d) make investments in, or lend or
advance money, credit or property to, another Borrower, (e) enter into
transactions with another Borrower without complying with the requirements set
forth in Section 10.8, and (f) declare or pay dividends or otherwise
make distributions to another Borrower.


 


ARTICLE 11. 
INDEMNIFICATION


 


11.1                           General; Stamp Taxes; Intangibles Tax.  Borrower
agrees to indemnify and hold Lender and each of its directors, officers,
employees, agents, professional advisers and representatives (“Indemnified Parties”) harmless from and
against any and all claims, damages, losses, liabilities, costs or expenses
whatsoever which Lender or any other Indemnified Party may incur (or which may
be claimed against any such Indemnified Party by any Person), including
attorneys’ fees incurred by any Indemnified Party, arising out of or resulting
from:  (a) the inaccuracy of any
representation or warranty of or with respect to Borrower in this Credit
Agreement or the other Loan Documents; (b) the failure of Borrower to
perform or comply with any covenant or obligation of Borrower under this Credit
Agreement or the other Loan Documents; or (c) the exercise by Lender of
any right or remedy set forth in this Credit Agreement or the other Loan
Documents, provided that Borrower shall have no obligation to indemnify any
Indemnified Party against claims, damages, losses, liabilities, costs or
expenses to the extent that a court of competent jurisdiction renders a final
non-appealable determination that the foregoing are solely the result of the
willful


 


38





















 


misconduct or gross negligence of such Indemnified
Party.  In addition, Borrower agrees to
indemnify and hold the Indemnified Parties harmless from and against any and
all claims, damages, losses, liabilities, costs or expenses whatsoever which
Lender or any other Indemnified Party may incur (or which may be claimed
against any such Indemnified Party by any Person), including attorneys’ fees
incurred by any Indemnified Party, arising out of or resulting from the
imposition or nonpayment by Borrower of any stamp tax, intangibles tax, or
similar tax imposed by any state, including any amounts owing by virtue of the
assertion that the property valuation used to calculate any such tax was
understated.  Borrower shall have the right
to assume the defense of any claim as would give rise to Borrower’s
indemnification obligation under this Section with counsel of Borrower’s
choosing so long as such defense is being diligently and properly conducted and
Borrower shall establish to the Indemnified Party’s satisfaction that the
amount of such claims are not, and will not be, material in comparison to the
liquid and unrestricted assets of Borrower available to respond to any award
which may be granted on account of such claim. 
So long as the conditions of the preceding sentence are met, Indemnified
Party shall have no further right to reimbursement of attorney’s fees incurred
thereafter.  The obligation to indemnify
set forth in this Section shall survive the termination of this Credit
Agreement and other covenants.


 


11.2                           Indemnification Relating to Hazardous Substances.  Borrower
shall not locate, produce, treat, transport, incorporate, discharge, emit,
release, deposit or dispose of any Hazardous Substance in, upon, under, over or
from any property owned or held by Borrower, except in accordance with all
Environmental Laws and Environmental Regulations; Borrower shall not permit any
Hazardous Substance to be located, produced, treated, transported,
incorporated, discharged, emitted, released, deposited, disposed of or to escape
in, upon, under, over or from any property owned or held by Borrower, except in
accordance with Environmental Laws and Environmental Regulations; and Borrower
shall comply with all Environmental Laws and Environmental Regulations which
are applicable to such property.  If
Lender reasonably believes that an Environmental Law or Environmental
Regulation has been violated by Borrower’s activities upon property owned or
held by Borrower, and if Lender so requests, Borrower shall arrange for the
preparation of an environmental review, audit, assessment and/or report
relating to the subject property, at Borrower’s sole cost and expense, by an
engineer or other environmental expert acceptable to Lender. Borrower shall
indemnify the Indemnified Parties against, and shall reimburse the Indemnified
Parties for, any and all claims, demands, judgments, penalties, liabilities,
costs, damages and expenses, including court costs and attorneys’ fees incurred
by the Indemnified Parties (prior to trial, at trial and on appeal) in any
action against or involving the Indemnified Parties, resulting from any breach
of the foregoing covenants in this Section or the covenants in Section 9.5
hereof, or from the discovery of any Hazardous Substance in, upon, under or
over, or emanating from, such property, it being the intent of Borrower and the
Indemnified Parties that the Indemnified Parties shall have no liability or
responsibility for damage or injury to human


 


39





















 


health, the environmental or natural resources
caused by, for abatement and/or clean-up of, or otherwise with respect to,
Hazardous Substances by virtue of the interest of Lender in the property
created by any documents securing Bank Debt (including without limitation the Loan
Documents) or as the result of Lender exercising any of its rights or remedies
with respect thereto, including but not limited to becoming the owner thereof
by foreclosure or conveyance in lieu of foreclosure; provided that such
indemnification as it applies to the exercise by Lender of its rights or
remedies with respect to the Loan Documents shall not apply to claims arising
solely with respect to Hazardous Substances brought onto such property by
Lender or its successors or assigns while engaged in activities other than
operations substantially the same as the operations previously conducted on
such property by Borrower.  The foregoing
covenants of this Section shall be deemed continuing covenants for the
benefit of the Indemnified Parties, and any successors and assigns of the
Indemnified Parties, including but not limited to the holder of any certificate
of purchase, any transferee of the title of Lender or any subsequent owner of
the property, and shall survive the satisfaction or release of any lien, any
foreclosure of any lien and/or any acquisition of title to the property or any
part thereof by Lender, or anyone claiming by, through or under Lender or
Borrower by deed in lieu of foreclosure or otherwise.  Any amounts covered by the foregoing indemnification
shall bear interest from the date incurred at the Default Interest Rate, shall
be payable on demand, and shall be secured by the Security Documents.  The indemnification and covenants of this Section shall
survive the termination of this Credit Agreement and other covenants.


 


ARTICLE 12. 
EVENTS OF DEFAULT; RIGHTS AND REMEDIES


 


12.1                           Events of Default.  The occurrence of any of the
following events (each an “Event of Default”)
shall, at the option of Lender, make the entire Bank Debt immediately due and
payable (provided, that in the case of an Event of Default under Subsection 12.1(e) all
amounts owing under the Revolving Note and the other Loan Documents shall
automatically and immediately become due and payable without any action by or
on behalf of Lender), and Lender may exercise all rights and remedies for the
collection of any amounts outstanding hereunder and take whatever action it
deems necessary to secure itself, all without notice of default, presentment or
demand for payment, protest or notice of nonpayment or dishonor, or other
notices or demands of any kind or character:


 


(a)                                  Failure of Borrower to pay within five (5) days
of the due date, whether by acceleration or otherwise, any principal or
interest owing under the Revolving Note or any other Bank Debt in accordance
with this Credit Agreement or the other Loan Documents.


 


(b)                                 Any representation or warranty set forth in any Loan
Document, in any Borrowing Notice, in any financial statements or reports or
projections or forecasts, or in connection with any transaction contemplated by


 


40





















 


any such document, shall prove in any material
respect to have been false or misleading when made by Borrower.


 


(c)                                  Any default by Borrower in the performance or
compliance with the covenants, promises, conditions or provisions of Sections
9.7, 9.11, 9.14, 10.1, 10.2, 10.3, 10.4, 10.5, 10.7, 10.8, 10.9, 10.10, or
10.12 of this Credit Agreement.


 


(d)                                 The failure of Borrower to pay when due, or failure
to perform or observe any other obligation or condition with respect to any of
the following obligations to any Person, beyond any period of grace under the
instrument creating such obligation:  (i) any
indebtedness for borrowed money or for the deferred purchase price of property
or services, (ii) any obligations under leases which have or should have
been characterized as capitalized leases, as determined in accordance with
GAAP, or (iii) any contingent liabilities, such as guaranties, for the
obligations of others relating to indebtedness for borrowed money or for the
deferred purchase price of property or services or relating to obligations
under leases which have or should have been characterized as capitalized
leases, as determined in accordance with GAAP; provided that no such failure
will be deemed to be an Event of Default hereunder unless and until the
aggregate amount owing under obligations with respect to which such failures
have occurred and are continuing is at least $200,000.00.


 


(e)                                  Borrower, or any of them, applies for or consents to
the appointment of a trustee or receiver for any part of its properties; any
bankruptcy, reorganization, debt arrangement, dissolution or liquidation
proceeding is commenced or consented to by Borrower or any of them; or any
application for appointment of a receiver or a trustee, or any proceeding for
bankruptcy, reorganization, debt management or liquidation is filed for or
commenced against Borrower or any of them, and is not withdrawn or dismissed
within sixty (60) days thereafter.


 


(f)                                    Failure of Borrower to comply with any other
provision of this Credit Agreement or the other Loan Documents not constituting
an Event of Default under any of the preceding subparagraphs of this Section 12.1,
and such failure continues for thirty (30) days after Borrower learns of such
failure to comply, whether by Borrower’s own discovery or through notice from
Lender.


 


(g)                                 The entry of one or more judgments in an aggregate
amount in excess of $200,000.00 against Borrower not stayed, discharged or paid
within thirty (30) days after entry.


 


12.2                           No Revolving Advance or Letter of Credit.  Lender may
suspend the Revolving Commitment upon the occurrence and during the continuance
of Potential Default or an Event of Default and shall have no obligation to
make any Revolving Advance and no obligation to issue or renew any Letter of
Credit if a Potential Default or an Event of Default shall occur and be
continuing.


 


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12.3                           Rights and Remedies.  In addition to the remedies set
forth in Section 12.1 and 12.2 hereof, upon the occurrence of an Event of
Default (and unless and until such Event of Default is waived in writing by
Lender), Lender shall be entitled to (a) demand that Borrower to establish
the Cash Collateral Account and to deposit therein immediately available funds
in the amount of the undrawn face amount of all Letters of Credit then
outstanding (and if Borrower fails to establish such account and/or provide
such funds within two (2) Banking Days of such demand, Lender may
establish such account and/or provide such funds by a Revolving Advance,
without regard to any limitations thereon); and (b) exercise all the
rights and remedies provided in the Security Documents and other Loan Documents
and by any applicable law, including, without limitation, the Uniform
Commercial Code as enacted in the state of Colorado or the state which governs
perfection of a security interest in the Collateral, whichever provides Lender
with greater rights.  Each and every
right or remedy granted to Lender pursuant to this Credit Agreement and the
other Loan Documents, or allowed Lender by law or equity, shall be
cumulative.  Failure or delay on the part
of Lender to exercise any such right or remedy shall not operate as a waiver
thereof.  Any single or partial exercise
by Lender of any such right or remedy shall not preclude any future exercise
thereof or the exercise of any other right or remedy.


 


ARTICLE 13. 
MISCELLANEOUS


 


13.1                           Costs and Expenses.  To the extent permitted by law,
Borrower agrees to pay to Lender, on demand, all out-of-pocket costs and
expenses (a) incurred by Lender (including, without limitation, the
reasonable fees and expenses of counsel retained by Lender, and including fees
and expenses incurred for consulting, appraisal, engineering, inspection, and
environmental assessment services) in connection with the preparation,
negotiation, and execution of the Loan Documents and the transactions
contemplated thereby, and processing each Borrowing Notice; and (b) incurred
by Lender (including, without limitation, the reasonable fees and expenses of
counsel retained by Lender) in connection with the enforcement or protection of
Lender’s rights under the Loan Documents upon the occurrence of an Event of
Default or upon the commencement of an action by Borrower against Lender
(except that if the court makes a specific finding that Borrower has prevailed
on all or substantially all of its claims in such action brought by Borrower,
Borrower shall not be obligated to pay the costs and expenses of Lender in
connection with such action), including without limitation collection of the
Revolving Loan and enforcement of its rights with respect to the Collateral
(regardless of whether such enforcement or collection is by court action or
otherwise).  Lender may, at its
discretion, pay all amounts owing pursuant to clause (a) above by a
Revolving Advance upon notice to Gaiam.


 


13.2                           Service of Process and Consent to Jurisdiction.  Borrower
hereby agrees that any litigation with respect to this Credit Agreement or to
enforce any judgment obtained against Borrower for breach of this Credit
Agreement or


 


42





















 


under the Revolving Note or other Loan Documents may
be brought in the courts of the State of Colorado and in the United States
District Court for the District of Colorado (if applicable subject matter
jurisdictional requirements are present), as Lender may elect; and, by
execution and delivery of this Credit Agreement, Borrower irrevocably submits
to such jurisdiction.  With respect to
litigation concerning this Credit Agreement or under the Revolving Note or
other Loan Documents within the jurisdiction of the courts of the State of Colorado
or the United States District Court for the District of Colorado, Borrower
hereby irrevocably appoints, until at least one (1) year following the
Revolving Maturity Date, Corporation Service Company to serve as agent of
Borrower to receive for and on behalf of Borrower at such agent’s Denver,
Colorado office (presently at 1560 Broadway), service of process, which service
may be made by mailing a copy of any summons or other legal process to Borrower
in care of such agent.  Borrower agrees
that Borrower shall maintain a duly appointed agent in Colorado for service of
summons and other legal process as long as Borrower remains obligated under
this Credit Agreement and shall keep Lender advised in writing of the identity
and location of such agent.  The receipt
by such agent and/or by Borrower of such summons or other legal process in any
such litigation shall be deemed personal service and acceptance by Borrower for
all purposes of such litigation.


 


13.3                           Jury Waiver.  IT IS MUTUALLY AGREED BY AND BETWEEN LENDER
AND BORROWER THAT THEY EACH WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER OF THEM AGAINST THE OTHER PARTY ON ANY MATTER
WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS CREDIT AGREEMENT,
THE REVOLVING NOTE, OR THE OTHER LOAN DOCUMENTS.


 


13.4                           Arbitration.  Notwithstanding the provisions of Sections
13.2 and 13.3 hereof, the parties hereto agree, upon demand by either party, to
submit to binding arbitration all claims, disputes and controversies between or
among them (and their respective employees, officers, directors, attorneys, and
other agents), whether in tort, contract or otherwise arising out of or
relating to in any way (a) the Loans and related Loan Documents which are
the subject of this Credit Agreement and its negotiation, execution,
collateralization, administration, repayment, modification, extension,
substitution, formation, inducement, enforcement, default or termination; or (b) requests
for additional credit.


 


13.4.1 Governing Rules.  Any arbitration proceeding will (a) proceed
in a location in Colorado selected by the American Arbitration Association (“AAA”); (b) be governed by the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision in
any of the documents between the parties; and (c) be conducted by the AAA,
or such other administrator as the parties shall mutually agree upon, in
accordance with the AAA’s commercial dispute resolution procedures, unless the
claim or counterclaim is at least $1,000,000.00 exclusive of claimed interest,


 


43





















 


arbitration fees and costs in which case the
arbitration shall be conducted in accordance with the AAA’s optional procedures
for large, complex commercial disputes (the commercial dispute resolution
procedures or the optional procedures for large, complex commercial disputes to
be referred to, as applicable, as the “Rules”).  If there is any inconsistency between the
terms hereof and the Rules, the terms and procedures set forth herein shall
control.  Any party who fails or refuses
to submit to arbitration following a demand by any other party shall bear all
costs and expenses incurred by such other party in compelling arbitration of
any dispute.  Nothing contained herein
shall be deemed to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. §91 or any similar applicable state law.


 


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


 


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


 


44





















 


institution and maintenance of an action for
judicial relief or pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the plaintiff, to
submit the controversy or claim to arbitration if any other party contests such
action for judicial relief.


 


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


 


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


 


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


 


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


 


13.5                           Notices.  All notices, requests and demands required or
permitted under the terms of this Credit Agreement shall be in writing and (a) shall
be addressed as set forth below or at such other address as either party shall
designate in writing, (b) shall be deemed to have been given or made:  (i) if delivered personally, immediately
upon delivery, (ii) if by facsimile transmission, immediately upon sending
and upon confirmation of receipt, (iii) if by nationally recognized
overnight courier service with instructions to deliver the next Banking Day,
one (1) Banking Day after sending, and (iv) if by United States Mail,
certified mail, return receipt requested, five (5) Banking Days after
mailing.


 


45





















 


13.5.1 Borrower:


 


Gaiam, Inc.


Suite 300


360 Interlocken Boulevard


Broomfield, Colorado 80021


 


FAX: (303) 265-9110


Attention: Chief Financial Officer


 


13.5.2 Lender:


 


Wells Fargo Bank, National
Association


1242 Pearl Street


P.O. Box 227


Boulder, Colorado 80302


 


FAX: (303) 444-3295


Attention: Gaiam Relationship Manager


 


13.6                           Successors and Assigns.  This Credit Agreement shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns, except that Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of Lender.  Lender may, without Borrower’s
consent, (a) transfer its interest hereunder to a Person at least fifty
percent (50%) the equity interest in which is owned by Lender or which owns at
least fifty percent (50%) of the equity interest in Lender or at least fifty
percent (50%) of the equity interest of which is owned by the same Person which
owns at least fifty percent (50%) of the equity interest of Lender; and (b) grant
to a Person one or more participation interests in the Loans.  In connection with any such assignment or
transfer, or negotiations in connection with any proposed assignment, transfer,
or participation, Lender may disclose all documents and information which
Lender now has or hereafter acquires relating to Borrower or its business or
any Collateral.


 


13.7                           Severability.  The invalidity or unenforceability of any
provision of this Credit Agreement or the other Loan Documents shall not affect
the remaining portions of such documents or instruments; in case of such
invalidity or unenforceability, such documents or instruments shall be
construed as if such invalid or unenforceable provisions had not been included
therein.


 


13.8                           Applicable Law.  To the extent not governed by federal law, this
Credit Agreement and the other Loan Documents, and the rights and obligations
of the parties hereto and thereto shall be governed by and interpreted in
accordance with the internal laws of the State of Colorado, without giving
effect to any otherwise applicable rules concerning conflicts of law.


 


46





















 


13.9                           Captions.  The captions or headings in this Credit
Agreement and any table of contents hereof are for convenience only and in no
way define, limit or describe the scope or intent of any provision of this
Credit Agreement.


 


13.10                     Complete Agreement; Amendments.  THIS CREDIT
AGREEMENT, THE REVOLVING NOTE, AND THE OTHER LOAN DOCUMENTS ARE INTENDED BY THE
PARTIES HERETO TO BE A COMPLETE AND FINAL EXPRESSION OF THEIR AGREEMENT AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL
AGREEMENT.  LENDER AND BORROWER
ACKNOWLEDGE AND AGREE THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN THEM WITH
RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT.  This Credit Agreement (together with all
exhibits hereto, which are incorporated herein by this reference) and the other
Loan Documents represent the entire understanding of Lender and Borrower with
respect to the subject matter hereof and shall replace and supersede any
previous agreements of the parties with respect to the subject matter
hereof.  This Credit Agreement may not be
modified or amended unless such modification or amendment is in writing and is
signed by Borrower and Lender.  Borrower
agrees that it shall reimburse Lender for all reasonable fees and expenses
incurred by Lender in retaining outside legal counsel in connection with any
amendment or modification to this Credit Agreement requested by Borrower.


 


13.11                     Additional Costs of Maintaining Loan.  Borrower
shall pay to Lender from time to time such amounts as Lender may determine to
be necessary to compensate Lender for any increase in costs to Lender which
Lender determines are attributable to Lender’s making or maintaining a
Revolving Advance hereunder or its obligation to make such Revolving Advance,
or any reduction in any amount receivable by Lender under this Credit Agreement
or the Revolving Note in respect to such Revolving Advance or such obligation
(such increases in costs and reductions in amounts receivable being herein
called “Additional Costs”),
resulting from any change after the date of this Credit Agreement in United
States federal, state, municipal laws or regulations (including Regulation D of
the Federal Reserve Board), or the adoption or making after such date of any
interpretations, directives, or requirements applying to a class of banks
including Lender of or under any United States federal, state, municipal laws
or regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof (“Regulatory Change”),
which:  (a) changes the basis of
taxation of any amounts payable to Lender under this Credit Agreement or the
Revolving Note in respect of such Revolving Advance (other than taxes imposed
on the overall net income of Lender); or (b) imposes or modifies any
reserve, special deposit, or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of,
Lender; or (c) imposes any other condition affecting this Credit Agreement
or the Revolving Note (or any of such extensions of credit or
liabilities).  Lender will notify
Borrower of any event occurring after the date of this Credit Agreement


 


47





















 


which will entitle Lender to compensation pursuant
to this Section as promptly as practicable after it obtains knowledge
thereof and determines to request such compensation.  Lender shall include with such notice, a
certificate from Lender setting forth in reasonable detail the calculation of
the amount of such compensation. 
Determinations by Lender for purposes of this Section of the effect
of any Regulatory Change on the costs of Lender of making or maintaining a
Revolving Advance or on amounts receivable by Lender in respect of Revolving
Advances, and of the additional amounts required to compensate Lender in
respect of any Additional Costs, shall be conclusive absent manifest error, provided
that such determinations are made on a reasonable basis.


 


13.12                     Capital Requirements.  In the event that the
introduction of or any change in:  (a) any
law or regulation; or (b) the judicial, administrative, or other
governmental interpretation of any law or regulation; or (c) compliance by
Lender or any corporation controlling Lender with any guideline or request from
any governmental authority (whether or not having the force of law) has the
effect of requiring an increase in the amount of capital required or expected
to be maintained by Lender or any corporation controlling Lender, and Lender
certifies that such increase is based in any part upon Lender’s obligations
hereunder, and other similar obligations, Borrower shall pay to Lender such
additional amount as shall be certified by Lender to Borrower to be the net
present value (discounted at the Base Rate less the Base Rate Margin) of the
amount by which such increase in capital reduces the rate of return on capital
which Lender could have achieved over the period remaining until the Revolving
Maturity Date but for such introduction or change.  Lender will notify Borrower of any event
occurring after the date of this Credit Agreement that will entitle Lender to
compensation pursuant to this Section as promptly as practicable after it
obtains knowledge thereof and of Lender’s determination to request such
compensation.  Lender shall include with
such notice, a certificate setting forth in reasonable detail the calculation
of the amount of such compensation. 
Determinations by Lender for purposes of this Section of the effect
of any increase in the amount of capital required to be maintained by Lender
and of the amount of compensation owed to any Lender under this Section shall
be conclusive absent manifest error, provided that such determinations are made
on a reasonable basis.


 


13.13                     Replacement Notes.  Upon receipt by Borrower of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Revolving Note, and (in case of loss, theft or destruction)
of the agreement of Lender to indemnify Borrower, and upon surrender and
cancellation of such Revolving Note, if mutilated, then Borrower will execute
and deliver a new Revolving Note to be dated as of the date of this Credit Agreement.


 


13.14                     Mutual Release.  Upon full indefeasible payment and
satisfaction of the Bank Debt and Revolving Note and the other obligations
contained in this Credit Agreement, Borrower and Lender shall, except as
provided in Article 11 hereof with respect to indemnification obligations,
thereupon automatically each


 


48





















 


be fully, finally, and forever released and
discharged from any further claim, liability, or obligation in connection with
the Bank Debt.


 


13.15                     No Implied Waiver.  The acceptance by Lender at any
time and from time to time of partial payments on the Bank Debt shall not be
deemed a waiver of any Potential Default or Event of Default then existing.  No waiver by Lender of any Potential Default
or Event of Default shall be deemed to be a waiver of any other then-existing
or subsequent Potential Default or event of Default.  No delay or omission by Lender in exercising
any right or remedy shall impair that right or remedy or be construed as a waiver
thereof, nor shall any single or partial exercise of any right or remedy
preclude other or further exercise of that, or any other, right or remedy.


 


13.16                     Liberal Construction.  This Credit Agreement constitutes
a fully negotiated agreement between commercially sophisticated parties, each
assisted by legal counsel, and shall not be construed and interpreted for or
against any party hereto.


 


13.17                     Counterparts.  This Credit Agreement may be executed in any
number of counterparts and by different parties to this Credit Agreement in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.  Copies of documents or
signature pages bearing original signatures, and executed documents or
signature pages delivered by facsimile or by e-mail transmission of an
Adobe® file format document (also known as a PDF file), shall, in each such
instance, be deemed to be, and shall constitute and be treated as, an original
signed document or counterpart, as applicable. 
Any party delivering an executed counterpart of this Credit Agreement by
facsimile, or by e-mail transmission of an Adobe file format document also
shall deliver an original executed counterpart of this Credit Agreement, but
the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Credit Agreement.


 


13.18                     Affect of Amended and Restated Credit Agreement.  This Credit
Agreement shall, upon compliance with the requirements of Section 8.1
hereof, be effective from the Effective Date forward, and the execution of this
Credit Agreement shall not relieve any party to the 2002 Credit Agreement from
their respective obligations thereunder for the period from the Original
Effective Date to the Effective Date or from any liability for the failure to
perform such obligations or from any liability arising out of indemnification
obligations under the 2002 Credit Agreement.


 


[SIGNATURES BEGIN
ON THE NEXT PAGE]


 


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


 


	
   

  	
  LENDER:

  
	
   

  	
   

  
	
   

  	
  Wells Fargo Bank, National Association

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zan M. Powell

  	
   

  
	
   

  	
  Name: Zan M. Powell

  
	
   

  	
  Title: Vice President

  
	
   

  	
  Applicable Lending Office:

  
	
   

  	
  1242 Pearl Street

  
	
   

  	
  Boulder, CO 80302

  
	
   

  	
   

  
	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  Gaiam, Inc., a corporation formed under

  the laws of the State of Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  Gaiam Americas, Inc., a corporation

  formed under the laws of the State of

  Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  Gaiam.com, Inc., a corporation formed

  under the laws of the State of Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  Gaiam Direct, Inc., a corporation

  formed under the laws of the State of

  Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
					



 


50





















 


	
   

  	
  Gaiam International, Inc., a corporation

  formed under the laws of the State of

  Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Janet Mathews

  	
   

  
	
   

  	
  Name: Janet Mathews

  
	
   

  	
  Title: Secretary/Treasurer

  
	
   

  	
   

  
	
   

  	
  Gaiam International II, Inc., a

  corporation formed under the laws of

  the State of Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Janet Mathews

  	
   

  
	
   

  	
  Name: Janet Mathews

  
	
   

  	
  Title: Secretary/Treasurer

  
	
   

  	
   

  
	
   

  	
  Gaiam International III, Inc., a

  corporation formed under the laws of

  the State of Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Janet Mathews

  	
   

  
	
   

  	
  Name: Janet Mathews

  
	
   

  	
  Title: Secretary/Treasurer

  
	
   

  	
   

  
	
   

  	
  Gaiam Media, Inc., a corporation

  formed under the laws of the State of

  Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  Gaiam Shared Services, Inc., a corporation

  formed under the laws of the State of Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
						



 


51





















 


	
   

  	
  Gaiam Travel, Inc., a corporation

  formed under the laws of the State of

  Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  Gaiam West, Inc., a corporation formed

  under the laws of the State of

  California.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
	
   

  	
   

  
	
   

  	
  GT Media, Inc., a corporation formed

  under the laws of the State of Colorado.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lynn Powers

  	
   

  
	
   

  	
  Name: Lynn Powers

  
	
   

  	
  Title: President

  
					



 


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