Exhibit 10.1


 




 





LOAN AND SECURITY
AGREEMENT


 


by and between


 


OVERSTOCK.COM,
INC.


 


as Borrower,


 


and


 


WELLS FARGO RETAIL
FINANCE, LLC


 


as Lender


 


Dated as of December 12,
2005


 




 
























 


LOAN AND SECURITY
AGREEMENT


 


THIS LOAN AND SECURITY AGREEMENT (this
“Agreement”), is entered into as of December 12, 2005, by and
between WELLS FARGO RETAIL FINANCE, LLC,
a Delaware limited liability company with offices at One Boston Place - 19th
Floor, Boston, Massachusetts 02109 (“Lender”), and OVERSTOCK.COM, INC., a Delaware corporation
(“Borrower”).


 


The parties agree as follows:


 


1.             DEFINITIONS AND CONSTRUCTION.


 


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


 


“Account” means an “account” (as such term is defined in Article 9
of the Code).


 


“Account Debtor” means any Person who is obligated on an
Account, chattel paper, or a General Intangible.


 


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


 


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


 


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


 


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


 





















 


“Agreement” has the meaning set forth in the preamble hereto.


 


“Applicable Prepayment Premium” has the meaning set forth in the
Fee Letter.


 


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


 


“Authorized Person” means any officer or employee of Borrower.


 


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


 


“Average Excess Availability”: means, for the applicable
quarter, the aggregate of the amount of Excess Availability on each day in such
quarter, divided by the number of days in such quarter.


 


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


 


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


 


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


 


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


 


“Bank Product Reserve” means, as of any date of determination,
the lesser of (a) $250,000.00, and (b) the amount of reserves that
Lender has established (based upon the Bank Product Providers’ reasonable
determination of the credit exposure of Borrower and its Subsidiaries in
respect of Bank Products) in respect of Bank Products then provided or
outstanding.


 


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


 


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


 


“Base Rate” means, the rate of interest announced, from time to
time, within Wells Fargo at its principal office in San Francisco as its “prime
rate”, with the understanding that the “prime rate” is one of Wells Fargo’s
base rates (not necessarily the lowest of such rates) and serves as the basis
upon which effective rates of interest are calculated for those loans making
reference thereto and is evidenced by the recording thereof after its
announcement in such internal publications as Wells Fargo may designate.


 


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


 


“Base Rate Margin” means zero percent (0.00%).


 


“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35)
of ERISA) for which Borrower or any Subsidiary or ERISA Affiliate of Borrower
has been an “employer” (as defined in Section 3(5) of ERISA) within
the past six (6) years.


 


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


 


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


 


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


 


“Borrower Collateral” means “all assets” of the Borrower, as
provided in the Code, including without limitation, all of Borrower’s now owned
or hereafter acquired right, title, and interest in and to each of the
following:


 


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(a)           all of its Accounts,


 


(b)           all of its Books,


 


(c)           all of its commercial
tort claims described on Schedule 5.7(d),


 


(d)           all of its Deposit
Accounts,


 


(e)           all of its Equipment,


 


(f)            all of its General
Intangibles,


 


(g)           all of its Inventory,


 


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


 


(i)            all of its Negotiable
Collateral,


 


(j)            all of its Supporting
Obligations,


 


(k)           all money or other
assets of Borrower that now or hereafter come into the possession, custody, or
control of the Lender, and


 


(l)            the proceeds and
products, whether tangible or intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the foregoing, and any and all
Accounts, Books, Deposit Accounts, Equipment, General Intangibles, Inventory,
Investment Property, Negotiable Collateral, Real Property, Supporting
Obligations, money, or other tangible or intangible property resulting from the
sale, exchange, collection, or other disposition of any of the foregoing, or
any portion thereof or interest therein, and the proceeds thereof.


 


“Borrower Intellectual Property Right” means all of Borrower’s
or any Subsidiary of Borrower’s right, title and interest in any Intellectual
Property Right owned, used or held for use by Borrower or any Subsidiary of Borrower,
and any license agreement granting Borrower or any Subsidiary of Borrower the
right to use any Intellectual Property Right.


 


“Borrowing” means a borrowing hereunder consisting of Advances.


 


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


 


(a)           Eighty-five percent
(85%) of Eligible Credit Card Receivables; plus


 


(b)           As applicable, either: (i) at
all times other than the Seasonal Period, Sixty-five percent (65%) of the Cost
of Eligible Inventory, but in no event greater than Eighty-five percent (85%)
of the Net Liquidation Value of Eligible Inventory, or (ii) during


 


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the Seasonal Period, Seventy percent (70%) of
the Cost of Eligible Inventory, but in no event greater than Ninety percent
(90%) of the Net Liquidation Value of Eligible Inventory; minus


 


(c)           the sum of (i) the
Bank Product Reserve, (ii) the Permanent Reserve, and (iii) the
aggregate amount of reserves, if any, established by Lender under Section 2.1(b).


 


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


 


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


 


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


 


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


 


“Cash Equivalents” means, as of any date of determination, (a) marketable
direct obligations issued by, or unconditionally guaranteed by, the United
States or issued by any agency thereof and backed by the full faith and credit
of the United States, in each case maturing within one (1) year from the
date of acquisition thereof, (b) marketable direct obligations issued by
any state of the United States or any political subdivision of any such state
or any public instrumentality thereof maturing within one (1) year from
the date of acquisition thereof and, at the time of acquisition, having one of
the two highest ratings obtainable from either Standard & Poor’s
Rating Group (“S&P”) or Moody’s Investor Service, Inc. (“Moody’s”),
(c) commercial paper maturing no more than 270 days from the date of
creation thereof and, at the time of acquisition, having a rating of at least A-1
from S&P or at least P-1 from Moody’s, (d) certificates of deposit or
bankers’ acceptances maturing within one (1) year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States or any state thereof having at the date of acquisition thereof combined
capital and surplus of not less than $250,000,000, (e)  Deposit Accounts
maintained with (i) any bank that satisfies the criteria described in
clause (d) above, or (ii) any other bank organized under the
laws of the United States or any state thereof so long as the amount maintained
with any such other bank is less than or equal to $100,000 and is insured by
the Federal Deposit Insurance Corporation, (f) Investments in money market
funds substantially all of whose assets are invested in the types of assets described
in clauses (a) through (e) above.


 


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


 


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


 


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


 


“Cash Sweep Instruction” has the meaning set forth in Section 2.7(b).


 


“Change of Control” means that (a) Permitted Holders fail
to own and control, directly or indirectly, 25% or more, of the Stock of
Borrower having the right to vote for the election of members of the Board of
Directors, (b) any “person” or “group” (within the meaning of Sections 13(d) and
14(d) of the Exchange Act), other than Permitted Holders, becomes the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 40%, or more, of the Stock of Borrower having the
right to vote for the election of members of the Board of Directors, or (c) a
majority of the members of the Board of Directors do not constitute Continuing
Directors.


 


“Closing Date” means the date of the making of the initial
Advance (or other extension of credit) hereunder or the date on which Lender
sends Borrower a written notice that each of the conditions precedent set forth
in Section 3.1 either have been satisfied or have been waived.


 


“Closing Date Business Plan” means the set of Projections of
Borrower from the Closing Date through Fiscal 2006, on a month-by-month basis,
in form and substance (including as to scope and underlying assumptions)
satisfactory to Lender.


 


“Code” means the Massachusetts Uniform Commercial Code, as in
effect from time to time; provided, however, that in the event
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection, priority, or remedies with respect to Lender’s Lien on any
Collateral is governed by the Uniform Commercial Code as enacted and in effect
in a jurisdiction other than the Commonwealth of Massachusetts, the term “Code”
shall mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions thereof relating to such
attachment, perfection, priority, or remedies.


 


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


 


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


 


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


 


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


 


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


 


“Continuing Director” means (a) any member of the Board of
Directors who was a director (or comparable manager) of Borrower on the Closing
Date, and (b) any individual who becomes a member of the Board of
Directors after the Closing Date if such individual was appointed or nominated
for election to the Board of Directors by a majority of the Continuing
Directors, but excluding any such individual originally proposed for election
in opposition to the Board of Directors in office at the Closing Date in an
actual or threatened election contest relating to the election of the directors
(or comparable managers) of Borrower and whose initial assumption of office
resulted from such contest or the settlement thereof.


 


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


 


“Cost”:  The lower of (a) or
(b), where:


 


(a)           is the calculated cost
of purchases, based upon the Borrower’s accounting practices as in effect on
the date on which this Agreement was executed and as thereafter modified with
the consent of the Lender, which consent shall not be unreasonably withheld, as
such calculated cost is determined from: invoices received by the Borrower; the
Borrower’s purchase journal; or the Borrower’s stock ledger.


 


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


 


(“Cost” does not include inventory capitalization costs or other
non-purchase price charges (such as freight) used in the Borrowers’ calculation
of cost of goods sold).


 


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


 


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


 


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


 


“Deposit Account” means any “deposit account” (as such term is
defined in Article 9 of the Code).


 


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


 


“Designated Account Bank” has the meaning ascribed thereto on 

Schedule D-1.


 


“Disbursement Letter” means an instructional letter executed and
delivered by Borrower to Lender regarding the extensions of credit to be made
on the Closing Date, the form and substance of which is satisfactory to Lender.


 


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


 


“Eligible Credit Card Receivables”:  Under Five (5) Business Day accounts due
on a non recourse basis from major credit card processors (which, if due on
account of a private label credit card program, are deemed in the Lender’s
reasonable discretion to be eligible).


 


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


 


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


 


(b)           it is not located at
one of the locations in the continental United States set forth on Schedule E-1
(or in-transit from one such location to another such location),


 


(c)           it is located on real
property leased by Borrower or in a contract warehouse, in each case, unless it
is subject to a Collateral Access Agreement executed by the lessor or
warehouseman, as the case may be, and unless it is segregated or otherwise
separately identifiable from goods of others, if any, stored on the premises,


 


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


 


(e)           it consists of goods
returned or rejected by Borrower’s customers as to which Borrower has not made
a determination of whether such goods are either saleable and to be returned to
its inventory or defective, or


 


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


 


provided, however,
that no Inventory shall be excluded from Eligible Inventory solely on the basis
that it consists of refurbished goods.


 


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


 


“Environmental Actions” means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter, or other communication from any
Governmental Authority, or any third party involving violations of
Environmental Laws or releases of Hazardous Materials from (a) any assets,
properties, or businesses of Borrower, its Subsidiaries, or any of their
predecessors in interest, (b) from adjoining properties or businesses, or (c) from
or onto any facilities which received Hazardous Materials generated by Borrower,
its Subsidiaries, or any of their predecessors in interest.


 


“Environmental Law” means any applicable federal, state,
provincial, foreign or local statute, law, rule, regulation, ordinance, code,
binding and enforceable guideline, binding and enforceable written policy, or rule of
common law now or hereafter in effect and in each case as amended, or any
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, in each case, to the extent
binding on Borrower or its Subsidiaries, relating to the environment, the
effect of the environment on employee health, or Hazardous Materials, including
the Comprehensive Environmental Response Compensation and Liability Act, 42 USC
§ 9601 et seq.; the Resource
Conservation and Recovery Act, 42 USC § 6901 et seq.; the Federal Water


 


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Pollution Control Act, 33 USC § 1251 et seq.; the Toxic Substances Control Act,
15 USC § 2601 et seq.; the
Clean Air Act, 42 USC § 7401 et seq.;
the Safe Drinking Water Act, 42 USC § 3803 et seq.; the Oil Pollution Act of 1990, 33 USC § 2701 et seq.; the Emergency Planning and the
Community Right-to-Know Act of 1986, 42 USC § 11001 et seq.; the Hazardous Material Transportation
Act, 49 USC § 1801 et seq.;
and the Occupational Safety and Health Act, 29 USC §651 et seq. (to the extent it regulates
occupational exposure to Hazardous Materials); any state and local or foreign
counterparts or equivalents, in each case as amended from time to time.


 


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


 


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


 


“Equipment” means “equipment” (as such term is defined in Article 9
of the Code) and includes machinery, machine tools, motors, furniture,
furnishings, fixtures, vehicles (including motor vehicles), computer hardware,
tools, parts, and goods (other than consumer goods, farm products, or
Inventory), wherever located, including all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any of
the foregoing.


 


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


 


“ERISA Affiliate” means (a) any Person subject to ERISA
whose employees are treated as employed by the same employer as the employees
of Borrower or its Subsidiaries under IRC Section 414(b), (b) any
trade or business subject to ERISA whose employees are treated as employed by
the same employer as the employees of Borrower or its Subsidiaries under IRC Section 414(c),
(c) solely for purposes of Section 302 of ERISA and Section 412
of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which Borrower or any of its Subsidiaries is a member under
IRC Section 414(m), or (d) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any Person subject to ERISA that is a
party to an arrangement with Borrower or any of its Subsidiaries and whose employees
are aggregated with the employees of Borrower or its Subsidiaries under IRC Section 414(o).


 


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


 


“Excess Availability” means as of any date of determination, the
excess, if any, of (a) Availability over (b) the sum of (i) all
then held checks (other than held checks


 


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drawn to pay accounts which are not more than
Thirty (30) days beyond stated credit terms); (ii) accounts payable which
are more than Sixty (60) days beyond credit terms; and (iii) overdrafts.


 


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


 


“Family Member” means, with respect to any individual, any other
individual having a relationship by blood (to the second degree of
consanguinity), marriage, or adoption to such individual.


 


“Family Trusts” means, with respect to any individual, trusts or
other estate planning vehicles established for the benefit of such individual
or Family Members of such individual and in respect of which such individual
serves as trustee or in a similar capacity.


 


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


 


“FEIN” means Federal Employer Identification Number.


 


“Filing Authorization Letter” means a letter duly executed by
Borrower authorizing Lender to file appropriate financing statements in such
office or offices as may be necessary or, in the opinion of Lender, desirable
to perfect the security interests to be created by the Loan Documents.


 


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


 


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


 


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


 


“General Intangibles” means “general intangibles” (as such term
is defined in Article 9 of the Code), including payment intangibles,
contract rights, rights to payment, rights arising under common law, statutes,
or regulations, choses or things in action, goodwill, patents, trade names,
trade secrets, trademarks, servicemarks, copyrights, blueprints, drawings,
purchase orders, customer lists, monies due or recoverable from pension funds,
route lists, rights to payment and other rights under any royalty or licensing
agreements, infringement claims, computer programs, information contained on
computer disks or tapes, software, literature, reports, catalogs, insurance
premium rebates, tax refunds, and tax refund claims, and any other personal
property other than Accounts, Deposit Accounts, goods, Investment Property, and
Negotiable Collateral.


 


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


 


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


 


“Guarantors” means each Subsidiary of Borrower (other than
Overstock Mexico, S. de R.L de C.V.), and “Guarantor” means any one of
them.


 


“Guarantor Security Agreement” means one or more security
agreements executed and delivered by each Guarantor in favor of Lender and the
Bank Product Providers, in each case, in form and substance satisfactory to Lender.


 


“Guaranty” means a general continuing guaranty executed and
delivered by each Guarantor in favor of Lender and the Bank Product Providers,
in form and substance satisfactory to Lender.


 


“Hazardous Materials” means (a) substances that are defined
or listed in, or otherwise classified pursuant to, any applicable laws or
regulations as “hazardous substances,” “hazardous materials,” “hazardous
wastes,” “toxic substances,” or any other formulation intended to define, list,
or classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity,
or “EP toxicity”, (b) oil, petroleum, or petroleum derived substances,
natural gas, natural gas liquids, synthetic gas, drilling fluids, produced
waters, and other wastes associated with the exploration, development, or
production of crude oil, natural gas, or geothermal resources, (c) any
flammable substances or explosives or any radioactive materials, and (d) asbestos
in any form or electrical equipment that contains any oil or dielectric fluid
containing levels of polychlorinated biphenyls in excess of 50 parts per
million.


 


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


 


“Indebtedness” means, as applied to any Person, (a) all
obligations for borrowed money, (b) all obligations evidenced by bonds,
debentures, notes, or other similar instruments and all reimbursement or other
obligations in respect of letters of credit, bankers acceptances, interest rate
swaps, hedges, derivatives, or other financial products, (c) all
obligations as a lessee under Capital Leases, (d) all obligations or
liabilities of others secured by a Lien on any asset of such Person or its Subsidiaries,
irrespective of whether such obligation or liability is assumed, (e) all
obligations of such Person to pay the deferred purchase price of assets (other
than trade payables incurred in the ordinary course of business and repayable
in accordance with customary trade practices), (f) all obligations of such


 


12





















 


Person owing under Hedge Agreements, and (g) any
obligation guaranteeing or intended to guarantee (whether directly or
indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse)
any obligation of any other Person that constitutes Indebtedness under any of
clauses (a) through (f) above.


 


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


 


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


 


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


 


“Intangible Assets” means, with respect to any Person, that
portion of the book value of all of such Person’s assets that would be treated
as intangibles under GAAP.


 


“Intellectual Property Right” means any copyright, patent, or
trademark (including any registrations or applications for registration of any
of the foregoing), or trade secret including, but not limited to, any such
legal rights included in any schematics, technology, know-how, computer
software programs or applications (in both source code and object code form) or
in other tangible or intangible information or material, and any license to use
the foregoing.


 


“Intellectual Property Security Agreement” means an intellectual
property security agreement executed and delivered by Borrower to Lender, the
form of which is satisfactory to Lender.


 


“Intercompany Subordination Agreement” means a subordination
agreement executed and delivered by Borrower and each of its Subsidiaries and
Lender, the form and substance of which is satisfactory to Lender.


 


“Interest Expense” means, for any period, the aggregate of the
interest expense of Borrower and its Subsidiaries for such period, determined
on a consolidated basis in accordance with GAAP.


 


“Interest Period” means, with respect to each LIBOR Rate Loan, a
period commencing on the date of the making of such LIBOR Rate Loan (or the continuation
of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate
Loan) and ending 1, 2, 3, or 6 months thereafter; provided, however,
that (a) if any Interest Period would end on a day that is not a Business
Day, such Interest Period shall be extended (subject to clauses (c)-(e) below)
to the next succeeding Business Day, (b) interest shall accrue at the
applicable rate based upon the LIBOR Rate from and including the first day of
each Interest Period to, but excluding, the day on which any Interest Period
expires, (c) any Interest Period that would end on a day that is not a
Business Day shall be extended to the next succeeding


 


13





















 


Business Day unless such Business Day falls
in another calendar month, in which case such Interest Period shall end on the
next preceding Business Day, (d) with respect to an Interest Period that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period), the Interest Period shall end on the last Business Day
of the calendar month that is 1, 2, 3 or 6 months after the date on which the
Interest Period began, as applicable, and (e) Borrower may not elect an
Interest Period which will end after the Maturity Date.


 


“Interest Rate Adjustment Commencement Date” means the date that
is three (3) months after the Closing Date.


 


“Inventory” means “inventory” (as such term is defined in Article 9
of the Code).


 


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


 


“Investment Property” means “investment property” (as such term
is defined in Article 9 of the Code).


 


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


 


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


 


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


 


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


 


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


 


“Lender Expenses” means all reasonable (a) costs or
expenses (including taxes, and insurance premiums) required to be paid by
Borrower or its Subsidiaries under any of the Loan Documents that are paid,
advanced, or incurred by Lender, (b) fees or charges paid or incurred by
Lender in connection with Lender’s transactions with Borrower or its Subsidiaries,
including, fees or charges for photocopying, notarization, couriers and
messengers, telecommunication, public record searches (including tax lien,
litigation, and Uniform Commercial Code searches and including searches with
the patent and trademark


 


14





















 


office, the copyright office, or the
department of motor vehicles), filing, recording, publication, appraisals
(including periodic collateral appraisals or business valuations to the extent
of the fees and charges (and up to the amount of any limitation) contained in
this Agreement), real estate surveys, real estate title policies and
endorsements, and environmental audits, (c) costs and expenses incurred by
Lender in the disbursement of funds to Borrower (by wire transfer or
otherwise), (d) charges paid or incurred by Lender resulting from the dishonor
of checks, (e) costs and expenses paid or incurred by Lender to correct
any default or enforce any provision of the Loan Documents, or in gaining
possession of, maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any portion
thereof, irrespective of whether a sale is consummated, (f) audit fees and
expenses of Lender related to audit examinations of the Books to the extent of
the fees and charges (and up to the amount of any limitation) contained in this
Agreement, (g) costs and expenses of third party claims or any other suit
paid or incurred by Lender in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or Lender’s
relationship with Borrower or any of its Subsidiaries, (h) Lender’s costs
and expenses (including attorneys fees) incurred in advising, structuring,
drafting, reviewing, administering, syndicating, or amending the Loan
Documents, and (i) Lender’s costs and expenses (including attorneys,
accountants, consultants, and other advisors fees and expenses) incurred in
terminating, enforcing (including attorneys, accountants, consultants, and
other advisors fees and expenses incurred in connection with a “workout,” a “restructuring,”
or an Insolvency Proceeding concerning Borrower or its Subsidiaries or in
exercising rights or remedies under the Loan Documents), or defending the Loan
Documents, irrespective of whether suit is brought, or in taking any Remedial
Action concerning the Collateral.


 


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


 


“Lender’s Account” means the account identified in Schedule L-1.


 


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


 


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


 


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


 


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


 


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


 


“LIBOR Option” has the meaning set forth in Section 2.13(a).


 


15





















 


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


 


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


 


“LIBOR Rate Margin” means 1.25%; provided, however,
that from and after the Interest Rate Adjustment Commencement Date, the “LIBOR
Rate Margin” shall have the meaning as set forth in the following table.  


 


	
  If
  Average Excess Availability is:

  	
   

  	
  LIBOR Rate Margin means:

  
	
   

  	
   

  	
   

  
	
  Greater than or equal to
  $10,000,000

  	
   

  	
  1.25%

  
	
   

  	
   

  	
   

  
	
  Greater than or equal to
  $5,000,000 but less than $10,000,000

  	
   

  	
  1.50%

  
	
   

  	
   

  	
   

  
	
  Less than $5,000,000

  	
   

  	
  1.75%

  



 


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


 


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


 


“Loan Documents” means this Agreement, the Bank Product
Agreements, the Cash Management Agreements, the Control Agreements, the Intellectual
Property Security Agreement, the Disbursement Letter, the Fee Letter, the Guarantor
Security Agreement, the Guaranty, the Letters of Credit, the Officers’
Certificate, the Securities Pledge Agreements, any note or notes executed by
Borrower in connection with this Agreement and payable to Lender, and any other
agreement entered into, now or in the future, by Borrower and Lender


 


16





















 


in connection with this Agreement (including
any agreements entered into pursuant to Section 6.15).


 


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


 


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


 


“Maximum Revolver Amount” means $40,000,000, unless increased in
accordance with the provisions of Section 2.2.


 


“Moody’s” has the meaning set forth in the definition of Cash
Equivalents.


 


“Negotiable Collateral” means letters of credit, letter of
credit rights, instruments, promissory notes, drafts, documents, and chattel
paper (including electronic chattel paper and tangible chattel paper).


 


“Net Liquidation Value” means the net recovery value
(liquidation value) of Inventory expressed as a percentage of the cost of such
Inventory, as determined by the Lender in its reasonable discretion based upon
the most recent Inventory appraisal available to the Lender conducted by an
appraiser reasonably acceptable to the Lender.


 


“Obligations” means (a) all loans, Advances, debts,
principal, interest (including any interest that, but for the commencement of
an Insolvency Proceeding, would have accrued), contingent reimbursement
obligations with respect to outstanding Letters of Credit, premiums,
liabilities (including all amounts charged to Borrower’s Loan Account pursuant
hereto), obligations (including indemnification obligations), fees (including
the fees provided for in the Fee Letter), charges, costs, Lender Expenses
(including any fees or expenses that, but for the commencement of an Insolvency
Proceeding, would have accrued), lease payments, guaranties, covenants, and
duties of any kind and description owing by Borrower to Lender pursuant to or
evidenced by the Loan Documents, or owing to Wells Fargo or to any Affiliate of
the Lender or of Wells Fargo, (including any amounts owed pursuant to the Wells
Fargo Bank Amended Credit Agreement) and irrespective of whether for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including all interest not
paid when due and all Lender Expenses that Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise, and (b) all Bank
Product Obligations.  Any reference in
this Agreement or in the Loan Documents to the Obligations shall include all
extensions, modifications, renewals or alterations thereof, both prior and
subsequent to any Insolvency Proceeding.


 


17





















 


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


 


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


 


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


 


“Permanent Reserve” means a permanent block against Availability
in the amount of $5,000,000.00.


 


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


 


“Permitted Dispositions” means (a) sales or other
dispositions of Equipment that is substantially worn, damaged, or obsolete in
the ordinary course of business, (b) sales of Inventory to buyers in the
ordinary course of business, including sales of Inventory to businesses and
other liquidators in bulk or otherwise in the ordinary course of Borrower’s Business-to-Business
operations consistent with Borrower’s practices as disclosed to Lender as of
the Closing Date, (c) the use or transfer of money or Cash Equivalents in
a manner that is not prohibited by the terms of this Agreement or the other
Loan Documents, and (d) the licensing, on a non-exclusive basis, of
patents, trademarks, copyrights, and other intellectual property rights in the
ordinary course of business.


 


“Permitted Holders” means Patrick Byrne, his Family Members,
their respective heirs, legatees, and Family Trusts, and any Persons owned or
controlled by any of the foregoing who own or control Stock of Borrower.


 


“Permitted Inventory Acquisition” means Borrower’s purchase or
acquisition of (i) all or substantially all of the Inventory of any Person
and (ii) any additional assets of any such Person reasonably necessary,
desirable or convenient in connection with or in order to facilitate Borrower’s
purchase or other acquisition of such Inventory; provided, that the
aggregate amount of consideration paid by Borrower in connection with any such
purchase or acquisition shall not exceed $50,000,000.


 


“Permitted Investments” means (a) Investments in cash and
Cash Equivalents, (b) investments in shorter-term, highly liquid
instruments such as government (including treasury), corporate, asset-backed
and auction-rate securities and other similar shorter -term instruments with
maturities generally less than three years or Investments otherwise permitted
by Borrower’s Investment Policy set forth as Schedule P-1, (c) Investments
in negotiable instruments for collection, (d) advances made in connection
with purchases of goods or services in the ordinary course of business, (e) Investments
received in settlement of amounts due to Borrower or any of its Subsidiaries
effected in the ordinary course of business or owing to Borrower or any of its
Subsidiaries as a result of Insolvency Proceedings involving an Account Debtor
or upon the foreclosure or enforcement of any


 


18





















 


Lien in favor of Borrower or its Subsidiaries,
(f) Investments in the securities held by Borrower and pledged to secure
Borrower’s obligations under the Wells Fargo Bank Amended Credit Agreement and
Investments made with the proceeds of such securities, (g) loans to the
entity described in Footnote 15 (titled “Variable Interest Entity”) to the
financial statements included in the Borrower’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 2005 of up to $10,000,000, plus an
additional amount of up to $3,001,000 that the Borrower may pay to exercise the
Purchase Option described in such Footnote 15, and (h) other Investments not
to exceed an aggregate of $20,000,000 in any calendar year so long as (x) immediately
prior to and after giving effect thereto no Default or Event of Default shall
have occurred and be continuing or will result therefrom and (y) no Triggering
Event Date shall have occurred or will result therefrom.


 


“Permitted Liens” means (a) Liens held by Lender, (b) Liens
for unpaid taxes that either (i) are not yet delinquent, or (ii) do
not constitute an Event of Default hereunder and are the subject of Permitted
Protests, (c) Liens set forth on Schedule P-1A, (d) the
interests of lessors under operating leases, (e) purchase money Liens or
the interests of lessors under Capital Leases to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as such Lien
attaches only to the asset purchased or acquired and the proceeds thereof, (f) Liens
arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course
of business and not in connection with the borrowing of money, and which Liens
either (i) are for sums not yet delinquent, or (ii) are the subject
of Permitted Protests, (g) Liens on amounts deposited in connection with
obtaining worker’s compensation or other unemployment insurance, (h) Liens
on amounts deposited in connection with the making or entering into of bids,
tenders, or leases in the ordinary course of business and not in connection
with the borrowing of money, (i) Liens on amounts deposited as security
for surety or appeal bonds in connection with obtaining such bonds in the
ordinary course of business, (j) Liens resulting from any judgment or award
that is not an Event of Default hereunder, and (k) with respect to any Real
Property, easements, rights of way, and zoning restrictions that (i) do
not materially interfere with or impair the use or operation thereof and (ii) are
not Environmental Liens.


 


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


 


“Permitted Purchase Money Indebtedness” means, as of any date of
determination, Purchase Money Indebtedness incurred after the Closing Date in
an aggregate amount outstanding at any one time not in excess of $20,000,000.


 


19





















 


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


 


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


 


“Purchase Money Indebtedness” means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the time
of, or within 20 days after, the acquisition of any fixed assets for the
purpose of financing all or any part of the acquisition cost thereof.


 


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


 


“Real Property Collateral” means the Real Property identified on
Schedule R-1 and any Real Property hereafter acquired by Borrower
or any of its Subsidiaries.


 


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


 


“Remedial Action” means all actions taken to (a) clean up,
remove, remediate, contain, treat, monitor, assess, evaluate, or in any way
address Hazardous Materials in the indoor or outdoor environment, (b) prevent
or minimize a release or threatened release of Hazardous Materials so they do
not migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, (c) restore or reclaim natural resources or
the environment, (d) perform any pre-remedial studies, investigations, or
post-remedial operation and maintenance activities, or (e) conduct any
other actions with respect to Hazardous Materials authorized by Environmental
Laws.


 


“Required Availability” means $5,000,000.00.


 


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


 


“Revolver Increase” has the meaning set forth in Section 2.2.


 


20





















 


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


 


“Seasonal Period” means August 31 through November 28 each year or such other 90 consecutive day period between August 1 and December 31
determined by Borrower and communicated to Lender in writing.


 


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


 


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


 


“Securities Pledge Agreement” means a securities pledge
agreement, in form and substance satisfactory to Lender, executed and delivered
by Borrower or one of its Subsidiaries to Lender.


 


“Solvent” means, with respect to any Person on a particular
date, that such Person is not insolvent (as such term is defined in the Uniform
Fraudulent Transfer Act), as in effect in the Commonwealth of Massachusetts.


 


“S&P” has the meaning set forth in the definition of Cash
Equivalents.


 


“Stock” means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock,
or any other “equity security” (as such term is defined in Rule 3a11-1 of
the General Rules and Regulations promulgated by the SEC under the Exchange
Act), but shall not include the 3.75% Senior Convertible Notes due 2011 issued
by Borrower, as they may be amended from time to time, or any security issued
by Borrower in exchange for any of such Notes or in connection with any
financing of any of the indebtedness evidenced by any such Notes.


 


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


 


“Supporting Obligation” means a letter-of-credit right or
secondary obligation that supports the payment or performance of an Account,
chattel paper, document, General Intangible, instrument, or Investment
Property.


 


“Taxes” has the meaning set forth in Section 16.5.


 


“Triggering Event Date” means any date upon which Excess
Availability shall be less than $10,000,000.


 


21





















 


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


 


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


 


“United States” means the United States of America.


 


“Voidable Transfer” has the meaning set forth in Section 16.8.


 


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


 


“Wells Fargo Bank Amended Credit Agreement” means that certain
Credit Agreement dated February 13, 2004 entered into by and between the
Borrower and Wells Fargo, as the same has been, and hereafter may be amended
and/or restated and in effect from time to time.


 


1.2          Accounting Terms.  All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.  When used herein, the term “financial
statements” shall include the notes and schedules thereto.  Whenever the term “Borrower” is used in
respect of a financial covenant or a related definition, it shall be understood
to mean Borrower and its Subsidiaries on a consolidated basis unless the
context clearly requires otherwise.


 


1.3          Code. 
Any terms used in this Agreement that are defined in the Code shall
be construed and defined as set forth in the Code unless otherwise defined
herein; provided, however, that to the extent that the Code is
used to define any term herein and such term is defined differently in
different Articles of the Code, the definition of such term contained in Article 9
shall govern.


 


1.4          Construction.  Unless the context of this Agreement or
any other Loan Document clearly requires otherwise, references to the plural
include the singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,”
and similar terms in this Agreement or any other Loan Document refer to this
Agreement or such other Loan Document, as the case may be, as a whole and not
to any particular provision of this Agreement or such other Loan Document, as
the case may be.  Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified.  Any reference in
this Agreement or in the other Loan Documents to any agreement, instrument, or
document shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, joinders, and
supplements, thereto and thereof, as applicable (subject to any restrictions on
such alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements


 


22





















 


set forth herein).  Any reference herein to the satisfaction or
repayment in full of the Obligations shall mean the repayment in full in cash
(or cash collateralization in accordance with the terms hereof) of all
Obligations other than contingent indemnification Obligations and other than
any Bank Product Obligations that, at such time, are allowed by the applicable
Bank Product Provider to remain outstanding and are not required to be repaid
or cash collateralized pursuant to the provisions of this Agreement.  Any reference herein to any Person shall be
construed to include such Person’s successors and assigns.  Any requirement of a writing contained herein
or in the other Loan Documents shall be satisfied by the transmission of a
Record and any Record transmitted shall constitute a representation and
warranty as to the accuracy and completeness of the information contained
therein.


 


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


 


2.             LOAN AND TERMS OF PAYMENT.


 


2.1          Revolver Advances.


 


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


 


(b)                                           Anything
to the contrary in this Section 2.1 notwithstanding, Lender shall
have the right to establish reserves in such amounts, and with respect to such
matters, as Lender in its Permitted Discretion shall deem necessary or
appropriate, against the Borrowing Base, including reserves with respect to


 


(i)            sums
that Borrower is required to pay (such as taxes, assessments, insurance
premiums, or, in the case of leased assets, rents or other amounts payable
under such leases) and has failed to pay under any Section of this
Agreement or any other Loan Document,


 


(ii)           amounts
owing by Borrower or its Subsidiaries to any Person to the extent secured by a
Lien on, or trust over, any of the Collateral (other than any existing
Permitted Lien set forth on Schedule P-1 which is specifically
identified thereon as entitled to have priority over the Lender’s Liens), which
Lien or trust, in the Permitted Discretion of Lender likely would have a
priority superior to the Lender’s Liens (such as Liens or trusts in favor of
landlords, warehousemen, carriers, mechanics, materialmen, laborers, or
suppliers, or Liens or trusts for ad valorem,
excise, sales, or other taxes where given priority under applicable law) in and
to such item of the Collateral, and


 


(iii)          Customer
Credit Liabilities.


 


23





















 


Further, the Lender may establish reserves from time to time in the
Lender’s Permitted Discretion with respect to the determination of the
saleability, at retail, of the Eligible Inventory or which reflect such other
factors as affect the market value of the Eligible Inventory.


 


In addition to the foregoing, the Lender shall have the right, as
provided in Section 2.11(c), to have the Borrower’s Inventory reappraised
by a qualified appraisal company selected by Lender from time to time after the
Closing Date for the purpose of re-determining the Net Liquidation Value of
Borrower’s Inventory and, as a result, re-determining the Borrowing Base.


 


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


 


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


 


2.2          Revolver Increase.


 


(a)                                           Provided
that no Event of Default has occurred and is continuing, the Borrower shall
have the right at any time through that date that is the second anniversary of
the Closing Date, on not more than Three (3) occasions, and upon not less
than Five (5) Business Days prior written notice to the Lender, to elect
to increase the Maximum Revolver Amount by up to $10,000,000.00 in the
aggregate, in minimum increments of $2,500,000.00 (each a “Revolver Increase”)
from the existing amount of $40,000,000.00 to an amount of up to $50,000,000.00.  Upon any Revolver Increase, the Maximum
Revolver Amount shall be increased to the elected amount and shall thereafter
be deemed the then existing Maximum Revolver Amount for all purposes under this
Agreement.


 


(b)                                           Increase
Conditions.   No Revolver Increase shall
become effective unless and until each of the following conditions have been
satisfied:


 


(i)            The
Borrower shall have paid the Lender the Revolver Increase Fee as provided in
the Fee Letter;


 


(ii)           A
note will be issued at the Borrower’s expense to the Lender to reflect the new Maximum
Revolver Amount; and


 


(iii)          The
Borrower shall have delivered such other instruments, documents, and agreements
with respect to the Revolver Increase as the Lender may reasonably have
requested.


 


24





















 


2.3          Borrowing Procedures and Settlements.


 


(a)                                           Procedure for Borrowing.  Each Borrowing shall be made by an
irrevocable written request by an Authorized Person delivered to Lender.   Such notice must be received by Lender no
later than 1:00 p.m. (Massachusetts time) on a Business Day specifying (i) the
amount of such Borrowing, and (ii) the requested Funding Date, which shall
be a Business Day.  At Lender’s election,
in lieu of delivering the above-described written request, any Authorized
Person may give Lender telephonic notice of such request by the required
time.  In such circumstances, Borrower
agrees that any such telephonic notice will be confirmed in writing within 24
hours of the giving of such telephonic notice, but the failure to provide such
written confirmation shall not affect the validity of the request.


 


(b)                                           Making of Advances. 
If Lender has received a timely request for a Borrowing in
accordance with the provisions hereof, and subject to the satisfaction of the
applicable terms and conditions set forth herein, Lender shall make the
proceeds of such Advance available to Borrower on the applicable Funding Date
by transferring available funds equal to such proceeds to Borrower’s Designated
Account.


 


2.4          Payments.


 


(a)                                           Payments by Borrower.


 


(i)            Except
as otherwise expressly provided herein, all payments by Borrower shall be made
to Lender’s Account for the account of the Lender and shall be made in
immediately available funds, no later than 2:00 p.m. (Massachusetts time)
on the date specified herein.  Any
payment received by Lender later than 2:00 p.m. (Massachusetts time) shall
be deemed to have been received on the following Business Day and any
applicable interest or fee shall continue to accrue until such following
Business Day.


 


(b)                                           Apportionment and Application.


 


(i)            Subject
to Section 2.4(b)(ii), all payments shall be remitted to Lender and all
such payments, and all proceeds of Collateral received by Lender, shall be
applied as follows:


 


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


 


(B)           second,
to pay any fees then due to Lender under the Loan Documents until paid in full,


 


(C)           third,
to pay interest due in respect of Advances until paid in full,


 


(D)          fourth,
so long as no Event of Default has occurred and is continuing, and at Lender’s
election (which election Lender agrees will not be made if an Overadvance would
be created thereby), to pay


 


25





















 


amounts then due and owing by Borrower or its
Subsidiaries in respect of Bank Products, until paid in full,


 


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


 


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


 


(G)           seventh,
to pay any other Obligations (including the provision of amounts to Lender, to
be held by Lender, for the benefit of the Bank Product Providers, as cash
collateral in an amount up to the amount determined by Lender in its Permitted
Discretion as the amount necessary to secure Borrower’s and its Subsidiaries’
obligations in respect of Bank Products), and


 


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


 


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


 


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


 


(iv)          In
the event of a direct conflict between the priority provisions of this Section 2.4
and other provisions contained in any other Loan Document, it is the intention
of the parties hereto that such priority provisions in such documents shall be
read together and construed, to the fullest extent possible, to be in concert
with each other.  In the event of any
actual,


 


26





















 


irreconcilable conflict that cannot be
resolved as aforesaid, the terms and provisions of this Section 2.4
shall control and govern.


 


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


 


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


 


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


 


The foregoing notwithstanding, at no time shall any portion of the
Obligations (other than Bank Product Obligations) bear interest on the Daily
Balance thereof at a per annum rate less than 3.50%.  To the extent that interest accrued hereunder
at the rate set forth herein would be less than the foregoing minimum daily
rate, the interest rate chargeable hereunder for such day automatically shall
be deemed increased to the minimum rate.


 


(b)                                           Letter of Credit Fee. 
Borrower shall pay Lender a Letter of Credit fee (in addition
to the charges, commissions, fees, and costs set forth in Section 2.12(e))
which shall accrue at a rate equal to (i) the LIBOR Rate Margin times the Daily Balance of the undrawn
amount of all outstanding stand-by Letters of Credit, and (ii) the LIBOR
Rate Margin minus One-half percent (.50%) times the Daily Balance of the
undrawn amount of all outstanding documentary Letters of Credit.


 


(c)                                           Default Rate.  Upon
the occurrence and during the continuation of an Event of Default, at the
election of Lender,


 


(i)            all
Obligations (except for undrawn Letters of Credit and except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof at a per annum rate
equal to Two percent (2.0%) above the per annum rate otherwise applicable
hereunder, and


 


27





















 


(ii)           the
Letter of Credit fee provided for above shall be increased to Two percent (2.00%)
above the per annum rate otherwise applicable hereunder.


 


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


 


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


 


(f)                                            Intent to Limit Charges to Maximum Lawful Rate.  In no event shall the interest
rate or rates payable under this Agreement, plus any other amounts paid in
connection herewith, exceed the highest rate permissible under any law that a
court of competent jurisdiction shall, in a final determination, deem
applicable.  Borrower and Lender, in
executing and delivering this Agreement, intend legally to agree upon the rate
or rates of interest and manner of payment stated within it; provided, however,
that, anything contained herein to the contrary notwithstanding, if said rate
or rates of interest or manner of payment exceeds the maximum allowable under
applicable law, then, ipso facto,
as of the date of this Agreement, Borrower is and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrower
in excess of such legal maximum, whenever received, shall be applied to reduce
the principal balance of the Obligations to the extent of such excess.


 


2.7          Cash Management.


 


(a)                                           Borrower
shall and shall cause each of its Subsidiaries to (i) establish and
maintain cash management services of a type and on terms satisfactory to Lender
at one or more of the banks set forth on Schedule 2.7(a) (each,
a “Cash Management Bank”), and


 


28





















 


shall request
in writing and otherwise take such reasonable steps to ensure that all of its
and its Subsidiaries’ Account Debtors forward payment of the amounts owed by
them directly to such Cash Management Bank, and (ii) deposit or cause to
be deposited promptly, and in any event no later than the first Business Day
after the date of receipt thereof, all of their Collections (including those
sent directly by their Account Debtors to Borrower or one of its Subsidiaries)
into a bank account in Lender’s name (a “Cash Management Account”) at
one of the Cash Management Banks.


 


(b)                                           Each
Cash Management Bank shall establish and maintain Cash Management Agreements
with Lender and Borrower, in form and substance acceptable to Lender.  Each such Cash Management Agreement shall
provide, among other things, that (i) the Cash Management Bank will comply
with any instructions originated by Lender directing the disposition of the
funds in such Cash Management Account without further consent by Borrower or
its Subsidiaries, as applicable, (ii) the Cash Management Bank has no
rights of setoff or recoupment or any other claim against the applicable Cash
Management Account other than for payment of its service fees and other charges
directly related to the administration of such Cash Management Account and for
returned checks or other items of payment, and (iii) at any time after
which Lender so instructs such Cash Management Bank (a “Cash Sweep
Instruction”), it immediately will forward by daily sweep all amounts in
the applicable Cash Management Account to the Lender’s Account until such time
(if any) as Lender, in its sole discretion, notifies it that the Cash Sweep
Instruction is terminated; and (iv) if clause (iii) is not
applicable, then Borrower may direct the Cash Management Bank to immediately
transfer all such amounts to any Deposit Account designated by Borrower for use
by Borrower in accordance with this Agreement. 
Lender may issue a Cash Sweep Instruction only if: (x) an Event of
Default shall have occurred and be continuing; or (y) a Triggering Event Date
has occurred.


 


(c)                                           So
long as no Default or Event of Default has occurred and is continuing, Borrower
may amend Schedule 2.7(a) to add or replace a Cash Management
Bank or Cash Management Account; provided, however, that (i) such
prospective Cash Management Bank shall be reasonably satisfactory to Lender,
and (ii) prior to the time of the opening of such Cash Management Account,
Borrower (or its Subsidiary, as applicable) and such prospective Cash
Management Bank shall have executed and delivered to Lender a Cash Management
Agreement.  Borrower (or its
Subsidiaries, as applicable) shall close any of its Cash Management Accounts
(and establish replacement cash management accounts in accordance with the
foregoing sentence) promptly and in any event within 30 days of notice from
Lender that the creditworthiness of any Cash Management Bank is no longer
acceptable in Lender’s reasonable judgment, or as promptly as practicable and
in any event within 60 days of notice from Lender that the operating
performance, funds transfer, or availability procedures or performance of the
Cash Management Bank with respect to Cash Management Accounts or Lender’s
liability under any Cash Management Agreement with such Cash Management Bank is
no longer acceptable in Lender’s reasonable judgment.


 


(d)                                           The
Cash Management Accounts shall be cash collateral accounts subject to Control
Agreements.


 


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2.8          Crediting Payments.  The receipt of any payment item by Lender
(whether from transfers to Lender by the Cash Management Banks pursuant to the
Cash Management Agreements or otherwise) shall not be considered a payment on
account unless such payment item is a wire transfer of immediately available
federal funds made to the Lender’s Account or unless and until such payment
item is honored when presented for payment. 
Should any payment item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment and interest shall be
calculated accordingly.  Anything to the
contrary contained herein notwithstanding, any payment item shall be deemed
received by Lender only if it is received into the Lender’s Account on a
Business Day on or before 2:00 p.m. (Massachusetts time).  If any payment item is received into the
Lender’s Account on a non-Business Day or after 2:00 p.m. (Massachusetts
time) on a Business Day, it shall be deemed to have been received by Lender as
of the opening of business on the immediately following Business Day.


 


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


 


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


 


2.11        Fees. 
Borrower shall pay to Lender the following fees and charges, which
fees and charges shall be non-refundable when paid (irrespective of whether
this Agreement is terminated thereafter):


 


(a)                                           Unused Line Fee. 
On the first day of each month during the term of this
Agreement, an unused line fee in an amount equal to 0.25% per annum times the
result


 


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of (i) the
Maximum Revolver Amount, less (ii) the sum of (A) the average Daily
Balance of Advances that were outstanding during the immediately preceding
month, plus (B) the average Daily Balance of the Letter of Credit Usage
during the immediately preceding month,


 


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


 


(c)                                           Audit, Appraisal, and Valuation Charges.  Audit, appraisal, and valuation
fees and charges as follows (i) a fee of $850 per day, per auditor, plus
out-of-pocket expenses for each financial audit of Borrower performed by
personnel employed by Lender, (ii) if implemented, a fee of $850 per day,
per applicable individual, plus out-of-pocket expenses for the establishment of
electronic collateral reporting systems, (iii) the actual charges incurred
by Lender for each appraisal of the Collateral, or any portion thereof, performed
by personnel employed by Lender, and (iv) the actual charges paid or
incurred by Lender if it elects to employ the services of one or more third
Persons to perform financial audits of Borrower or its Subsidiaries, to
establish electronic collateral reporting systems, to appraise the Collateral,
or any portion thereof, or to assess Borrower’s or its Subsidiaries’ business
valuation; provided, however, that, notwithstanding the
foregoing, so long as no Event of Default shall have occurred and be continuing,
Borrower shall not be responsible for the charges incurred in connection with
appraisals of the Collateral to the extent that such appraisals are done more
frequently than (x) prior to the occurrence of a Triggering Event Date, Two (2) times
during any fiscal year, and (y) after the occurrence of a Triggering Event
Date, Four (4) times during any fiscal year (it being understood and
agreed that the foregoing shall not prohibit in any way Lender from performing,
or causing the performance of, such appraisals more frequently).


 


2.12        Letters of Credit.


 


(a)                                           Subject
to the terms and conditions of this Agreement, Lender agrees to issue letters
of credit for the account of Borrower (each, an “L/C”) or to purchase
participations or execute indemnities or reimbursement obligations (each such
undertaking, an “L/C Undertaking”) with respect to letters of credit
issued by an Underlying Issuer (as of the Closing Date, the prospective
Underlying Issuer is to be Wells Fargo) for the account of Borrower.  Each request for the issuance of a Letter of
Credit, or the amendment, renewal, or extension of any outstanding Letter of
Credit, shall be made in writing by an Authorized Person and delivered to
Lender via hand delivery, telefacsimile, or other electronic method of transmission
reasonably in advance of the requested date of issuance, amendment, renewal, or
extension.   Each such request shall be
in form and substance satisfactory to Lender in its Permitted Discretion and
shall specify (i) the amount of such Letter of Credit, (ii) the date
of issuance, amendment, renewal, or extension of such Letter of Credit, (iii) the
expiration of such Letter of Credit, (iv) the name and address of the
beneficiary thereof (or the beneficiary of the Underlying Letter of Credit, as
applicable), and (v) such other information (including, in the case of an
amendment, renewal, or extension, identification of the outstanding Letter of
Credit to be so amended, renewed, or extended) as shall be


 


31





















 


necessary to
prepare, amend, renew, or extend such Letter of Credit.   If requested by Lender, Borrower also shall
be an applicant under the application with respect to any Underlying Letter of
Credit that is to be the subject of an L/C Undertaking.  Lender shall have no obligation to issue a
Letter of Credit if any of the following would result after giving effect to
the issuance of such requested Letter of Credit:


 


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


 


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


 


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


 


Borrower and Lender acknowledge and agree that certain Underlying
Letters of Credit may be issued to support letters of credit that already are
outstanding as of the Closing Date.  Each
Letter of Credit (and corresponding Underlying Letter of Credit) shall be in
form and substance acceptable to Lender (in the exercise of its Permitted
Discretion), including the requirement that the amounts payable thereunder must
be payable in Dollars.  If Lender is
obligated to advance funds under a Letter of Credit, Borrower immediately shall
reimburse such L/C Disbursement to Lender by paying to Lender an amount equal
to such L/C Disbursement not later than 2:00 p.m., Massachusetts time, on
the date that such L/C Disbursement is made, if Borrower shall have received
written or telephonic notice of such L/C Disbursement prior to 1:00 p.m., Massachusetts
time, on such date, or, if such notice has not been received by Borrower prior
to such time on such date, then not later than 2:00 p.m., Massachusetts
time, on the Business Day that Borrower receives such notice, if such notice is
received prior to 1:00 p.m., Massachusetts time, on the date of receipt,
and, in the absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, thereafter, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans
under Section 2.6.  To the
extent an L/C Disbursement is deemed to be an Advance hereunder, Borrower’s
obligation to reimburse such L/C Disbursement shall be discharged and replaced
by the resulting Advance.


 


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


 


32





















 


Undertakings
may require Lender to indemnify the Underlying Issuer for certain costs or
liabilities arising out of claims by Borrower against such Underlying
Issuer.  Borrower hereby agrees to
indemnify, save, defend, and hold Lender harmless with respect to any loss,
cost, expense (including reasonable attorneys fees), or liability incurred by
Lender under any L/C Undertaking as a result of Lender’s indemnification of any
Underlying Issuer; provided, however, that Borrower shall not be
obligated hereunder to indemnify for any loss, cost, expense, or liability to
the extent that it is caused by the gross negligence or willful misconduct of
Lender.  Borrower hereby acknowledges and
agrees that Lender shall not be responsible for delays, errors, or omissions
resulting from the malfunction of equipment in connection with any Letter of
Credit.


 


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


 


(d)                                           Any
and all charges, commissions, fees, and costs incurred by Lender relating to
Underlying Letters of Credit shall be Lender Expenses for purposes of this
Agreement and immediately shall be reimbursable by Borrower to Lender for the
account of Lender; it being acknowledged and agreed by Borrower that the
Underlying Issuer also imposes a schedule of charges for amendments,
extensions, drawings, and renewals.


 


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


 


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


 


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


 


and the result
of the foregoing is to increase, directly or indirectly, the cost to Lender of
issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce
the amount receivable in respect thereof by Lender, then, and in any such case,
Lender may, at any time within a reasonable period after the additional cost is
incurred or the amount received is reduced, notify Borrower, and Borrower shall
pay on demand such amounts as Lender may specify to be necessary to compensate
Lender for such additional cost or reduced receipt, together with interest on
such amount from the date of such demand until payment in full thereof at the
rate then applicable to Base Rate Loans hereunder.  The determination by Lender of any amount due
pursuant to this Section, as set forth in a certificate setting forth


 


33





















 


the
calculation thereof in reasonable detail, shall, in the absence of manifest or
demonstrable error, be final and conclusive and binding on all of the parties
hereto.


 


(f)                                            In
the interest of clarity and for the avoidance of doubt, it is acknowledged and
agreed that in connection with the determination of Availability, L/C’s and L/C
Undertakings under this Agreement are independent from any letters of credit or
similar letter of credit undertakings that the Borrower may procure through
Wells Fargo in accordance with, and subject to the Wells Fargo Bank Amended Credit
Agreement.  Any such letters of credit
and/or letter of credit undertakings procured through the Wells Fargo Bank
Amended Credit Agreement do constitute Obligations secured hereby, but shall
not be included in Letter of Credit Usage hereunder.


 


2.13        LIBOR Option.


 


(a)                                           Interest and Interest Payment Dates.  In lieu of having interest charged
at the rate based upon the Base Rate, Borrower shall have the option (the “LIBOR
Option”) to have interest on all or a portion of the Advances be charged at
a rate of interest based upon the LIBOR Rate. 
Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the
last day of the Interest Period applicable thereto (provided that in the case of any Interest Period for any LIBOR Rate
Loan which is greater than three months, interest on such LIBOR Rate Loan also
shall be payable on the date that is three months after the beginning of such
Interest Period), (ii) the occurrence of an Event of Default in
consequence of which Lender has elected to accelerate the maturity of all or
any portion of the Obligations, or (iii) termination of this Agreement
pursuant to the terms hereof.  On the
last day of each applicable Interest Period, unless Borrower properly has
exercised the LIBOR Option with respect thereto, the interest rate applicable
to such LIBOR Rate Loan automatically shall convert to the rate of interest
then applicable to Base Rate Loans of the same type hereunder.  At any time that an Event of Default has
occurred and is continuing, Borrower no longer shall have the option to request
that Advances bear interest at a rate based upon the LIBOR Rate and Lender
shall have the right to convert the interest rate on all outstanding LIBOR Rate
Loans to the rate then applicable to Base Rate Loans hereunder.


 


(b)                                           LIBOR Election.


 


(i)            Borrower
may, at any time and from time to time, so long as no Event of Default has
occurred and is continuing, elect to exercise the LIBOR Option by notifying
Lender prior to 2:00 p.m. (Massachusetts time) at least three (3) Business
Days prior to the commencement of the proposed Interest Period (the “LIBOR
Deadline”).  Notice of Borrower’s
election of the LIBOR Option for a permitted portion of the Advances and an
Interest Period pursuant to this Section shall be made by delivery to
Lender of a LIBOR Notice received by Lender before the LIBOR Deadline, or by
telephonic notice received by Lender before the LIBOR Deadline (to be confirmed
by delivery to Lender of a LIBOR Notice received by Lender prior to 5:00 p.m.
(Massachusetts time) on the same day.


 


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(ii)           Each
LIBOR Notice shall be irrevocable and binding on Borrower.  In connection with each LIBOR Rate Loan,
Borrower shall indemnify, defend, and hold Lender harmless against any loss,
cost, or expense incurred by Lender as a result of (a) the payment of any
principal of any LIBOR Rate Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b) the
conversion of any LIBOR Rate Loan other than on the last day of the Interest
Period applicable thereto, or (c) the failure to borrow, convert, continue
or prepay any LIBOR Rate Loan on the date specified in any LIBOR Notice
delivered pursuant hereto (such losses, costs, and expenses, collectively, “Funding
Losses”).  Funding Losses shall be
deemed to equal the amount determined by Lender to be the excess, if any, of (i) the
amount of interest that would have accrued on the principal amount of such
LIBOR Rate Loan had such event not occurred, at the LIBOR Rate that would have
been applicable thereto, for the period from the date of such event to the last
day of the then current Interest Period therefor (or, in the case of a failure
to borrow, convert, or continue, for the period that would have been the
Interest Period therefor), minus (ii) the amount of interest that would
accrue on such principal amount for such period at the interest rate which
Lender would be offered were it to be offered, at the commencement of such
period, Dollar deposits of a comparable amount and period in the London
interbank market.  A certificate of
Lender delivered to Borrower setting forth any amount or amounts that Lender is
entitled to receive pursuant to this Section 2.13 shall be
conclusive absent manifest error.


 


(iii)          Borrower
shall have not more than five (5) LIBOR Rate Loans in effect at any given
time.  Borrower only may exercise the
LIBOR Option for LIBOR Rate Loans of at least $1,000,000 and integral multiples
of $500,000 in excess thereof.


 


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


 


(d)                                           Special Provisions Applicable to LIBOR Rate.


 


(i)            The
LIBOR Rate may be adjusted by Lender on a prospective basis to take into
account any additional or increased costs to Lender of maintaining or obtaining
any eurodollar deposits or increased costs


 


35





















 


due to changes in applicable law occurring
subsequent to the commencement of the then applicable Interest Period,
including changes in tax laws (except changes of general applicability in
corporate income tax laws) and changes in the reserve requirements imposed by
the Board of Governors of the Federal Reserve System (or any successor),
excluding the Reserve Percentage, which additional or increased costs would
increase the cost of funding loans bearing interest at the LIBOR Rate.  In any such event, Lender shall give Borrower
notice of such a determination and adjustment and, upon its receipt of the
notice from Lender, Borrower may, by notice to Lender (y) require Lender to
furnish to Borrower a statement setting forth the basis for adjusting such
LIBOR Rate and the method for determining the amount of such adjustment, or (z)
repay the LIBOR Rate Loans with respect to which such adjustment is made
(together with any amounts due under clause (b)(ii) above).


 


(ii)           In
the event that any change in market conditions or any law, regulation, treaty,
or directive, or any change therein or in the interpretation of application
thereof, shall at any time after the date hereof, in the reasonable opinion of
Lender, make it unlawful or impractical for Lender to fund or maintain LIBOR
Advances or to continue such funding or maintaining, or to determine or charge
interest rates at the LIBOR Rate, Lender shall give notice of such changed
circumstances to Borrower and (y) in the case of any LIBOR Rate Loans that are
outstanding, the date specified in Lender’s notice shall be deemed to be the
last day of the Interest Period of such LIBOR Rate Loans, and interest upon the
LIBOR Rate Loans thereafter shall accrue interest at the rate then applicable
to Base Rate Loans, and (z) Borrower shall not be entitled to elect the LIBOR
Option until Lender determines that it would no longer be unlawful or
impractical to do so.


 


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


 


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


 


36





















 


into consideration Lender’s or such holding
company’s then existing policies with respect to capital adequacy and assuming
the full utilization of such entity’s capital) by any amount deemed by Lender
to be material, then Lender may notify Borrower thereof.  Following receipt of such notice, Borrower
agrees to pay Lender on demand the amount of such reduction of return of
capital as and when such reduction is determined, payable within 90 days after
presentation by Lender of a statement in the amount and setting forth in
reasonable detail Lender’s calculation thereof and the assumptions upon which
such calculation was based (which statement shall be deemed true and correct
absent manifest error).  In determining
such amount, Lender may use any reasonable averaging and attribution methods.


 


3.             CONDITIONS; TERM OF AGREEMENT.


 


3.1          Conditions Precedent to the Initial
Extension of Credit.  The
obligation of Lender to make the initial extension of credit provided for
hereunder, is subject to the fulfillment, to the satisfaction of Lender (the
making of such initial extension of credit by Lender being conclusively deemed
to be its satisfaction or waiver of the following), of each of the following
conditions precedent:


 


(a)                                           the
Closing Date shall occur on or before December 12, 2005;


 


(b)                                           Lender
shall have received a Filing Authorization Letter, duly executed by Borrower,
together with appropriate financing statements duly filed in such office or
offices as may be necessary or, in the opinion of Lender, desirable to perfect
the Lender’s Liens in and to the Collateral, and Lender shall have received
searches reflecting the filing of all such financing statements;


 


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


 


(i)            the
Cash Management Agreements,


 


(ii)           the
Control Agreements,


 


(iii)          the
Intellectual Property Security Agreement,


 


(iv)          the
Disbursement Letter,


 


(v)           the
Fee Letter,


 


(vi)          the
Officers’ Certificate, and


 


(vii)         the
Securities Pledge Agreement, together with all certificates representing the
shares of Stock pledged thereunder, as well as Stock powers with respect
thereto endorsed in blank (or equivalent, in the case of any non-U.S.
Subsidiary whose Stock is pledged);


 


37





















 


(d)                                           Lender
shall have received a certificate from the Secretary of Borrower (i) attesting
to the resolutions of Borrower’s Board of Directors authorizing its execution,
delivery, and performance of this Agreement and the other Loan Documents to
which Borrower is a party, (ii) authorizing specific officers of Borrower
to execute the same, and (iii) attesting to the incumbency and signatures
of such specific officers of Borrower;


 


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


 


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


 


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


 


(h)                                           Lender
shall have received a certificate of insurance, together with the endorsements
thereto, as are required by Section 6.8, the form and substance of
which shall be satisfactory to Lender;


 


(i)                                            Lender
shall have entered into a satisfactory Intercreditor Agreement with Wells Fargo
Bank, National Association;


 


(j)                                            Lender
shall have received Collateral Access Agreements with respect to the following
locations: (i) 6350 South 3000 East, Salt Lake City, UT 84121 (Suite 100,
Suites 200,300 and 400, Suite 500 and Suite 600), (ii) 6344
South 3000 East, Salt Lake City, Utah 84121, (iii) 955 South 3800 West,
Salt Lake City, UT 84104, (iv) 1545 South 4800 West, Salt Lake City, Utah
84104, (v) 1551 Opus Drive, Plainfield, Indiana, 46168, (vi) 2800
Airwest Boulevard, Plainfield, Indiana 46168, and (vii) 3949 South 200
East, Suite B1, Salt Lake City, Utah 84104;


 


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


 


(l)                                            Lender
shall have received satisfactory evidence (including a certificate of the chief
financial officer of Borrower) that all tax returns required to be filed by Borrower
and its Subsidiaries have been timely filed and all taxes upon Borrower and its
Subsidiaries or their properties, assets, income, and franchises (including
Real Property taxes, sales taxes, and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a Permitted Protest;


 


38





















 


(m)                                          Borrower
shall have the Required Availability after giving effect to the initial
extensions of credit hereunder and the payment of all fees and expenses
required to be paid by Borrower on the Closing Date under this Agreement or the
other Loan Documents;


 


(n)                                           Lender
shall have completed its business, legal, and collateral due diligence,
including (i) a collateral audit and review of Borrower’s and its
Subsidiaries’ books and records and verification of Borrower’s representations
and warranties to Lender, the results of which shall be satisfactory to Lender,
and (ii) an inspection of each of the locations where Borrower’s and its
Subsidiaries’ Inventory is located, the results of which shall be satisfactory
to Lender;


 


(o)                                           Lender
shall have received completed reference checks with respect to Borrower’s
senior management, the results of which are satisfactory to Lender in its sole
discretion;


 


(p)                                           Lender
shall have received an appraisal of the Net Liquidation Value applicable to
Borrower’s and its Subsidiaries’ Inventory, the results of which shall be
satisfactory to Lender;


 


(q)                                           A
takeover audit shall have been conducted by or on behalf of Lender, the results
of which shall be reasonably satisfactory to Lender;


 


(r)                                            Lender
shall have received Uniform Commercial Code, tax lien, and litigation searches,
the results of which shall be satisfactory to Lender;


 


(s)                                           Lender
shall have reviewed and shall be satisfied with all material agreements and
customer contracts of Borrower, including fulfillment partner agreements;


 


(t)                                            Lender
shall have satisfactorily reconciled Borrower’s projected cash flow statement
for 2006 which shall be consistent with the Borrower’s Closing Date Business
Plan;


 


(u)                                           Lender
shall have received Borrower’s Closing Date Business Plan, the results of which
shall be satisfactory to Lender;


 


(v)                                           Borrower
shall have paid all Lender Expenses incurred in connection with the
transactions evidenced by this Agreement;


 


(w)                                          Borrower
and each of its Subsidiaries shall have received all licenses, approvals or
evidence of other actions required by any Governmental Authority in connection
with the execution and delivery by Borrower or its Subsidiaries of the Loan
Documents or with the consummation of the transactions contemplated thereby;
and


 


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


 


39





















 


3.2          Conditions Subsequent to the Initial
Extension of Credit.  The
obligation of Lender to continue to make Advances (or otherwise extend credit
hereunder) is subject to the fulfillment, on or before the date applicable
thereto, of each of the conditions subsequent set forth in a certain
post-closing letter agreement executed in connection herewith dated as of the
date hereof (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default).


 


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


 


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


 


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


 


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


 


(d)                                           no
Material Adverse Change shall have occurred.


 


3.4          Term. 
This Agreement shall continue in full force and effect for a term
ending on the third anniversary of the Closing Date (the “Maturity Date”).  The foregoing notwithstanding, Lender shall
have the right to terminate its obligations under this Agreement immediately
and without notice upon the occurrence of an Event of Default, and Borrower
shall have the right to terminate this Agreement in accordance with the
provisions of Section 3.6.


 


3.5          Effect of Termination.  On the date of termination of this
Agreement, all Obligations (including contingent reimbursement obligations of
Borrower with respect to outstanding Letters of Credit and including all Bank
Product Obligations) immediately shall become due and payable without notice or
demand (including (a) either (i) providing cash collateral to be held
by Lender in an amount equal to 105% of the Letter of Credit Usage, or (ii) causing
the original Letters of Credit to be returned to Lender, and (b) providing
cash collateral (in an amount determined by Lender as sufficient to satisfy the
reasonably estimated credit exposure) to be held by Lender for the benefit of
the Bank Product Providers with respect to the Bank Product Obligations).  No termination of this Agreement, however,
shall relieve or discharge Borrower or its Subsidiaries of their duties,
Obligations, or covenants hereunder or under any other Loan Documents and the
Lender’s Liens in the Collateral shall remain in effect until all Obligations
have been paid in full and Lender’s obligations to provide additional credit
hereunder have been terminated.  When
this


 


40





















 


Agreement has been terminated and all of the
Obligations have been paid in full and Lender’s obligations to provide
additional credit under the Loan Documents have been terminated irrevocably,
Lender will, at Borrower’s sole expense, execute and deliver any termination
statements, lien releases, mortgage releases, re-assignments of trademarks,
discharges of security interests, and other similar discharge or release
documents (and, if applicable, in recordable form) as are reasonably necessary
to release, as of record, the Lender’s Liens and all notices of security
interests and liens previously filed by Lender with respect to the Obligations.  Notwithstanding the foregoing, Borrower’s
termination of this Agreement shall not require Borrower to terminate the Wells
Fargo Bank Amended Credit Agreement.


 


3.6          Early Termination by Borrower.  Borrower has the option, at any time upon
prior written notice to Lender (the number of prior days to be agreed to
separately between Borrower and Lender), to terminate this Agreement by paying
to Lender, in cash, the Obligations (including (a) either (i) providing
cash collateral to be held by Lender in an amount equal to 105% of the Letter
of Credit Usage, or (ii) causing the original Letters of Credit to be
returned to Lender, and (b) providing cash collateral (in an amount
determined by Lender as sufficient to satisfy the reasonably estimated credit
exposure) to be held by Lender for the benefit of the Bank Product Providers
with respect to the Bank Product Obligations), in full, together with the
Applicable Prepayment Premium.  If
Borrower has sent a notice of termination pursuant to the provisions of this
Section, then Lender’s obligations to extend credit hereunder shall terminate
and Borrower shall be obligated to repay the Obligations (including (a) either
(i) providing cash collateral to be held by Lender in an amount equal to
105% of the Letter of Credit Usage, or (ii) causing the original Letters
of Credit to be returned to Lender, and (b) providing cash collateral (in
an amount determined by Lender as sufficient to satisfy the reasonably
estimated credit exposure) to be held by Lender for the benefit of the Bank
Product Providers with respect to the Bank Product Obligations), in full,
together with the Applicable Prepayment Premium, on the date set forth as the
date of termination of this Agreement in such notice.  In the event of the termination of this
Agreement and repayment of the Obligations at any time prior to the Maturity
Date, for any of the following reasons: (a) termination upon the election
of Lender to terminate after the occurrence and during the continuation of an
Event of Default, (b) foreclosure and sale of Collateral, (c) sale of
the Collateral in any Insolvency Proceeding, or (d) restructure,
reorganization, or compromise of the Obligations by the confirmation of a plan
of reorganization or any other plan of compromise, restructure, or arrangement
in any Insolvency Proceeding; then, in view of the impracticability and extreme
difficulty of ascertaining the actual amount of damages to Lender or profits
lost by Lender as a result of such early termination, and by mutual agreement
of the parties as to a reasonable estimation and calculation of the lost
profits or damages of Lender, Borrower shall pay the Applicable Prepayment Premium
to Lender, measured as of the date of such termination.


 


4.             CREATION OF SECURITY INTEREST.


 


4.1          Grant of Security Interest.  Borrower hereby grants to Lender, for the
benefit of Lender and the Bank Product Providers, a continuing security
interest in all of its right, title, and interest in all currently existing and
hereafter acquired or arising Borrower


 


41





















 


Collateral in order to secure prompt
repayment of any and all of the Obligations in accordance with the terms and
conditions of the Loan Documents and in order to secure prompt performance by
Borrower of each of its covenants and duties under the Loan Documents.  The Lender’s Liens in and to the Borrower
Collateral shall attach to all Borrower Collateral without further act on the
part of Lender or Borrower.  Anything
contained in this Agreement or any other Loan Document to the contrary
notwithstanding, except for Permitted Dispositions, Borrower and its
Subsidiaries have no authority, express or implied, to dispose of any item or
portion of the Collateral.


 


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


 


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


 


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


 


(a)                                           Borrower
authorizes Lender to file any financing statement necessary or desirable to
effectuate the transactions contemplated by the Loan Documents, and any
continuation statement or amendment with respect thereto, in any appropriate
filing office without the signature of Borrower where permitted by applicable
law. Borrower hereby ratifies the filing of any financing statement filed
without the signature of Borrower prior to the date hereof.  Such financing statements may describe the
Borrower Collateral in the same manner as described herein or may contain an
indication or description of collateral that describes such property in any
other manner as Lender may determine is necessary, advisable or prudent to
ensure the perfection of the security interest in the Borrower Collateral granted
to Lender herein, including describing such property as “all assets, whether
now owned or hereafter acquired” or “all personal property, whether now owned
or hereafter acquired.”


 


(b)                                           If
Borrower or its Subsidiaries acquire any commercial tort claims after the date
hereof, Borrower shall promptly (but in any event within three (3) Business
Days after such acquisition) deliver to Lender a written description of such
commercial tort claim and shall deliver a written agreement, in form and
substance satisfactory to Lender, pursuant


 


42





















 


to which
Borrower or its Subsidiary, as applicable, shall grant a perfected security
interest in all of its right, title and interest in and to such commercial tort
claim to Lender, as security for the Obligations (a “Commercial Tort Claim
Assignment”) and, if Lender reasonably determines that perfection or
priority of Lender’s security interest is dependent on or enhanced by filing
Commercial Tort Claim Assignments, Borrower, promptly after the request of
Lender, shall file all such Commercial Tort Claim Assignments with the court as
appropriate.


 


(c)                                           At
any time upon the request of Lender, Borrower shall execute and deliver to
Lender, and shall cause its Subsidiaries to execute and deliver to Lender, any
and all financing statements, original financing statements in lieu of
continuation statements, amendments to financing statements, fixture filings,
security agreements, pledges, mortgages, surveys, assignments, Commercial Tort
Claim Assignments, endorsements of certificates of title, and all other
documents (collectively, the “Additional Documents”) that Lender may
request in its Permitted Discretion, in form and substance satisfactory to
Lender, to create, perfect, and continue perfected or to better perfect the
Lender’s Liens in the assets of Borrower and its Subsidiaries (whether now
owned or hereafter arising or acquired, tangible or intangible, real or
personal), to create and perfect Liens in favor of Lender in any owned Real
Property acquired after the Closing Date, and in order to fully consummate all
of the transactions contemplated hereby and under the other Loan
Documents.  To the maximum extent
permitted by applicable law, Borrower authorizes Lender to execute any such
Additional Documents in Borrower’s name and authorizes Lender to file such
executed Additional Documents in any appropriate filing office.  In addition, on such periodic basis as Lender
shall require, Borrower shall (i) provide Lender with a report of all new material
patentable, copyrightable, or trademarkable materials acquired or generated by
Borrower or its Subsidiaries during the prior period, (ii) cause all material
patents, copyrights, and trademarks acquired or generated by Borrower or its Subsidiaries
that are not already the subject of a registration with the appropriate filing
office (or an application therefor diligently prosecuted) to be registered with
such appropriate filing office in a manner sufficient to impart constructive
notice of Borrower’s or the applicable Subsidiary’s ownership thereof, and (iii) cause
to be prepared, executed, and delivered to Lender supplemental schedules to the
applicable Loan Documents to identify such patents, copyrights, and trademarks
as being subject to the security interests created thereunder; provided,
however, that neither Borrower nor any of its Subsidiaries shall
register with the U.S. Copyright Office any unregistered copyrights (whether in
existence on the Closing Date or thereafter acquired, arising, or developed)
unless (i) the Borrower provides Lender with written notice of its intent
to register such copyrights not less than five (5) Business Days prior to
the date of the proposed registration, and (ii) prior to such
registration, the applicable Person executes and delivers to Lender an
intellectual property security agreement in form and substance satisfactory to
Lender, supplemental schedules to any existing intellectual property security
agreement, or such other documentation as Lender reasonably deems necessary in
order to perfect and continue perfected Lender’s Liens on such copyrights
following such registration.


 


43





















 


4.5          Power of Attorney.  Borrower hereby irrevocably makes,
constitutes, and appoints Lender (and any of Lender’s officers, employees, or
agents designated by Lender) as Borrower’s true and lawful attorney, with power
to (a) at any time that a Default or Event of Default shall have occurred
and be continuing or a Triggering Event Date shall have occurred, if Borrower
refuses to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) at any time that an
Event of Default has occurred and is continuing, sign Borrower’s name on any
invoice or bill of lading relating to the Borrower Collateral, drafts against
Account Debtors, or notices to Account Debtors, (c) send requests for
verification of Borrower’s or its Subsidiaries’ Accounts, (d) at any time
that a Cash Sweep Instruction is in effect, endorse Borrower’s name on any of
its payment items (including all of its Collections) that may come into Lender’s
possession, (e) at any time that an Event of Default has occurred and is continuing,
make, settle, and adjust all claims under Borrower’s policies of insurance and
make all determinations and decisions with respect to such policies of
insurance, and (f) at any time that an Event of Default has occurred and
is continuing, settle and adjust disputes and claims respecting Borrower’s or
its Subsidiaries’ Accounts, chattel paper, or General Intangibles directly with
Account Debtors, for amounts and upon terms that Lender determines to be
reasonable, and Lender may cause to be executed and delivered any documents and
releases that Lender determines to be necessary.  The appointment of Lender as Borrower’s
attorney, and each and every one of its rights and powers, being coupled with
an interest, is irrevocable until all of the Obligations have been fully and
finally repaid and performed and Lender’s obligations to extend credit
hereunder are terminated.


 


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


 


4.7          Control Agreements.  Borrower agrees that it will and will
cause its Subsidiaries to take any or all reasonable steps in order for Lender
to obtain control in accordance with Sections 8-106, 9-104, 9-105, 9-106, and 9-107
of the Code with respect to (subject to the proviso contained in Section 7.12)
all of its or their Securities Accounts, Deposit Accounts, electronic chattel
paper, Investment Property, and letter-of-credit rights.  Upon the occurrence and during the
continuance of a Default or Event of Default, Lender may notify any bank or
securities intermediary to liquidate the applicable Deposit Account or
Securities Account or any related Investment Property maintained or held
thereby and remit the proceeds thereof to the Lender’s Account.


 


5.             REPRESENTATIONS AND WARRANTIES.


 


In order to induce Lender to enter into this Agreement, Borrower makes
the following representations and warranties to Lender which shall be true,
correct, and complete, in all material respects, as of the date hereof, and
shall be true, correct, and complete, in all material respects, as of the
Closing Date, and at and as of the date of the


 


44





















 


making of each Advance (or other extension of
credit) made thereafter, as though made on and as of the date of such Advance
(or other extension of credit) (except to the extent that such representations
and warranties relate solely to an earlier date) and such representations and
warranties shall survive the execution and delivery of this Agreement:


 


5.1          No Encumbrances.  Borrower and its Subsidiaries have good
and indefeasible title to, or a valid leasehold interest in, their personal
property assets and good and marketable title to, or a valid leasehold interest
in, their Real Property, in each case, free and clear of Liens except for
Permitted Liens.


 


5.2          Eligible Inventory.  As to each item of Inventory that is
identified by Borrower as Eligible Inventory in a borrowing base report submitted
to Lender, such Inventory is, to the knowledge of Borrower, and subject to the
provisions of the following sentence, (a) of good and merchantable
quality, free from known defects, and (b) not excluded as ineligible by
virtue of one or more of the excluding criteria set forth in the definition of
Eligible Inventory.  Lender acknowledges
that in view of the magnitude of Borrower’s operations and the nature of
Borrower’s business, a portion of the Inventory identified by Borrower as
Eligible Inventory in a borrowing base report submitted to Lender may be
damaged or may otherwise not be of good and merchantable quality, and that
Borrower has no practicable way to identify such items of Inventory, and that
Borrower shall not be deemed to have breached this representation solely
because of the foregoing.


 


5.3          Equipment.  All of the Equipment of Borrower and its
Subsidiaries is used or held for use in their business and is fit for such
purposes, subject to wear and tear and downtime and subject to replacement or
upgrades in connection with the expansion of Borrower’s business from time to
time.


 


5.4          Location of Inventory and Equipment.  The Inventory and Equipment of Borrower
and its Subsidiaries are not stored with a bailee, warehouseman, or similar
party (other than third party logistics providers such as Ozburn-Hessey
Logistics, LLC) and are located only at, or in-transit between, the locations
identified on Schedule 5.4 (as such Schedule may be updated
pursuant to Section 6.9).


 


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


 


5.6          State of Incorporation; Location of Chief
Executive Office; FEIN; Organizational Identification Number; Commercial Tort
Claims.


 


(a)                                           The
jurisdiction of organization of Borrower and each of its Subsidiaries is set
forth on Schedule 5.6(a).


 


(b)                                           The
chief executive office of Borrower and each of its Subsidiaries is located at
the address indicated on Schedule 5.6 (b) (as such Schedule may
be updated pursuant to Section 6.9).


 


45





















 


(c)                                           Borrower’s
and each of its Subsidiaries’ FEIN and organizational identification numbers,
if any, are identified on Schedule 5.6(c).


 


(d)                                           As
of the Closing Date, Borrower and its Subsidiaries do not hold any commercial
tort claims, except as set forth on Schedule 5.6(d).


 


5.7          Due Organization and Qualification;
Subsidiaries.


 


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


 


(b)                                           Set
forth on Schedule 5.7(b), is a complete and accurate description of
the authorized capital Stock of Borrower, by class, and, as of the date or
dates set forth in such Schedule, a description of the number of shares of each
such class that are issued and outstanding. 
Other than as described on Schedule 5.7(b), there are no
subscriptions, options, warrants, or calls relating to any shares of Borrower’s
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. 
Other than as described on Schedule 5.7(b), Borrower is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital Stock or any security convertible
into or exchangeable for any of its capital Stock.


 


(c)                                           Set
forth on Schedule 5.7(c), is a complete and accurate list of
Borrower’s direct and indirect Subsidiaries, showing:  (i) the jurisdiction of their
organization, (ii) the number of shares of each class of common and
preferred Stock authorized for each of such Subsidiaries, and (iii) the
number and the percentage of the outstanding shares of each such class owned
directly or indirectly by Borrower.  All
of the outstanding capital Stock of each such Subsidiary has been validly
issued and is fully paid and non-assessable.


 


(d)                                           Except
as set forth on Schedule 5.7(c), there are no subscriptions,
options, warrants, or calls relating to any shares of Borrower’s Subsidiaries’
capital Stock, including any right of conversion or exchange under any
outstanding security or other instrument. 
Neither Borrower nor any of its Subsidiaries is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of Borrower’s Subsidiaries’ capital Stock or any security
convertible into or exchangeable for any such capital Stock.


 


5.8          Due Authorization; No Conflict.


 


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


 


46





















 


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


 


(c)                                           Other
than (i) the filing of financing statements, and (ii) any recording
of the Intellectual Property Security Agreement in the United States Copyright
Office or the recording of the Intellectual Property Security Agreement in the
United States Patent and Trademark Office, the execution, delivery, and
performance by Borrower of this Agreement and the other Loan Documents to which
Borrower is a party do not and will not require any registration with, consent,
or approval of, or notice to, or other action with or by, any Governmental
Authority, other than consents or approvals that have been obtained and that
are still in force and effect.


 


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


 


(e)                                           The
Lender’s Liens are validly created, perfected, and first priority Liens,
subject only to Permitted Liens.


 


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


 


(g)                                           The
execution, delivery, and performance by each Guarantor of the Loan Documents to
which it is a party do not and will not (i) violate any provision of
federal, state, or local law or regulation applicable to such Guarantor, the
Governing Documents of such Guarantor, or any order, judgment, or decree of any
court or other Governmental Authority binding on such Guarantor, (ii) conflict
with, result in a breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of such Guarantor, (iii) result
in or require the creation or imposition of any Lien of any nature whatsoever
upon any properties or assets of such Guarantor, other than Permitted Liens, or
(iv) require any approval of such Guarantor’s interestholders or any
approval or


 


47





















 


consent of any
Person under any material contractual obligation of such Guarantor, other than
consents or approvals that have been obtained and that are still in force and
effect.


 


(h)                                           Other
than (i) the filing of financing statements, and (ii) any recording
of the Intellectual Property Security Agreement in the United States Copyright
Office or the recording of the Intellectual Property Security Agreement in the
United States Patent and Trademark Office, the execution, delivery, and
performance by each Guarantor of the Loan Documents to which such Guarantor is
a party do not and will not require any registration with, consent, or approval
of, or notice to, or other action with or by, any Governmental Authority other
than consents or approvals that have been obtained and that are still in force
and effect.


 


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


 


5.9          Litigation.  Other than those matters disclosed on Schedule 5.9
and other than matters existing on the Closing Date or arising after the
Closing Date that reasonably could not be expected to result in a Material
Adverse Change, there are no actions, suits, or proceedings pending or, to the
best knowledge of Borrower, threatened against Borrower or any of its
Subsidiaries.


 


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


 


5.11        Fraudulent Transfer.


 


(a)                                           Borrower
is Solvent.


 


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


 


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


 


48





















 


5.13        Environmental Condition.  Except as set forth on Schedule 5.13,
(a) to Borrower’s knowledge, none of Borrower’s or its Subsidiaries’
properties or assets has ever been used by Borrower, its Subsidiaries, or by
previous owners or operators in the disposal of, or to produce, store, handle,
treat, release, or transport, any Hazardous Materials, where such use,
production, storage, handling, treatment, release or transport was in
violation, in any material respect, of any applicable Environmental Law, (b) to
Borrower’s knowledge, none of Borrower’s or its Subsidiaries’ properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a Hazardous Materials disposal site, (c) neither
Borrower nor any of its Subsidiaries has received notice that a Lien arising
under any Environmental Law has attached to any revenues or to any Real
Property owned or operated by Borrower or its Subsidiaries, and (d) neither
Borrower nor its Subsidiaries has received a summons, citation, notice, or
directive from the United States Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
Borrower or its Subsidiaries resulting in the releasing or disposing of
Hazardous Materials into the environment.


 


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


 


5.15        Intellectual Property.


 


(a)                                           Each
of Borrower and its Subsidiaries owns, or holds licenses in, all material Intellectual
Property Rights.  Attached hereto as Schedule 5.15(a) (which
Borrower may amend from time to time provided that notice and copies thereof
are promptly provided to Lender) is a true, correct, and complete listing of
all patents, patent applications, trademarks, trademark applications and
copyrights (including copyright registrations and applications) as to which Borrower
is the owner or is an exclusive licensee.


 


(b)                                           Borrower
represents and warrants that it and its Subsidiaries have taken all actions
reasonably necessary to protect material Borrower Intellectual Property Rights,
including (i) protecting the secrecy and confidentiality of Borrower’s and
its Subsidiaries’ confidential information and trade secrets by having and
enforcing a policy requiring all current and former employees, consultants,
licensees, vendors and contractors to execute appropriate confidentiality and
invention assignment agreements; (ii) taking all actions reasonably
necessary to ensure that no trade secret of Borrower or its Subsidiaries falls
or has fallen into the public domain; and (iii) protecting the secrecy and
confidentiality of the source code of all computer software programs and
applications of which Borrower and its Subsidiaries is the owner or licensee by having and enforcing a policy requiring
any licensees of such source code to enter into license agreements with
appropriate use and non-disclosure restrictions.  Borrower and its Subsidiaries have only
entered into such source code licenses as set forth in Schedule 5.15(b).


 


49





















 


(c)                                           Except
as set forth on Schedule 5.15(c), no past or present employee or
contractor of Borrower or its Subsidiaries has any ownership interest, license,
permission or other right in or to any material Borrower Intellectual Property
Rights.


 


(d)                                           Borrower
and its Subsidiaries have made all necessary payments, filings and recordations
to protect and maintain their interest in material Borrower Intellectual
Property Rights in the United States or any other jurisdiction, including (i) making
all necessary registration, maintenance, and renewal fee payments; and (ii) filing
all necessary documents, including all applications for registration of
copyrights, trademarks, and patents.


 


(e)                                           No
claim has been made and is continuing or threatened that the use by Borrower or
its Subsidiaries of any item of General Intangibles is invalid or unenforceable
or that the use by Borrower or its Subsidiaries of any General Intangibles does
or may violate the rights of any Person, other than any such claim which would
not cause a Material Adverse Change. To the best of Borrower’s knowledge, there
is currently no infringement or unauthorized use of any item of Intellectual
Property Rights contained on Schedule 5.15(a).


 


(f)                                            Borrower
and its Subsidiaries have filed applications and taken any and all other
actions reasonably necessary to register all material copyrights, in good faith
in accordance with the procedures and regulations of the U.S. Copyright Office
in a manner sufficient to impart constructive notice of Borrower’s and its
Subsidiaries’ ownership thereof.


 


5.16        Leases. 
Borrower and its Subsidiaries enjoy peaceful and undisturbed
possession under all leases material to their business and to which they are
parties or under which they are operating, and all of such leases are valid and
subsisting and no material default by Borrower or its Subsidiaries (or, to the
knowledge of Borrower or its Subsidiaries, by the lessors thereunder) exists
under any of them.


 


5.17        Deposit Accounts and Securities Accounts.  Set forth on Schedule 5.17 is
a listing of all of Borrower’s and its Subsidiaries’ Deposit Accounts and
Securities Accounts, including, with respect to each bank or securities
intermediary (a) the name and address of such Person, and (b) the
account numbers of the Deposit Accounts or Securities Accounts maintained with
such Person.


 


5.18        Complete Disclosure.  All representations and warranties (taken
as a whole) of Borrower set forth in this Agreement (including all information
contained in the Schedules hereto or in the other Loan Documents) are true and
accurate in all material respects on or as of the date or dates as of which
such representations and warranties are made and do not omit to state any fact
necessary to make such information (taken as a whole) not misleading in any
material respect in light of the circumstances under which such representations
and warranties were made.  On the Closing
Date, the Closing Date Business Plan represents, and as of the date on which
any other Projections are delivered to Lender, such additional Projections
represent Borrower’s good faith estimate of its and its Subsidiaries’ future
performance for the periods covered thereby, it being understood and agreed
that Projections


 


50





















 


and plans are estimates, and that actual
results are likely to vary from those projected, planned or estimated.


 


5.19        Indebtedness.  Set forth on Schedule 5.19 is a
true and complete list of all Indebtedness of Borrower and its Subsidiaries
outstanding immediately prior to the Closing Date that is to remain outstanding
after the Closing Date and such Schedule accurately reflects the aggregate
principal amount of such Indebtedness and describes the principal terms
thereof.


 


5.20        [Intentionally Omitted].


 


5.21        Taxes and Payments.  Borrower and its Subsidiaries have filed all
federal and state income tax returns and all other material tax returns,
domestic and foreign, required to be filed by them and have paid all taxes and
assessments payable by them which have become due, except for those contested
in good faith and adequately disclosed and fully provided for on the financial
statements of Borrower and its Subsidiaries, in accordance with GAAP and for
which Borrower and its Subsidiaries, as applicable, have provided adequate
reserves (in the good faith judgment of the management of Borrower and its
Subsidiaries).  Borrower and its
Subsidiaries have provided adequate reserves (in the good faith judgment of the
management of Borrower and its Subsidiaries) for the payment of all federal,
state, local and foreign income taxes applicable for the current fiscal year to
date.  Except as set forth on Schedule 5.21,
there is no action, suit, proceeding, investigation, audit, or claim now
pending or, to the knowledge of Borrower threatened, by any authority regarding
any taxes relating to Borrower or its Subsidiaries that could reasonably be
expected to result in a material liability to Borrower or its
Subsidiaries.  Except as set forth on Schedule 5.21,
as of the Closing Date, none of the Borrower or its Subsidiaries have entered into
an agreement or waiver or been requested to enter into an agreement or waiver
extending any statute of limitations relating to the payment or collection of
taxes of Borrower or its Subsidiaries, or is aware of any circumstances that
would cause the taxable years or other taxable periods of Borrower or its
Subsidiaries not to be subject to the normally applicable statute of
limitations.


 


6.             AFFIRMATIVE COVENANTS.


 


Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, Borrower shall
and shall cause each of its Subsidiaries to do all of the following:


 


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


 


6.2          Collateral Reporting.  Provide Lender with the following
documents at the following times in form satisfactory to Lender:


 


51





















 


	
  Monthly (not
  later than the 10th day of each month), except as provided below, a report:

  	
   

  	
  (a)           Itemizing
  all Inventory specifying the cost and the retail value, as of the end of the
  prior month, of the Borrower’s and its Subsidiaries’ Inventory, by category,
  with additional detail showing additions to and deletions therefrom, together
  with a reconciliation to the respective month-end general ledgers and
  financial statements.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)           Setting
  forth net sales for the prior month.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)           Setting
  forth the cost of goods sold for the prior month, receipts or purchases.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (d)           Setting
  forth a comprehensive accounting of all of the Borrower’s and its
  Subsidiaries receipts and/or purchases for the prior month.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (e)           Setting
  forth the Borrower’s gross margin for all sales for the prior month.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (f)            Listing
  all held checks.

  
(g)           Summarizing
  and aging all accounts payable by vendor (including, without limitation, an
  itemization of all amounts owing to any landlord, warehouseman or distributor
  (including, without limitation, Ozburn-Hessey Logistics, LLC)), of the
  Borrower’s and its Subsidiaries’ accounts payable and any book overdraft,
  together with a reconciliation to the respective month-end general ledgers
  and financial statements.

  
(h)           Setting
  forth the Borrower’s stock ledger by department, along with a general
  ledger-to-stock ledger reconciliation.

  

  If a Triggering Event Date occurs, all such reports shall be delivered
  weekly, until such time (if any) as Lender, in its sole discretion, notifies
  Borrower that such reporting may revert back to a monthly basis.

  
	
   

  	
   

  	
   

  
	
  Quarterly

  	
   

  	
  (i)            Setting
  forth a detailed Inventory aging for the Borrower and its Subsidiaries.

  
	
   

  	
   

  	
   

  
	
  Upon request
  by Lender

  	
   

  	
  (j)            As
  to the Collateral or the financial condition of the Borrower and its
  Subsidiaries, warehouse receipts and such other items and statements as
  Lender may request.

  



 


In addition, Borrower agrees to cooperate fully with Lender to
facilitate and implement a system of electronic collateral reporting in order
to provide electronic reporting of each of the items set forth above.


 


6.3          Financial
Statements, Reports, Certificates. 
Deliver to Lender:


 


52





















 


(a)                                           as
soon as available, but in any event within 30 days (45 days in the case of a
month that is the end of one of Borrower’s fiscal quarters) after the end of
each month during each of Borrower’s fiscal years,


 


(i)            an
unaudited consolidated and consolidating balance sheet, income statement, and
statement of cash flow covering Borrower’s and its Subsidiaries’ operations
during such period, and


 


(ii)           a
Compliance Certificate,


 


(b)                                           as
soon as available, but in any event within 90 days after the end of each of
Borrower’s fiscal years,


 


(i)            consolidated
and consolidating financial statements of Borrower and its Subsidiaries for
each such fiscal year, audited by independent certified public accountants
reasonably acceptable to Lender and certified, without any qualifications
(including any (A) ”going concern” or like qualification or exception, (B) qualification
or exception as to the scope of such audit, or (C) qualification which
relates to the treatment or classification of any item and which, as a
condition to the removal of such qualification, would require an adjustment to
such item, the effect of which would be to cause any noncompliance with the
provisions of Section 7.18), by such accountants to have been
prepared in accordance with GAAP (such audited financial statements to include
a balance sheet, income statement, and statement of cash flow and, if prepared,
such accountants’ letter to management),


 


(ii)           a
certificate of such accountants addressed to Lender stating that such
accountants do not have knowledge of the existence of any Default or Event of
Default under Section 7.18, and


 


(iii)          a
Compliance Certificate,


 


(c)                                           as
soon as available, but in any event within 30 days prior to the start of each
of Borrower’s fiscal years, copies of Borrower’s Projections, in form and
substance (including as to scope and underlying assumptions) satisfactory to
Lender, in its Permitted Discretion, for the forthcoming 3 years, year by year,
and for the forthcoming fiscal year, month by month, certified by the chief
financial officer of Borrower as being such officer’s good faith estimate of
the financial performance of Borrower during the period covered thereby,


 


(d)                                           if
and when filed by Borrower,


 


(i)            Form 10-Q
quarterly reports, Form 10-K annual reports, and Form 8-K current
reports,


 


53





















 


(ii)           any
other filings made by Borrower with the SEC, and


 


(iii)          copies
of Borrower’s federal income tax returns, and any amendments thereto, filed
with the Internal Revenue Service; provided, however, that the public filing of
any document with the SEC shall be deemed to be delivery to Lender for purposes
of this subsection (d),


 


(e)                                           if
and when provided, any other information that is provided by Borrower to its
shareholders generally; provided, however, that the public filing of any
document with the SEC shall be deemed to be delivery to Lender for purposes of
this subsection (e),


 


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


 


(g)                                           promptly,
but in any event within 5 days after Borrower has knowledge of any event or
condition that constitutes a Default or an Event of Default, notice thereof and
a statement of the curative action that Borrower proposes to take with respect
thereto,


 


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


 


(i)                                            promptly,
notice of any material changes to Borrower’s return practices and policies, and


 


(j)                                            upon
the request of Lender, any other information reasonably requested relating to
the financial condition of Borrower or its Subsidiaries.


 


In addition, Borrower agrees that no Subsidiary of Borrower will have a
fiscal year different from that of Borrower. 
Borrower also agrees to cooperate with Lender to allow Lender to consult
with its independent certified public accountants if Lender reasonably requests
the right to do so and that, in such connection, its independent certified
public accountants are authorized to communicate with Lender and to release to
whatever financial information concerning Borrower or its Subsidiaries that
Lender reasonably may request.


 


6.4          Guarantor Reports.  Cause each Guarantor to deliver its annual
financial statements at the time when Borrower provides its audited financial
statements to Lender, but


 


54





















 


only to the extent such Guarantor’s financial
statements are audited and are not consolidated with Borrower’s financial
statements, and copies of all federal income tax returns as soon as the same
are available and in any event no later than 30 days after the same are
required to be filed by law.


 


6.5          [Intentionally
Omitted].


 


6.6          Maintenance of Properties.  Maintain and preserve all of its
properties which are necessary or useful in the proper conduct to its business
in good working order and condition, ordinary wear and tear excepted, and
comply at all times with the provisions of all material leases to which it is a
party as lessee, so as to prevent any loss or forfeiture thereof or thereunder.


 


6.7          Taxes. 
Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Borrower,
its Subsidiaries, or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest.  Borrower will and
will cause its Subsidiaries to make timely payment or deposit of all tax
payments and withholding taxes required of it and them by applicable laws,
including those laws concerning F.I.C.A., F.U.T.A., state disability, and
local, state, and federal income taxes, and will, upon request, furnish Lender
with proof satisfactory to Lender indicating that Borrower and its Subsidiaries
have made such payments or deposits.


 


6.8          Insurance.


 


(a)                                           At
Borrower’s expense, maintain insurance respecting its and its Subsidiaries’ properties
and assets wherever located, covering loss or damage by fire, theft, explosion,
and all other hazards and risks as ordinarily are insured against by other Persons
engaged in the same or similar businesses. Borrower also shall maintain
business interruption, public liability, and product liability insurance, as
well as insurance against larceny, embezzlement, and criminal misappropriation.  All such policies of insurance shall be in
such amounts and with such insurance companies as are reasonably satisfactory
to Lender. Borrower shall deliver copies of all such policies to Lender with an
endorsement naming Lender as the sole loss payee (under a satisfactory lender’s
loss payable endorsement) or additional insured, as appropriate.  Each policy of insurance or endorsement shall
contain a clause requiring the insurer to give not less than 30 days prior
written notice to Lender in the event of cancellation of the policy for any
reason whatsoever.


 


(b)                                           Borrower
shall give Lender prompt notice of any loss covered by such insurance.  Lender shall have the exclusive right to
adjust any losses claimed under any such insurance policies after the
occurrence and during the continuation of an Event of Default, without any
liability to Borrower whatsoever in respect of such adjustments.  Any monies received as payment for any loss
under any insurance policy mentioned above (other than liability insurance
policies) or as payment of any award or compensation for condemnation or taking
by eminent domain, shall be paid over to Lender to be applied at the option of


 


55





















 


Lender either
to the prepayment of the Obligations or shall be disbursed to Borrower under
staged payment terms reasonably satisfactory to Lender for application to the
cost of repairs, replacements, or restorations. Any such repairs, replacements,
or restorations shall be effected with reasonable promptness and shall be of a
value at least equal to the value of the items of property destroyed prior to
such damage or destruction.


 


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


 


6.9          Location of Inventory and Equipment.  Keep Borrower’s and its Subsidiaries’
Inventory and Equipment only at the locations identified on Schedule 5.4
and their chief executive offices only at the locations identified on Schedule 5.6(b);
provided, however, that Borrower may amend Schedule 5.4 and Schedule 5.6
so long as such amendment occurs by written notice to Lender not less than 5
Business Days prior to the date on which such Inventory or Equipment is moved
to such new location or such chief executive office is relocated, so long as
such new location is within the continental United States, and so long as, at
the time of such written notification, Borrower provides to Lender a Collateral
Access Agreement with respect thereto.


 


6.10        Compliance with Laws.  Comply with the requirements of all
applicable laws, rules, regulations, and orders of any Governmental Authority,
other than laws, rules, regulations, and orders the non-compliance with which,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Change.


 


6.11        Leases. 
Pay when due all rents and other amounts payable under any material
leases to which Borrower or any of its Subsidiaries is a party or by which
Borrower’s or any such Subsidiaries’ properties and assets are bound, unless
such payments are the subject of a Permitted Protest.


 


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


 


6.13        Environmental.


 


(a)                                           Keep
any property either owned or operated by Borrower or its Subsidiaries free of
any Environmental Liens or post bonds or other financial assurances sufficient
to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply,
in all material respects, with Environmental Laws and provide to Lender
documentation of such compliance which Lender reasonably requests, (c) promptly
notify Lender of any release of a Hazardous Material in any reportable quantity
from or onto


 


56





















 


property owned
or operated by Borrower or its Subsidiaries and take any Remedial Actions
required to abate said release or otherwise to come into compliance with
applicable Environmental Law, and (d) promptly, but in any event within 5
days of its receipt thereof, provide Lender with written notice of any of the
following:  (i) notice that an
Environmental Lien has been filed against any of the real or personal property
of Borrower or its Subsidiaries, (ii)  commencement of any Environmental Action
or notice that an Environmental Action will be filed against Borrower or its
Subsidiaries, and (iii) notice of a violation, citation, or other
administrative order which reasonably could be expected to result in a Material
Adverse Change.


 


6.14        Disclosure Updates.  Promptly and in no event later than 5
Business Days after obtaining knowledge thereof, notify Lender if any written
information, exhibit, or report furnished to Lender contained, at the time it
was furnished, any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which made. 
The foregoing to the contrary notwithstanding, any notification pursuant
to the foregoing provision will not cure or remedy the effect of the prior
untrue statement of a material fact or omission of any material fact nor shall
any such notification have the effect of amending or, modifying this Agreement
or any of the Schedules hereto.


 


6.15        Formation or Acquisition of Subsidiaries.  If Borrower or any Guarantor intends to
form any direct or indirect Subsidiary or acquire any direct or indirect
Subsidiary after the Closing Date, Borrower or such Guarantor shall provide at
least five (5) days prior written notice to Lender.  At the time that Borrower or such Guarantor forms
any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary
after the Closing Date, Borrower or such Guarantor shall (a) cause such
new Subsidiary to provide to Lender a joinder to this Agreement or the Guaranty
and Guarantor Security Agreement, or cause such new Subsidiary to enter into the
Guaranty and Guarantor Security Agreement (if such agreements were not
previously entered into), together with such other security documents
(including mortgages with respect to any Real Property of such new Subsidiary
and joinders to the Intellectual Property Security Agreement), as well as
appropriate financing statements (and with respect to all property subject to a
mortgage, fixture filings), all in form and substance satisfactory to Lender
(including being sufficient to grant Lender a first priority Lien (subject to
Permitted Liens) in and to the assets of such newly formed or acquired
Subsidiary), (b) enter into, and cause such new Subsidiary to enter into,
an [Intercompany Subordination Agreement], in form and substance satisfactory
to Lender, (c) provide to Lender a pledge agreement and appropriate
certificates and powers or financing statements, hypothecating all of the direct
or beneficial ownership interest in such new Subsidiary, in form and substance
satisfactory to Lender, and (d) provide to Lender all other documentation,
including one or more opinions of counsel satisfactory to Lender, which in its
opinion is appropriate with respect to the execution and delivery of the
applicable documentation referred to above (including policies of title
insurance or other documentation with respect to all property subject to a mortgage).  Any document, agreement, or instrument executed
or issued pursuant to this Section 6.15 shall be a Loan Document.


 


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6.16        Intellectual Property.


 


(a)                                           Borrower
agrees that, should it or any of its Subsidiaries obtain an ownership interest
in any Intellectual Property Right which is not now a part of the Collateral, (i) any
such Intellectual Property Right shall automatically become Collateral and (ii) with
respect to any ownership interest in any Intellectual Property Right that
Borrower or such Subsidiary should obtain, it shall give prompt written notice
thereof to Lender in accordance with Section 12 hereof.  Borrower authorizes Lender to modify this
Agreement by amending Schedule 5.15(a) (and will cooperate
reasonably with Lender in effecting any such amendment) to include any
Intellectual Property Right which becomes part of the Collateral under this
Section.


 


(b)                                           With
respect to material Borrower Intellectual Property Rights, Borrower agrees,
subject to the last sentence of this subsection, to take all necessary steps,
including making all necessary payments and filings in connection with
registration, maintenance, and renewal of copyrights, trademarks, and patents
in the U.S. Copyright Office, the U.S. Patent and Trademark Office, any other appropriate
government agencies in foreign jurisdictions or in any court, to maintain each
such Borrower Intellectual Property Right. 
Borrower agrees to take corresponding steps with respect to each new or
acquired material Intellectual Property Right to which it or any of its
Subsidiaries is now or later becomes entitled. Any expenses incurred in
connection with such activities shall be borne solely by Borrower. None of
Borrower or any of its Subsidiaries shall discontinue use of or otherwise
abandon any Intellectual Property Right without the written consent of Lender,
unless Borrower or such Subsidiary shall have previously determined that such
use or the pursuit or maintenance of such registration is no longer desirable
in the conduct of Borrower’s or such Subsidiary’s business and that the loss
thereof will not cause a Material Adverse Change, in which case, Borrower will
give notice of any such abandonment to Lender pursuant to the terms of Section 12
hereof.


 


(c)                                           Borrower
will continue to take all actions reasonably necessary to protect the material Borrower
Intellectual Property Rights, including such steps as are set forth in Sections
5.15(a) and (b) above. 
Borrower further agrees to give Lender prompt written notice in
accordance with Section 12 hereof if Borrower or any of its
Subsidiaries enters into any agreements after the Closing Date pursuant to
which it grants any right to a third party to use or access the source code of
any computer software programs or applications of which Borrower or such Subsidiary
is the owner or licensee.  Borrower
authorizes Lender to modify this Agreement by amending Schedule 5.15(b) (and
will cooperate reasonably with Lender in effecting any such amendment) to
include any such additional license grant(s).


 


(d)                                           Borrower
agrees to notify Lender promptly and in writing if it learns (i) that any
item of the Borrower Intellectual Property Rights contained on Schedule 5.16(a) may
be determined to have become abandoned or dedicated or (ii) of any adverse
determination or the institution of any proceeding (including the institution
of any proceeding in the U.S. Copyright Office, U.S. Patent and Trademark
Office and any other


 


58





















 


appropriate
government agencies in foreign jurisdictions, or any court) regarding any item
of the Borrower Intellectual Property Rights that would cause a Material
Adverse Change.


 


(e)                                           In
the event that Borrower becomes aware that any item of the General Intangibles
is infringed or misappropriated by a third party, Borrower shall promptly
notify Lender and shall take such actions as Borrower or Lender deems
appropriate under the circumstances to protect such General Intangibles,
including suing for infringement or misappropriation and for an injunction
against such infringement or misappropriation, unless any such infringement or
misappropriation would not cause a Material Adverse Change. Any expense
incurred in connection with such activities shall be borne solely by Borrower.


 


(f)                                            Borrower
agrees that, should it or any of its Subsidiaries create or otherwise obtain an
ownership interest in, or license of, material copyrights after the Closing
Date, it shall, promptly after such creation or acquisition (but in no event to
exceed 60 days after such creation or acquisition), (i) provide the Lender
with five (5) Business Days’ prior written notice of its intent to effect
any registration thereof with the United States Copyright Office, (ii) file
applications and take any and all other actions reasonably necessary to
register all such copyrights in good faith in accordance with the procedures
and regulations of the United States Copyright Office in a manner sufficient to
impart constructive notice of Borrower’s or such Subsidiary’s ownership
thereof, and (iii) cause to be prepared, executed, and delivered to Lender,
with sufficient time to permit Lender to record no later than the last Business
Day within ten (10) days following the date that such copyrights have been
registered or an application for registration has been filed, an Intellectual
Property Security Agreement or supplemental schedules to the Intellectual
Property Security Agreement reflecting the security interest of Lender in such
new copyrights, which supplemental schedules shall be in form and content
suitable for registration with the United States Copyright Office so as to give
constructive notice, when so registered, of the transfer by Borrower to Lender
of a security interest in such copyrights.


 


(g)                                           Borrower
shall maintain copies of all source and object code for all software utilized
in its business operations at safe and secure offsite locations reasonably
acceptable to Lender, and shall, at the request of Lender, advise the operators
of such locations of Lender’s security interest in such software, shall keep Lender
fully informed of each such location, and shall maintain the currency of all
such software stored offsite.


 


7.             NEGATIVE COVENANTS.


 


Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the Obligations, Borrower will
not and will not permit any of its Subsidiaries to do any of the following:


 


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


 


59





















 


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


 


(b)                                           Indebtedness
set forth on Schedule 5.19,


 


(c)                                           Permitted
Purchase Money Indebtedness,


 


(d)                                           refinancings,
renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of
this Section 7.1 (and continuance or renewal of any Permitted Liens
associated therewith) so long as:  (i) the
terms and conditions of such refinancings, renewals, or extensions do not, in
Lender’s reasonable judgment, materially impair the prospects of repayment of
the Obligations by Borrower or materially impair Borrower’s creditworthiness, (ii) such
refinancings, renewals, or extensions do not result in an increase in the
principal amount of, or interest rate with respect to, the Indebtedness so
refinanced, renewed, or extended, (iii) such refinancings, renewals, or
extensions do not result in a shortening of the average weighted maturity of
the Indebtedness so refinanced, renewed, or extended, nor are they on terms or
conditions that, taken as a whole, are materially more burdensome or
restrictive to Borrower, (iv) if the Indebtedness that is refinanced,
renewed, or extended was subordinated in right of payment to the Obligations,
then the terms and conditions of the refinancing, renewal, or extension
Indebtedness must include subordination terms and conditions that are at least
as favorable to Lender as those that were applicable to the refinanced,
renewed, or extended Indebtedness, and (v) the Indebtedness that is
refinanced, renewed, or extended is not recourse to any Person that is liable
on account of the Obligations other than those Persons which were obligated
with respect to the Indebtedness that was refinanced, renewed, or extended,


 


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


 


(f)                                            Indebtedness
composing Permitted Investments,


 


(g)                                           additional
unsecured Indebtedness of the Borrower and any of its Subsidiaries in an
aggregate principal amount not to exceed $250,000,000 at any time outstanding so
long as (a) immediately prior to and after giving effect thereto no
Default or Event of Default shall have occurred and be continuing or will
result therefrom and (b) no Triggering Event Date shall have occurred or
will result therefrom, and


 


(h)           indebtedness described
on Schedule 7.1.


 


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


 


60





















 


securing the original Indebtedness under the
Wells Fargo Bank Amended Credit Agreement) that secured the refinanced,
renewed, or extended Indebtedness).


 


7.3          Restrictions on Fundamental Changes.


 


(a)                                           Enter
into any merger, consolidation, reorganization, or recapitalization, or
reclassify its Stock, or purchase all or substantially all of the assets or
Stock of any other Person, in any case, in one transaction or a series of
transactions, or enter into any agreement in respect of or to undertake any of
the foregoing; provided, however, that this Section 7.3(a) shall
not prohibit or restrict in any way Borrower’s ability to make Permitted
Inventory Acquisitions from time to time so long as (a) immediately prior
to and after giving effect to any Permitted Inventory Acquisition no Default or
Event of Default shall have occurred and be continuing or will result therefrom
and (b) no Triggering Event Date shall have occurred or will result
therefrom.


 


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


 


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


 


7.5          Change Name.  Change Borrower’s or any of its
Subsidiaries’ names, FEINs, organizational identification number, state of
organization or organizational identity; provided, however, that
Borrower or any of its Subsidiaries may change their names upon at least 30
days prior written notice to Lender of such change and so long as, (a) at
the time of such written notification, Borrower or its Subsidiary provides any
financing statements necessary to perfect and continue perfected the Lender’s
Liens and (b) immediately after such name change Borrower provides Lender
with evidence of such name change (including copies of any related public
filings).


 


7.6          Nature of Business.  Make any change in the principal nature
of Borrower’s business as an online liquidator or retailer (it being agreed
that changes in the categories or types of goods and services offered by
Borrower as of the Closing Date and changes in the manner in which Borrower
offers such goods and services as of the Closing Date and/or the addition or
termination of services offered by Borrower or its Subsidiaries shall not be
considered a fundamental change in the nature of Borrower’s business as an
online liquidator or retailer).


 


7.7          Prepayments and Amendments.  Except in connection with a refinancing
permitted by Section 7.1(d), or upon Lender’s consent, a
refinancing of indebtedness under Section 7.1(h):


 


(a)                                           optionally
prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of
Borrower or its Subsidiaries, other than the Obligations in accordance with
this Agreement; provided however that, notwithstanding the foregoing, or
anything else in this Agreement or in any of the Loan Documents, the Borrower
may repurchase or refinance


 


61





















 


any or all of
its outstanding 3.75% Senior Convertible Notes due 2011 in the original
principal amount of $120,000,00 on terms approved by Borrower, so long as (a) immediately
prior to and after giving effect thereto no Default or Event of Default shall
have occurred and be continuing or will result therefrom and (b) no
Triggering Event Date shall have occurred within the prior thirty (30) days or
will occur upon the consummation of any such repurchase or refinancing; or


 


(b)                                           directly
or indirectly, amend, modify, alter, increase, or change any of the terms or
conditions of any agreement, instrument, document, indenture, or other writing
evidencing or concerning Indebtedness permitted under Sections 7.1(b) or
(c).


 


7.8          [Intentionally Omitted].


 


7.9          Consignments.  Consign any of its or their Inventory or
sell any of its or their Inventory on bill and hold, sale or return, sale on
approval, or other conditional terms of sale; provided, however, that
this Section 7.9 shall not prohibit or restrict in any way Borrower’s
ability to offer or sell any of its Inventory in accordance with Borrower’s customary
returns policies and other customary terms of sale, as in effect from time to
time so long as Lender has received prior written notice of any changes to such
policies or terms.


 


7.10        Distributions.  Make any distribution or declare or pay
any dividends (in cash or other property, other than common Stock) on, or
purchase, acquire, redeem, or retire any of Borrower’s Stock, of any class,
whether now or hereafter outstanding; provided, however, that this
Section 7.10 shall not prohibit or restrict in any way Borrower’s
ability to repurchase or otherwise acquire shares of Borrower’s Stock pursuant
to terms of stock purchase agreements or similar agreements or arrangements
pursuant to which Borrower has or may in the future have the right to
repurchase shares of Borrower’s Stock from former employees of, or former
consultants to, Borrower as a result of a termination of any such person’s
employment by or service to Borrower or otherwise in accordance with similar
provisions of any restricted stock awards or similar arrangements entered into
by Borrower from time to time if (i) after giving effect thereto the
aggregate amount of such purchases, redemptions, retirements and acquisitions
paid or made after the Closing Date is not in excess of $5,000,000, and (ii) (a) immediately
prior to and after giving effect thereto no Default or Event of Default shall
have occurred and be continuing or will result therefrom and (b) no
Triggering Event Date shall have occurred or will result therefrom.


 


7.11        Accounting Methods.  Modify or change its fiscal year or its
method of accounting (other than in accordance with GAAP) or enter into,
modify, or terminate any agreement currently existing, or at any time hereafter
entered into with any third party accounting firm or service bureau for the
preparation or storage of Borrower’s or its Subsidiaries’ accounting records
without said accounting firm or service bureau agreeing to provide Lender
information regarding Borrower’s and its Subsidiaries’ financial condition.


 


7.12        Investments.  Except for Permitted Investments,
directly or indirectly, make or acquire any Investment or incur any liabilities
(including contingent obligations) for or in connection with any Investment; provided,
however, that Borrower and its Subsidiaries shall


 


62





















 


not have Permitted Investments (other than in
the Cash Management Accounts) in Deposit Accounts or Securities Accounts in an
aggregate amount in excess of $250,000.00 at
any one time unless Borrower or its Subsidiary, as applicable, and the
applicable securities intermediary or bank have entered into Control Agreements
governing such Permitted Investments in order to perfect (and further
establish) the Lender’s Liens in such Permitted Investments.  Subject to the foregoing proviso, Borrower
shall not and shall not permit its Subsidiaries to establish or maintain any
Deposit Account or Securities Account unless Lender shall have received a
Control Agreement in respect of such Deposit Account or Securities Account.


 


7.13        Transactions with Affiliates.  Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of Borrower except for
transactions that (a) are upon fair and reasonable terms, (b) if they
involve one or more payments by Borrower or its Subsidiaries in excess of $60,000.00,
are fully disclosed to Lender, and (c) are no less favorable to Borrower
or its Subsidiaries, as applicable, than would be obtained in an arm’s length
transaction with a non-Affiliate.


 


7.14        Suspension.  Suspend or go out of a substantial portion
of the business conducted by Borrower and its Subsidiaries, considered as a
whole.


 


7.15        [Intentionally Omitted].


 


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


 


7.17        Inventory and Equipment with Bailees.  Store the Inventory or Equipment of
Borrower or its Subsidiaries at any time now or hereafter with a bailee,
warehouseman, or similar party; provided, however, that this provision shall
not be deemed to restrict Borrower’s engagement or use of third party logistics
providers such as Ozburn-Hessey Logistics, LLC.


 


7.18        [Intentionally Omitted].


 


8.             EVENTS OF DEFAULT.


 


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


 


8.1          If Borrower fails to pay when due and
payable, or when declared due and payable, all or any portion of the
Obligations (whether of principal, interest (including any interest which, but
for the provisions of the Bankruptcy Code, would have accrued on such amounts),
fees and charges due Lender, reimbursement of Lender Expenses, or other


 


63





















 


amounts constituting Obligations); provided,
however, that in the case of Overadvances that are caused by the
charging of interest, fees, or Lender Expenses to the Loan Account, such event
shall not constitute an Event of Default if, within 3 Business Days of its
receipt of telephonic notice of such Overadvance, Borrower eliminates such
Overadvance;


 


8.2          If Borrower or any of its Subsidiaries
fails in any material respect to perform, keep, or observe any term, provision,
condition, covenant, or agreement contained in this Agreement or in any of the
other Loan Documents;


 


8.3          If any material portion of the
consolidated assets of the Borrower and its Subsidiaries is attached, seized,
subjected to a writ or distress warrant, levied upon, or comes into the possession
of any third Person; provided, however, that this provision shall not be deemed
to apply to Borrower’s use of third party logistics providers such as
Ozburn-Hessey Logistics, LLC;


 


8.4          If an Insolvency Proceeding is commenced
by Borrower or any of its Subsidiaries;


 


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


 


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


 


8.7          If a notice of Lien, levy, or assessment
is filed of record with respect to any of Borrower’s or any of its Subsidiaries’
assets by the United States, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, or if any
taxes or debts owing at any time hereafter to any one or more of such entities
becomes a Lien, whether choate or otherwise, upon any of Borrower’s or any of
its Subsidiaries’ assets and the same is not paid before such payment is
delinquent;


 


8.8          If a judgment or other claim becomes a
Lien or encumbrance upon any material portion of Borrower’s or any of its
Subsidiaries’ assets;


 


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8.9          If there is a default in any material
agreement to which Borrower or any of its Subsidiaries is a party and such
default (a) occurs at the final maturity of the obligations thereunder, or
(b) results in the acceleration by the other party thereto of the maturity
of Borrower’s or its Subsidiaries’ obligations thereunder or in the termination
of such agreement; but in each such case only if the same has a material
adverse effect on Borrower and its Subsidiaries considered as a whole;


 


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


 


8.11        If any misstatement or misrepresentation of
a material fact exists as of the date when made or deemed made, in any
warranty, representation, statement, or Record made to Lender by or on behalf
of Borrower or its Subsidiaries;


 


8.12        If the Obligation of any Guarantor under its
Guaranty is limited or terminated by such Guarantor thereunder;


 


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


 


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


 


8.15        If any Change of Control shall occur.


 


9.             LENDER’S RIGHTS AND REMEDIES.


 


9.1          Rights and Remedies.  Upon the occurrence, and during the
continuation, of an Event of Default, Lender (at its election but without
notice of its election and without demand) may do any one or more of the
following, all of which are authorized by Borrower:


 


(a)                                           Declare
all or any portion of the Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable;


 


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


 


(c)                                           Terminate
this Agreement and any of the other Loan Documents as to any future liability
or obligation of Lender, but without affecting any of the Lender’s Liens in the
Collateral and without affecting the Obligations;


 


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


 


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


 


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


 


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


 


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


 


(i)                                            Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
for sale, and sell (in the manner provided for herein) the Borrower
Collateral.  Borrower hereby grants to
Lender a license or other right to use, without charge, Borrower’s


 


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labels,
patents, copyrights, trade secrets, trade names, trademarks, service marks, and
advertising matter, or any property of a similar nature, as it pertains to the
Borrower Collateral, in completing production of, advertising for sale, and
selling any Borrower Collateral and Borrower’s rights under all licenses and
all franchise agreements shall inure to Lender’s benefit;


 


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


 


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


 


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


 


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


 


(l)                                            Lender
may credit bid and purchase at any public sale;


 


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


 


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


 


The foregoing
to the contrary notwithstanding, upon the occurrence of any Event of Default
described in Section 8.4 or Section 8.5, in addition to
the remedies set forth above, without any notice to Borrower or any other
Person or any act by the Lender, Lender’s obligation to extent credit hereunder
shall terminated and the Obligations then outstanding, together with all
accrued and unpaid interest thereon and all fees and all other amounts due
under this Agreement and the other Loan Documents, shall automatically and
immediately become due and payable, without presentment, demand, protest, or
notice of any kind, all of which are expressly waived by Borrower.


 


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


 


10.          TAXES AND EXPENSES.


 


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


 


11.          WAIVERS; INDEMNIFICATION.


 


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


 


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


 


11.3        Indemnification.  Borrower shall pay, indemnify, defend,
and hold the Lender-Related Persons, and each Participant (each, an “Indemnified
Person”) harmless (to the fullest extent permitted by law) from and against
any and all claims, demands, suits, actions, investigations, proceedings, liabilities,
costs, fines, penalties, and damages, and all


 


68





















 


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


 


12.          NOTICES.


 


Unless otherwise provided in this Agreement, all notices or demands by
Borrower or Lender to the other relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such
email addresses as Borrower or Lender, as applicable, may designate to each
other in accordance herewith), or telefacsimile to Borrower or Lender, as the
case may be, at its address set forth below:


 


	
  If to Borrower:

  	
   

  	
  OVERSTOCK.COM, INC.

  
	
   

  	
   

  	
  6350 South 3000 East

  
	
   

  	
   

  	
  Salt Lake City, Utah 84121

  
	
   

  	
   

  	
  Attn: Senior
  Vice President, Finance

  
	
   

  	
   

  	
  Fax No.  (801) 947-3144

  



 


69





















 


	
  And to:

  	
   

  	
  OVERSTOCK.COM, INC.

  
	
   

  	
   

  	
  6350 South 3000 East

  
	
   

  	
   

  	
  Salt Lake City, Utah 84121

  
	
   

  	
   

  	
  Attn: Senior Vice President, Corporate
  Affairs and Legal

  
	
   

  	
   

  	
  Fax No.  (801) 947-3144

  
	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
  BRACEWELL & GIULIANI, LLP

  
	
   

  	
   

  	
  111 Congress Ave., Suite 2300

  
	
   

  	
   

  	
  Austin, Texas 78701

  
	
   

  	
   

  	
  Attn: Tom Adkins, Esq.

  
	
   

  	
   

  	
  Fax No.  (512) 479-3940

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If to Lender:

  	
   

  	
  WELLS FARGO RETAIL FINANCE, LLC

  
	
   

  	
   

  	
  One Boston Place, 19th Floor

  
	
   

  	
   

  	
  Boston, Massachusetts 02108

  
	
   

  	
   

  	
  Attn: Jennifer Cann

  
	
   

  	
   

  	
  Fax No.: 617-523-4032

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
  RIEMER & BRAUNSTEIN LLP

  
	
   

  	
   

  	
  3 Center Plaza

  
	
   

  	
   

  	
  Boston., Massachusetts 02108

  
	
   

  	
   

  	
  Attn: Donald E. Rothman, Esquire

  
	
   

  	
   

  	
  Fax No.  617-880-3456

  



 


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


 


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


 


(a)                                           THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN


 


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ANOTHER
LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE
PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR
THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.


 


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


 


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


 


14.          ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.


 


14.1        Assignments and Participations.


 


(a)                                           Lender
may assign and delegate to one or more assignees (each an “Assignee”)
that are Eligible Transferees all, or any ratable part of all, of the
Obligations and the other rights and obligations of Lender hereunder and under
the other Loan Documents, in a minimum amount of $5,000,000; provided, however,
that Borrower may continue to deal


 


71





















 


solely and
directly with Lender in connection with the interest so assigned to an Assignee
until (i) written notice of such assignment, together with payment
instructions, addresses, and related information with respect to the Assignee,
have been given to Borrower by Lender and the Assignee, and (ii) Lender
and its Assignee have delivered to Borrower an assignment and acceptance.  Anything contained herein to the contrary
notwithstanding, the Assignee need not be an Eligible Transferee if such
assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan
portfolio of the assigning Lender.


 


(b)                                           From
and after the date that Lender provides Borrower with such written notice and
executed assignment and acceptance, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such assignment and acceptance, shall have the
rights and obligations of a Lender under the Loan Documents, and (ii) the
Lender shall, to the extent that rights and obligations hereunder and under the
other Loan Documents have been assigned by it pursuant to such assignment and
acceptance, relinquish its rights (except with respect to Section 11.3
hereof) and be released from any future obligations under this Agreement (and
in the case of an assignment and acceptance covering all or the remaining
portion of an assigning Lender’s rights and obligations under this Agreement
and the other Loan Documents, such Lender shall cease to be a party hereto and
thereto), and such assignment shall effect a novation between Borrower and the
Assignee; provided, however, that nothing contained herein shall
release any assigning Lender from obligations that survive the termination of
this Agreement, including such assigning Lender’s obligations under Section 16.9
of this Agreement.


 


(c)                                           Immediately
upon Borrower’s receipt of such fully executed assignment and acceptance
agreement, this Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the rights and duties of Lender arising therefrom.


 


(d)                                           Lender
may at any time sell to one or more commercial banks, financial institutions,
or other Persons not Affiliates of Lender (a “Participant”)
participating interests in Obligations and the other rights and interests of
Lender hereunder and under the other Loan Documents; provided, however,
that (i) Lender shall remain the “Lender” for all purposes of this
Agreement and the other Loan Documents and the Participant receiving the
participating interest in the Obligations and the other rights and interests of
Lender hereunder shall not constitute a “Lender” hereunder or under the other
Loan Documents and Lender’s obligations under this Agreement shall remain
unchanged, (ii) Lender shall remain solely responsible for the performance
of such obligations, (iii) Borrower and Lender shall continue to deal
solely and directly with each other in connection with Lender’s rights and
obligations under this Agreement and the other Loan Documents, (iv) Lender
shall not transfer or grant any participating interest under which the Participant
has the right to approve any amendment to, or any consent or waiver with
respect to, this Agreement or any other Loan Document, except to the extent
such amendment to, or consent or waiver with respect to this Agreement or of
any other Loan Document would (A) extend the final maturity date of the


 


72





















 


Obligations
hereunder in which such Participant is participating, (B) reduce the
interest rate applicable to the Obligations hereunder in which such Participant
is participating, (C) release all or substantially all of the Collateral
or guaranties (except to the extent expressly provided herein or in any of the
Loan Documents) supporting the Obligations hereunder in which such Participant
is participating, (D) postpone the payment of, or reduce the amount of,
the interest or fees payable to such Participant through Lender, or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrower hereunder shall be
determined as if Lender had not sold such participation, except that, if
amounts outstanding under this Agreement are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence of an Event
of Default, each Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement.  The rights of any Participant only shall be
derivative through Lender and no Participant shall have any rights under this
Agreement or the other Loan Documents or any direct rights as to Borrower, the
Collections of Borrower or its Subsidiaries, the Collateral, or otherwise in
respect of the Obligations.  No
Participant shall have the right to participate directly in the making of
decisions by Lender.


 


(e)                                           In
connection with any such assignment or participation or proposed assignment or participation,
Lender may, subject to the provisions of Section 16.9, disclose all
documents and information which it now or hereafter may have relating to
Borrower and its Subsidiaries and their respective businesses.


 


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


 


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


 


15.          AMENDMENTS; WAIVERS.


 


15.1        Amendments and Waivers.  No amendment or waiver of any provision
of this Agreement or any other Loan Document (other than Bank Product
Agreements), and no


 


73





















 


consent with respect to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by Lender and Borrower and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.


 


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


 


16.          GENERAL PROVISIONS.


 


16.1        Effectiveness.  This Agreement shall be binding and
deemed effective when executed by Borrower and Lender.


 


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


 


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


 


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


 


16.5        Withholding Taxes.  All payments made by Borrower hereunder
or under any note or other Loan Document will be made without setoff,
counterclaim, or other defense.  In
addition, all such payments will be made free and clear of, and without
deduction or withholding for, any present or future Taxes, and in the event any
deduction or withholding of Taxes is required, Borrower shall comply with the
penultimate sentence of this Section 16.5, “Taxes” shall mean, any
taxes, levies, imposts, duties, fees, assessments or other charges of whatever
nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such
payments (but excluding, any tax imposed by any jurisdiction or by any
political subdivision or taxing authority thereof or therein measured by or
based on the net income or net profits of Lender) and all interest, penalties
or similar liabilities with respect thereto. 
If any Taxes are so levied or imposed, Borrower agrees to pay the full
amount of such Taxes, and such additional amounts as may be necessary so that
every payment of all amounts due under this


 


74





















 


Agreement, any note, or Loan Document,
including any amount paid pursuant to this Section 16.5 after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein; provided, however, that Borrower
shall not be required to increase any such amounts if the increase in such
amount payable results from Lender’s own willful misconduct or gross negligence
(as finally determined by a court of competent jurisdiction).  Borrower will furnish to Lender as promptly
as possible after the date the payment of any Tax is due pursuant to applicable
law certified copies of tax receipts evidencing such payment by Borrower.


 


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


 


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


 


16.8        Confidentiality.


 


Lender agrees that material, non-public information regarding Borrower
and its Subsidiaries, their operations, assets, and existing and contemplated
business plans shall be treated by Lender in a confidential manner, and shall
not be disclosed by Lender to Persons who are not parties to this Agreement,
except:  (a) to attorneys for and
other advisors, accountants, auditors, and consultants to Lender, (b) to
Subsidiaries and Affiliates of Lender (including the Bank Product Providers),
provided that any such Subsidiary or Affiliate shall have agreed to receive
such information hereunder subject to the terms of this Section 16.8,
(c) as may be required by statute, decision, or judicial or administrative
order, rule, or regulation, (d) as may be agreed to in advance by Borrower
or its Subsidiaries or as


 


75





















 


requested or required by any Governmental
Authority pursuant to any subpoena or other legal process, (e) as to any
such information that is or becomes generally available to the public (other
than as a result of prohibited disclosure by Lender), (f) in connection
with any assignment, prospective assignment, sale, prospective sale,
participation or prospective participations, or pledge or prospective pledge of
Lender’s interest under this Agreement, provided that any such assignee,
prospective assignee, purchaser, prospective purchaser, participant,
prospective participant, pledgee, or prospective pledgee shall have agreed in
writing to receive such information hereunder subject to the terms of this
Section, and (g) in connection with any litigation or other adversary
proceeding involving parties hereto which such litigation or adversary
proceeding involves claims related to the rights or duties of such parties
under this Agreement or the other Loan Documents.  The provisions of this Section 16.8
shall survive for 2 years after the payment in full of the Obligations.


 


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


 


[Signature page to follow]


 


76





















 


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


 


	
   

  	
   

  	
  OVERSTOCK.COM, INC.,

  a Delaware corporation, as Borrower

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ David K. Chidester

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David K. Chidester

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior VP – Finance

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WELLS FARGO RETAIL FINANCE, LLC,
a Delaware limited liability company, as Lender

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Timothy R. Tobin

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Timothy R. Tobin

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  	
   

  



 


Signature Page to Loan and Security Agreement


 





















 


TABLE OF CONTENTS


 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS AND CONSTRUCTION

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.1

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.2

  	
  Accounting Terms

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.3

  	
  Code

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.4

  	
  Construction

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  1.5

  	
  Schedules and Exhibits

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  LOAN AND TERMS OF PAYMENT

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Revolver Advances

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.2

  	
  Revolver Increase

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.3

  	
  Borrowing Procedures and Settlements

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.4

  	
  Payments

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.5

  	
  Overadvances

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.6

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

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.7

  	
  Cash Management

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.8

  	
  Crediting Payments

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.9

  	
  Designated Account

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.10

  	
  Maintenance of Loan Account; Statements of Obligations

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.11

  	
  Fees

  	
  30

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.12

  	
  Letters of Credit

  	
  31

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.13

  	
  LIBOR Option

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.14

  	
  Capital Requirements

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  CONDITIONS; TERM OF AGREEMENT

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Conditions Precedent to the Initial Extension of Credit

  	
  37

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.2

  	
  Conditions Subsequent to the Initial Extension of Credit

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.3

  	
  Conditions Precedent to all Extensions of Credit

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.4

  	
  Term

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.5

  	
  Effect of Termination

  	
  40

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.6

  	
  Early Termination by Borrower

  	
  41

  



 


i





















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  4.

  	
  CREATION OF SECURITY INTEREST

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  Grant of Security Interest

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.2

  	
  Negotiable Collateral

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.3

  	
  Collection of Accounts, General Intangibles, and Negotiable
  Collateral

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.4

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

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.5

  	
  Power of Attorney

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.6

  	
  Right to Inspect

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.7

  	
  Control Agreements

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS AND WARRANTIES

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  No Encumbrances

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.2

  	
  Eligible Inventory

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.3

  	
  Equipment

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.4

  	
  Location of Inventory and Equipment

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.5

  	
  Inventory Records

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.6

  	
  State of Incorporation; Location of Chief Executive Office; FEIN;
  Organizational Identification Number; Commercial Tort Claims

  	
  45

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.7

  	
  Due Organization and Qualification; Subsidiaries

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.8

  	
  Due Authorization; No Conflict

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.9

  	
  Litigation

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.10

  	
  No Material Adverse Change

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.11

  	
  Fraudulent Transfer

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.12

  	
  Employee Benefits

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.13

  	
  Environmental Condition

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.14

  	
  Brokerage Fees

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.15

  	
  Intellectual Property

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.16

  	
  Leases

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.17

  	
  Deposit Accounts and Securities Accounts

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.18

  	
  Complete Disclosure

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.19

  	
  Indebtedness

  	
  51

  



 


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  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.20

  	
  [Intentionally Omitted]

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.21

  	
  Taxes and Payments

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  AFFIRMATIVE COVENANTS

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Accounting System

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.2

  	
  Collateral Reporting

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.3

  	
  Financial Statements, Reports, Certificates

  	
  52

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.4

  	
  Guarantor Reports

  	
  54

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.5

  	
  [Intentionally Omitted]

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.6

  	
  Maintenance of Properties

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.7

  	
  Taxes

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.8

  	
  Insurance

  	
  55

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.9

  	
  Location of Inventory and Equipment

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.10

  	
  Compliance with Laws

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.11

  	
  Leases

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.12

  	
  Existence

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.13

  	
  Environmental

  	
  56

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.14

  	
  Disclosure Updates

  	
  57

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.15

  	
  Formation or Acquisition of Subsidiaries

  	
  57

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.16

  	
  Intellectual Property

  	
  58

  
	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  NEGATIVE COVENANTS

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.1

  	
  Indebtedness

  	
  59

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.2

  	
  Liens

  	
  60

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.3

  	
  Restrictions on Fundamental Changes

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.4

  	
  Disposal of Assets

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.5

  	
  Change Name

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.6

  	
  Nature of Business

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.7

  	
  Prepayments and Amendments

  	
  61

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.8

  	
  [Intentionally Omitted]

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.9

  	
  Consignments

  	
  62

  



 


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  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.10

  	
  Distributions

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.11

  	
  Accounting Methods

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.12

  	
  Investments

  	
  62

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.13

  	
  Transactions with Affiliates

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.14

  	
  Suspension

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.15

  	
  [Intentionally Omitted]

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.16

  	
  Use of Proceeds

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.17

  	
  Inventory and Equipment with Bailees

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  7.18

  	
  [Intentionally Omitted]

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  EVENTS OF DEFAULT

  	
  63

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  LENDER’S RIGHTS AND REMEDIES

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  Rights and Remedies

  	
  65

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.2

  	
  Remedies Cumulative

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  TAXES AND EXPENSES

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  WAIVERS; INDEMNIFICATION

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Demand; Protest

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.2

  	
  Lender’s Liability for Borrower Collateral

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.3

  	
  Indemnification

  	
  68

  
	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  NOTICES

  	
  69

  
	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER

  	
  70

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS

  	
  71

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Assignments and Participations

  	
  71

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.2

  	
  Successors

  	
  73

  
	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  AMENDMENTS; WAIVERS

  	
  73

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  15.1

  	
  Amendments and Waivers

  	
  73

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  15.2

  	
  No Waivers; Cumulative Remedies

  	
  74

  
	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  GENERAL PROVISIONS

  	
  74

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.1

  	
  Effectiveness

  	
  74

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.2

  	
  Section Headings

  	
  74

  



 


iv





















 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.3

  	
  Interpretation

  	
  74

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.4

  	
  Severability of Provisions

  	
  74

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.5

  	
  Withholding Taxes

  	
  74

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.6

  	
  Counterparts; Electronic Execution

  	
  75

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.7

  	
  Revival and Reinstatement of Obligations

  	
  75

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.8

  	
  Confidentiality

  	
  75

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.9

  	
  Integration

  	
  76

  



 


v





















 


EXHIBITS AND
SCHEDULES


 


	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  Exhibit C-1

  	
  Form of
  Compliance Certificate

  	
   

  
	
  Exhibit L-1

  	
  Form of
  LIBOR Notice

  	
   

  
	
  Schedule D-1

  	
  Designated
  Account

  	
   

  
	
  Schedule E-1

  	
  Eligible
  Inventory Locations

  	
   

  
	
  Schedule L-1

  	
  Lender’s
  Account

  	
   

  
	
  Schedule P-1

  	
  Permitted
  Investments

  	
   

  
	
  Schedule P-1A

  	
  Permitted Liens

  	
   

  
	
  Schedule R-1

  	
  Real
  Property Collateral

  	
   

  
	
  Schedule 2.7(a)

  	
  Cash
  Management Banks

  	
   

  
	
  Schedule 5.4

  	
  Locations of
  Inventory and Equipment

  	
   

  
	
  Schedule 5.6(a)

  	
  States of
  Organization

  	
   

  
	
  Schedule 5.6(b)

  	
  Chief
  Executive Offices

  	
   

  
	
  Schedule 5.6(c)

  	
  FEIN and
  Organizational Identification Numbers

  	
   

  
	
  Schedule 5.6(d)

  	
  Commercial
  Tort Claims

  	
   

  
	
  Schedule 5.7(b)

  	
  Capitalization
  of Borrower

  	
   

  
	
  Schedule 5.7(c)

  	
  Capitalization
  of Borrower’s Subsidiaries

  	
   

  
	
  Schedule 5.9

  	
  Litigation

  	
   

  
	
  Schedule 5.13

  	
  Environmental
  Matters

  	
   

  
	
  Schedule 5.15(a)

  	
  Intellectual
  Property

  	
   

  
	
  Schedule 5.15(b)

  	
  Source Code Licenses

  	
   

  
	
  Schedule 5.15(c)

  	
  Interests in Intellectual Property Rights

  	
   

  
	
  Schedule 5.17

  	
  Deposit
  Accounts and Securities Accounts

  	
   

  
	
  Schedule 5.19

  	
  Permitted
  Indebtedness

  	
   

  
	
  Schedule 5.21

  	
  Taxes and Payments

  	
   

  
	
  Schedule 7.1

  	
  Indebtedness