**Exhibit 10.2**

 

**2005AMENDED AND RESTATED**

 

**CREDITAGREEMENT**

 

 

**(REVOLVINGLOAN)**

 

 

**BY ANDBETWEEN**

 

 

**WELLS FARGOBANK, NATIONAL ASSOCIATION,**

 

**AS LENDER,**

 

 

**AND**

 

 

**GAIAM,INC., AND THE RESTRICTED SUBSIDIARIES**

 

 

**AS BORROWER**

 

 

**DATED AS OFJULY 29, 2005**

 

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**CREDIT AGREEMENT(REVOLVING LOAN)**

 

Recitals

 

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

 

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

 

Agreement

 

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

 

# **ARTICLE 1.  DEFINED TERMS**

#  

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

 

1.1                                 AAA:  shall have the meaning setforth in Subsection 13.4.1.

 

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

 

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

 

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

 

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

 

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

 

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

 

1.8                                 Applicable Lending Office: means for each type of Revolving Advance the lending office of Lenderdesignated as such for such Revolving Advances on its signature page hereofor such other office of Lender as Lender may from time to time specify toBorrower as the office by which its Revolving Advances of such type are to bemade and maintained.

 

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

 

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

 

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

 

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

 

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

 

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

 

1.15                           Base Rate Margin: negative 50 basis points.

 

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

 

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

 

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

 

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

 

##### (a)                                  Seventy percent (70.0%) of the net unpaidamount of all Eligible Receivables; plus

#####  

##### (b)                                 Forty percent (40.0%) of the value of allEligible Inventory, with such value determined at the lower of cost or marketin accordance with GAAP.

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

 

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

 

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

 

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

 

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

 

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

 

1.26                           Casualty Proceeds:  theamount received on account of a Casualty Event from insurance, condemnationaward, judgment, or settlement.

 

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

 

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

 

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

 

1.30                           Collateral:  shall have the meaning setforth in Section 6.1.

 

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

 

1.32                           Compliance Certificate:  acertificate of the chief financial officer of Borrower acceptable to Lender andin the form attached hereto as Exhibit 1.32.

 

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

 

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

 

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

 

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

 

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

 

1.38                           Default Interest Rate:  arate of interest equal to 400 basis points in excess of the Base Rate in effectfrom time to time.

 

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

 

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

 

1.41                           Eligible Receivables: means all of the Accounts Receivable of Borrower in which Lender has afirst lien security interest (subject only to liens permitted under this CreditAgreement in Section 10.2 or otherwise herein), and which meet thefollowing requirements:  (i) arisefrom the actual bona fide sale, in the ordinary course of business, ofInventory on ordinary trade terms and in accordance with the terms andprovisions contained in any documents related thereto; (ii) are evidencedby an invoice; and (iii) are net of any credit, trade or other allowancegiven to the account debtor thereof.  “EligibleReceivables” shall not include any Accounts Receivable which fall into any oneor more of the following categories:

 

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##### (a)                                  The Accounts Receivable of any accountdebtor twenty-five percent (25%) or more of whose Accounts Receivable areDelinquent Accounts;

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##### (b)                                 Which are Delinquent Accounts;

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

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##### (d)                                 With respect to which the account debtorhas asserted in writing any defense, counterclaim, or right to discount, whetherwell founded or otherwise, or which is subject to liens, encumbrances, orrights in favor of Persons other than Lender (other than liens permitted underthis Credit Agreement in Section 10.2 or otherwise), or which are subjectto any offset or deduction;

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

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

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

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

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

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

 

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

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

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AccountsReceivable which are not Eligible Receivables shall nevertheless be part of theCollateral.

 

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

 

1.43                           Environmental Regulations:  asdefined in the definition of Hazardous Substances.

 

1.44                           ERISA:  shall have the meaning setforth in Section 7.10.

 

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

 

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

 

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

 

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

 

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1.49                           GAAP:  generally accepted accountingprinciples in the United States of America, applied consistently, as in effectfrom time to time.

 

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

 

1.51                           Indebtedness: means as to any Person:  (a) indebtednessor liability of such Person for borrowed money, or for the deferred purchaseprice of property or services (including trade obligations); (b) obligationsof such Person as lessee under Capital Leases; (c) obligations of suchPerson arising under bankers’ or trade acceptance facilities; (d) allguarantees, endorsements (other than for collection or deposit in the ordinarycourse of business), and other contingent obligations of such Person topurchase any of the items included in this definition, to provide funds forpayment, to supply funds to invest in any other Person, or otherwise to assurea creditor of another Person against loss; (e) all obligations secured bya lien on property owned by such Person, whether or not the obligations havebeen assumed; and (f) all obligations of such Person under any agreementproviding for an interest rate swap, cap, cap and floor, contingentparticipation or other hedging mechanisms with respect to interest payable onany of the items described in this definition.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 
| LIBO Rate = | Base LIBOR                       |   |
|-------------|----------------------------------|--------|
|        | 100% - LIBOR Reserve  Percentage |   |

 

adjustedby the addition of the LIBO Rate Margin.

 

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

 

1.62                           LIBO Rate Margin:  275basis points.

 

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

 

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

 

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

 

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

 

1.67                           Loan Documents:  thisCredit Agreement, the Revolving Note, the Security Documents, and otherdocuments required to grant to Lender a perfected security interest in theCollateral.

 

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

 

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

 

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

 

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adverseeffect upon the ability of Lender to enforce its rights and remedies under the LoanDocuments.

 

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

 

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

 

1.73                           Net Worth:  means total owner’s equity.

 

1.74                           Officer:  means (a) in the case ofa corporation, any chief executive officer, chief operational officer, chieffinancial officer, president, vice president, secretary, treasurer, assistantvice president, assistant secretary, assistant treasurer, or other corporateofficer (“**Corporate Officer**”); (b) inthe case of a partnership, any general partner, manager, and any otherindividual whose duties generally correspond to those performed by anyCorporate Officer; (c) in the case of a limited liability company, themanager(s), any member, and any other individual whose duties generallycorrespond to those performed by any Corporate Officer; and (d) in thecase of any other association, any individual whose duties generally correspondto those performed by any Corporate Officer.

 

1.75                           Organization Documents:  inthe case of a corporation, its articles or certificate of incorporation andbylaws; in the case of a partnership, its partnership agreement and certificateof limited partnership, if applicable; in the case of a limited liabilitycompany, its articles of organization and its operating agreement.

 

1.76                           PBGC:  shall have the meaning setforth in Section 7.10.

 

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

 

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

 

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

 

1.80                           Profitable Operations: means Gaiam and all of the Consolidated Subsidiaries have, in theaggregate, achieved positive net income based on the most recent 10K reportfiled by Borrower with the Securities and Exchange Commission, or based on suchcomparable information as may be required by Lender in the event Borrower isnot required to file a 10K report.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

1.90                           Revolving Maturity Date: means July 31, 2007.

 

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

 

1.92                           Rules:  shall have the meaning setforth in Subsection 13.4.1.

 

1.93                           Security Documents:  thesecurity agreements, mortgages, deeds of trust, financing statements, pledgeagreements, leasehold assignment and consents, assignments and/or othersecurity documents executed by Borrower in favor of Lender to secure Borrower’sperformance of its obligations under the Revolving Note and other LoanDocuments with a first lien (subject to Permitted Encumbrances) on allaccounts, inventory, and equipment of Borrower, in form and substance acceptableto Lender, as any of such documents may be amended from time to time.

 

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

 

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equityinterest thereof, or (ii) has the power under ordinary circumstances todirectly or indirectly control the management thereof.

 

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

 

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

 

1.97                           Working Capital: means Current Assets minus Current Liabilities.

 

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

 

Bank:  WellsFargo Bank N.A.

ABA Routing: 121000248

Ref: Gaiam Inc. Loan #2775220168-67

Account: #0763850720

Account Name: Wires in process-GL

Principal amount$                            

Interest amount$                            

 

# **ARTICLE 2.  REVOLVING FACILITY**

#  

2.1                                 Revolving Facility Loan.  Onthe terms and conditions set forth in this Credit Agreement, and so long as noEvent of Default or Potential Default has occurred and is continuing, Lenderagrees to make advances under the Revolving Facility (“**Revolving Advance**”) from time to timeduring the Revolving Loan Availability Period, subject to the following:

 

### 2.1.1 RevolvingCommitment; Borrowing Base.  Borrowershall not be entitled to request a Revolving Advance in an amount which, whenadded to the outstanding amount of all previous Revolving Advances plus allCommitted Advances under the Revolving Loan plus the undrawn face amount of alloutstanding Letters of Credit, would exceed the lesser of: (a) theRevolving Commitment; or (b) the Borrowing Base.

###  

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

 

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Advancesat Borrower’s request and Lender shall have no liability in acting upon atelephonic request that it believes has been made by a properly authorizedPerson.  Lender shall, not later than3:30 P.M. (Mountain time), and upon fulfillment of the applicableconditions set forth in this Section and in Article 8 hereof, makesuch Revolving Advance available to such Borrower, in immediately availablefunds, and will transmit such funds to such Borrower’s Borrower Account by wiretransfer or otherwise.  Each Borroweracknowledges that all Borrowers shall be jointly and severally liable for therepayment of each Revolving Advance, regardless of which Borrower has requestedand received such Revolving Advance.

 

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

 

2.4                                 Lender Records. Lender shall record on its books and records the amount of eachRevolving Advance, all payments of principal and interest under the RevolvingNote, and the principal balance from time to time outstanding.  Lender’s record thereof shall be prima facieevidence as to all such amounts and shall be binding on Borrower absentmanifest error.  Notwithstanding theforegoing, Borrower will never be required to pay to Lender as principal morethan the principal amount of all Revolving Advances made by Lender.

 

2.5                                 Use of Proceeds.  Theproceeds of the Revolving Facility will be used by Borrower for generalcorporate, including business acquisitions permitted hereunder, and workingcapital purposes and to fund draws under Letters of Credit (as providedherein), and Borrower agrees not to request or use such proceeds for any otherpurpose.  Borrower will not, directly orindirectly, use any part of such proceeds for the purpose of purchasing orcarrying any margin stock within the meaning of Regulation U of the Board ofGovernors or to extend credit to any Person for the purpose of purchasing orcarrying any such margin stock.

 

# **ARTICLE 3.  LETTER OF CREDIT FACILITY**

#  

3.1                                 Letter of Credit Request.  Onthe terms and conditions set forth in this Credit Agreement, and so long as noEvent of Default or Potential Default has occurred and is continuing (or if anEvent of Default or Potential Default has occurred and is continuing, it has beenwaived in writing by Lender), Borrower, and each of them, may request theissuance of one or more documentary letters of credit or standby letters ofcredit for the benefit of Borrower (“**Lettersof Credit**”) by sending, not later than 12:00 noon (Mountain time) ona Banking

 

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

 

3.2                                 Letters of Credit.  Nolater than 1:00 P.M. (Mountain time) on the second (2nd) Banking Day afterthe receipt by the Lender of an LC Request (or such later date as may bespecified in such LC Request), it shall issue the requested Letter of Creditfor any expiry period from seven (7) days to the earlier of (a) 365days after the date of issuance; or (b) a date which is up to 180 daysafter the Revolving Maturity Date, subject to the following:

 

### 3.2.1 Limitationon Amount.  The face amount of therequested Letter of Credit may not, when added to the undrawn face amount ofall Letters of Credit then outstanding, would exceed the lesser of (a) theAggregate LC Commitment; or (b) an amount which, when added to theoutstanding amount of all previous Revolving Advances plus all CommittedAdvances under the Revolving Loan, would exceed the Revolving Commitment.

###  

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

###  

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

###  

### 3.2.4 Treatmentof Draws.  Each draw under a Letterof Credit shall be funded by Lender making a debit to any Borrower Account, andto the extent that there are not sufficient collected funds in any BorrowerAccount, by Lender making a Revolving Advance under the RevolvingFacility.  Each Borrower acknowledgesthat all Borrowers shall be jointly and severally liable for the

 

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### repayment of eachRevolving Advance to fund a draw on a Letter of Credit, regardless of whichBorrower has requested and received such Letter of Credit.

###  

3.3                                 Reimbursement Obligation Unconditional.  Alldraws under the Letters of Credit are absolutely, unconditionally, andirrevocably reimbursable by Borrower, and each of them individually regardlessof which Borrower requested and received such Letter of Credit, and may befunded as a debit to any Borrower Account or as Revolving Advances inaccordance with Subsection 3.2.4 hereof, notwithstanding:

 

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

#####  

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

#####  

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

#####  

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

#####  

# **ARTICLE 4.  INTEREST AND FEES**

#  

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

 

### 4.1.1 Base RateOption.  Except for those periodsduring which Borrower receives a LIBO Rate Loan pursuant to Subsection 4.1.2hereof, the outstanding principal balance under the Revolving Note shall bearinterest at the Base Rate and shall be deemed a “**Base Rate Loan**”.

###  

### 4.1.2 LIBO RateOption.  From time to time, and solong as no Event of Default has occurred and is continuing, Gaiam may requestthat the entire balance owing under the Revolving Note bear interest at theLIBO Rate (“**LIBO Rate Loan**”) bymaking a written request therefore (“**LIBORequest**”) to Lender by facsimile, specifying the Banking Day, whichmust be at least two

 

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### (2) Banking Days,and not more than five (5) Banking Days, after the date of the LIBORequest, on which such balance is to begin accruing interest at the LIBO Rate (“**LIBO Effective Date**”).  Gaiam’s election to convert the balance owingunder the Revolving Note to a LIBO Rate Loan shall be in effect and irrevocablefor a period of thirty (30) days (or the next succeeding Banking Day in theevent that such thirtieth (30th) day is not a Banking Day) commencing on, andincluding, the LIBO Effective Date (“**LIBORate Period**”) and each LIBO Rate Period shall be automaticallyextended for an additional thirty (30) days unless, at least three (3) BankingDays before the end of the then current LIBO Rate Period, Gaiam makes a writtenrequest (“**Conversion Request**”) toLender by facsimile specifying that the entire balance owing under theRevolving Note bear interest at the Base Rate commencing on the Banking Dayimmediately following the end of the then current LIBO Rate Period andcontinuing until such time, if ever, that Gaiam makes another LIBO Request toLender.  Lender shall incur no liabilityin acting upon a request which it believes in good faith had been made by aproperly authorized employee or other representative of Gaiam.  An election for a LIBO Rate Loan shall remainin effect for the LIBO Rate Period then in effect and shall be subject to theautomatic renewal provisions contained above in this Section notwithstandingthe fact that the balance owing under the Revolving Note is paid down in wholeor in part.

###  

4.2                                 Additional Provisions for LIBO Rate Loans.

 

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

###  

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

 

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

###  

4.3                                 Default Interest Rate.  Allpast due payments on the Revolving Note or any other Bank Debt (whether as aresult of nonpayment by Borrower when due, at maturity, or upon acceleration)shall bear interest at the Default Interest Rate from and after the due datefor the payment, or on the date of maturity or acceleration, as the case maybe.

 

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

 

# **ARTICLE 5.  PAYMENTS**

#  

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

 

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

 

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

 

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

 

5.5                                 Mandatory Prepayments. Borrower shall be required to make prepayments (“**Mandatory Prepayments**”) in each of thefollowing events:  (a) in the eventany of the Eligible Inventory is the subject of a Casualty Event, Borrowershall, within three (3) Banking Days of the occurrence of the CasualtyEvent, provide Lender with an updated Borrowing Base Certificate, taking intoaccount the effects of the Casualty Event on the amount of Eligible Inventoryand, based on such updated Borrowing Base Certificate (and upon its approval byLender), Borrower shall make a Mandatory Prepayment as required by clause (b) ofthis Section; and (b) in the event that at any time the outstanding amountof all Revolving Advances, plus the amount of all Committed Advances, plus theundrawn face amount of all outstanding Letters of Credit exceeds the lesser of (i) theRevolving Commitment or (ii) the Borrowing Base, a Mandatory Prepayment inthe amount of such excess.  MandatoryPrepayments under clauses (a) and (b) shall be due no later thanthree (3) Banking Days after the occurrence of the condition requiringsuch Mandatory Prepayment.

 

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

 

# **ARTICLE 6.  SECURITY**

#  

6.1                                 Borrower’s Assets.  Assecurity for the payment and performance of all obligations of Borrower toLender including but not limited to all principal and interest under theRevolving Note, fees, reimbursements, and all other Bank Debt or obligationsunder any of the Loan Documents, Borrower, and each of them individually, shallgrant to, and maintain for, Lender a first lien and security interest, subjectonly to Permitted Encumbrances, in all of its inventory, accounts, andequipment, tangible and intangible, whether now owned or hereafter acquired, (“**Collateral**”), pursuant to the SecurityDocuments.  Borrower, and each of themindividually, shall execute and deliver to Lender the Security Documents toevidence the security interest of Lender in the Collateral, together with suchfinancing statements or other documents as Lender shall request.  Borrower, and each of them individually,shall also execute such further

 

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

 

# **ARTICLE 7.  REPRESENTATIONS AND WARRANTIES**

#  

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

 

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

 

7.2                                 Corporate Authority, Due Authorization;Consents.  Borrower, and each of them individually, hasfull power and authority to execute, deliver and perform under this CreditAgreement, the Revolving Note, all other Loan Documents and all other documentsand agreements as contemplated by this Credit Agreement, all of which have beenduly authorized.  All consents orapprovals of any Person that are necessary for, or are required as a conditionof the execution, delivery and performance of the Loan Documents, have beenobtained.

 

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

 

7.4                                 No Violations.  Theexecution, delivery and performance of the Loan Documents will not:  (a) violate any provision of Borrower’sOrganization Documents, or any law, rule, regulation, judgment, order or rulingof any court or governmental agency; (b) violate, conflict with, result ina breach of, constitute a default under, or with the giving of notice or theexpiration of time or both, constitute a default under, any existing realestate mortgage, indenture, lease, security agreement, contract, note,instrument or any other agreements or documents binding on Borrower oraffecting its property; or (c) violate, conflict

 

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

 

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

 

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

 

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

 

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

 

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

 

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exceptsuch as have been obtained and are in full force and effect and as aredescribed on Exhibit 7.9.

 

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

 

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

 

7.12                           Real Property; Title to Real and PersonalProperty.  Borrower: (a) has all real property interests, including without limitation,fee interests, leasehold interests, easements, licenses and rights of way whichare necessary for the conduct of Borrower’s business; (b) holds good andmarketable title to all of Borrower’s real property (other than rights of way,easements and similar interests in real property which in the aggregate are notmaterial); (c) owns all of its personal property, and holds all of itsleases, free and clear of any lien, pledge, restriction, or encumbrance, exceptas specifically identified in Exhibit 7.12 attached hereto or aspermitted by Section 10.2 hereof (“**PermittedEncumbrances**”).  All ofBorrower’s leases which constitute Material Agreements are in full force andeffect and, where Borrower is the lessee thereunder, afford Borrower peacefuland undisturbed possession of the subject matter thereof.

 

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

 

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

 

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

 

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

 

7.17                           Regulations G, U and X.  Noportion of any Revolving Advance will be used for the purpose of purchasing,carrying, or making loans to finance the purchase of, any “margin security” or “marginstock” as such terms are used in Regulations G, U or X of the Board ofGovernors of the Federal Reserve System, 12 C.F.R. Parts 207, 221, and 224.

 

7.18                           Intellectual Property. Borrower owns or licenses all registered patents, trademarks, tradenames, service marks and copyrights (collectively, “**Intellectual Property**”) that it utilizes in its business aspresently being conducted, except where the failure to do so could notreasonably be expected to result in a Material Adverse Effect.  Borrower is not a licensee under any writtenlicense for any patent, trademark, tradename, service mark or copyright otherthan shrinkwrap licenses for “off-the-shelf” software used by Borrower in theconduct of its business.  TheIntellectual Property registrations are in full force and effect, and Borrowerhas taken or caused to be taken all action, necessary to maintain theIntellectual Property registrations in full force and effect and has not takenor failed to take or cause to be taken any action which, with the giving of notice,or the expiration of time, or both, could result in any such IntellectualProperty registrations being revoked, invalidated, modified, or limited, exceptwhere such revocation, invalidation, modification, or limitation could notreasonably be expected to result in a Material Adverse Effect.

 

7.19                           Labor Matters; Labor Agreements. Except as set forth in Exhibit 7.19 hereof:  (a) There are no collective bargainingagreements or other labor agreements covering any employees of Borrower, thetermination, cessation, or breach of which could reasonably be expected toresult in a Material Adverse Effect, and a true and correct copy of each suchagreement will be furnished to Lender upon its written request from time totime.  (b) There is no organizingactivity involving Borrower or pending or, to Borrower’s knowledge, threatenedby any labor union or group of employees. (c) There are, to Borrower’s knowledge, no representationproceedings pending or threatened with the National Labor Relations Board, andno labor organization or group of employees of Borrower, has made a pendingdemand for recognition.  (d) Thereare no complaints or charges against Borrower or pending or, to Borrower’s

 

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

 

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

 

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

 

# **ARTICLE 8.  CONDITIONS TO REVOLVING ADVANCES**

#  

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

 

### 8.1.1 LoanDocuments.  Lender shall havereceived duly executed originals of the Loan Documents.

###  

### 8.1.2 Searches;UCC Filings; Recordings.  Lendershall have received current searches of appropriate filing offices (dated nomore than thirty (30) days prior to the Closing Date) showing that (a) nostate or federal tax liens have been filed which remain in effect againstBorrower, or any of them, or any of the Collateral; (b) except withrespect to Permitted Encumbrances no financing statements have been filed byany Person except to perfect the security interests required by this CreditAgreement, which remain in effect against Borrower, or any of them, or any ofthe Collateral or other assets of any Borrower; (c) all financingstatements necessary to perfect the security interests in the Collateralgranted to Lender under the Loan Documents have been filed or recorded, to theextent such security interests are capable of being perfected by such filingand/or recording; and (d) all of the Loan Documents required to berecorded or filed to perfect the security interests and liens granted thereinin the Collateral shall be so recorded and filed.

 

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

###  

### 8.1.4 OrganizationalDocuments.  Lender shall havereceived for each Borrower:  (a) goodstanding certificates, dated no more than thirty (30) days prior to the ClosingDate, for such Borrower for its state of formation (to the extent suchcertification is available) and for each state where its operations requirequalification or authorization to transact business; (b) a copy of theOrganization Documents of such Borrower certified to by the appropriategovernmental official in its state of formation with which they must be filed(to the extent such certification is available); and (c) a copy of theOrganization Documents of such Borrower, certified as true and complete by theSecretary or Assistant Secretary, Managing Partner, or Manager, of suchBorrower, as applicable, to the extent certification by the appropriategovernmental official in its state of formation with which they must be filedis not available.

###  

### 8.1.5 Evidenceof Authorization .  Lender shall havereceived in form and substance satisfactory to Lender documents evidencing allcorporate or other authorizing action taken by each Borrower to authorize(including the specific names and titles of the persons authorized to so act(each an “**Authorized Officer**”))the execution, delivery and performance of the Loan Documents to which it is aparty, certified to be true and correct by the Secretary or AssistantSecretary, Managing Partner, or Manager, of such Borrower, as applicable.

###  

### 8.1.6 LegalOpinion for Borrower.  Lender shallhave received opinions of counsel for each Borrower (who shall be reasonablyacceptable to Lender), in form and content acceptable to Lender and addressedto Lender and its present and future assigns and participants.

###  

### 8.1.7 Evidenceof Insurance.  Borrower shall haveprovided Lender with insurance certificates and such other evidence, in formand substance satisfactory to Lender, of all insurance required to bemaintained by it under the Loan Documents.

###  

### 8.1.8 MaterialAgreements.  Lender shall havereceived copies of those Material Agreements as Lender may request in its solediscretion.

###  

### 8.1.9 BorrowingBase Certificate.  Borrower shallhave provided to Lender a proper Borrowing Base Certificate accurate as of June 30,2005.

###  

### 8.1.10 InventoryReport.  Borrower shall have providedto Lender a proper Inventory Report accurate as of June 30, 2005.

 

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### 8.1.11 [IntentionallyOmitted]

###  

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

###  

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

###  

### 8.1.14 AccountsAging Report .  Borrower shall haveprovided to Lender a proper Accounts Aging Report which satisfies therequirements set forth in Subsection 9.2.15 hereof and which is accurateas of June 30, 2005.

###  

### 8.1.15 OperatingAccounts; Treasury Management Services. Borrower, and each of them, shall have taken such action as Lender shallreasonably require to insure that all of Borrower’s material operating accountsand related treasury management services are maintained with, and/or beinghandled by, Lender.

###  

### 8.1.16 FurtherAssurances.  Borrower shall haveprovided and/or executed and delivered to Lender such further assignments,documents or financing statements, in form and substance satisfactory toLender, that Borrower is to execute and/or deliver pursuant to the terms of theLoan Documents or as Lender may reasonably request.

###  

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

 

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

###  

### 8.2.2 Possessionof Documents.  Lender shall havereceived possession of all instruments or securities, if any, with respect towhich possession is required to perfect Lender’ security interest therein.

###  

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

 

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### the amount of theRevolving Advance requested in the Borrowing Notice shall not result in anEvent of Default or Potential Default.

###  

### 8.2.4 Representationsand Warranties.  The representationsand warranties of Borrower contained in each of the Loan Documents to which itis a party and all exhibits thereto, subject to updates provided from time totime by Borrower and (except for updates of disclosure items listed on Exhibits7.11 and 7.16 to reflect investments and other events and transactionspermitted by this Agreement) approved in writing by Lender in its reasonablediscretion, shall be true and correct in all material respects on and as of thedate on which the Revolving Advance is to be made as though made on suchdate.  Borrower shall have paid Lender,by wire transfer of immediately available U.S. funds all fees which are thendue and payable, including all expenses owing pursuant to Section 13.1hereof.

###  

### 8.2.5 AvailabilityPeriod.  The Borrowing Notice doesnot specify an Advance Date which is later than the Banking Day immediatelyprior to the last day of the Revolving Loan Availability Period.

###  

### 8.2.6 NoMaterial Change.  No change shallhave occurred in the condition or operations of Borrower since the date of thefinancial statements most recently provided by Borrower to Lender pursuantto Subsection 9.2.1 or 9.2.2 hereof, as applicable, which, when consideredin the aggregate, could reasonably be expected to result in a Material AdverseEffect.

###  

# **ARTICLE 9.  AFFIRMATIVE COVENANTS**

#  

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

 

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

 

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

 

### 9.2.1 AnnualFinancial Statements.  As soon asavailable, but in no event later than one hundred and fifty (150) days afterthe end of any Fiscal Year of Borrower occurring during the term hereof annualfinancial statements of Gaiam and each of the Consolidated Subsidiaries,prepared in accordance with GAAP consistently applied which shall:  (a) be audited by independent certifiedpublic accountants selected by Borrower which are reasonably acceptable toLender; (b) be accompanied by a report of such accountants containing anopinion reasonably acceptable to Lender; and (c) include a balance sheet,an

 

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

###  

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

###  

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

###  

### 9.2.4 Notice ofCertain Changes.  Borrower shallnotify Lender at least ten (10) Banking Days prior to the occurrence ofany change in the name, business form, or place of formation, of Borrower inorder to maintain the perfected status of Lender’s first lien and securityinterest (subject only to Permitted Encumbrances) in the Collateral.

###  

### 9.2.5 Notice ofLitigation.  Borrower shall promptlynotify Lender in writing of all litigation in which Borrower is a party, andwhich either: (a) involves an amount of $200,000 or more, singly or in theaggregate at any time; or (b) could reasonably be expected to result in aMaterial Adverse Effect with respect to Borrower.

###  

### 9.2.6 Notice ofMaterial Adverse Effect.  Promptlyafter any Officer of Borrower obtains knowledge thereof, notice of any matterwhich has resulted or could reasonably be expected to result in a MaterialAdverse Effect.

 

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

###  

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

###  

### 9.2.9 Adverse Action Regarding RequiredLicenses.  Inthe event Borrower learns that any petition, action, investigation, notice ofviolation or apparent liability, notice of forfeiture, order to show cause,complaint or proceeding is pending, or, to the best of the knowledge of anyofficer of Borrower, threatened, to seek to revoke, cancel, suspend, modify, orlimit any of the Required Licenses, Borrower shall provide Lender with promptwritten notice thereof and shall take, or cause to be taken, all reasonable measuresto contest such action in good faith.

###  

### 9.2.10 ERISA Reports.  As soon as possible and in any event withintwenty (20) days after Borrower or any ERISA Affiliate knows or has reason toknow that any Reportable Event or Prohibited Transaction has occurred withrespect to any Borrower Benefit Plan or that the PBGC or Borrower or any ERISAAffiliate has instituted or will institute proceedings under Title IV of ERISAto terminate any Borrower Pension Plan, or that Borrower or any ERISA Affiliatehas completely or partially withdrawn from a Multiemployer Plan, or that aBorrower Benefit Plan which is a Multiemployer Plan is in reorganization(within the meaning of Section 4241 of ERISA), is insolvent (within themeaning of Section 4245 of ERISA) or is terminating, a certificate of theChief Financial Officer of Borrower or such ERISA Affiliate setting forthdetails as to such Reportable Event or Prohibited Transaction or BorrowerPension Plan termination or withdrawal or reorganization or insolvency and the actionBorrower or such ERISA Affiliate proposes to take with respect thereto,provided, however, that notwithstanding the foregoing, no reporting is requiredunder this subsection unless the matter(s), individually or in theaggregate, result, or could be reasonably expected to result, in aggregateobligations or liabilities of Borrower and/or the ERISA Affiliates in excess of$100,000.

###  

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

 

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thelast day of the previous Fiscal Quarter, and including a breakdown as toamounts of Eligible Accounts and Eligible Inventory owned by each Borrowerindividually.

###  

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

###  

### 9.2.13 Annual Projections.  Borrower shall, no later than ninety (90)days after the end of each Fiscal Year, provide to Lender projections forBorrower’s forecasted operations during such Fiscal Year showing, on amonth-by-month and year to date cumulative basis, including forecasted income,expenses, and borrowing needs. Such projections shall be accompanied by acertificate of Borrower’s Authorized Officer certifying that, (a) at thetime of submission, such projections are based upon reasonable estimates andassumptions, all of which were fair in light of then-current conditions, (b) suchprojections were prepared on the basis of the assumptions stated therein, andreflect the reasonable estimate of Borrower of the results of operations andother information projected therein; (c) to the knowledge of the Personproviding the certification, as of the date thereof (i) there have been nochanges in the estimates and assumptions used in preparing the projectionswhich, if taken into account, would, in the aggregate, have a material adverseeffect on such projections, and (ii) such estimates and assumptions arefair in light of the current conditions; and (d) no undisclosed factsexist which, if taken into account, would, in the aggregate, have a materialadverse effect on the projections.

###  

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

###  

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

 

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

###  

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

###  

## 9.3                                 Maintenance of Existence and Qualification.  EachBorrower shall maintain its existence in good standing under the laws of itsstate of formation.  Each Borrower shallqualify and remain qualified to do business in each jurisdiction in which suchqualification is necessary or desirable in view of its business, operations andproperties.

##  

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

##  

## 9.5                                 Compliance with Environmental Laws.  Withoutlimiting the provisions of Section 9.4 of this Credit Agreement, Borrowershall comply in all material respects with, and take all reasonable stepsnecessary to cause all persons occupying or present on any properties owned orleased by Borrower to comply with, all Environmental Laws and EnvironmentalRegulations, the failure to comply with which could reasonably be expected tohave a Material Adverse Effect.

##  

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

##  

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

 

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## located in a flood plain zone), earthquake andwindstorm coverage) in the amount of the full replacement cost (other than withrespect to motor vehicles) as well as liability, worker’s compensation,business interruption, boiler and machinery and such other insurance as Lendermay reasonably require, in amounts and with deductibles or maximum payoutscustomarily carried by Persons in similar lines of business.  Borrower shall also maintain fidelitycoverage (including employee dishonesty) on such officers and employees and insuch amounts as Lender shall reasonably specify, or in the absence of any suchspecification, as customarily carried by Persons engaged in comparablebusinesses and comparably situated.  Suchinsurance policies shall contain such reasonable endorsements as Lender shallfrom time to time require and all liability policies shall name Lender as anadditional insured as its interests may appear. All such casualty insurance policies shall be endorsed with a losspayable clause, as appropriate, in favor of Lender.  Certificates of all insurance referred to inthis Section satisfactory to Lender shall be delivered to and held byLender, and the policy or policies evidencing all such insurance shall beprovided to Lender upon Lender’s request therefor.  All such insurance policies shall contain aprovision requiring at least ten (10) days’ notice to Lender prior toany cancellation for non-payment of premiums and at least forty-five (45) days’notice to Lender of cancellation for any other reason or of modification ornon-renewal.  No later than forty (40)days prior to expiration, Borrower shall give Lender (a) satisfactorywritten evidence of renewal of all such policies with premiums paid; or (b) awritten report as to the steps being taken by Borrower to renew or replace allsuch policies, provided that notwithstanding the receipt of such writtenreport, Lender may at any time thereafter give Borrower written notice toprovide Lender with such evidence as described in clause (a), in which case Borrowermust do so within ten (10) days of such notice.  Borrower agrees to pay all premiums on suchinsurance as they become due, and will not permit any condition to exist on orwith respect to its assets which would wholly or partially invalidate any insurancethereon.  Effective upon the occurrenceof an Event of Default, all of Borrower’s right, title and interest in and toall such policies and any unearned premiums paid thereon are hereby assigned toLender who shall have the right, but not the obligation, to assign the same toany purchaser of the Collateral at any foreclosure sale.  Borrower shall give immediate written noticeto the insurance carrier and Lender of any loss.  Borrower hereby authorizes and empowersLender upon the occurrence and during the continuation of an Event of Default,at Lender’s option and in Lender’s sole discretion, to act as attorney-in-factfor Borrower to make proof of loss, to adjust and compromise any claim underinsurance policies, to collect and receive insurance proceeds, and to deducttherefrom Lender’s expenses incurred in the collection of such proceeds, all asit shall relate to the Collateral.

##  

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

 

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## necessary repairs, replacements and improvements sothat its business may be properly and advantageously conducted.

##  

## 9.9                                 Payment of Liabilities.  Borrower shall pay allliabilities (including, without limitation: (a) any indebtedness for borrowed money or for the deferred purchaseprice of property or services; (b) any obligations under leases which haveor should have been characterized as capitalized leases, as determined inaccordance with GAAP; and (c) any contingent liabilities, such asguaranties, for the obligations of others relating to indebtedness for borrowedmoney or for the deferred purchase price of property or services or relating toobligations under leases which have or should have been characterized ascapitalized leases, as determined in accordance with GAAP) as they become duebeyond any period of grace under the instrument creating such liabilities,unless (with the exception of the Bank Debt) they are being contested in goodfaith by appropriate actions or legal proceedings, Borrower establishes adequatereserves therefor in accordance with GAAP, and such contesting will not resultin a Material Adverse Effect.

##  

## 9.10                           Further Assurances.  Borrower shall, as may berequired from time to time by Lender, provide such documents as may benecessary or desirable in the judgment of Lender to verify the existence andperfection of the security interest in the Collateral granted to Lender.

##  

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

##  

## 9.12                           Required Licenses; Permits; Etc**.**  Borrowershall duly and lawfully obtain and maintain in full force and effect allRequired Licenses as appropriate for the business being conducted andproperties owned by Borrower at any given time.

##  

## 9.13                           ERISA.  Borrower shall make or cause to be made, andcause each ERISA Affiliate to make or cause to be made, all payments orcontributions to all Borrower Benefit Plans covered by Title IV of ERISA, whichare necessary to enable those Borrower Benefit Plans to continuously meet allminimum funding standards or requirements.

##  

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

##  

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

 

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

###  

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

###  

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

###  

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

###  

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

##  

# **ARTICLE 10. NEGATIVE COVENANTS**

# ** **

From and after the date of thisCredit Agreement and until the Bank Debt is indefeasibly paid in full, allLetters of Credit have expired, and Lender has no obligation to make RevolvingAdvances and no obligation to issue Letters of Credit hereunder, Borrower, andeach of them, agrees to observe and comply with the following covenants for thebenefit of Lender:

 

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

##  

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

 

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

##  

##### (a)                                  Liens for taxes or other governmental charges whichare not due or remain payable without penalty, or are being contested in goodfaith by appropriate actions or proceedings; provided that such reserves orother appropriate provisions, if any, as shall be required by GAAP, shall havebeen made for such taxes or other governmental charges;

#####  

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

#####  

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

#####  

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

#####  

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

#####  

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

#####  

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

#####  

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

 

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

##  

## 10.5                           Merger; Acquisitions; Business Form; Etc**.**  Borrowershall not merge or consolidate with any entity, or acquire all or substantiallyall of the assets of any Person or entity, change its business form, orcommence operations under any other name, organization, or entity, includingany joint venture; provided however that Borrower may (a) makeacquisitions pursuant to which payment is made solely in stock or equityinterests in Borrower; (b) complete the asset purchase contemplated in theGoodTimes Agreement; (c) in addition to acquisitions permitted underclauses (a) and (b) of this Section, make acquisitions up to, for allBorrowers in the aggregate, $10,000,000.00 in consideration paid in any FiscalYear; (d) form new Subsidiaries; and (e) merge or consolidate oneBorrower into another Borrower, provided that no later than ten (10) BusinessDays after the creation of a new Subsidiary or any merger or consolidation, asdescribed in clauses (d) or (e), Borrower shall (i) provide Lenderwith written notification of such transactions (including a detaileddescription, the name of any newly formed Person, any change in the name of anyexisting Person, the business form of any newly formed Person or change inbusiness form of any existing Person, and the place of location (as that termis used in the applicable Uniform Commercial Code) of any newly formed Personor any change of location of any existing Person, and (ii) take suchaction (or cause such newly formed Person to take such action) as Lenderdirects in order to create and/or perfect Lender’s security interest in anyCollateral.

##  

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

##  

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

 

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##### (b)                                 Certificates of deposit in North American commercialbanks rated C or better by Keefe, Bruyette & Woods, Inc. or3 or better by Cates Consulting Analysts, maturing not in excess of one yearfrom the date of acquisition;

#####  

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

#####  

##### (d)                                 Repurchase agreements of any bank or trust companyincorporated under the laws of the United States of America or any statethereof and fully secured by a pledge of obligations issued or fully andunconditionally guaranteed by the United States government; and

#####  

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

#####  

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

##  

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

##  

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

 

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## relating to such Multiemployer Plan or any lawpertaining thereto; or (g) terminate any Borrower Pension Plan without theprior written consent of Lender.  As usedin this Section, all terms enclosed in quotation marks shall have themeanings set forth in ERISA.  Borrower’sfailure to comply with any of the foregoing provisions of this Section shallnot constitute a breach of this Credit Agreement or an Event of Default unlesssuch failure could reasonably be expected to result in a Material AdverseEffect.

##  

## 10.10                     Payment of Dividends.  Borrower shall not, directly orindirectly, declare or pay any dividends on account of any shares of any classof its capital stock now or hereafter outstanding, or set aside or otherwisedeposit or invest any sums for such purpose.

##  

## 10.11                     Change in Fiscal Year.  Borrower shall not change itsFiscal Year.

##  

## 10.12                     Capital Expenditures.  Borrower shall not make anyCapital Expenditures in excess of $10,000,000.00 in the aggregate in any FiscalYear.

##  

## 10.13                     Intercompany Transactions.  Notwithstanding anything to thecontrary contained in Article 10, so long as no Event of Default hasoccurred and is continuing, a Borrower may (a) create or incurIndebtedness to another Borrower, (b) sell, convey, assign, lease orotherwise transfer any of its assets to another Borrower, (c) guarantee orotherwise become liable for an obligation of another Borrower that is otherwisepermitted under this Agreement, (d) make investments in, or lend oradvance money, credit or property to, another Borrower, (e) enter intotransactions with another Borrower without complying with the requirements setforth in Section 10.8, and (f) declare or pay dividends or otherwisemake distributions to another Borrower.

##  

# **ARTICLE 11. INDEMNIFICATION**

# ** **

## 11.1                           General; Stamp Taxes; Intangibles Tax.  Borroweragrees to indemnify and hold Lender and each of its directors, officers,employees, agents, professional advisers and representatives (“**Indemnified Parties**”) harmless from andagainst any and all claims, damages, losses, liabilities, costs or expenseswhatsoever which Lender or any other Indemnified Party may incur (or which maybe claimed against any such Indemnified Party by any Person), includingattorneys’ fees incurred by any Indemnified Party, arising out of or resultingfrom:  (a) the inaccuracy of anyrepresentation or warranty of or with respect to Borrower in this CreditAgreement or the other Loan Documents; (b) the failure of Borrower toperform or comply with any covenant or obligation of Borrower under this CreditAgreement or the other Loan Documents; or (c) the exercise by Lender ofany right or remedy set forth in this Credit Agreement or the other LoanDocuments, provided that Borrower shall have no obligation to indemnify anyIndemnified Party against claims, damages, losses, liabilities, costs orexpenses to the extent that a court of competent jurisdiction renders a finalnon-appealable determination that the foregoing are solely the result of thewillful

 

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## misconduct or gross negligence of such IndemnifiedParty.  In addition, Borrower agrees toindemnify and hold the Indemnified Parties harmless from and against any andall claims, damages, losses, liabilities, costs or expenses whatsoever whichLender or any other Indemnified Party may incur (or which may be claimedagainst any such Indemnified Party by any Person), including attorneys’ feesincurred by any Indemnified Party, arising out of or resulting from theimposition or nonpayment by Borrower of any stamp tax, intangibles tax, orsimilar tax imposed by any state, including any amounts owing by virtue of theassertion that the property valuation used to calculate any such tax wasunderstated.  Borrower shall have the rightto assume the defense of any claim as would give rise to Borrower’sindemnification obligation under this Section with counsel of Borrower’schoosing so long as such defense is being diligently and properly conducted andBorrower shall establish to the Indemnified Party’s satisfaction that theamount of such claims are not, and will not be, material in comparison to theliquid and unrestricted assets of Borrower available to respond to any awardwhich may be granted on account of such claim. So long as the conditions of the preceding sentence are met, IndemnifiedParty shall have no further right to reimbursement of attorney’s fees incurredthereafter.  The obligation to indemnifyset forth in this Section shall survive the termination of this CreditAgreement and other covenants.

##  

## 11.2                           Indemnification Relating to Hazardous Substances.  Borrowershall not locate, produce, treat, transport, incorporate, discharge, emit,release, deposit or dispose of any Hazardous Substance in, upon, under, over orfrom any property owned or held by Borrower, except in accordance with allEnvironmental Laws and Environmental Regulations; Borrower shall not permit anyHazardous Substance to be located, produced, treated, transported,incorporated, discharged, emitted, released, deposited, disposed of or to escapein, upon, under, over or from any property owned or held by Borrower, except inaccordance with Environmental Laws and Environmental Regulations; and Borrowershall comply with all Environmental Laws and Environmental Regulations whichare applicable to such property.  IfLender reasonably believes that an Environmental Law or EnvironmentalRegulation has been violated by Borrower’s activities upon property owned orheld by Borrower, and if Lender so requests, Borrower shall arrange for thepreparation of an environmental review, audit, assessment and/or reportrelating to the subject property, at Borrower’s sole cost and expense, by anengineer or other environmental expert acceptable to Lender. Borrower shallindemnify the Indemnified Parties against, and shall reimburse the IndemnifiedParties for, any and all claims, demands, judgments, penalties, liabilities,costs, damages and expenses, including court costs and attorneys’ fees incurredby the Indemnified Parties (prior to trial, at trial and on appeal) in anyaction against or involving the Indemnified Parties, resulting from any breachof the foregoing covenants in this Section or the covenants in Section 9.5hereof, or from the discovery of any Hazardous Substance in, upon, under orover, or emanating from, such property, it being the intent of Borrower and theIndemnified Parties that the Indemnified Parties shall have no liability orresponsibility for damage or injury to human

 

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## health, the environmental or natural resourcescaused by, for abatement and/or clean-up of, or otherwise with respect to,Hazardous Substances by virtue of the interest of Lender in the propertycreated by any documents securing Bank Debt (including without limitation the LoanDocuments) or as the result of Lender exercising any of its rights or remedieswith respect thereto, including but not limited to becoming the owner thereofby foreclosure or conveyance in lieu of foreclosure; provided that suchindemnification as it applies to the exercise by Lender of its rights orremedies with respect to the Loan Documents shall not apply to claims arisingsolely with respect to Hazardous Substances brought onto such property byLender or its successors or assigns while engaged in activities other thanoperations substantially the same as the operations previously conducted onsuch property by Borrower.  The foregoingcovenants of this Section shall be deemed continuing covenants for thebenefit of the Indemnified Parties, and any successors and assigns of theIndemnified Parties, including but not limited to the holder of any certificateof purchase, any transferee of the title of Lender or any subsequent owner ofthe property, and shall survive the satisfaction or release of any lien, anyforeclosure of any lien and/or any acquisition of title to the property or anypart thereof by Lender, or anyone claiming by, through or under Lender orBorrower by deed in lieu of foreclosure or otherwise.  Any amounts covered by the foregoing indemnificationshall bear interest from the date incurred at the Default Interest Rate, shallbe payable on demand, and shall be secured by the Security Documents.  The indemnification and covenants of this Section shallsurvive the termination of this Credit Agreement and other covenants.

##  

# **ARTICLE 12. EVENTS OF DEFAULT; RIGHTS AND REMEDIES**

# ** **

## 12.1                           Events of Default.  The occurrence of any of thefollowing events (each an “**Event of Default**”)shall, at the option of Lender, make the entire Bank Debt immediately due andpayable (provided, that in the case of an Event of Default under Subsection 12.1(e) allamounts owing under the Revolving Note and the other Loan Documents shallautomatically and immediately become due and payable without any action by oron behalf of Lender), and Lender may exercise all rights and remedies for thecollection of any amounts outstanding hereunder and take whatever action itdeems necessary to secure itself, all without notice of default, presentment ordemand for payment, protest or notice of nonpayment or dishonor, or othernotices or demands of any kind or character:

##  

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

#####  

##### (b)                                 Any representation or warranty set forth in any LoanDocument, in any Borrowing Notice, in any financial statements or reports orprojections or forecasts, or in connection with any transaction contemplated by

 

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

#####  

##### (c)                                  Any default by Borrower in the performance orcompliance with the covenants, promises, conditions or provisions of Sections9.7, 9.11, 9.14, 10.1, 10.2, 10.3, 10.4, 10.5, 10.7, 10.8, 10.9, 10.10, or10.12 of this Credit Agreement.

#####  

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

#####  

##### (e)                                  Borrower, or any of them, applies for or consents tothe appointment of a trustee or receiver for any part of its properties; anybankruptcy, reorganization, debt arrangement, dissolution or liquidationproceeding is commenced or consented to by Borrower or any of them; or anyapplication for appointment of a receiver or a trustee, or any proceeding forbankruptcy, reorganization, debt management or liquidation is filed for orcommenced against Borrower or any of them, and is not withdrawn or dismissedwithin sixty (60) days thereafter.

#####  

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

#####  

##### (g)                                 The entry of one or more judgments in an aggregateamount in excess of $200,000.00 against Borrower not stayed, discharged or paidwithin thirty (30) days after entry.

#####  

## 12.2                           No Revolving Advance or Letter of Credit.  Lender maysuspend the Revolving Commitment upon the occurrence and during the continuanceof Potential Default or an Event of Default and shall have no obligation tomake any Revolving Advance and no obligation to issue or renew any Letter ofCredit if a Potential Default or an Event of Default shall occur and becontinuing.

 

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## 12.3                           Rights and Remedies.  In addition to the remedies setforth in Section 12.1 and 12.2 hereof, upon the occurrence of an Event ofDefault (and unless and until such Event of Default is waived in writing byLender), Lender shall be entitled to (a) demand that Borrower to establishthe Cash Collateral Account and to deposit therein immediately available fundsin the amount of the undrawn face amount of all Letters of Credit thenoutstanding (and if Borrower fails to establish such account and/or providesuch funds within two (2) Banking Days of such demand, Lender mayestablish such account and/or provide such funds by a Revolving Advance,without regard to any limitations thereon); and (b) exercise all therights and remedies provided in the Security Documents and other Loan Documentsand by any applicable law, including, without limitation, the UniformCommercial Code as enacted in the state of Colorado or the state which governsperfection of a security interest in the Collateral, whichever provides Lenderwith greater rights.  Each and everyright or remedy granted to Lender pursuant to this Credit Agreement and theother Loan Documents, or allowed Lender by law or equity, shall becumulative.  Failure or delay on the partof Lender to exercise any such right or remedy shall not operate as a waiverthereof.  Any single or partial exerciseby Lender of any such right or remedy shall not preclude any future exercisethereof or the exercise of any other right or remedy.

##  

# **ARTICLE 13. MISCELLANEOUS**

# ** **

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

##  

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

 

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## under the Revolving Note or other Loan Documents maybe brought in the courts of the State of Colorado and in the United StatesDistrict Court for the District of Colorado (if applicable subject matterjurisdictional requirements are present), as Lender may elect; and, byexecution and delivery of this Credit Agreement, Borrower irrevocably submitsto such jurisdiction.  With respect tolitigation concerning this Credit Agreement or under the Revolving Note orother Loan Documents within the jurisdiction of the courts of the State of Coloradoor the United States District Court for the District of Colorado, Borrowerhereby irrevocably appoints, until at least one (1) year following theRevolving Maturity Date, Corporation Service Company to serve as agent ofBorrower to receive for and on behalf of Borrower at such agent’s Denver,Colorado office (presently at 1560 Broadway), service of process, which servicemay be made by mailing a copy of any summons or other legal process to Borrowerin care of such agent.  Borrower agreesthat Borrower shall maintain a duly appointed agent in Colorado for service ofsummons and other legal process as long as Borrower remains obligated underthis Credit Agreement and shall keep Lender advised in writing of the identityand location of such agent.  The receiptby such agent and/or by Borrower of such summons or other legal process in anysuch litigation shall be deemed personal service and acceptance by Borrower forall purposes of such litigation.

##  

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

##  

## 13.4                           Arbitration.  Notwithstanding the provisions of Sections13.2 and 13.3 hereof, the parties hereto agree, upon demand by either party, tosubmit to binding arbitration all claims, disputes and controversies between oramong them (and their respective employees, officers, directors, attorneys, andother agents), whether in tort, contract or otherwise arising out of orrelating to in any way (a) the Loans and related Loan Documents which arethe subject of this Credit Agreement and its negotiation, execution,collateralization, administration, repayment, modification, extension,substitution, formation, inducement, enforcement, default or termination; or (b) requestsfor additional credit.

##  

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

 

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

###  

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

###  

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

 

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### institution and maintenance of an action forjudicial relief or pursuit of a provisional or ancillary remedy shall notconstitute a waiver of the right of any party, including the plaintiff, tosubmit the controversy or claim to arbitration if any other party contests suchaction for judicial relief.

###  

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

###  

### 13.4.5 Class Proceedings andConsolidations. The resolution of any dispute arising pursuant to the terms of thisCredit Agreement shall be determined by a separate arbitration proceeding andsuch dispute shall not be consolidated with other disputes or included in anyclass proceeding.

###  

### 13.4.6 Payment of Arbitration Costs andFees.  Thearbitrator shall award all costs and expenses of the arbitration proceeding.

###  

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

###  

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

 

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### 13.5.1 Borrower:

###  

Gaiam, Inc.

Suite 300

360 Interlocken Boulevard

Broomfield, Colorado 80021

 

FAX: (303) 265-9110

Attention: Chief Financial Officer

 

### 13.5.2 Lender:

###  

Wells Fargo Bank, NationalAssociation

1242 Pearl Street

P.O. Box 227

Boulder, Colorado 80302

 

FAX: (303) 444-3295

Attention: Gaiam Relationship Manager

 

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

##  

## 13.7                           Severability.  The invalidity or unenforceability of anyprovision of this Credit Agreement or the other Loan Documents shall not affectthe remaining portions of such documents or instruments; in case of suchinvalidity or unenforceability, such documents or instruments shall beconstrued as if such invalid or unenforceable provisions had not been includedtherein.

##  

## 13.8                           Applicable Law.  To the extent not governed by federal law, thisCredit Agreement and the other Loan Documents, and the rights and obligationsof the parties hereto and thereto shall be governed by and interpreted inaccordance with the internal laws of the State of Colorado, without givingeffect to any otherwise applicable rules concerning conflicts of law.

 

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## 13.9                           Captions.  The captions or headings in this CreditAgreement and any table of contents hereof are for convenience only and in noway define, limit or describe the scope or intent of any provision of thisCredit Agreement.

##  

## 13.10                     Complete Agreement; Amendments.  THIS CREDITAGREEMENT, THE REVOLVING NOTE, AND THE OTHER LOAN DOCUMENTS ARE INTENDED BY THEPARTIES HERETO TO BE A COMPLETE AND FINAL EXPRESSION OF THEIR AGREEMENT AND MAY NOTBE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORALAGREEMENT.  LENDER AND BORROWERACKNOWLEDGE AND AGREE THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN THEM WITHRESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT.  This Credit Agreement (together with allexhibits hereto, which are incorporated herein by this reference) and the otherLoan Documents represent the entire understanding of Lender and Borrower withrespect to the subject matter hereof and shall replace and supersede anyprevious agreements of the parties with respect to the subject matterhereof.  This Credit Agreement may not bemodified or amended unless such modification or amendment is in writing and issigned by Borrower and Lender.  Borroweragrees that it shall reimburse Lender for all reasonable fees and expensesincurred by Lender in retaining outside legal counsel in connection with anyamendment or modification to this Credit Agreement requested by Borrower.

##  

## 13.11                     Additional Costs of Maintaining Loan.  Borrowershall pay to Lender from time to time such amounts as Lender may determine tobe necessary to compensate Lender for any increase in costs to Lender whichLender determines are attributable to Lender’s making or maintaining aRevolving Advance hereunder or its obligation to make such Revolving Advance,or any reduction in any amount receivable by Lender under this Credit Agreementor the Revolving Note in respect to such Revolving Advance or such obligation(such increases in costs and reductions in amounts receivable being hereincalled “**Additional Costs**”),resulting from any change after the date of this Credit Agreement in UnitedStates federal, state, municipal laws or regulations (including Regulation D ofthe Federal Reserve Board), or the adoption or making after such date of anyinterpretations, directives, or requirements applying to a class of banksincluding Lender of or under any United States federal, state, municipal lawsor regulations (whether or not having the force of law) by any court orgovernmental or monetary authority charged with the interpretation oradministration thereof (“**Regulatory Change**”),which:  (a) changes the basis oftaxation of any amounts payable to Lender under this Credit Agreement or theRevolving Note in respect of such Revolving Advance (other than taxes imposedon the overall net income of Lender); or (b) imposes or modifies anyreserve, special deposit, or similar requirements relating to any extensions ofcredit or other assets of, or any deposits with or other liabilities of,Lender; or (c) imposes any other condition affecting this Credit Agreementor the Revolving Note (or any of such extensions of credit orliabilities).  Lender will notifyBorrower of any event occurring after the date of this Credit Agreement

 

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## which will entitle Lender to compensation pursuantto this Section as promptly as practicable after it obtains knowledgethereof and determines to request such compensation.  Lender shall include with such notice, acertificate from Lender setting forth in reasonable detail the calculation ofthe amount of such compensation. Determinations by Lender for purposes of this Section of the effectof any Regulatory Change on the costs of Lender of making or maintaining aRevolving Advance or on amounts receivable by Lender in respect of RevolvingAdvances, and of the additional amounts required to compensate Lender inrespect of any Additional Costs, shall be conclusive absent manifest error, providedthat such determinations are made on a reasonable basis.

##  

## 13.12                     Capital Requirements.  In the event that theintroduction of or any change in:  (a) anylaw or regulation; or (b) the judicial, administrative, or othergovernmental interpretation of any law or regulation; or (c) compliance byLender or any corporation controlling Lender with any guideline or request fromany governmental authority (whether or not having the force of law) has theeffect of requiring an increase in the amount of capital required or expectedto be maintained by Lender or any corporation controlling Lender, and Lendercertifies that such increase is based in any part upon Lender’s obligationshereunder, and other similar obligations, Borrower shall pay to Lender suchadditional amount as shall be certified by Lender to Borrower to be the netpresent value (discounted at the Base Rate less the Base Rate Margin) of theamount by which such increase in capital reduces the rate of return on capitalwhich Lender could have achieved over the period remaining until the RevolvingMaturity Date but for such introduction or change.  Lender will notify Borrower of any eventoccurring after the date of this Credit Agreement that will entitle Lender tocompensation pursuant to this Section as promptly as practicable after itobtains knowledge thereof and of Lender’s determination to request suchcompensation.  Lender shall include withsuch notice, a certificate setting forth in reasonable detail the calculationof the amount of such compensation. Determinations by Lender for purposes of this Section of the effectof any increase in the amount of capital required to be maintained by Lenderand of the amount of compensation owed to any Lender under this Section shallbe conclusive absent manifest error, provided that such determinations are madeon a reasonable basis.

##  

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

##  

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

 

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## be fully, finally, and forever released anddischarged from any further claim, liability, or obligation in connection withthe Bank Debt.

##  

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

##  

## 13.16                     Liberal Construction.  This Credit Agreement constitutesa fully negotiated agreement between commercially sophisticated parties, eachassisted by legal counsel, and shall not be construed and interpreted for oragainst any party hereto.

##  

## 13.17                     Counterparts.  This Credit Agreement may be executed in anynumber of counterparts and by different parties to this Credit Agreement inseparate counterparts, each of which when so executed shall be deemed to be anoriginal and all of which taken together shall constitute one and the sameagreement.  Copies of documents orsignature pages bearing original signatures, and executed documents orsignature pages delivered by facsimile or by e-mail transmission of anAdobe® file format document (also known as a PDF file), shall, in each suchinstance, be deemed to be, and shall constitute and be treated as, an originalsigned document or counterpart, as applicable. Any party delivering an executed counterpart of this Credit Agreement byfacsimile, or by e-mail transmission of an Adobe file format document alsoshall deliver an original executed counterpart of this Credit Agreement, butthe failure to deliver an original executed counterpart shall not affect thevalidity, enforceability, and binding effect of this Credit Agreement.

##  

## 13.18                     Affect of Amended and Restated Credit Agreement.  This CreditAgreement shall, upon compliance with the requirements of Section 8.1hereof, be effective from the Effective Date forward, and the execution of thisCredit Agreement shall not relieve any party to the 2002 Credit Agreement fromtheir respective obligations thereunder for the period from the OriginalEffective Date to the Effective Date or from any liability for the failure toperform such obligations or from any liability arising out of indemnificationobligations under the 2002 Credit Agreement.

##  

**[SIGNATURES BEGINON THE NEXT PAGE]**

 

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

 
|   | **LENDER:**                                                                                |
|--------|--------------------------------------------------------------------------------------------|
|   |                                                                                       |
|   | Wells Fargo Bank, National Association                                                     |
|   |                                                                                       |
|   | By:                                                                                        | /s/ Zan M. Powell |   |
|   | Name: Zan M. Powell                                                                        |
|   | Title: Vice President                                                                      |
|   | Applicable Lending Office:                                                                 |
|   | 1242 Pearl Street                                                                          |
|   | Boulder, CO 80302                                                                          |
|   |                                                                                       |
|   | **BORROWER:**                                                                              |
|   |                                                                                       |
|   | Gaiam, Inc., a corporation formed under  the laws of the State of Colorado.           |
|   |                                                                                       |
|   | By:                                                                                        | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                          |
|   | Title: President                                                                           |
|   |                                                                                       |
|   | Gaiam Americas, Inc., a corporation  formed under the laws of the State of  Colorado. |
|   |                                                                                       |
|   | By:                                                                                        | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                          |
|   | Title: President                                                                           |
|   |                                                                                       |
|   | Gaiam.com, Inc., a corporation formed  under the laws of the State of Colorado.       |
|   |                                                                                       |
|   | By:                                                                                        | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                          |
|   | Title: President                                                                           |
|   |                                                                                       |
|   | Gaiam Direct, Inc., a corporation  formed under the laws of the State of  Colorado.   |
|   |                                                                                       |
|   | By:                                                                                        | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                          |
|   | Title: President                                                                           |
|        |                                                                                            |  |  |  |

 

50

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|   | Gaiam International, Inc., a corporation  formed under the laws of the State of  Colorado.     |
|--------|-----------------------------------------------------------------------------------------------------|
|   |                                                                                                |
|   | By:                                                                                                 | /s/ Janet Mathews |   |
|   | Name: Janet Mathews                                                                                 |
|   | Title: Secretary/Treasurer                                                                          |
|   |                                                                                                |
|   | Gaiam International II, Inc., a  corporation formed under the laws of  the State of Colorado.  |
|   |                                                                                                |
|   | By:                                                                                                 | /s/ Janet Mathews |   |
|   | Name: Janet Mathews                                                                                 |
|   | Title: Secretary/Treasurer                                                                          |
|   |                                                                                                |
|   | Gaiam International III, Inc., a  corporation formed under the laws of  the State of Colorado. |
|   |                                                                                                |
|   | By:                                                                                                 | /s/ Janet Mathews |   |
|   | Name: Janet Mathews                                                                                 |
|   | Title: Secretary/Treasurer                                                                          |
|   |                                                                                                |
|   | Gaiam Media, Inc., a corporation  formed under the laws of the State of  Colorado.             |
|   |                                                                                                |
|   | By:                                                                                                 | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                                   |
|   | Title: President                                                                                    |
|   |                                                                                                |
|   | Gaiam Shared Services, Inc., a corporation  formed under the laws of the State of Colorado.    |
|   |                                                                                                |
|   | By:                                                                                                 | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                                   |
|   | Title: President                                                                                    |
|        |                                                                                                     |  |  |  |  |

 

51

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|   | Gaiam Travel, Inc., a corporation  formed under the laws of the State of  Colorado. |
|--------|------------------------------------------------------------------------------------------|
|   |                                                                                     |
|   | By:                                                                                      | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                        |
|   | Title: President                                                                         |
|   |                                                                                     |
|   | Gaiam West, Inc., a corporation formed  under the laws of the State of  California. |
|   |                                                                                     |
|   | By:                                                                                      | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                        |
|   | Title: President                                                                         |
|   |                                                                                     |
|   | GT Media, Inc., a corporation formed  under the laws of the State of Colorado.      |
|   |                                                                                     |
|   | By:                                                                                      | /s/ Lynn Powers |   |
|   | Name: Lynn Powers                                                                        |
|   | Title: President                                                                         |
|        |                                                                                          |  |  |  |

 

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