Document:

exv10w16

 

Exhibit 10.16

FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER

THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND WAIVER (this “Amendment”), dated as of
March 14, 2007, is entered into by and between WELLS FARGO FOOTHILL, INC., a California
corporation, as arranger and administrative agent (in such capacity, “Agent”) for the
Lenders (as defined below), YOUBET.COM, INC., a Delaware corporation (“Parent”), and UNITED
TOTE COMPANY, a Montana corporation (“United Tote”, and together with Parent, each
individually a “Borrower”, and individually and collectively, jointly and severally, the
“Borrowers”).

RECITALS

A. Borrowers, the lenders signatory thereto (the “Lenders”) and Agent have previously
entered into that certain Credit Agreement dated as of July 27, 2006 (as the same has been or may
be modified, supplemented, restated or amended from time to time, the “Credit Agreement”),
pursuant to which the Lenders have made certain loans and financial accommodations available to
Borrowers. Terms used herein without definition shall have the meanings ascribed to them in the
Credit Agreement.

B. Certain Events of Default have occurred and are continuing under the Credit Agreement due
to: (i) the Borrowers’ failure to achieve, when measured for the six month period ended December
31, 2006, the minimum EBITDA required under Section 6.16(a) of the Credit Agreement; and (ii) the
Borrowers’ failure to achieve, when measured for the fiscal year of the Borrowers ended December
31, 2006, the minimum Free Cash Flow required under Section 6.16(b) of the Credit Agreement
(collectively, the “Known Existing Defaults”).

C. Borrowers have requested that Agent and the Lenders waive the Known Existing Defaults and
further amend the Credit Agreement, all of which Agent and the Lenders are willing to do pursuant
to the terms and conditions set forth herein.

D. Borrowers are entering into this Amendment with the understanding and agreement that,
except as specifically provided herein, none of Agent’s or any Lender’s rights or remedies as set
forth in the Credit Agreement are being waived or modified by the terms of this Amendment.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained,
and for other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

1. Amendments to Credit Agreement.

(a) The definition of “EBITDA” set forth in Schedule 1.1 of the Credit Agreement is hereby
amended and restated in its entirety to read as follows:

 

 

 

“ ‘EBITDA’ means, with respect to any fiscal period, Parent’s and its
Subsidiaries’ consolidated net earnings (or loss) (as adjusted for non-cash stock
option expenses), minus extraordinary gains and interest income, plus (i) interest
expense, (ii) income taxes, (iii) depreciation and amortization for such period,
(iv) for any fiscal period ending on December 31, 2006, March 31, 2007, June 30,
2007, an aggregate amount of $4,330,705 on account of certain expenses previously
approved by Agent, and (v) for any fiscal period ending on September 30, 2007, an
aggregate amount of $3,194,509 on account of certain expenses previously approved by
Agent; in each case, determined on a consolidated basis in accordance with GAAP.”

(b) Section 6.16(a) of the Credit Agreement is hereby amended and restated in its entirety to
read as follows:

“(a) Minimum EBITDA. Fail to achieve EBITDA, measured on a fiscal quarter-end
basis, of at least the required amount set forth in the following table for the
applicable period set forth opposite thereto:

	 	 	 
	Applicable Amount	 	Applicable Period
	$2,000,000
	 	For the 3 month period

ending September 30, 2006
	$4,000,000
	 	For the 6 month period

ending December 31, 2006
	$6,000,000
	 	For the 9 month period

ending March 31, 2007
	$11,000,000
	 	For the 12 month period

ending June 30, 2007
	$11,000,000
	 	For the 12 month period

ending September 30, 2007
	$13,000,000
	 	For the 12 month period

ending December 31, 2007
	$13,000,000
	 	For the 12 month period

ending March 31, 2008
	$13,000,000
	 	For the 12 month period

ending each fiscal quarter-end thereafter”

2. Waiver of Known Existing Defaults. Agent and the Lenders hereby waive enforcement
of their rights against Borrowers arising from the Known Existing Defaults;

 

2

 

provided, however, nothing herein shall be deemed a waiver with respect to any
other or future failure of Borrowers to comply fully with Section 6.16(a) and Section 6.16(b) of
the Credit Agreement. This waiver shall be effective only for the specific defaults comprising the
Known Existing Defaults, and in no event shall this waiver be deemed to be a waiver of enforcement
of Agent’s or any Lender’s rights with respect to any other Defaults or Events of Default now
existing or hereafter arising. Nothing contained in this Amendment nor any communications between
any Borrower and Agent or any Borrower and any Lender shall be a waiver of any rights or remedies
Agent or any Lender has or may have against any Borrower, except as specifically provided herein.
Except as specifically provided herein, Agent hereby reserves and preserves all of its and the
Lenders’ rights and remedies against each Borrower under the Credit Agreement and the other Loan
Documents.

3. Conditions Precedent to Effectiveness of this Amendment. This Amendment shall not
become effective until all of the following conditions precedent shall have been satisfied in the
sole discretion of Agent or waived by Agent:

(a) Amendment; Acknowledgement. Agent shall have received this Amendment fully
executed by all parties hereto.

(b) Representations and Warranties. The representations and warranties set forth
herein shall be true and correct.

4. Release; Covenant Not to Sue.

(a) Each Borrower hereby absolutely and unconditionally releases and forever discharges Agent
and each Lender, and any and all participants, parent corporations, subsidiary corporations,
affiliated corporations, insurers, indemnitors, successors and assigns thereof, together with all
of the present and former directors, officers, agents and employees of any of the foregoing (each a
“Released Party”), from any and all claims, demands or causes of action of any kind, nature
or description, whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which such Borrower has had, now has or has made claim to have against
any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether such claims,
demands and causes of action are matured or unmatured or known or unknown. It is the intention of
each Borrower in providing this release that the same shall be effective as a bar to each and every
claim, demand and cause of action specified, and in furtherance of this intention it waives and
relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of
California, which provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN
BY HIM MIGHT HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

 

3

 

Each Borrower acknowledges that it may hereafter discover facts different from or in addition to
those now known or believed to be true with respect to such claims, demands, or causes of action
and agree that this instrument shall be and remain effective in all respects notwithstanding any
such differences or additional facts. Each Borrower understands, acknowledges and agrees that the
release set forth above may be pleaded as a full and complete defense and may be used as a basis
for an injunction against any action, suit or other proceeding which may be instituted, prosecuted
or attempted in breach of the provisions of such release.

(b) Each Borrower, on behalf of itself and its successors, assigns, and other legal
representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and
in favor of each Released Party above that it will not sue (at law, in equity, in any regulatory
proceeding or otherwise) any Released Party on the basis of any claim released, remised and
discharged by such Borrower pursuant to the above release. If any Borrower or any of its
successors, assigns or other legal representations violates the foregoing covenant, such Borrower,
for itself and its successors, assigns and legal representatives, agrees to pay, in addition to
such other damages as any Released Party may sustain as a result of such violation, all attorneys’
fees and costs incurred by such Released Party as a result of such violation.

5. Representations and Warranties. Each Borrower represents and warrants as follows:

(a) Authority. Each Borrower has the requisite corporate power and authority to
execute and deliver this Amendment, and to perform its obligations hereunder and under the Loan
Documents (as amended or modified hereby) to which it is a party. The execution, delivery and
performance by each Borrower of this Amendment have been duly approved by all necessary corporate
action, have received all necessary governmental approval, if any, and do not contravene any law or
any contractual restriction binding on any Borrower. No other corporate proceedings are necessary
to consummate such transactions.

(b) Enforceability. This Amendment has been duly executed and delivered by each
Borrower. This Amendment and each Loan Document (as amended or modified hereby) is the legal,
valid and binding obligation of each Borrower, enforceable against each Borrower in accordance with
its terms, and is in full force and effect.

(c) Representations and Warranties. The representations and warranties contained in
each Loan Document (other than any such representations or warranties that, by their terms, are
specifically made as of a date other than the date hereof) are correct in all material respects on
and as of the date hereof as though made on and as of the date hereof.

(d) No Default. Other than the Known Existing Defaults, no event has occurred and is
continuing that constitutes a Default or Event of Default.

6. Choice of Law. The validity of this Amendment, the construction, interpretation,
and enforcement hereof, and the rights of the parties hereto with respect to all matters arising
hereunder or related hereto shall be determined under, governed by, and construed in accordance
with the laws of the State of California.

7. Counterparts. This Amendment may be executed in any number of counterparts and by
different parties and separate counterparts, each of which when so executed and delivered, shall be
deemed an original, and all of which, when taken together, shall constitute
one and the same instrument. Delivery of an executed counterpart of a signature page to this
Amendment by telefacsimile shall be effective as delivery of a manually executed counterpart of
this Amendment.

 

4

 

8. Reference to and Effect on the Loan Documents.

(a) Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement
to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to “the Credit Agreement”, “thereof” or
words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit
Agreement as modified and amended hereby.

(b) Except as specifically amended in Section 1 of this Amendment, the Credit Agreement and
all other Loan Documents, are and shall continue to be in full force and effect and are hereby in
all respects ratified and confirmed and shall constitute the legal, valid, binding and enforceable
obligations of each Borrower to Agent and Lenders without defense, offset, claim or contribution.

(c) The execution, delivery and effectiveness of this Amendment shall not, except as expressly
provided herein, operate as a waiver of any right, power or remedy of Agent or any Lender under any
of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

9. Ratification. Each Borrower hereby restates, ratifies and reaffirms each and every
term and condition set forth in the Credit Agreement, as amended hereby, and the Loan Documents
effective as of the date hereof.

10. Estoppel. To induce Agent and Lenders to enter into this Amendment and to induce
Agent and Lenders to continue to make advances to Borrowers under the Credit Agreement, each
Borrower hereby acknowledges and agrees that, after giving effect to this Amendment, as of the date
hereof, there exists no Default or Event of Default and no right of offset, defense, counterclaim
or objection in favor of any Borrower as against Agent or any Lender with respect to the
Obligations.

11. Integration. This Amendment, together with the other Loan Documents, incorporates
all negotiations of the parties hereto with respect to the subject matter hereof and is the final
expression and agreement of the parties hereto with respect to the subject matter hereof.

12. Severability. In case any provision in this Amendment shall be invalid, illegal
or unenforceable, such provision shall be severable from the remainder of this Amendment and the
validity, legality and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

13. Submission of Amendment. The submission of this Amendment to the parties or their
agents or attorneys for review or signature does not constitute a commitment by Agent or any Lender
to waive any of their respective rights and remedies under the Loan Documents, and this Amendment
shall have no binding force or effect until all of the conditions to the effectiveness of this
Amendment have been satisfied as set forth herein.

 

5

 

IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above
written.

	 	 	 	 	 
	 	 	YOUBET.COM, INC.,

a Delaware corporation
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gary W. Sproule
	 

	 	 	 	 
	 

	 	Name:
	 	Gary W. Sproule
	 

	 	 	 	 
	 

	 	Title:
	 	Chief Financial Officer
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	UNITED TOTE COMPANY,

a Montana corporation
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gary W. Sproule
	 

	 	 	 	 
	 

	 	Name:
	 	Gary W. Sproule
	 

	 	 	 	 
	 

	 	Title:
	 	Chief Financial Officer
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	WELLS FARGO FOOTHILL, INC.,

a California corporation, as Agent and as a Lender
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Michael Ackad
	 

	 	 	 	 
	 

	 	Name:
	 	Michael Ackad
	 

	 	 	 	 
	 

	 	Title:
	 	Senior Vice President
	 

	 	 	 	 

 

6

 

ACKNOWLEDGEMENT BY GUARANTORS

Dated as of March 14, 2007

Each of the undersigned, being a Guarantor (each a “Guarantor” and collectively, the
“Guarantors”) under that certain General Continuing Guaranty, dated as of July 27, 2006,
and made in favor of Agent for the benefit of the Lenders (“Guaranty”), hereby acknowledges
and agrees to the foregoing First Amendment to Credit Agreement and Waiver (the
“Amendment”) and confirms and agrees that the Guaranty is and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects except that, upon the
effectiveness of, and on and after the date of the Amendment, each reference in such Guaranty to
the Credit Agreement (as defined in the Amendment), “thereunder”, “thereof” or words of like import
referring to the “Credit Agreement”, shall mean and be a reference to the Credit Agreement as
amended or modified by the Amendment. Although Agent has informed each Guarantor of the matters
set forth above, and each Guarantor has acknowledged the same, each Guarantor understands and
agrees neither Agent nor any Lender has any duty under the Credit Agreement, the Guaranty or any
other agreement with any Guarantor to so notify any Guarantor or to seek such an acknowledgement,
and nothing contained herein is intended to or shall create such a duty as to any advances or
transaction hereafter.

Each Guarantor hereby absolutely and unconditionally releases and forever discharges each
Released Party, from any and all claims, demands or causes of action of any kind, nature or
description, whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which such Guarantor has had, now has or has made claim to have against
any such person for or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date hereof, whether such claims, demands and
causes of action are matured or unmatured or known or unknown. It is the intention of each
Guarantor in providing this release that the same shall be effective as a bar to each and every
claim, demand and cause of action specified, and in furtherance of this intention it waives and
relinquishes all rights and benefits under Section 1542 of the Civil Code of the State of
California, which provides:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO
EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MIGHT HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

Each Guarantor acknowledges that it may hereafter discover facts different from or in addition
to those now known or believed to be true with respect to such claims, demands, or causes of action
and agree that this instrument shall be and remain effective in all respects notwithstanding any
such differences or additional facts. Each Guarantor understands, acknowledges and agrees that the
release set forth above may be pleaded as a full and complete defense and may be used as a basis
for an injunction against any action, suit or other proceeding which may be instituted, prosecuted
or attempted in breach of the provisions of such release. Each Guarantor, on behalf of itself and
its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and
irrevocably, covenants and agrees with and in favor of each Released Party above that it will not
sue (at law, in equity, in any regulatory proceeding or otherwise) any Released Party on the basis
of any claim released, remised and discharged by
such Guarantor pursuant to the above release. If any Guarantor or any of its successors,
assigns or other legal representations violates the foregoing covenant, such Guarantor, for itself
and its successors, assigns and legal representatives, agrees to pay, in addition to such other
damages as any Released Party may sustain as a result of such violation, all attorneys’ fees and
costs incurred by such Released Party as a result of such violation.

 

7

 

	 	 	 	 	 
	 	 	IRG US HOLDINGS CORP.,

a Delaware corporation
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gary W. Sproule 
	 

	 	 	 	 
	 

	 	Name:
	 	Gary W. Sproule
	 

	 	 	 	 
	 

	 	Title:
	 	Chief Financial Officer
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	IRG SERVICES, INC.,

a Nevada corporation
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gary W. Sproule
	 

	 	 	 	 
	 

	 	Name:
	 	Gary W. Sproule
	 

	 	 	 	 
	 

	 	Title:
	 	Vice President
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	UT GAMING, INC.,

a Delaware corporation
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Gary W. Sproule
	 

	 	 	 	 
	 

	 	Name:
	 	Gary W. Sproule
	 

	 	 	 	 
	 

	 	Title:
	 	Chief Financial Officer
	 

	 	 	 	 

 

8March 19 2007 8K Exhibit 10.1

                                                   Exhibit 10.1

SEVERANCE AGREEMENT

This Severance Agreement (this "Agreement"), is
made as of this ___ day of __________, 2007, by and between Gottschalks Inc., a Delaware corporation
("Company") and ______________, an individual
("Employee").

1.Subject to the provisions of Section 4 below, Company hereby agrees that in the event Employee's employment with
Company is terminated by written notice of Company for other than for Cause (as defined in Section 4 below), Company will pay
Employee a severance benefit equal to twelve (12) months' salary, determined at Employee's annual base rate of pay in effect at the
time such notice of termination is given (less standard withholdings and authorized deductions), and Company will pay Employee's
health care continuation premiums under Section 4980B of the Internal Revenue Code ("COBRA") for a period of one year from the termination date or, if earlier, until Employee's right to COBRA health care
continuation ceases (such benefits being referred to herein as the "Basic Severance Benefit").

Notwithstanding the foregoing, if, during the one-year period commencing with a Corporate Transaction (as defined
below), Employee is terminated by Company or its successor without Good Cause (as defined below) or Employee terminates
Employee's employment for Good Reason (as defined below), Company will pay Employee a severance benefit equal to twenty-four
(24) months' salary, determined at Employee's annual base rate of pay in effect at the time such termination without Good Cause or for
Good Reason occurs (less standard withholdings and authorized deductions), and Company will pay Employee's COBRA health care
continuation premiums for a period of one year from the date such termination without Good Cause or for Good Reason occurs or, if
earlier, until Employee's right to COBRA health care continuation ceases (such benefits being referred to herein as the
"Enhanced Severance Benefit").  Unless extended by the Compensation
Committee of the Company's Board of Directors, the Employee's rights to receive any Enhanced Severance Benefit pursuant to this
Agreement shall terminate if no Corporate Transaction occurs on or prior to March 15, 2008, and, to the extent the Employee had rights
in respect of change in control or similar transactions under written agreements existing prior to the date hereof, the Employee reverts
to such rights.  

As used in this Agreement, "Corporate Transaction" means the
consummation of a transaction in which (i) more than 50% of the Company's outstanding common stock or outstanding voting
securities are sold to an unrelated entity or (ii) all or substantially all of Company's assets are sold to an unrelated entity.

As used in this Agreement, "Good Cause" means a good faith
determination by Company that Employee (i) refused to perform a lawful directive of Company's Board of Directors or refuses to
perform any material duties or responsibilities owed to Company; (ii) engaged in willful conduct or gross neglect constituting fraud,
misappropriation, embezzlement, or misconduct that is injurious to Company; (iii) is or has been convicted of, or plead guilty or nolo
contendere to, a felony or crime of moral turpitude reflecting poorly on Company (other than minor traffic violations and similar
offenses); or (iv) has breached in any material respect the terms and provisions of this Agreement.

As used in this Agreement, "Good Reason" means any of the
following conditions or events that remain in effect thirty (30) days after written notice is provided by Employee to Company detailing
such condition or event: (i) a decrease in Employee's annual base rate of pay or annual target bonus opportunity, (ii) written notice from
Company to Employee that Employee's principal place of employment for Company will be moved to a location that is more than fifty
(50) miles away from Employee's principal place of employment for Company immediately prior to the Corporate Transaction, or (iii)
any failure of Company to obtain an agreement from any successor to Company to assume and agree to perform this Agreement. 

2.For purposes of this agreement, "annual base rate of pay" means Employee's annual base salary only, and excludes all
other income heretofore received by Employee, such as, but not limited to, bonuses, incentive compensation, fringe benefits,
commissions, overtime, retainers, fees under contracts, income arising from the exercise of stock options, or expense allowances
granted by Company.

3.The salary-based portion of the Basic Severance Benefit, less standard withholding and other authorized deductions,
will be paid to Employee after the date of Employee's termination out of the general assets of Company in the same form and at the
same time as Employee's salary otherwise would have been paid to Employee if Employee had continued to be employed by
Company.  The salary-based portion of the Enhanced Severance Benefit, less standard withholding and other authorized deductions,
will be paid to Employee in single cash lump sum as soon as administratively practicable after the date of Employee's termination out of
the general assets of Company.  The COBRA health care continuation portion of the Basic or Enhanced Severance Benefit (as
applicable) will be paid on Employee's behalf at such times as required by Company's general policy concerning COBRA health care
continuation premiums to provide Employee with COBRA health care continuation for the period specified in Section 1 above.
Notwithstanding the foregoing, any portion of the Basic or Enhanced Severance Benefit required to be paid to Employee during the first
six months following the date of Employee's termination shall be delayed and paid to Employee in a lump sum as soon as
administratively practicable following the end of such six-month period in accordance with the requirements of Section 409A of the
Internal Revenue Code ("Section 409A"); provided, however, no such six-month
delay in payments shall apply to the extent that guidance issued under Section 409A allows payments to made when otherwise due
without subjecting Employee to additional taxes under Section 409A.  

4.Subject to the provisions of this Section 4 following this sentence, the Basic Severance Benefit shall be paid to
Employee only in the event that Employee's employment with Company is terminated by written notice from Company (other than for
"Cause" as defined in this Section 4) and only if Employee continues to report to work, and adequately performs each and
every duty of Employee's employment until the date set forth in the notice of termination as Employee's date of termination (unless
Company consents to a date of termination that is prior to such date).  Notwithstanding anything to the contrary contained in this
Agreement, Employee shall not be entitled to the Basic Severance Benefit if (i) Employee's employment with Company is terminated
other than by written notice of termination from Company, including without limitation, the retirement, resignation, disability, or death of
Employee; or (ii) Employee is terminated for Cause, which, for purposes of this Section 4, includes without limitation a good faith
determination by Company that Employee (a) has committed a material breach of his duties and responsibilities; (b) refused to perform
required duties and responsibilities, or performed them incompetently; (c) breached or violated any fiduciary duty owed to Company; or
(d) is or has been personally dishonest, or has willfully or negligently violated any law, rule, or regulation, or has been convicted of, or
plead guilty or nolo contendere to, a felony or misdemeanor (other than minor traffic violations and similar offenses).

5.Nothing contained herein shall be construed as conferring on Employee the right to continue in the employ of Company
in Employee's present or any other capacity.  Employee hereby expressly acknowledges that Employee's employment with Company is
"at will" and therefore may be terminated by Company at any time, with or without cause, at Company's sole discretion.  Employee also
expressly acknowledges that, except for benefits to which Employee may otherwise be entitled by law, Employee shall not be entitled to
receive from Company any benefits, compensation, or remuneration other than the Basic or Enhanced Severance Benefit (as
applicable) upon satisfaction of the conditions which entitle Employee to receive the Basic or Enhanced Severance Benefit.
Notwithstanding anything else herein to the contrary, Company's obligation to pay the Basic or Enhanced Severance Benefit to
Employee is subject to the condition precedent that Employee execute and deliver a valid release of all claims against Company in a
form approved by Company, which is not revoked by Employee or otherwise rendered unenforceable by Employee.  Such release shall
include Employee's agreement to promptly notify Company if Employee obtains employment that provides health insurance coverage
or Employee otherwise becomes eligible for employer-sponsored health insurance coverage.

6.This Agreement shall be governed by the laws of the State of California.  This Agreement may be amended only by a
subsequent written agreement signed by Employee and an authorized representative of Company following approval by the Board of
Directors of Company.  This Agreement is personal to Employee and is not assignable by Employee.  This Agreement shall inure to the
benefit of and be binding upon Company and its successors and assigns and any such successor or assignee shall be deemed
substituted for Company under the terms of this Agreement for all purposes.  As used herein, "successor" and
"assignee" shall include any person, firm, corporation or other business entity which at any time, whether by purchase,
merger or otherwise, directly or indirectly acquires the stock of Company or to which Company assigns this Agreement by operation of
law or otherwise.  This instrument constitutes and contains the entire agreement and understanding concerning the subject matters
addressed herein between the parties, and supersedes and replaces all prior negotiations and all agreements (proposed, executed, or
otherwise), whether written or oral, concerning the subject matters hereof, including, without limitation, the severance agreement by and
between Company and Employee dated  [__________].  This is an integrated document. 

7.Any dispute, controversy, or claim arising out of or in connection with this Agreement or any other aspect of Employee's
employment with Company shall be resolved exclusively through binding arbitration to be held in Fresno County, California in
accordance with California Civil Procedure Code    1282-1284.2.  Company will pay arbitrator's fees and arbitration expenses and any
other costs associated with the arbitration or arbitration hearing that are unique to arbitration (recognizing that each side bears its own
deposition, witness, expert and attorneys' fees and other expenses as and to the same extent as if the matter were being heard in
court).  If, however, any party prevails on a statutory claim that affords the prevailing party attorneys' fees and costs, then the arbitrator
may award reasonable fees and costs to the prevailing party.  The arbitrator shall resolve any dispute as to the reasonableness of any
fee or cost.

8.To the extent that any payment or distribution of any type to or for Employee by Company, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or otherwise (including, without limitation, any accelerated vesting of
stock options granted by Company to Employee under the Gottschalks Inc. 2005 Stock Option Plan, the Gottschalks Inc. 1998 Stock
Option Plan, or any other equity compensation plan or program maintained by the Company) (collectively, the "Total
Payments") is or will be subject to the excise tax imposed under Section 4999 of the Internal
Revenue Code ("Section 4999"), then the Total Payments shall be reduced (but
not below zero) so that the maximum amount of the Total Payments (after reduction) shall be reduced to the extent necessary so that
the Total Payments would not be subject to the excise tax imposed by Section 4999 of the Code and the deductibility of the Total
Payments by Company will not be disallowed by Section 280G of the Internal Revenue Code.

IN WITNESS WHEREOF, Company has caused to be executed and delivered, and Employee has executed and
delivered, this Agreement as of the day and year first above set forth.

	 	
GOTTSCHALKS INC.

 

 

By: ___________________________

Title: __________________________

	 	

 

 

	 	
Employee

 

 

By: ___________________________

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